Real root of the rail problem

It is heartening to know that Minister Khaw values the engineering and technical staff at SMRT and SBS Transit. It is important to visit them, speak with them, understand their concerns and help them do their jobs better. But it is also equally, if not more, important to get to the root of the problem.

What had caused this group of people that Minister now values so much to have been neglected for so long? Or to take a broader perspective, what was at the root of why maintenance and replacement had been so shoddy and overdue for so long?

I think we need to take a cold hard look at these issues. In the process, we need to question all assumptions, and, if necessary, slaughter sacred cows.

And one of the most sacred of cows, I think, is whether the current corporate structure of SMRT and SBS Transit is appropriate. I do not think it is. In fact, I think that being public listed is one of the root causes that led to the neglect of the engineering and technical staff resulting in shoddy maintenance and overdue replacements.

Being public listed, the maximization of returns for shareholders is one of, if not the highest, top priorities for the executives in SMRT and SBS Transit. Coupled that with the fact that there is essentially no competition, then what incentives do the two companies have to improve their service? None. Instead, the executives two companies then have to think of ways to increase their profits. How? By increasing revenue and cutting costs.

While the two companies do not really have much control on the changes in ridership, the companies does have a number of ways that it can increase its revenues. First, it can increase the revenue from people advertising on their trains and buses, as well as in their stations and bus stops. Second, it can increase revenue from advertising. Third, they can increase fees.

As for cutting costs, the most direct way is to cut areas which are not revenue generating. That would therefore be the engineering and maintenance part of the operations. It would also mean putting off as long as possible spending on maintenance, replacements, investments in better technology to improve service and efficiency. Let another CEO handle it so that I will not have to answer to the shareholders.

The mad rush to maximize profits was tamed after the first of a series of major train breakdowns in 2011 and Desmond Quek came in as CEO. However, by then, the problem had gone on for too long, too much damage had already been done, and the rot gone too deep. While massive steps in the right direction have been taken in the recent years, breakdowns still occurred and people’s patience was still tested.

We need to continue on the path that Minister Lui Tuck Yew and the current executives of the rail companies had set down. But a longer term solution will require deeper soul searching. The government needs to be at least be willing to consider the option of de-listing the rail companies. The rail companies need not necessarily be nationalized. The companies can still be private companies, but owned by the government. There are already precedence for such a model for strategic public assets. Changi Airport Group is one such example. Mediacorp is another.

Such an option will not be cheap for the taxpayers. The market capitalization of SMRT alone is SGD1.973billion. But it would better align the interests of shareholder (i.e. the government), stakeholders (e.g. the commuters, employees), and strategic national interests (e.g. planning ahead for sustainable population growth). In the long run, the benefits might outweigh the costs.

If there is ever a time to implement the abovementioned option, now is the time. Given the strong mandate from the population and that we are still some way from the next GE, implementing this and bearing the financial pain now would give the government enough time to see this option bear fruits before the next GE.

However, if the government still feels that it cannot push through this difficult option because it believes that the cost is too unpalatable to the taxpayers, then perhaps it can consider a model that is half a step in that direction. It can take consider a contracting model like what has been done for bus services. The government owns all the rail assets and leases them out to the operators. To some extent, this is already being done. LTA already owns much of the fixed rail infrastructure. But I think to operate this rail-contracting model, the government would have to buy even more assets from the train operators.

For the rail-contracting model to work, there are three things that need to be done.

First, to buy enough assets back from the current train operators. This has its own set of challenges. The government needs to know what assets need to be bought from the current train operators. Then it needs to know the conditions of these assets in order to properly value them.

Second, the government would then need to come up with a robust system to ensure that the company that wins the right to operate the lines has in place proper maintenance regimes and does not run the assets to the ground in the pursuit of profit, leaving the government a hefty maintenance bill. This requires a robust, “live” asset management tracking system that allows for predictive maintenance, which predicts and prevents faults rather than reacts and repairs problems.

Thirdly, for a rail-contracting to work, there needs to be space for competition. This means that the government needs to consider allowing established companies from overseas to run some of the train lines. Just as how Tower Transit won the contract to run the Bulim network, a rail-contracting model should allow for the possibility that a company like MTR Corporation from Hong Kong to operate some of our train lines.

However, even if the government does sort out these three issues of a rail-contracting model, I still do not think that it solves the root of the problem. There will still be challenges of aligning the interests of the rail operators with that of the government’s and commuters. That is why of the above two options, I personally hope that our government will have the will to adopt the first option.

It will not be easy. But given that it has just won a strong mandate at the recent GE and that there is still some time to the next GE, I think it is the most opportune time to get to the real root of the rail problem.

[Featured image: from Khaw Boon Wan’s Facebook page]

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