Singapore’s SMRT: fare hikes, populist politics and the Temasek ‘bonus shares’ connection

Singapore's public transport infrastructure comes under increased pressure with each additional body moving onto the island. This fact was not lost on Singaporeans voting in the 2011 general elections. Voters expressed their discontent at being treated like sardines on Singapore's packed buses and trains.

A few months into the new government's term and public transport is back in the news. Train and bus operators have applied to the authorities for a fare increase. As a counterproposal, the opposition Workers' Party (WP) has proposed a National Transport Corporation to "oversee and provide universal transport service to all."

In effect, the WP has called for a 'nationalization' of Singapore's public transport infrastructure, arguing such a move will increase efficiencies and reduce costs. The regulator promised that an 'affordability factor' will be considered prior to granting any fare increase.

Public transport, by definition, is a public good. Therefore, a balance between profit and the general public interest is necessary.

Keeping a city's transport infrastructure comfortable is not cheap. Large investments are required to maintain and grow Singapore's train and bus infrastructure. Such a quantum of funds will not be available to an unprofitable corporation. Nor should taxpayer money be used to pay for future growth of the system.

Public sector corporations, virtually without exception, are poorly managed. There are few examples of public sector corporations maintaining efficiency and profitability, especially over an extended period of time. On the contrary, public sector corporations have a near perfect track record of reducing services and increasing costs.

Historically, Singapore's hybrid 'public-private' model for SMRT has proved itself to be a workable model.  The government effectively controls SMRT through Temasek's majority stake in the company.

In effect, SMRT is already a public sector corporation. There is no need for full scale nationalization. However, by keeping SMRT a publicly listed corporation with some accountability to minority shareholders, the government ensures a higher level of efficiency than that normally associated with state owned enterprises.

In fact, the more important question for Singaporeans pertains to the distribution of excess returns from Temasek, which received a regular handsome dividend from SMRT. Temasek is a custodian of public money and, using a judicious methodology, the public should reap rewards from Temasek's long term investments which include Singapore Press Holdings, SMRT, etc.*

A populist policy approach to national issues may temporarily win WP votes but will do little to secure Singapore's long term interests. Instead, the WP is better advised to focus on improving transparency surrounding the use (and distribution) of public money by Singapore's several wealth funds.

* Please see my letters published in the Straits Times about Temasek Bonus Shares and Temasek's Board of Directors.

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Imran is a business and management consultant. Through his work at Deodar Advisors, Imran improves the profitability of small and medium sized businesses. He can be reached at imran@deodaradvisors.com .