Public transport fares should factor in MRT system’s rising operating costs: Khaw

SINGAPORE — Signalling the need for higher public transport fares, Transport Minister Khaw Boon Wan on Monday (July 8) called for both the fare formula and the next fare revision that is to take place later this year to be reviewed. This is to take into account the rising operating costs of the MRT system.

While he did not explicitly say that fares have to go up, Mr Khaw pointed out that it would be unsustainable to continue relying on government subsidies to fund public transport infrastructure, adding that subsidies given out “have exceeded their intended scope”.

Mr Khaw has said several times before that public transport fares needed to be higher.

In February, he said in Parliament that increased costs to improve transport reliability will ultimately be shared by taxpayers through government subsidies or commuters through some fare adjustments.

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On Monday, he said: “As it is, the additional costs have been partly covered by increased government subsidy and partly absorbed by the operators who have been incurring substantial losses. This is certainly not sustainable.”

The minister's latest comments came in response to Mr Sitoh Yih Pin, Member of Parliament for Potong Pasir, who asked for an update on the current level of rail reliability and how this will be sustained and funded.

Mr Khaw delved into the issue of funding after updating the House that rail reliability has improved seven-fold since 2015, with the “mean kilometre between failure” — a benchmark for rail reliability performance — rising to more than 950,000 train-km as of last month,

Efforts to improve rail reliability, he said, have come at a substantial expense to both operators and the Government — a point he already raised in Parliament in February when asked about the government grants and subsidies used to cover operating costs of MRT lines.

Mr Khaw said that between 2016 and 2017, the total cost of running the rail network has gone up by around S$270 million.

And rail companies are operating at a loss since the fares paid by commuters do not cover operating costs.

In the latest reported financial year, SMRT Trains incurred a loss of S$86 million, while SBS Transit’s train division also lost tens of millions of dollars.

As for the Government, it has spent around S$1.9 billion to take over ownership of all rail operating assets. While this is a one-off move, Mr Khaw said, the Government is now “also responsible for the proper and timely renewal of these assets and this is a huge and continuing financial liability”.

Under the rail financing framework, the Government pays for the full upfront cost of civil infrastructure and the first set of operating assets, he explained.

Subsequent operations and maintenance of operating assets are supposed to be fully paid for by the operators through fares and non-fare revenue such as advertising.

“In practice, as fares have been inadequate to cover the cost of operations, government subsidies have exceeded their intended scope of funding the civil infrastructure and the first set of operating assets,” Mr Khaw told the House.

“With intensified maintenance to reach the current level of reliability, the Government’s operating subsidies have increased further.”

He pointed out that over the next five years, the Government expects to spend S$4.5 billion — or nearly S$1 billion a year — on operating subsidies. This comes on top of the S$25 billion spending on civil infrastructure to build and equip new lines.

FARE FORMULA NOT STRICTLY FOLLOWED

Mr Khaw said that the fare formula determined by the Public Transport Council (PTC) is supposed to keep fares in line with macroeconomic cost factors such as inflation, wages and fuel costs.

The PTC revises public transport fares every year. The fare formula review is typically done by the PTC once every five years, and it was just revised last year.

Until recently, the PTC’s fare formula had not been strictly followed, Mr Khaw said. If it had, the operators would have been “better able to cover the costs of the intensified maintenance”.

Mr Khaw said that in due course, the PTC will need to review the fare adjustment mechanism to reflect the increased operating cost to support the intensified maintenance efforts and the extra operating subsidies from the Government to the MRT system.

In response to TODAY's queries, a PTC spokesperson said that the council will start the annual fare review exercise later this year and undertake a review of the fare formula by 2023.

"As with all fare review exercises, the council will take into consideration the prevailing developments in the public transport landscape, and strike a balance to ensure that our public transport system is sustainable while keeping fares affordable," the spokesperson said.

"We take the views of all stakeholders, including commuters, taxpayers and operators, seriously in our deliberations."

Though the fare formula now is valid until 2023, Mr Khaw stressed the need to “have the discipline to implement the formula fully, as we adjust fares over the next four years”.

He said that for the time being, the Government will provide operators with a temporary enhanced maintenance grant, with the details being worked out between the transport and finance ministries.