To deliver reliable train services for commuters in a financially sustainable manner, the Land Transport Authority (LTA) and SBS Transit Ltd (SBST) have concluded the review of the New Rail Financing Framework (NRFF) for the Downtown Line (DTL). From 1 January 2022, DTL will transit to NRFF version two which is applied to majority of the other rail lines.
2. The DTL was the first rail line to be placed on the NRFF, in 2011. Under NRFF, the public transport operator collects the fare revenue paid by commuters and pays the Government a licence charge for using operating assets such as the trains and signalling systems. Under this first version of the NRFF, the operator bears significant commercial risk as there is no mechanism for the co-sharing of fare revenue shortfall.
3. As public transport operations constitute a merit good, it should be a more stable business to ensure commuters continue to enjoy reliable train services. Taking this into account, LTA had adjusted the NRFF and introduced NRFF version two to the other rail lines operated by SMRT and SBST in 2016 and 2018 respectively.  Under version two, LTA strengthened both the profit and risk sharing mechanisms to reduce commercial volatility for the operator, while calibrating the revenue risk borne by the Government. If ridership turns out much lower than projected and the financials of the operator suffer as a result, LTA shares some of the shortfall in fare revenue and profits. Conversely, if profits outperform expectations, there is a greater component of profit sharing, in which the operator will pay an increased license charge which is channelled into the Railway Sinking Fund, to be used for the renewal of operating assets. This also effectively caps the operator’s profit margins.
Transition of DTL to NRFF version two
4. Over the past 10 years since DTL was placed on the NRFF in 2011, the operating context for our rail operators has changed significantly - the rail network has been expanded to serve more parts of Singapore, and costs have also risen in conjunction with higher rail reliability standards. Given this, together with the pronounced dip in ridership amidst the COVID-19 pandemic and the expected shifts in travel patterns due to flexible working arrangements, LTA and SBST have reviewed the NRFF arrangements for DTL to recalibrate the balance of risks borne by the Government and operator.
5. The transition of DTL to NRFF version two will take effect from 1 January 2022 under a single licence with the other rail lines operated by SBST, North East Line (NEL) and Sengkang-Punggol LRT (SPLRT), with a licence term of 11 years. This transition will reduce commercial volatility and improve the financial sustainability of the DTL, and ensure that SBST continues to focus on its core role of delivering reliable train services for commuters.
6. As part of the agreement, SBST will hand over its rail advertising business to LTA from 1 January 2024. Prior to this date, LTA will review the arrangements and may consider requiring SBST to pay a concession fee to continue operating the rail advertising businesses from 2024 instead. This fee will be set by LTA in consultation with SBST. In addition, LTA and SBST have reviewed the service fee for five of SBST’s existing bus contracts, and SBST has agreed to a revised rate that is lower than the current service fee and is benchmarked against recent bus tenders. The contracts will be extended (by an average of three years) at these revised rates.
7. Taken together, the agreement between LTA and SBST was calibrated to be fair to all stakeholders. The arrangements with regard to SBST’s rail advertising business and bus contracts will help to preserve the balance in costs incurred between the operator and Government as the DTL transits to NRFF version two, which will in turn rebalance risks to ensure longer-term financial sustainability.
8. Said LTA’s Chief Executive Ng Lang: “LTA has a responsibility to ensure that commuters are well-served by public transport companies with safe, reliable and financially sustainable operations. The transition of DTL to NRFF version two is timely, given the significant changes in rail operating context since DTL was first placed on NRFF ten years ago. This transition will improve the financial sustainability of the line and allow SBST to continue to focus on serving commuters well.”