North East Line, Sengkang LRT and Punggol LRT to Transit to the New Rail Financing Framework: Completion of the Transition of All Existing Rail Lines, Benefitting Commuters

News Releases
14 Feb 2018

    The Land Transport Authority (LTA) and SBS Transit Ltd (SBST Ltd) have concluded discussions on the transition of North East Line (NEL), Sengkang LRT and Punggol LRT (SPLRT) to the New Rail Financing Framework (NRFF). This completes the transition of the entire rail network to NRFF.  With LTA owning all rail operating assets, commuters will benefit through more coordinated and timely expansion and renewal of the rail system.

2.  NEL and SPLRT will transit to the NRFF on 1 April 2018, and SBST Ltd will be granted a 15-year licence to operate the lines until 31 March 2033. SBST Ltd will transfer the operating assets under the NEL and SPLRT to LTA at Net Book Value[1] as at 31 March 2018. Thereafter, LTA will own the operating assets for these lines. In return for the right to operate these rail lines, SBST Ltd will pay LTA a Licence Charge to be set aside in the Railway Sinking Fund (RSF) for the renewal of operating assets. The Licence Charge structure is identical to that for SMRT Trains.

3.  The transition will benefit commuters by:

a)  enabling the Government to ensure timely procurement of additional trains and operating assets to enhance reliability and keep pace with growing ridership demand,

b)  relieving rail operators from heavy capital expenditure and large fare revenue risks so that they can focus on their core role of operating and maintaining the rail network, and

c)  making the industry more contestable by shortening the licence period from 30 – 40 years under the previous financing framework to 15 years, with a possible 5-year extension.

4.  As part of the transition, LTA will conduct an asset condition survey of the operating assets and make payment for the assets in tranches over the next two years: 60% of the payment will be made on the date of transition, and the remaining 40% will be paid in two instalments of 20% each on the next two anniversaries of the transition.

5.  SBST Ltd will provide warranties on the condition of the assets over this two-year period, and LTA is entitled to withhold payments for assets requiring rectification or replacement. The transfer of ownership of operating assets will not affect day-to-day rail operations and SBST Ltd’s employees.

6.  Under the licence issued to SBST Ltd, LTA will continue to emphasise enhanced maintenance standards for improved rail reliability through the Maintenance Performance Standards (MPS), a set of requirements, delivery standards and process controls first introduced as part of SMRT Trains’ transition to the NRFF in 2016.  The MPS takes a prescriptive approach of regulating SBST Ltd’s maintenance processes upstream by stipulating process-based maintenance requirements so that issues can be identified and addressed early.

About New Rail Financing Framework

7.  Under the previous financing framework, rail operators own the operating assets, such as trains and the signalling system, and are responsible for building up, replacing and upgrading these assets. However, as the operators bear the full financial risk, they may be too cautious to undertake costly capacity expansion, replacement and upgrading works. They may also be less responsive to growing ridership and commuter expectations.

8.  The Government announced the NRFF in the 2008 Land Transport Master Plan. In 2010, the Rapid Transit Systems Act was amended to implement the NRFF. The NRFF was first implemented in 2011 for the Downtown Line operated by SBST Ltd, and subsequently extended to the North-South and East-West Lines, Circle Line and Bukit Panjang LRT, which are operated by SMRT Trains Limited, in 2016.

9.  The NRFF provides for profit and risk sharing between the operator and LTA. LTA will share some of the shortfall in fare revenue and profits when fare revenue growth fails to keep pace with cost growth. If profits outperform, operators will pay an increased Licence Charge into the RSF. In addition, LTA may reimburse the operator, or vice-versa, if there are changes to the operator’s operating cost or revenue as a result of new regulatory changes initiated by LTA.

10. The NRFF is an integral part of the Government’s effort to enhance the quality, reliability and sustainability of our rail system. With all our existing rail lines now on the NRFF, the Government will be able to plan network capacity holistically and improve rail capacity for Singaporeans in a timely manner. Commuters will also benefit from higher-quality rides and a system that is more responsive to their needs.
 


[1] The Net Book Value of assets refers to the value of the assets as indicated in a company’s financial statements. It is equal to the original cost of the assets minus any accumulated depreciation. In this case, it refers to the value of operating assets on SBS Transit’s financial statements as at 31 March 2018, which amounts to S$28.8 million (S$30.8 million including GST).