TL;DR – SMRT, you better wake up your idea!
All aboard! SMRT is finally getting on board the New Rail Financing Framework (NRFF). According to the Straits Times:
“The Transport Ministry announced on Friday (July 15) that the Land Transport Authority will take over all operating assets of the North-South, East-West and Circle lines as well as the Bukit Panjang LRT Line, from SMRT for $1.06 billion. This is the the net book value – or current value – of the assets, plus GST.
SMRT will run the trains on these lines and retain a share of the earnings. But it will have to pay a licence charge to LTA annually. The fee, which varies according to SMRT’s profitability, will go into a sinking fund for asset replacement.”
We think that there are three points which stand out in this whole deal.
1. Not a bailout
Some people may think that the government is taking over the operating assets from SMRT because SMRT has screwed up abysmally. That is understandable. From the numerous breakdowns recently, to news of hairline cracks in train bodies, and even to being struck by lightning, it seems that SMRT has been in the news for all the wrong reasons recently. But this announcement that LTA is taking over SMRT’s operating assets has nothing to do with the spate of unfortunate incidents that have plagued SMRT.
The government amended the Rapid Transit Systems Act in 2010 to be ready to implement the NRFF. The NRFF was then first implemented for the Downtown Line (DTL) in 2011. You can read more here.
Since then, it was inevitable that LTA took over the operating assets from SMRT. The government and SMRT have been negotiating implementing the NRFF for all of the lines operated by SMRT since the four years ago. It was only a matter of time.
To paraphrase what Agent Smith told Neo in the Matrix:
2. Great for commuters
This move will put LTA in the driver’s seat. Since LTA isn’t bound by the relentless drive to increase profit margins and returns to investors, LTA will be able to plan and expand capacity ahead of demand – routes that may be unprofitable will still be run to serve residents in the area, and stations that have been built but may not have critical mass of riders will still be open.
This means that we (hopefully) won’t get another Buangkok Station white elephant incident.
Also, LTA will be able to ensure that operating assets are replaced, and upgraded in a timely manner.
Hopefully, this means that LTA will put in place predictive and preventive maintenance, where operating assets are replaced well before they get even close to breaking down, instead of reactive scrambling to repair and replace only when there are problems or disruptions.
Of course, the perennial question is, as always, ‘Where’s the money gonna come from?’. There are already wary people questioning taxes will go up.
3. SMRT had better pull up their socks
In the past, SMRT may have thought that they will forever be operating the main North-South Line, East-West Line, Circle Line, and Bukit Panjang LRT. If they did, then this move should disabuse them of that notion. As LTA said in their press statement:
“Because the operators are now asset-light, LTA can shorten their licence tenure from 30 to 40 years under the previous framework, to 15 years. This makes the industry more contestable. We can re-tender the operation of rail services more often, which should better incentivise operators to perform well.”
Also, LTA will impose new maintenance performance standards (MPS) on SMRT to improve operational maintenance. To meet these higher MPS, SMRT will have to increase its maintenance staff by 20 per cent, equivalent to about 700 employees, over the next three years. To effectively implement the MPS, LTA will step up its maintenance checks and audits.
In simple Singlish, I think it’s best to paraphrase my NS sergeant:
“SMRT, you better bloody wake up your bloody idea!”
Because if SMRT doesn’t, then in 15 years, another company that is more competent (Hong Kong’s MTR, perhaps?) could well take over. In other words, SMRT could be out of business if if doesn’t do its job well.[textmarker color=”000000″]Related links[/textmarker] The 5 Changes under NRFF
Top 7 Things You Need to Know