Originally posted by kenmin:
The government foots the bill for the construction of the MRT line and all initial sets of equipment. It's the subsequent purchase of new equipment and maintenance that the company has to take care off.
"In 1987, MRTC leased the running of the rail system to a new company, the Singapore MRT Limited, which is commercially run, although wholly government-owned. The conditions of the first 10-year lease state that SMRT must pay an annual rental for the lease of the train fleet and upon expiration of the lease term may be required to purchase the rolling stock at its book value. As a pioneer company, SMRT enjoyed tax exempt status. The SMRT must also set aside funds for the replacement or overhaul of major capital assets required to operate the MRT system."
"The SMRT's 10-year licence and operating contract with LTA to operate the
MRT system expired on 26 August 1997 and was extended by the LTA to 31 March 1998 (the end of LTA's financial year). LTA signed a new 30-year licence and operating agreement with SMRT which commenced on 1 April 1998. Under the new LOA, which will be reviewed every 5 years, SMRT will pay a licence fee to the LTA each year. As part of the agreement, the operating assets for the MRT system were sold at net book value to the SMRT, with the proceeds from the sale of $1.2 billion payable in five equal instalments from 1998 to 2002. At the same time, the LTA provided the SMRT with a grant amounting to $480 million to help SMRT purchase the assets (1999 Annual Reports of LTA and SMRT)."
quote from
http://web.mit.edu/ctl/www/research/utc/Sing%20Trans%20Final.pdf.
note that from NEL onwards, it became like this:
"The study process for the development of the first stage of the MRT was extremely long and detailed, comprising the better part of a decade. While the government wanted Singapore to have a healthy and vibrant public transport system, it did not wish public transport to be a continual drain on government funds. The bus system in Singapore had always operated (and continues to operate) without direct public subsidy. Fares and other non-operating revenue must cover the costs of operating the system, including the replacement cost of buses as they reach the end of their useful life. The “universal service obligation” imparts a requirement for the bus companies to offer some services
that are not financially viable, but these routes are cross-subsidized by other parts of the companyÂ’s operations. The financial viability of the proposed rail system was one of the key elements of the MRT studies. Most rail systems in North America and Europe are heavily subsidised by the government. In the United States, for example, public transport systems rarely recover more than 50% of the operating costs from users. To improve the financial sustainability of the proposed rail system in Singapore, service would be limited to the
Central Business District and outlying areas with heavy demand. The government insisted that the revenue generated from MRT fares should cover operating and maintenance costs, including the replacement of operating assets like rolling stock. Put differently, if the government paid for the capital cost of the project, the system should be able to continue to operate indefinitely without further financial help from the government.
"Consistent with this philosophy, the government funded the construction cost of the long-term MRT infrastructure – tunnels, viaducts and stations. The government also funded the first set of operating assets, including trains and signalling systems, that would be expected to wear out and require replacement after about 30 years of operation. Commuter fares were set to cover the day-to-day operating cost of the MRT and, under the Licence and Operating Agreement (LOA), the SMRT was required to make annual deposits to an Assets Replacement Reserve that would accumulate funds to replace the
original equipment with a second set in due course. In the 1996 White Paper, the LTA moved away from this financing approach because it was felt that asset inflation placed the burden of paying for the future operating assets on
the present generation of commuters. Assuming an asset inflation of 5%, the LTA estimated that the first set of operating assets, which had cost S$1.6 billion when the system was constructed in 1987, would cost S$6.9 billion by 2017 when they were due for replacement. The LTA recognized that a sharply higher fare would be required if the new assets were to be supported by deposits to the Asset Replacement Reserve.
"The LTA White Paper proposed to revise the requirement for asset replacement as follows:
"The Government to continue funding infrastructure and the first set of
operating assets, and commuters to continue paying fares which cover
operating costs including depreciation. However, the second set of operating
assets will be financed by fare revenue covering only the historical cost of the
first set of operating assets, while Government co-finances the balance.
Thus, when the present operating assets are due for replacement in 2017 at a cost of S$6.9 billion, the operator would pay S$1.6 billion while the government would pay the remaining S$5.3 billion. In another 30 years, when the second set of assets would be due for replacement, the Asset Replacement Reserve will have to come up with S$6.9 billion and the government will again pay the inflationary costs. In this way, each generation would pay for the operating assets that they consume.
"The LTA White Paper was presented to Parliament on 2 January 1996 and was approved by the government soon after."
North-East Line (NEL) was approved by the Cabinet on 16th January 1996, 2 weeks after the approval of the LTA White Paper.