SINGAPORE -The Downtown Line (DTL) will shift to a new financing framework from next January, which will see the Government shoulder a portion of any losses made by operator SBS Transit and get a greater share of any profits earned.
This will bring the DTL in line with the majority of Singapore’s other rail lines, except for the new Thomson-East Coast Line.
The Land Transport Authority (LTA) and SBS Transit had reviewed the DTL’s financing model to ensure it can continue to deliver reliable train services in a financially sustainable manner.
Several factors prompted the review – the first was rising costs due to higher rail reliability standards, as well as the expansion of the rail network.
This was coupled with a pronounced dip in ridership due to the Covid-19 pandemic and an expected shift in commuting patterns resulting from flexible working arrangements.
LTA on Thursday (Nov 11) said the DTL was the first rail line placed on version one of the New Rail Financing Framework (NRFF) in 2011, where the operator collects fare revenue from commuters and pays the Government a licence charge to use operating assets such as the trains and signalling system.
Under this first version, the operator bore significant commercial risk as there was no mechanism for the co-sharing of losses, LTA said.
With the second version of the NRFF – introduced in 2016 – the LTA shares some of the shortfall in fare revenue should ridership fall below expectations.
Conversely, if profits exceed expectations, the LTA gets a greater share through increased license fees paid by the operator, which are channelled into a fund used to renew operating assets.
This mechanism also effectively caps the operator’s profit margins, LTA added.
“As public transport operations constitute a merit good, it should be a more stable business to ensure commuters continue to enjoy reliable train services,” it said.
Hence, the balance of risks borne by the Government and operator needed to be adjusted, LTA added.
In a statement, SBS Transit said the new financing framework will reduce commercial volatility for the firm.
SBS Transit chief executive Cheng Siak Kian noted that it is uncertain when travel and economic activities will recover to pre-Covid-19 levels.
Ridership patterns could also shift significantly post-pandemic as more commuters work from home, he added.
“The new licence framework is certainly a more sustainable model for the Group’s rail operations and will enable us to focus on the operations and maintenance of the rail systems,” he said.
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