Oil prices have dropped like a stone, yet the PTC has approved yet another public transport fare increase. We take an in-depth look at the bugbear of every Singaporean – the annual public transport fare increase.
Every year, the members of the Public Transport Council (PTC) in Singapore meet to review public transport fares. It’s an annual exercise that the majority of folks in the country dread because it usually means an increase in public transport fares. In the past, these fare increases have mostly flown under the radar. However, in recent years, the twin pressures of increasing living costs and a population bursting at the seams, coupled with a public transport system that keeps breaking down, have raised the ire of many commuters and the annual fare review only serves to rub more salt into the wound.
Table of Bus Fare Increases in the Past Decade
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|YEAR||BUS FARE INCREASE (Adult EZ-Link)||TRAIN FARE INCREASE (Adult EZ-Link)|
|2005||+1 to 2 cents||+1 to 3 cents|
|2006||+1 to 3 cents||+1 to 3 cents|
|2007||+1 to 2 cents||No increase|
|2008 (Introduction of major transfer rebate of 40 cents)||-7 to +4 cents||-7 cents to +4 cents|
|2009||-2 to -14 cents||-2 to -14 cents|
|2010 (Launch of distance fares)||Variable depending on journey||Variable depending on journey|
|2011||+2 cents||+2 cents|
|2012||Rolled over to 2013||Rolled over to 2013|
|2013||+4 to 6 cents, starting from April 2014||+4 to 6 cents, starting from April 2014|
|2015||+2 to 5 cents||+2 to 5 cents|
Current PTC chairman Richard Magnus notes that the recent public transport fare increase is lower than the previous exercise in 2013, scant consolation for many sandwiched-class families grappling with the rising costs of living.
The Connection between Oil Prices and Public Transport Fares
In December of 2008, during a dialogue session with Macpherson residents, former transport minister Raymond Lim remarked that “public transport fares are not directly linked to oil prices”. He goes on to say that fares are computed based on inflation and wage levels in Singapore.
It was a mistimed and ill-thought remark and many people lambasted him for taking them as fools. Technically, he was somewhat right – the relationship between oil prices and fare prices aren’t based on a 1:1 ratio (although he could have phrased it better). Rather, the public transport fare increase is based on a variety of the factors that include household incomes and inflation. However, the two public transport operators in Singapore regularly cite rising energy and manpower costs when applying for fare increases, even before Raymond’s unfortunate quote.
We took a look at the historical price of oil and compared it with our table above to see whether there was any corresponding relationship. We’ve adjusted the oil prices for inflation.
|Year||Annual Average of Oil Price (USD)||Was there a fare increase from the previous year?|
|2007||$72.99||Yes (just for bus)|
|2008||$100.01||Reductions and increases|
|2012||$88.95||Fare review postponed|
|2015 (as of 22 January)||$47.46||Yes|
As we know now, crude oil prices have dipped to below US$50 and seem set on staying there for the foreseeable future.
Generally, the correlation between oil and energy prices and fare increases or reductions is murky. In fact, in most instances, public transport fare increases or reductions seem to be based primarily on economic conditions. The most significant was in 2008 and 2009 when Singapore was gripped by the Asian financial crisis. In 2009, fares were reduced. Former SMRT president Saw Phaik Hwa said in a press release that “SMRT has decided to reduce fares to benefit commuters given the severe economic crisis”. Her counterpart at SBS Transit, COO Gan Juay Kiat, echoed her sentiments, stating that he hoped “commuters will be able to get some relief from cost pressures”.
In 2013, the PTC adopted a new fare review framework based on a formula consisting of three macro-economic factors, namely the Consumer Price Index (CPI), Wage Index (WI), and Energy Index (EI). This formula is valid until 2017.
Fare Formula = Price Index (CPI + WI + EI) – 0.5 percent
The CPI excludes costs for private transport and accommodation, the WI tracks manpower costs, and the EI follows the costs of diesel and electricity. The EI component is the bone of contention for many commuters during this recent fare exercise. Many of them went on to their respective social media platforms to voice their frustration – if oil prices are dropping, then why are public transport fares increasing?
We posed the question to the Public Transport Council and a spokesman pointed out a key part of the component that many folks missed – the diesel portion.
Diesel shares a complicated relationship with oil. Theoretically, it makes sense for diesel prices to follow oil prices. Reality, however, doesn’t exactly mirror the theory. According to the Federal Reserve Bank of Dallas, diesel prices, as compared to gasoline, are more sensitive towards industrial activity. In the long term, diesel prices do match oil movements. However, there have been cases of discrepancies between the two energy products. The chart below from the Bank explains this relationship.
What about the random 0.5 percent deduction in the fare formula? The PTC calls it a productivity extraction component. In layman’s terms, it’s to encourage public transport operators to be more efficient and productive in employee usage.
There was another aspect of the Energy Index that many folks missed – the 2015 fare revision was calculated based on the 2013 annual average oil price, NOT the 2014 oil price. The reasoning behind this, according to the PTC spokesman, is simple. When the council convened in late December 2014, the annual average oil price for the year had not yet been calculated. Even to date, the 2014 full year figures aren’t yet available.
Unfortunately, current Transport Minister Lui Tuck Yew jumped the gun when, in response to a question posed by Member of Parliament Gan Thiam Poh regarding the possible reduction of public transport fares, he mentioned that the fare adjustment “could be in the region of negative one percent“.
For a more detailed look at the fare review framework, check out this link.
Unfortunate Timing and Stemming the Bleeding
It’s hard to be the PTC. They have the thankless job of calculating fare revisions to make sure that public transport operators remain competitive while still ensuring buses and trains remain affordable for the public. And yet, they have to withstand the public’s brickbats, the same people whom they are trying to protect.
Can they do a better job? It’s hard to say. Striking a balance between ensuring that the public transport operators remain competitive and giving the commuters less financial headaches is an incredibly tricky job. As a matter of fact, SMRT Corp reported a loss of S$25 million on its fare businesses for the first time in 2014, despite ridership increase and productivity gains. We don’t expect them to be making any profits this year too, with all the wholesale improvements and changes they’re making to the rail system.
Would it be better to switch to a fully public, government-led public transport model instead of the privatised but government-subsidised public transport system we have now? Possibly. The much-lauded Taiwan Rapid Transit Corp, which operates the equivalent of the MRT system in Taipei, is owned and operated by the Taipei City Government, the Taipei County Government, and the Ministry of Transportation and Communications. It’s an undeniably amazing, world-class system and is proof that a public service can function at an optimal level despite being a monopoly.
Also, the announcement of the 2015 public transport fare increase came at an inopportune timing – during a period of incredibly low oil prices – and it’s always hard to spin a positive story from a public transport fare increase no matter what the circumstances.
However, on the bright side, the annual fare revision in 2016 should hopefully see a reduction in public transport fares since oil prices are expected to remain historically low this year. Let’s keep our fingers crossed.