Adequacy of Network Capacity Factor to Address Gap in Transport Cost and Fares

5 Miss Cheng Li Hui asked the Minister for Transport (a) to what extent is the Network Capacity Factor able to address the widening gap between transport cost and fares; (b) how will the revised fare formula affect low-income and elderly Singaporeans; and (c) whether existing transport subsidy schemes for needy Singaporeans, such as concession holders who are Workfare Income Supplement recipients or senior citizens, will be reviewed or enhanced.

The Minister for Transport (Mr Khaw Boon Wan): Sir, the Public Transport Council (PTC) developed the fare formula to objectively track the changes in the running cost of our public transport operations. This helps inform their deliberations when they evaluate proposals from operators for fare changes and decide on the annual fare recommendations.

The running costs of public transport operators are affected by a number of factors, including the price and quantity of the resources deployed. For example, their expenditure on electricity in a particular year will depend on the quantity of electricity consumed during that year, and the prevailing electricity tariffs.

While the old fare formula adequately measured the changes in the price of resources consumed, it did not measure the changes in the quantity. When the capacity of the public transport network is quite stable from year to year, the limitation of the old fare formula is not material. However, as we aggressively expand the capacity of our public transport network, the inadequacy in the old fare formula will have a material impact on the sustainability of our public transport system.

In the last five years, we have added more than 1,000 new buses and 200 new trains to our public transport network. This has increased the capacity by around 25%. But over the same period, commuter demand increased by less than 10%. The limitation of the old fare formula has, therefore, contributed to a widening gap between fare revenue and operating costs. So far, the yearly operating shortfall has been covered by Government subsidies. But, going forward, we need a fair way to take into account changes in the capacity of our public transport network relative to commuter demand.

PTC designed the Network Capacity Factor (NCF) specifically to address the limitation in the old fare formula. NCF is a neutral factor. It may be positive or negative. It will be positive where demand grows slower than capacity. Conversely, if capacity remains stagnant in a given year and demand grows faster than capacity, resulting in more crowded trains, NCF will be negative. PTC's mission is to ensure the long-term sustainability of our public transport system, while keeping fares affordable.

Meanwhile, the Government will continue to bear the full development cost of public transport civil infrastructure. This is estimated to be around $20 billion over the next five years.

As for our public transport fares, as Members have just heard from the Senior Parliamentary Secretary, the PTC will ensure that they remain affordable. Over the past decade, monthly expenditure on public transport as a proportion of household income for the lower-income group has come down from 4.2% to 2.7%. In other words, transport fares are becoming more affordable.

PTC will also continue to review and, if necessary, enhance concession schemes to provide targeted help for specific groups like senior citizens, low-income individuals and persons with disabilities.

Mr Speaker: Er Dr Lee Bee Wah.

Er Dr Lee Bee Wah (Nee Soon): Sir, I have three supplementary questions. Linking the cost of building the bus network to commuters' fares under the new public transport, whether this approach to cost recovery will contradict our goal to be a car-lite society. Because we are, on one hand, encouraging people to take public transport; on the other hand, when you put in more resources, then it will have an effect on the fares.

Secondly, how will the Ministry ensure that the new fare formula will be made more transparent to the public? Because I hear the feedback, people say that NCF is very complicated.

The third question is why a service standard component is not added to the fare formula, only about cost recovery, but whether the service standard, can it be computed into the fare formula as well?

Mr Khaw Boon Wan: Sir, I totally subscribe to transparency. Our polices are argued thoroughly and sometimes debated in this House. Formulas are formulated and factors thoroughly explained. If there is a lack of understanding, we will continue to explain and publish them on the website, and so on.

NCF it is a new factor, so I am not surprised that there may be some ignorance about it and people will need time to understand it. We will continue this education process but there is nothing opaque about it. The formula, the definition and how it is computed, it is all up there on the website. In due course, towards the end of this year, when PTC has to evaluate the proposals coming in from the operators, and when the Fare Formula has to be quantified, I am quite sure they will go to great lengths to explain and justify how the factors are changing over the years, whether it is positive or negative. So, that part I can give the Member the assurance.

The service standard component, in a way, is indirectly included in this Network Factor. As I have explained a few minutes ago, for example, if we do not expand the rail network but demand grows, as it happened a few years back, resulting in crowded trains, then the Factor will be negative. That means everything being equal, PTC will be asking for a reduction in fares. I think that is how PTC intends to make use of this Factor. So, it is neutral. If things improve through more comfortable ride, costs go up, then the Factor is positive. That means there may be a need for fare adjustments. Otherwise, the operators will find a gap in how to cover their operating costs. On the other hand, if the network is not expanding but demand is growing in a big way, more uncomfortable ride, then PTC will be asking for a fare reduction to counter this reduction in service level. So, it is being handled but indirectly.

The first point by Er Dr Lee Bee Wah baffles me, I do not quite follow. We expand our bus and rail network precisely so that we can facilitate car-lite. So, more buses, more trains and, hopefully, more people making use of public transport, less need to drive. Then, we have an easier congestion problem on the roads.

Mr Speaker: Er Dr Lee Bee Wah.

Er Dr Lee Bee Wah: While we are encouraging people to take public transport, with this new fare formula, and several times the Minister had mentioned that the transport fare will surely go up, so the discussion on the ground is that while we encourage people to take public transport and then the transport fares keep going up, so is it going in the same direction?

My follow-up supplementary question about this service level is whether the local service level will be picked up by this fare formula. For example, in Nee Soon South, we have Build-To-Order areas where residents keep complaining that, in the mornings, the wait is very long. I understand because that bus service is a trunk bus service, but they said it is always packed and they have to wait for a long time. So, service level in this sense, will it be picked up by the fare formula?

Mr Khaw Boon Wan: Service level may not be picked up directly through the fare formula, but the sentiments will be picked up by me very quickly because Er Dr Lee Bee Wah will make sure that I fully understood what is happening on the ground. I am very attentive to this not just in Yishun but the whole of Singapore.

Let me assure you, we have set up PTC, a multi-individual council with people from all walks of life – media, academia, unions and so on, and I know each one of them. They have their hearts in the right place. That is the reason why you may remember, I hope people remember, the last two, three rounds, fares have actually gone down. But what I have said in Parliament several times is not that fares will definitely go up; that is not what I said. What I said is fares sometimes go down and sometimes go up. It cannot be always going down, that is not possible, because a big part of our operating cost is manpower, unless you say, "Sorry, bus drivers, train drivers, your salary will forever be going down". With productivity, sometimes we can achieve some of this. But there is a limit. You heard me many times in this House, in the last two and a half years, we are ramping up, intensifying maintenance, recruiting many more engineers, mechanics, technicians, and all those require money.

I really hope that Singaporeans understand that I want to do my job well, so that we can have a first-class transport system, and we will get there. But I do need money because it is not realistic to hope that you get a good first-class reliable train with no need for any injection of resources. That is why both the Senior Parliamentary Secretary and I repeated that point, which I hope Singaporeans appreciate, that over the last 10 years, the lower-income group, when we look at how much they spend out of their household income on transport, it has been going down. It used to be above 4%; now it is below 3%. So, over time, in fact, affordability has improved.

Whatever we do, we will do what is necessary, including pumping in more resources in order to raise the standard of our public transport systems, so that people do not need to drive, but we need an adequate level of funding. And funding comes from where? Either taxpayers through subsidy, or commuters through fare. To load it on one or the other is wrong, so it is a matter of co-sharing. PTC is given that task of doing this balancing act, finding a way to balance the interests of both sides.

At the end of the day, remember, too, that many taxpayers are commuters and many commuters are also taxpayers.

Mr Speaker: Mr Pritam Singh.

Mr Pritam Singh (Aljunied): I thank the Minister for the reply. I refer to the PTC's news release on 22 March 2018 on the Fare Formula Review. There is a paragraph which says that "the Government will continue to provide significant subsidies for public transport services estimated to be around $9 billion over the next five years. Can the Minister provide some details on the nature of these subsidies? The amount is a significant one. Are there any details the Minister can share on which classes of commuters will benefit from these subsidies?

Mr Khaw Boon Wan: Indeed, Government funding to subsidise public transport is a significant one, about $9 billion and – I am relying on memory here, and this is a 66-year-old memory; but then again, a 92-year-old memory can be equally sharp as a young one – I think bus subsidy is about $1 billion a year. So, over five years, that is about $5 billion. That is for buses. For trains, over the next five years, we need to spend about $4 billion replacing existing old assets. So, that is where this $9 billion comes from. But actually, that is not the full story because, as I have just mentioned just now, over the next five years, we will be spending another $20 billion on new public transport infrastructure, as we are going to continue to expand this network.

So, these are huge amounts of money coming from taxpayers and I think it is only fair that part of it must be borne or shared by commuters. I have regularly compared and looked at the fares charged here versus Hong Kong, Taiwan, New York, London. Our rates are not outrageous at all. I think Singaporeans, in their heart, when they travel, they know. PTC told me they do fairly frequent focus group discussions with the commuters, and they find our fares reasonable, and most of them say so.

Mr Speaker: Mr Dennis Tan.

Mr Dennis Tan Lip Fong (Non-Constituency Member): I thank the Minister for his answers. In respect of service standard in NCF, would the Minister consider incorporating a measure of train reliability standard in order to incentivise the real operators to improve the reliability all round as well as also to manage commuters' expectation? After all, we hear a lot on the ground that there is expansion and there are supposed to be improved services. The survey shows something. But on the ground, people are still complaining about frequent delays.

Mr Khaw Boon Wan: It is a very rapidly evolving situation. I have been in this game now for two and a half years and I personally witnessed how things have changed. Yes, last year, we had an awful year, especially towards the end of last year. Two incidents, which should not have happened, happened unfortunately. But there was a silver lining to it; out of it, we came up with Early Closure Late Opening (ECLO). As I always shared with my transport colleagues, ECLO is our favourite four-letter word because that allows us to intensify engineering maintenance. And the results show. Since December, and we are now approaching the middle of May, the situation has improved significantly. So, when the Member said the commuters are upset over very frequent delays, it depends on when you asked them. Was it last year or this year? I do not know whether the Member uses trains and buses. I do. I meet many more commuters than he does, I think. I got it first-hand. North-South line, for example, which used to have a lot of problems with rail reliability, goes through my constituency. In my many house-to-house visits, it used to be about trains. But, in the last few months, I have not heard about trains. Instead, it is e-scooters and bicycles being thrown all over the place. So, as far as rail is concerned, things have improved. Bus level improvements I think have been pretty obvious in the last two to three years. Of course, we are not yet in a perfect situation, like in Yishun, but things will get better, I am quite sure.

As to whether we should include rail reliability into the formula, first of all, this formula is not set by me. It is by PTC. PTC, after consulting their members, consulting Singaporeans, came up with this formula. They did think about whether to include rail reliability. But in the end, they decided against it for various reasons. In any case, even though it is not in the fare formula, I deal with it directly, myself, through the sort of focus and pressure I exert on the operators to make sure they work on rail reliability because that is my priority. And I will see to it that it happens, whether or not it is included in the fare formula.

One of the reasons why PTC did not include it is because when a system is unreliable, in fact, that is the time to pump in more resources. And if you punish them through reduced fares, you are withdrawing resources from the operators. And you will be doing exactly the wrong thing. In short, rail reliability is important, but deal with it separately.