By Non-Constituency MP Gerald Giam
[Delivered in Parliament on 17 Feb 2014]
Sir,
This Bill seeks to amend the Rapid Transit Systems (RTS) Act by enhancing the financial penalties that may be imposed for regulatory defaults by licensed mass rapid transit (MRT) operators, also referred to as a “licensees”. It also enhances the powers of the Land Transport Authority (LTA) in relation to the appointment and removal of the CEO, chairman of the board of directors, and directors of a licensee.
Currently, in the event of a regulatory default, a licensee will be liable for a fine of up to $1 million. This Bill seeks to provide LTA with the option of imposing a fine of up to $1 million or up to 10% of the licensee’s annual fare revenue, whichever is higher.
In the history of the MRT, the maximum fine of $1 million has only been imposed twice. SMRT was issued a $1 million fine for each of the massive service disruptions on the North-South and East-West lines that took place on 15 and 17 December 2011, which affected over 221,000 commuters.
The move to peg the maximum penalty at 10% of annual fare revenue raises the financial risks for the two operators. However, despite the maximum penalty being imposed for the December 2011 disruptions, there has been no consistent decline in the number of incidents on the MRT network causing delays since then. In fact, the number of incidents causing greater than 5 and 10 minute delays increased from 2011 to 2012 before declining slightly in 2013. This does not give very much reason for hope that increasing the penalties further will improve service levels.
The MRT operators include the penalties as part of their operating expenses. In its most recent annual report, SMRT stated that its “other operating expenses saw an increase of 8.8% to $204.5 million, due mainly to higher legal and professional fees and a $2.0 million penalty imposed by LTA for the December 2011 train service disruptions” as well as other expenditure.
During the operators’ last application for fare adjustments, they cited higher operating expenses as one of their key justifications for fare increases. Hence, the penalties could be indirectly contributing to fare increases. When the PTC examines the public transport operators’ (PTOs) requests for a fare increases, which includes reason of higher operating expenses, does it factor out the fines that the PTOs have incurred for service lapses?
Next, penalties imposed by LTA for service disruptions are donated to the Public Transport Fund, which is used to buy transport vouchers for needy commuters. This means that the fines paid are eventually returned to the operators in the form of fare revenue.
And finally, the Bill stresses that financial penalties “still cannot be imposed on a licensee by the LTA if the licensee is likely to fail to provide and maintain an adequate, safe and satisfactory service”. This provides another safety net for the MRT operators, who may claim that a penalty is too large for it to bear without impacting maintenance or service quality.
Will all these circumstances surrounding financial penalties neutralise their deterrent effect and render them a rather ineffective mechanism for ensuring good performance?
Furthermore, financial penalties are imposed on the company and do not directly impact the people who are in a position to improve service quality and reliability – that is, the top management of the public transport operators (PTOs). There is nothing in the RTS Act that stipulates that bonuses or salaries must be cut, or heads must roll if senior managers fail to meet their KPIs and major disruptions occur too frequently.
The most the regulator can do, under this Bill, is to direct the licensee under section 18A(2) to remove a CEO from his or her position, but it appears that this can only be done if LTA never approved of the appointment of that CEO in the first place. Could the Minister clarify: If LTA had approved of the appointment of a CEO, and that CEO subsequently fails to perform, can the LTA direct the licensee to dismiss him or her?
Besides influencing the appointment of the CEO and directors on the board, would the Government consider introducing other regulations to make senior managers of PTOs more personally accountable for the quality and reliability of their MRT services?
For example, the LTA could require licensee to name the individual who is assigned crucial responsibilities like rail and train maintenance, so that when regulatory action is taken against the company, the LTA will know which senior people should be held responsible, and, if necessary, censured. I believe this approach could be more effective in keeping the PTOs on their toes than imposing large fines on the company.