[h=2]Debate on LTA Amendment Bill - MP Png Eng Huat[/h]
by
The Workers' Party on Monday, July 9, 2012 at 7:18pm ·
[h=2]Debate on LTA Amendment Bill - MP Png Eng Huat[/h]
by
The Workers' Party on Monday, July 9, 2012 at 7:18pm ·
Mr Speaker Sir,
1. I am happy to note that commuters can expect better transport services going forward.
2. The $1.1 billion package by the government to help public transport operators (PTOs) meet service levels in bus operations is indeed extraordinary.
3. This government has also pull out all the stops to ensure bus operations remain viable going forward by bearing the development and land costs for bus service infrastructure. It will also allow PTOs to retain a portion of the advertising revenue from bus shelters.
4. While this government continues to tinker with the transport model, the introduction of the Bus Service Enhancement Programme (BSEP) is nonetheless a tacit admission that privatisation, particularly for bus operations, has not produced the intended results as envisioned by the government.
5. I know the ministers have stated that the $1.1 billion package is a subsidy to benefit commuters; not a subsidy to benefit the PTOs. But depending on how you want to look at it, a cup can be half-empty or half-full. The BSEP will definitely benefit the operators because it will lift a huge burden off their backs in meeting enhanced bus service standards without hurting their bottom lines.
Bus Service Enhancement Fund
6. The establishment of the Bus Service Enhancement fund under section 13B of the proposed amendment to the LTA Act allows the LTA ‘to provide for grants or loans to any holder of a bus service licence or a bus service operator’s licence for the purpose of improving and expanding the range and reliability of the bus services.’
7. From the onset, the government has already decided to give the PTOs a grant instead of a loan despite that the operators are financially healthy to begin with. These publicly traded operators have paid out more than a billion dollars in dividends to their shareholders over the years.
8. We must send a message to these operators that it will not be business as usual after the gifting of the 550 additional buses that comes complete with drivers and full maintenance. Because at the end of the day, the commuters should be the one smiling and not their shareholders.
9. The 2 main reasons cited by the government on the need to introduce the BSEP to help PTOs are:
a. The government cannot mandate the PTOs to add 550 buses to improve bus service levels beyond what is stipulated in the existing regulatory framework.
b. The PTO’s bus operations are already running operating losses.Bus Service Levels
10. While it may be seen as unfair to expect PTOs to meet higher bus service standards on short notice, it is not unreasonable to expect these operators to have planned for projected increases in ridership over the tenure of their service agreements.
11. I believe the PTOs have done their projections. That is why they have the provision and the ability to buy 250 additional buses on their own to meet the growth in ridership.
12. So what went wrong with their ridership projections that this government sees fit to come up with a shock treatment for bus operations to the tune of $1.1 billion?
13. The clue lies in an article in the Straits Times on 7 September 2010. It reads, ‘On housing, Mr Goh acknowledged that the surge of immigrants in 2007 and 2008 caught the Government by surprise. But the Government had not stopped them from coming because the booming economy needed workers.’ Mr Goh Chok Tong went on to say the National Development Ministry “did not provide for the sudden surge” in its housing plans.
14. Sir, when housing, which requires long term planning, can be caught by surprise by a surge in population growth, what hope is there left for public transport to avoid the sudden ‘crush’? When you have a problem housing the extra immigrants, you will have a problem moving them. In fact, most of the infrastructure and essential services will suffer the same fate.15. So the issue here is beyond the question of whether it is right or wrong to mandate the PTOs to ramp up their bus operations to cope with the rising demand. It is an issue where the right hand did not know what the left hand was doing, and the problem began to snowball to a point that this Government had no choice but to implement a $1.1 billion shock therapy to help bring back some sanity into our transport system.
16. I am happy to note that the government has decided to exercise more control in bus operations. The Workers’ Party has always advocated that. This will improve reaction time to meet any surge in demand for essential services caused by inorganic growth in population in the future.
Viability of Bus Operations and Cross-Subsidy
17. The next justification by the government on the need to help privatised and profitable operators run their bus operations is also disturbing.
18. Both the Finance and Transport Ministers have voiced their concerns about the viability of the bus industry going forward. The Transport Minister said “the reality is that the finances of the bus industry have been deteriorating in recent years and the PTOs’ bus operations have been running operating losses for some time already.”
19. Sir, it is not correct to single out bus operations as a loss making business to justify the need to help PTOs. The operators are also given other cash cows to operate to make good money for their shareholders.
20. Cross-subsidy is not an uncommon practice in business operations. Cross-subsidy is even more critical when it comes to essential services. It allows such services to continue even if they may become unprofitable. If the PTOs are losing some money in bus operations, the train operations and advertising revenue are more than sufficient to cover the losses incurred in the running of the buses.
21. I decided to find out how long the PTOs have been running losses for the past 5 years beginning 2007 for bus operations and how profitable the operators are as a company.
22. For bus operations alone, SMRT made a profit of $1.5 million in 2007 but lost $20.1 million from April 2008 to March 2012. The total bus operation P&L for SMRT for the 5-year period is a loss of $18.6 million. But over the same period, the company made a total of $756.5 million in after tax profit.
23. Although SMRT lost money on bus operations for the past 4 years, the amount is minuscule when compared to the total profit made from other operations. It is not easy for SMRT to run bus operations because it does not enjoy economy of scale. Its fleet size is only a third that of SBS Transit.
24. The picture for SBS Transit is quite the opposite. For bus operations alone, the company made a loss of $6 million in 2011 but made an operating profit of $71.4 million from 2007 to 2010. So 2011 was the only year it lost money on bus operations for this period. Over the same period, the company made a total of $236.2 million in after tax profit.
25. So the case that the finances of the bus industry have been deteriorating in recent years and that bus operations have been running operating losses for some time already does not hold true for SBS Transit. The company was running a healthy bus service with the exception of 2011.
26. It is not a coincidence that both companies lost money in 2011. Last year was a challenging year for businesses that depend a lot on fuel and electricity to operate. Oil prices ended 2011 up 13.3 per cent to average nearly $111 a barrel for the year as reported by Reuters.
27. But despite the volatility in oil prices, the most important thing to note is both PTOs have healthy cash cows in the form of rail operations to keep their shareholders happy.
BSEP and PTOs
28. The BSEP and PTOs make strange bedfellows. One entity in this unusual partnership is willing to spend without expecting a return while the other expects nothing but attractive returns.
29. The combination of these two entities may result in a smoother ride for commuters but not a cheaper ride. The combination of these two entities will not guarantee commuters a stay in fare increases but it will guarantee shareholders attractive dividend yield for the next 10 years.
30. I hope that moving forward the government does not see it fit again to dish out free money to profitable PTOs. These operators are not cash strapped to begin with and no operator will reject free money to improve service levels.
31. As mentioned at the beginning of my speech, I am happy that commuters can look forward to a better and less stressful public transport service.
32. I also look forward to working with the LTA to improve bus services in the Aljunied-Hougang areas. Last but not least, I want to thank the voters of Hougang for giving me this opportunity to serve them at the national level.