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The Straits Times: “Funding public transport: Is it time to relook the model?”

Since my move to live in the city centre two years ago, I have taken public transport more often.

I own a car but it is a no-brainer with an MRT station a stone’s throw from my home and many bus services available in the area.

No more hassle with parking and city traffic.

Based on my experience, limited to mostly off-peak travel, Singapore’s public transport is first-rate - reliable, usually on time, safe and comfortable.

But it comes at an enormous cost to taxpayers.

The Government’s subsidy is a staggering $2 billion a year to two MRT and four bus companies.

Without this support, none of the operators would be able to survive, much less provide the service that commuters now have come to expect.

It is a far cry from the early days when Singapore used to pride itself as one of the few countries in the world with commercially viable transport companies operating without government funding.

In fact, when Singapore Bus Service (SBS), then the sole bus operator here, was publicly listed in 1978, the Government encouraged Singaporeans to buy shares in it and allowed them to use their Central Provident Fund (CPF) savings to do so.

The Government was so confident that the bus company would be financially successful that it guaranteed a payout of at least 7.5 per cent dividends to shareholders.

The thinking was that if commuters owned shares in the company, they might not protest too much when fares go up.

This was what the press statement then said:

“Government intends to ensure through the Authority that SBS (1978) is managed well enough to be able to pay not less than 7.5 per cent dividends per year to its shareholders.

“Government will allow bus fares to rise so that SBS (1978) will continue to operate viably, as is expected of a publicly listed company, and, at the same time, provide a higher standard of service.”

From today’s perspective it seems out of place for the state to be so intent on ensuring the financial viability of a privately owned company to the extent of almost guaranteeing that fares will be raised to make it so.

It was a government stingy with public money and which did not believe transport should be subsidised because doing so will lead to wasteful expenditure and consumption.

Instead it supported SBS by playing an active role in the company’s management, seconding a team of senior civil servants to manage it, and by approving regular fare increases.

Looking back now at what was done, you have to marvel at the directness and simplicity of the plan.

The objective was clear, and the public was told in no uncertain terms: Your fares will be raised regularly so that the bus company can be viable.

But how to make sure it will not slacken in serving the public?

A second bus company was allowed to operate in 1983 to provide some competition in the market. Both were expected to be commercially viable.

The plan worked for almost 40 years, until 2016 when a radically new idea was introduced.

By then, the world had changed, the MRT network had grown substantially and the two bus companies were struggling to remain profitable.

In the 2011 General Election, the quality of public transport, with overcrowded buses and trains, became a hot issue.

The Government intervened in 2012, and, in an unprecedented move, added almost 1,000 new buses to the two companies’ fleet, costing $1.1 billion, paid for with taxpayers’ money.

It was the beginning of a new approach in which it would own all the assets, including buses and trains, decide the service quality, plan the routes, and tender out the operation in several competitive bids.

On top of this, it pays the successful operator a fixed sum to cover cost and a bit more to make it a profitable business.

In effect, the Government bears all the risk and responsibility of meeting commuters’ needs and expectations.

The same formula applies to the MRT system.

The result of all this massive investment has been a much improved service with shorter waiting times and less crowded buses and trains.

But costs have risen exponentially, and well above earlier estimates.

In 2016, the authorities announced that it will need $3.5 billion to $4 billion over the next five years to implement the new bus plan.

That figure has now been exceeded, and is closer to a billion dollars a year.

If you include rail services, the subsidy amounts to $2 billion a year.

Public transport is now a heavily subsidised government service, along with healthcare and education - a complete reversal of the earlier policy.

The change has benefited commuters, as well as bus drivers who have seen their earnings rise because of greater competition in the market.

But as with all subsidised services, keeping control over cost will always be an issue unless clear objectives are set and rigorous measures implemented to monitor performance and efficiency.

This is not an easy task because it requires the authority to understand transport operation as well as the operator and to know what is happening on the ground.

Does the Land Transport Authority (LTA) have enough expertise and experience to do this well?

A friend who previously worked in this field pointed out to me that when the first bus tender results were announced, he noticed that the cost of purchasing a bus in the successful bid was substantially higher than what existing operators had been paying.

He concluded then that there was no way the operation could be viable without massive government funding. I do not know if his assessment is correct, but the concern is a valid one.

There is a fundamental difference between the old model and the new with regard to keeping a lid on rising costs.

In the old world, private companies are on their own and are more careful with costs because it affects their bottom line directly. The downside is that service levels might suffer.

In the new model, operators get their fees from the Government as long as they meet service standards and tend to be less concerned with costs, which is largely borne by the Government.

This change in the motivation to keep costs down makes it imperative for the authorities to develop the expertise to know the ins and outs of running a bus or MRT company and how to spot wasteful expenditure.

It requires the LTA to be both eagle-eyed and tight-fisted.

It is also important to have a transparent system and to provide as much information as possible so that others can help in the scrutinising.

Ultimately, it is the duty of Members of Parliament to play this role when they approve the use of taxpayers’ money.

But it isn’t easy when they do not have the necessary information to do the job.

When my colleague in this newspaper Kok Yufeng wrote about the issue of Singapore’s bus contracting model in October, he noted that the LTA had stopped publishing bus performance data since 2015.

It had also refused to disclose the amount of incentive payments made to bus companies despite repeated requests to do so.

Associate Professor Walter Thereisa, a former Nominated MP, made the same point in the article, adding that it was hard to assess how the new model was working without proper studies and a lack of publicly available data.

This opacity will reinforce the perception that not enough is being done to keep costs down, and raises questions about whether the model needs further tweaking.

The big elephant in the room: How to justify paying billions to private companies which also return healthy profits to their shareholders?

If so much public money has to be spent, why not nationalise the entire network so as to benefit from economies of scale?

One chief executive, for instance, instead of six?

I do not know if this is a workable alternative but the issue deserves a thorough discussion, hopefully, after the experts have conducted their studies with much-needed information released by the authorities.

Everyone, including the Government, agrees that the present amount of state funding is unsustainable.

But no one seems to know how to turn the corner and where the final destination ought to be.


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