Monday, December 07, 2015

Implications of "nationalizing" the public transport system

The government is going to "nationalize" or "de-privatize" the public transport system. They have not made a specific announcement, but they have already awarded two operating contracts to foreign operators to operate two batch of new bus services.

There is now "insider information" that they will be buying the fixed assets, i.e. buses and trains, from the two operators and will tender out the operation of the bus and train services that they are "taking back" from SMRT and SBS.

How will this impact the commuters?

Nationalize model
Under the nationalized model, the Land Transport Authority will decide on the planning of the services and the fare structure. They will tender out the operations of the bus and train services to the operators on a term contract of presumably five years.

The operator who wins the contracts will be assured of a guaranteed fee to run the service. They have to pay the wages, fuel, maintenance and other operating expenses. Presumably, the operating contract will allow for adjustment in the operating fees to take care of changes in wages and fuel prices. Most importantly, the operator will not have to worry about the revenue and the fare structure.

Under this model, the government will plan the services based on the demand. They will fix the fares based on what their judgement of what the commuters will find to be "affordable". They may fix the fares lower than the actual cost to encourage more people to take public transport.

But, they will not want to underprice the fares, as it might make the other forms of transport to be not feasible. They will also have to address the issue on the nature of taxis - are they private or public transport?

How is it different from the privatized model
Under the current privatized model, the LTA face difficulties in dealing with the transport operators.

The LTA may want the operators to run more services, but the operators have to look at their bottom line and will be reluctant to run additional buses or trains where the marginal cost is not met, i.e. these additional capacity will be unprofitable. The focus on profits will complicate the planning of the services.

The "conflict of interest" will be removed under the nationalized model.

Challenges for the LTA
 The LTA will face the firing line in the future when the public demand for more bus and train services. They will approach their MP, who will bring their request to the LTA or raise them in Parliament.

LTA will need to build the ability to plan the services based on actual demand, and to deal with requests that are not economically justified. They have to learn how to balance between the budgetary cost and the demand for quality service.

Can LTA raise to this challenge? They have to build the ability to handle the new challenge. They need a new way to interact with the people who are affected. They have to listen to their concerns and build the trust that these concerns have been fairly addressed when the final decisions are taken.

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