Of Mafia Trio of LTA, Temasek, Govt and SMRT breakdowns

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An honorable member of the Coffee Shop Has Just Posted the Following:

http://www.tremeritus.com/2015/07/15...n-top-of-smrt/

Let us follow the train of thought based on the above:

Temasek will want SMRT to maximize returns. Nothing wrong; any shareholder would wish it.

The government will want Temasek to maximize its returns (within appropriate risk parameters) because a) the returns increase the amount of Net Assets in the Singapore reserves and b) deliver more revenues to the government budget through the Net Investment Returns Contribution.
The government formulates the transport policy in line with the needs of the population and the economy.

The regulator, Land Transport Authority, will then frame the rules and requirements which the operator is required to abide and which protect consumer interests. As stated earlier, in a monopoly such as SMRT, the onus is especially critical on the regulator to be stringent and to be updated on the regulatory framework because the operator is in position to harm consumers financially and physically.

Under 4) there should be necessary friction between the regulator and the operator. If there is no friction or only weak enforcement the framework is not working properly. In order to protect consumer interests and ensure the system works properly, the regulator ought to be stringent on the level of maintenance and the level of investment to update the system. But the operator would want to keep these to an “optimum” which usually means as low as feasible in order to generate profits to deliver the returns to Temasek since the remuneration of the CEO and the board members are subject to shareholders’ approval.

Is the LTA lax in its regulatory enforcement since strong enforcement affects the returns Temasek receives and hence the delivery of returns to the government? Can this be the reason the maintenance budget has reportedly not been increased from 2002 to 2012 and yet without a red flag from the regulator? Are the transport policy and regulatory framework tilted in the interest of those reserves at the expense of consumers?

If the level of investment to renew the system prove to be beyond the operator’s resources then the LTA ought to reflect this up the chain of command for solutions to be formulated such as government subsidies, bringing in another operator or splitting rail and rolling stock (trains) into separate entities.

Or, instead of friction, are all the key players too friendly to each other especially since many came from the same “talent pool”? This will make it hard for anyone to risk his salary to stand apart from his peers and point out the alignment of all the key players are against the system working properly, thus harming the consumer.

Transport Policy meets Macro-economic Policies

It goes further. Transport policy has to follow from macro-economic policies. These calls for Growth Maximisation which is a boost to the underlying trend of GDP growth by a sharp increase in population. Yet the transport policy appears not to have accounted for the huge increase in load on the transport system resulting from the macro-economic policies. It seems transport policy like housing policy met macro-economc policies but are mute to each other!

Dismissal of the SMRT CEO and the chief regulator over the fiasco is usually par for the course in an accountable system. However such a move is likely cosmetic of the sacrificial lamb variety. The real issues lie deep in the edifice of Singapore Inc.

Chris Kuan

* Chris was regional head of capital markets for Asia Pacific until his retirement. He writes opinions and commentaries mostly on economic and financial matters.


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