Looking at the big picture
Transport fares not directly linked to fuel prices even if
operators' costs are
Phua Hooi Boon
Director (Land Transport Division)
Ministry of Transport
WE REFER to the report, "Subsidies a tripping point"(Dec 22).
Some members of the public have written to the Ministry seeking
clarification on the Transport Minister's remarks that public
transport fares are pegged to national inflation and wage levels,
and not oil prices.
As they pointed out that this contradicts the reasons being
given by public transport operators (PTOs) when they apply for fare
increases, we would like to take this opportunity to explain how
the public transport fare review process works.
Adjustments to public transport fares each year are based on a
formula that is pegged to changes in two overall economic
indicators, the Consumer Price Index (CPI) and the Wage Index (WI,
which measures national average monthly earnings) over the
preceding year.
We explicitly decided not to allow PTOs to pass through their
direct costs, such as fuel and wage costs, or to base their fares
on these costs. This is to give PTOs every incentive to operate
efficiently, and keep their costs as low as possible. Eventhough
the PTOs have sought to justify fare increases based on rising fuel
prices, the Public Transport Council (PTC) will only adjust fares
according to this prescribed formula.
This is why, despite a 40-per-cent increase in diesel prices
last year, the increase in CPI and WI were only 2.1 per cent and6.9
per cent respectively, leading to an allowable fare adjustment of 3
per cent. As the PTC also made the operators absorb a large part of
the increase in transfer rebate, fares only went up by 0.7 per cent
last October.
In assessing the fare applications, the PTC takes into
consideration extenuating circumstances, such as adverse economic
conditions and significant deterioration in the affordability of
fares. Furthermore, as a reality check on the fares, the PTC
compares the PTO's return-on-total-assets (ROTA) values against
that of other industries with similar risk. The PTC has used these
powers before.
In 2001, it rejected applications to raise fares, in view of the
economic climate then. In 2007, the PTC turned down the application
to raise train fares after assessing that the rail industry had
done very well the year before.
We understand commuters' concerns about the affordability of
public transport. Early last year, the LTA announced the plan to
introduce distance-based through fares this year. As we have seen
in last year's fare revision exercise, this initiative has helped
to reduce fares for the majority of commuters, particularly those
who make frequent transfers. When the PTC next deliberates the fare
adjustment for this year, we can expect it to move further towards
distance-based through fares.
The fare review process is detailed at
http://www.ptc.gov.sg/publi&papers.asp.
If this is the case, they should have said so much earlier. The
mess the (now I know is a truly idiotic) transport minister left
after spewing his garbage at the Q&A session is probably going
to take a long time and real action to clean up.
