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http://utwt.blogspot.com.au/2012/02/budget-2012-thoughts-on-11-billion-bus.html
[h=2]Thursday, February 23, 2012[/h][h=3]Budget 2012: Thoughts on the $1.1 billion Bus Fund[/h]
Here is my take on the $1.1 billion that Tharman announced the Government will be setting aside to help alleviate the public transport problem. While there are not many details currently released on how the partnership between the Govt and the PTOs is going to be structured, IMHO the Govt should follow these principles in structuring the public-private partnership.
1. The Government should own what it pays for.
The Government should set up a special purpose vehicle (SPV) to own the buses which it is paying for. Public monies injected into this SPV should be subject to full accounting and audit by the Accountant-General. These monies should not be given to the PTOs as grants because then there is no proper way to track precisely which of these public funds were used for the purchase of buses and which of these funds were used for purchasing the buses for the PTOs or even worse, which of these funds were paid out as dividends to shareholders.
2. Bus Operations should be open to competition.
After the government purchases the buses, it should open the operation of the buses to competitive tender so that the existing operators and other potential new entrants can compete with each other to operate the buses. A competitive tender that is open to new entrants will allow the Government to achieve the most cost effective and efficient outcomes. The operators are free to bid for the operating contracts at prices which allow them to make a sufficient profit.
3. Bus Operations Contracts should be of sufficiently short term such as to ensure competitive efficiency.
If the contracts are too long e.g. 15-20 years then this would engender inefficiency because then the winning operator is not subjected to the risk of being replaced for a pretty long time. If instead the contract is shortened to 3-5 years then the operators will be forced to maintain proper performance standards for fear of replacement if it turns in subpar performance. Furthermore, a shorter operations term will allow the government to renegotiate terms and performance standards on a regular basis rather than being stuck with a long term contract which it cannot change.
4. Bus Operation Contracts should have proper performance metrics and terms and conditions.
The government should stipulate clearly the operating conditions which it wants to implement and the performance standards it wants the public transport system to have. These should be written into through the operator contract. For example, if the government wants the wages of bus drivers to be increased in order to attract Singaporeans, then this should be stated in the conditions of contract and bus operators which are bidding for the contract must be forced to comply. Other performance standards such as waiting times, breakdown frequency etc. should also be stipulated in the conditions of contract, with the bus operator suffering fines and penalties should it fail to comply.
5. Gradually, over time, the entire bus system should be converted into such a system.
Currently, the PTOs own the buses and control the operating conditions, and most importantly, also propose the transport fares! Gradually shifting the entire bus system to one where the government owns the buses and the operators operate on short term contracts allows the Government to take over the fare-setting mechanism, rather than putting the initiative into the hands of the public transport operators. This way, the Government can make the decision regarding transport fares that is in the best interest of the public, rather than one that is driven by the PTO's profit driven motives.
Conclusion
My hunch, however, is that such a system is unlikely to be implemented, because of regulatory capture. The PTOs are all G1,Cs and they are able to lobby very effectively for policy outcomes that are in their own best interests. They want the new bus fund to contribute to their bottom line as much as possible and are driven by pro lit motives rather than public welfare. To top it off, the PTO executives and board members have easy access to bureaucrats and policy makers. All it takes is a phone call or two and the CEOs of the PTOs can easily have the ear of the CEO of LTA or even the Ministers.
Hopefully the opposition MPs and maybe some of the PAP MPs have the sense to ask the Govt to implement what is in the public interest. Otherwise this $1.1 billion fund is not going to be very effective in alleviating the public transport problems that we have created for ourselves.
[h=2]Thursday, February 23, 2012[/h][h=3]Budget 2012: Thoughts on the $1.1 billion Bus Fund[/h]
Here is my take on the $1.1 billion that Tharman announced the Government will be setting aside to help alleviate the public transport problem. While there are not many details currently released on how the partnership between the Govt and the PTOs is going to be structured, IMHO the Govt should follow these principles in structuring the public-private partnership.
1. The Government should own what it pays for.
The Government should set up a special purpose vehicle (SPV) to own the buses which it is paying for. Public monies injected into this SPV should be subject to full accounting and audit by the Accountant-General. These monies should not be given to the PTOs as grants because then there is no proper way to track precisely which of these public funds were used for the purchase of buses and which of these funds were used for purchasing the buses for the PTOs or even worse, which of these funds were paid out as dividends to shareholders.
2. Bus Operations should be open to competition.
After the government purchases the buses, it should open the operation of the buses to competitive tender so that the existing operators and other potential new entrants can compete with each other to operate the buses. A competitive tender that is open to new entrants will allow the Government to achieve the most cost effective and efficient outcomes. The operators are free to bid for the operating contracts at prices which allow them to make a sufficient profit.
3. Bus Operations Contracts should be of sufficiently short term such as to ensure competitive efficiency.
If the contracts are too long e.g. 15-20 years then this would engender inefficiency because then the winning operator is not subjected to the risk of being replaced for a pretty long time. If instead the contract is shortened to 3-5 years then the operators will be forced to maintain proper performance standards for fear of replacement if it turns in subpar performance. Furthermore, a shorter operations term will allow the government to renegotiate terms and performance standards on a regular basis rather than being stuck with a long term contract which it cannot change.
4. Bus Operation Contracts should have proper performance metrics and terms and conditions.
The government should stipulate clearly the operating conditions which it wants to implement and the performance standards it wants the public transport system to have. These should be written into through the operator contract. For example, if the government wants the wages of bus drivers to be increased in order to attract Singaporeans, then this should be stated in the conditions of contract and bus operators which are bidding for the contract must be forced to comply. Other performance standards such as waiting times, breakdown frequency etc. should also be stipulated in the conditions of contract, with the bus operator suffering fines and penalties should it fail to comply.
5. Gradually, over time, the entire bus system should be converted into such a system.
Currently, the PTOs own the buses and control the operating conditions, and most importantly, also propose the transport fares! Gradually shifting the entire bus system to one where the government owns the buses and the operators operate on short term contracts allows the Government to take over the fare-setting mechanism, rather than putting the initiative into the hands of the public transport operators. This way, the Government can make the decision regarding transport fares that is in the best interest of the public, rather than one that is driven by the PTO's profit driven motives.
Conclusion
My hunch, however, is that such a system is unlikely to be implemented, because of regulatory capture. The PTOs are all G1,Cs and they are able to lobby very effectively for policy outcomes that are in their own best interests. They want the new bus fund to contribute to their bottom line as much as possible and are driven by pro lit motives rather than public welfare. To top it off, the PTO executives and board members have easy access to bureaucrats and policy makers. All it takes is a phone call or two and the CEOs of the PTOs can easily have the ear of the CEO of LTA or even the Ministers.
Hopefully the opposition MPs and maybe some of the PAP MPs have the sense to ask the Govt to implement what is in the public interest. Otherwise this $1.1 billion fund is not going to be very effective in alleviating the public transport problems that we have created for ourselves.
