LTA announced their conclusion to discussions on the new rail financing framework today – and our minds grinded to a halt trying to make sense of it.

Here are 4 things most of us are probably asking/saying now:

What does it mean to “transfer ownership of SMRT’s operating assets to LTA”?

What’s going to happen now?

Ans: Currently, rail operators such as SMRT own the operating assets of Singapore’s transport system. These refer to the likes of your trains, signalling systems, etc. However, this also means the onus lies on them to buy and pay for more trains, or other assets to meet ridership growth and improve service. With this latest announcement, LTA will now take over ownership of SMRT’s operating assets.

What this means for you: LTA, your good old transport regulator and now asset owner, will call the shots on investing, replacing and upgrading your trains – and building up new stations. SMRT is left to focus on the other nitty gritty – the operations and maintenance work that (hopefully) makes for a more reliable train transport system.

This basically means LTA is better able to protect the public’s interests – by being able to more quickly and directly respond to changes in ridership and public grievances expectations.

Let’s be real. SMRT, as a profit-driven company with shareholders to answer to, would not be business-minded if they had to bear full financial risks. And that would mean they would not always make the decisions prioritising public interests over profits (*cough*

Saw Phaik Hwa *cough*).

But we also guess that if another COI is called for a massive train breakdown, LTA can’t point fingers at SMRT anymore liao.

So what are these new Maintenance Performance Standards on SMRT? You mean we didn’t already have standards for maintenance? No wonder trains got cracks.

Ans: As it’s SMRT’s job to focus on operations and maintenance, they are now required by LTA to meet new Maintenance Performance Standards on SMRT. Or basically, the KPIs they must now reach for to give us more reliable train services. These regulations drill down to specifics, such as KPIs for ensuring that there’re enough engineers to build our transport system.

What this means for you: Much like how we explained it in our previous article on lifts, making your KPIs even more detailed means that SMRT cannot act blur.

In the name of financial sustainability for the train system, LTA and SMRT will partake from the same cup of risk and profit

Commuters now pay SMRT $1.50 to $3.00 per train ride. SMRT will now have to pay LTA a License Fee every year – for the right to operate and earn this revenue for various train lines (North-South- East-West line, Circle Line and Bukit Panjang LRT Line). The License Charge is partially funded also by government monies. On a sidenote, SBS Transit is already doing this for the Downtown Line.

SMRT remains answerable to shareholders, and a profit-driven entity (see #1). So the License Charge is formulated, or cut in a certain way to allow SMRT only earn 5% of earnings (although we’re sure 5% is still decent money, all things considered).

While this implies that SMRT won’t be screwed if revenue growth can’t keep pace with cost growth, SMRT also requires to pay LTA a higher License Fee if SMRT’s profits do better than expected. (Life is fair, we guess.)

What this means: If we try to wrap our minds around it, commuters ultimately benefit. What we pay for our train ride fares are ultimately reinvested into better infrastructure -ultimately for commuters.

Does the average Joe care about the new rail financing framework?

Well, probably not. Unless our train fares go up – although LTA and SMRT have categorically stated that they will not be impacted by the announcement (fingers crossed). The average commuter like you and I simply want to make it home on time after a long day of school/work.