Can some expert translate t0his information to layman term ?
Ok I am no expert. But I will try to explain this to you.
First off, this is a scam to fleece the taxpayer. The main beneficiary of this is SMRT as I believe that SBS Transit never requested the change from the currrent model to the new one.
Currently, the model being used is the Bus Service Operating License Model (BSOL). Basically, LTA gives SBS Transit and SMRT a license to operate bus lines to service specific areas for a certain number of years. SBS and SMRT then buy the buses, operate and maintain them, build the infrastructure and depot to service them and replace the buses as needed. Together, they have about 4000 buses. SBS's main business is buslines, and SMRT's main business is rail, owning about 35% of the 4000 buses. But SMRT has been complaining to LTA for a long time that they cannot make money from the bus lines, and the cost of fuel and maintaining them has been too much. Funny that this argument was not put forth by SBS. LTA cannot apply the new model just to SMRT as it would be perceived as favouritism. Operations from the bus lines weigh down the profitability of SMRT and hence the potential that Temasek can receive in dividends. In addition, SMRT threatened the LTA by saying since they are losing money from bus operations, they cannot open enough new lines to service new areas, as it will be unprofitable to run those lines. Not withstanding that LTA can sue and suspend their license for not doing this. LTA Can easily threaten them back by saying they will revoke all their licenses including the rail license if they don't do a good job of putting up new bus lines, in part, forcing SMRT to subsidize bus operations from their profitable rail side. Of course, this will never happen as one hand masturbates the other in the PAP universe.
SMRT (read Temasek) then pressured LTA (Led by a retired fucking ex scholar Admiral) to go into the bus contracting model (BCM). Under the BCM, LTA will now own all the buses and all the depots and be responsible for maintaining, and servicing them. In other words they will incur all the costs that SMRT said was already too high. Why the tax payer should do this, I have no idea.
Under the BCM, LTA is suppose to buy the buses from SMRT and SBS transit. Instead, what LTA did was to lease the buses back from the 2 companies and pay them a standby fee equivalent to the book value of each bus. LTA claims that doing This is equivalent to buying the buses at net book value. I say that this is bullshit. The reason its bullshit is that in the real world, the value of heavily use public buses depreciate rapidly, and exponentially. Maybe losing as much as 20% in value in the first year, and being worth maybe 50% only after 3 years and maybe 10% after year 5 and 500K km on them. By paying book value, they are paying an accounting number, which is a linear decline. I give you the following examples:
Suppose a new bus costs $1,500,000 in present day value'
Assume bus is depreciated for book value purposes at 10% a year, making it fully depreciated 10 years from initial purchase.
1 year old bus with 100,000 km will have a market value of .8 X 1.5 million = $1.2 million
The book value will say this bus is worth .9 X 1.5 million = $1.35 million. This is the price that LTA has agreed to pay for the bus
A 3 year bus might be worth only $750K in market value but will be carried on the books at .70 X 1.5 million = $1.05 million
A 5 year old bus might be worth only $150K on the market but be carried on the books at $750K.
Since LTA is paying book value, the price is way too high. LTA can be really nasty if they want and give them a rock bottom price for the buses. After all, its not easy to off load 4,000 buses.
SBS transit is keeping quiet on this, as it will see a one time windfall from selling all its buses to LTA at book value. Their risk is that after the first few inital BMC contracts which they have already been awarded, they will have to bid on other lines as the contracts expire and come up for bidding, and so they may not win that many bids in the future. In theory, they can become a smaller company. Especially since companies from overseas like Tower are willing to come into the market now. But right now, SBS will get over $5 billion and SMRT almost $2 billion. Additionally, because ownership of the buses still lie with SBS and SMRT, they can sell the bus at the end of the contracts for whatever they can get on the used bus market.
Its important to know that these contracts given under the BCM are for 2 to 10 years. SO, as the contracts expire, LTA will put them up for bidding again. Likely, those lines that have a 2 year contract will see the oldest buses on them. So that when the contract expires, the buses will be at the end of their economic lives. LTA will then buy new buses and put those lines within that contract up for bids, enabling the new operators to operate new buses.
In terms of the revenues, under the BSOL, the costs and expenses of operating the buses will be covered by the 2 licensees SMRT and SBS. But they keep all the revenues i.e. ticket sales. Under the BCM, LTA will award the contract based on the bids, pay for the maintenance and operating expenses of the buses, and the contract winner will collect the ticket revenues and remit them to LTA.
Hope that covers what you want to know.
