Construction of the Thomson-East Coast Line (TEL) is progressing well and on track to complete in stages starting 2019. The Land Transport Authority (LTA) will conduct a limited tender for the TEL Operator Licence in 1Q2017.
Framework for the TEL Operator Licence
2. The TEL is our most complex rail project to date. First, it will be developed in tandem with multiple other projects. On its northern end, it will have an interchange with the future Johor Bahru-Singapore Rapid Transit System Link. On its eastern end, feasibility studies are on-going for a connection with the future Changi Airport Terminal 5 and the existing Changi Airport MRT station. Second, the TEL will open in five stages over a number of years. This is so that commuters who live along the TEL can benefit from it as soon as each phase is completed, rather than waiting for the entire line to be ready.
3. All this places the TEL in a unique situation where projection of ridership and fare revenues in the initial years will be much more uncertain and challenging than earlier train lines. The New Rail Financing Framework (NRFF), where tenderers share fare revenue and cost risks with the Government and bid on the licence charge for the right to operate the train line, may therefore result in bids which are unfavourable to the Government, as the tenderers may factor in a significant risk premium.
4. Hence, for the initial period of the TEL operations, the Government will bear fare revenue risk and operate a model where we simply pay the successful tenderer a service fee to run the line. The first TEL licence will be awarded for nine years, with a possible extension of two years. We expect the TEL ridership to have stabilised by then. Like the Downtown Line, North-South and East-West Lines, Circle Line and Bukit Panjang LRT, the Government will own and be responsible for expanding, upgrading and renewing the TEL’s rail assets, while the operator focuses on rail operations and maintenance.
5. When this first licence expires, we will revert to the NRFF for subsequent tenders. Given the complexities of this first phase of the TEL’s operations, and as the industry transition to the NRFF has not been completed, only the existing rail operators in Singapore, SMRT Trains and SBS Transit, which are familiar with the local operating context, will be invited to participate in the tender.
Pilot Framework to Encourage Outperformance
6. As part of this tender, LTA will pilot a new framework to incentivise as well as penalise the TEL operator based on its performance in the key areas of service reliability, customer satisfaction, and maintenance processes. Similar frameworks have been used successfully by the UK, Swedish and German rail authorities to improve performance across their rail networks. If this framework is effective, LTA may consider extending it to all the other rail lines.
 The TEL operator will continue to be subject to LTA’s licensing and regulatory requirements on service and maintenance performance, such as the Operating Performance Standards and Maintenance Performance Standards. The new framework will overlay the licence penalty framework that applies to all existing licences.