20140525 Government only protecting Temasek’s interests with new ‘contracting model’

In an attempt to improve an unreliable bus service, the government will introduce a “contracting model”. Minister Lui has predicted that this will provide better service as more competition among PTOs will keep them “on their toes”. The government will buy over PTO assets and PTOs are expected to be able to concentrate on providing better service.

In a duopoly with the government having vested interests in both SMRT and SBS Transit, commuters should not expect any meaningful changes. We don’t seemed to have learnt any lesson from our 3 telcos in which the government has vested interests. Instead of increasing the level of service with more competition, competition between Starhub and Singtel has been increasing the price of watching world cup every year!

Another way of looking at this exercise is (the government again throwing tax dollars at ‘solutions’) the nationalisation of PTOs’ losses and privatising profits.

Copy and paste approach

Minister Lui Tuck Yew and the LTA are so impressed by the Australian and London bus contracting models and are hopeful that what has worked for others will also work for Singapore. An important point which seems to have gone unnoticed is the population density of London which is 5,285 per sq km; this is only about 2/3 of Singapore’s 7,540 per sq km. The population density of Australian cities is even much lower. Population density is an important factor on which the success of the “contracting model” hinges.

Since the PAP has decided to go ahead with the population/immigration policy, our population density will continue to increase. It is unlikely MOT’s copy and paste ‘contracting model’ will work here.
(MOE’s “every school a good school” is another example of ‘copy and paste’. Government officials seem fond of traveling, copying and pasting.)

The main issue for commuters and PTOs is overcrowding during peak periods. If the government can resolve this ‘bottleneck’ period, the problem will be licked. But this will require a lot of idle capacity which no PTO will be able to afford without impacting profitability.

Unfair for taxpayers to absorb SMRT’s losses

SMRT has been able to take advantage of its assets to branch out into other businesses such as leasing its ‘super-prime’ properties, advertising, offering its engineering services, etc. Among all its businesses, bus services have fared the worst, recording a loss of $30.8 million last year. However, rental recorded a profit of $67 million, advertising $18.4 million and engineering services $1.9 million.

SMRT’s business has to be viewed as a ‘package’ and the government should not have conveniently ignored the super-prime public properties which have been handed to SMRT on a silver platter. By taking back the properties, the government will be able to profit about $67 million annually from rental. $67 million could be used to offset maintenance costs of buses or provide more concessions for needy commuters.

What the government is effectively doing is taking over loss-making operations while allowing SMRT to continue with extremely profitable ones such as rental and advertising which carries practically no risks. Taxpayers get screwed.

The “contracting model” will help to wipe off SMRT’s losses of its bus operations. Adding insult to injury, SMRT bus operations will likely turn in a profit

Since its listing in July 2000, SMRT has paid out more than $1 billion in dividends. By 2013, majority shareholder Temasek Holdings had received more than $650 million from SMRT..

Since Temasek has a 54.2% stake in SMRT (pg 47), isn’t the government simply increasing the profitability of its business at the expense of taxpayers?

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