New metro concession model agreed in Singapore

15 Jul 2016

SINGAPORE: The Land Transport Authority announced on July 15 that it had reached an agreement with concessionaire SMRT for implementation of the government’s New Rail Financing Framework model on the North-South and East-West metro lines, the Circle Line and the Bukit Panjang LRT.

Subject to final approval by SMRT shareholders, five changes are to come into effect on October 1.

  • SMRT Trains and SMRT Light Rail will transfer the ownership of operating assets including trainsets, signalling systems and electrical equipment to LTA for the net book value of around S$991m, which is to be paid in stages over three years.
  • SMRT will then focus on operations and maintenance, with LTA taking responsibility for capacity expansion and the financial risks of asset replacement and upgrading.
  • SMRT’s current 30 to 40-year operating licences – which were due to end in 2019 and 2028 – will be replaced by new 15-year contracts running until September 30 2031, with optional five-year extensions. The shorter duration and asset-light nature of the new operating contracts is intended to make them more contestable and responsive to changing requirements.
  • LTA will impose new maintenance performance standards designed to improve reliability.
  • The new licences will include risk and profit sharing, replacing the current model whereby the operator takes all fare and non-fare risk. The change is intended to give SMRT a fare and non-fare EBIT margin of around 5%, which LTA said would be similar to ‘comparable asset-light rail operators in other jurisdictions’.

The New Rail Financing Framework was announced by the government in 2008 and initially implemented in 2011 for the Downtown Line, which is operated by SBS Transit. Discussions with SMRT Trains have been underway since 2011. LTA is still in discussion with SBS Transit regarding the North East Line and Sengkang-Punggol LRT.

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