Regular fare increases needed for new bus contracting model to be sustainable: Lui

SINGAPORE - Regular fare increases will be needed to ensure the new bus contracting model that the Government is adopting remains financially sustainable, said Transport Minister Lui Tuck Yew.

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Oral Reply by Minister for Transport Lui Tuck Yew to Parliamentary Questions on Government Contracting Model

Mr R Dhinakaran: To ask the Minister for Transport what are the key considerations for the change in the public bus transport model and what will be the initial investment by the Government in this model.

Mr Christopher de Souza: To ask the Minister for Transport how his Ministry envisions the new bus contracting model in which operators will bid for a package of routes through competitive tendering as being able to achieve better service and affordable fares to commuters as well as the plying of buses on less lucrative but necessary routes.

Mr Teo Siong Seng: To ask the Minister for Transport whether the Government has made a provision in the budget for the new bus contracting model and, if so, whether the budget will be made transparent to the public.

Mr Gerald Giam Yean Song: To ask the Minister for Transport under the new Government contracting model for public buses (a) how does the Government plan to buy back the public bus infrastructure and operating assets currently owned by the two public transport operators (PTOs); (b) how will the value of these assets be assessed; (c) how will the Government ensure that the PTOs do not profit from the disposal of these assets; and (d) how will the Government fund these asset purchases.

Mr Gerald Giam Yean Song: To ask the Minister for Transport (a) whether the Government expects to make an operating loss over the long term under the new Government contracting model for public buses; and (b) approximately how much operating subsidies the Government expects to inject into the public bus system each year.

Mr Gerald Giam Yean Song: To ask the Minister for Transport (a) whether the Government has any plans to extend the new public bus contracting model to the MRT system; and (b) whether the Government is satisfied with the current MRT ownership and operating model.

Mr Lui Tuck Yew: Madam Speaker, with your permission, I will take the questions on the new public bus contracting model together. As announced in May, we are moving the public bus industry from the current privatised model to a Government Contracting Model.

2. We have been studying this move as early as the Land Transport Master Plan in 2008. Under the current model, the public bus operators rely on their fare and non-fare revenues to pay for their operations and buy operating assets, such as buses. When fare revenues are uncertain, as it has been in recent years, operators may be reluctant to expand capacity ahead of demand, or to improve service levels beyond regulatory standards on their own accord. This was why the Government had to step in with the Bus Service Enhancement Programme, or BSEP, in 2012 to quickly raise service standards, even as we worked towards a more sustainable bus industry model.

3. Under the Government Contracting Model, LTA owns the buses, plans the routes and engages private bus operators through competitive tenders to run the services. This will enable us to respond more quickly and effectively to changes in ridership and commuter needs. The model also allows for more operators, potentially even overseas ones, to compete for the contracts. Bus operators will need to compete on the basis of costs and service quality. Over time, this will lead to the provision of better bus services in a cost-competitive manner, thereby benefitting commuters.

4. Mr Dhinakaran, Mr Gerald Giam, and Mr Teo Siong Seng asked whether the Government is setting aside a budget for the new bus contracting model, and how much the Government will subsidise bus operations. I think it is probably not in the Government's interest to reveal our budget and how much we are prepared to subsidise before the tenders, as this may skew the bids against us.

5. The eventual amount of subsidy will crucially depend on whether fares and bus service standards are set realistically. Regardless of industry model, the cost of the overall bus system has to be paid for either by commuters in the form of fares, or taxpayers in the form of Government subsidies. There is no free lunch. Therefore, we have to strike the right balance.The Government is committed to ensure the affordability of public transport fares. However, regular fare adjustments are still necessary to ensure the overall financial sustainability of the public transport system.

6. Likewise new bus routes and higher service levels have to be assessed judiciously. Even today, we receive many requests to run bus routes that have low ridership. From the point of view of the select few who benefit, these bus routes may be "necessary". But if we run too many of these routes throughout the system, either higher fares, or more Government subsidies, will be required.

7. Mr Giam asked about how we intend to treat the current bus assets owned by the two incumbent public bus operators. We will discuss this issue as part of our negotiations with SBST and SMRT on the nine bus packages that they will continue to operate after 2016.

8. Finally, Mr Giam does not seem to be aware that we have already implemented the New Rail Financing Framework (NRFF) starting with the Downtown Line last year, even before the announcement of the public bus contracting model. In fact, the Government Contracting Model for buses brings us closer to the NRFF, where the Government, instead of the operator, owns the operating assets and is responsible for major capital asset investments.