Sunday, June 15, 2014
A suggestion to Competition Commission Singapore (CCS)
Friday, May 23, 2014
Roy Ngerng vs Lee Hsien Loong - Shanmugam's reasoning
Sunday, July 24, 2011
Singpore Public Transport Revisited
2. At the core of the contention is the unhappiness of the commuter over the quality of service (QoS) of Singapore’s public transport. The request for a fare hike recently only serves to increase the level of indignation felt amongst commuters.
3. The Government is right to point out that nationalization is not the way to go as it will lead to less efficiency, resulting in higher costs. In terms of correctness of argument, that is as far as it goes. The Government is dead wrong to assert that just because nationalization is not the way, the current model is therefore correct. It is not.
4. As many people have pointed out, for the private operator model to work one needs to introduce competition to drive the operators to improve their efficiency and QoS. That is exactly where the Government has not only failed to achieve but has in fact done the opposite and helped the operators to reduce the competition they face. I will give an example
5. When the North East Line was opened, then Transport Minister Yeo Cheow Tong (YCT) decided to let SBS operate the North East Line (NEL) instead of SMRT. Next, he allowed many of the SBS bus services to be eliminated to avoid “duplication”. (Source http://www.spug.sg/forums/archive/index.php/t-45373.html). With a $5B price tag, NEL was not just expensive to build but potentially hard to break even operationally as well. The Government did not want to subsidize the running of NEL on a continual basis. So what YCT did was to effectively create a public transport monopoly in the North East region by putting NEL and the bus service under SBS and letting SBS did its job of maximizing profits without the worry of competition. And that was just what SBS did; many trunk bus services were removed so that a cheaper transport mode other than MRT would be unavailable to commuters. As a former resident in North East, my transport cost to travel from my house to city along the North East corridor went from around S$1.10 to S$1.80, an effective increase of more than 50%.
6. It should be clear from this example that the Government has been an active participant in manipulating public transport pricing to achieve its own agenda, including creating monopolies so as to pass the bulk of the cost to commuters. We should stop buying the Government’s argument wholesale and instead ask critically how we can improve the efficiency of our public transport system. We can begin by examining the 2 modes of public transport, MRT and buses to find ways in which QoS and efficiency can be raised.
7. MRT trains have large passenger carrying capacity that buses cannot match. A 6 cabin train has probably the carrying capacity of about 9 buses. At one train every 3 min, the MRT is equivalent to the carrying capacity of about 180 buses per hour. It is critical in moving the city around. MRT however is a natural monopoly and it is difficult to inject competition by having 2 or more operators running the trains on a single line. This is problematic as there is less pressure to keep cost down (The Government cannot afford to see the MRT operator go bankrupt and when push comes to shove the operator will get the fare increases it asks for). So even with fare regulation the costs of MRT is likely to go up. Devising a scheme to help to improve QoS and contain cost for MRT is a complicated matter and suggestions on how to go about doing that will be discussed later.
8. Bus on the other hand does not suffer from the natural monopoly syndrome and it is relatively easy to introduce competition for bus services. I have previously proposed a scheme to introduce competition for buses and it is time to re-look at the mechanics of how the scheme works.
9. The core objective of the scheme is to introduce competition into bus services to keep the cost down while ensuring QoS targets are met. We can achieve this by
a. Having 3 or more bus companies operating in Singapore.
b. Inviting the bus companies to bid for bus routes via tender. Tenders will help to maximize the efficiency of the scheme.
c. Specifying within the tender the required QoS for the bus routes and the associated punishment if those QoS are not met.
10. The first step in coming up with the tender is to determine the usage pattern. Turns out the raw data is there for us all along to find the usage patter: Ez-link card. Each time a passenger taps his Ez-link card, a computer log record is generated. Everyday millions of data points are being generated this way.
11. Data analysis of Ez-link log data will enable us to find out the expected traffic volume for a particular bus route at a particular time period and the expected variation. It will also enable us to find out how over crowded the bus is.
12. Armed with this information, it is possible for the Government to specify the QoS that is expected of a bus route. The QoS should specify the expected passenger carrying capacity, the bus frequency for each time period. The tender should also specify the associated punishment if the QoS are not met. Verifying whether the bus company has met the QoS is easy; data-crunch the Ez-link log data to find out. The tender should also detail the usage pattern so as to enable the bus companies to predict the revenue stream from the bus route.
13. The bus companies will take the data from the tender, do their own number crunching and come back with a bid value. If the bus route is lucrative, the bus companies will come back with a positive bid value i.e. the bus company is willing to pay for the right to operate the bus route. If the bus route is money losing, the bus companies will come back with a negative bid value i.e. the bus company will operate the bus route only if the Government is willing to subsidize the bus route.
14. Note that how the Government specifies the QoS will determine the amount of subsidies needed. If the Government set a very high QoS by requiring high bus frequency or large passenger capacity at peak hour, the majority of bus routes will turn out to be money losing. This in turn will raise the amount of subsidies. Given that the current QoS has caused many complaints, it is likely that the Government will have to raise the QoS and in the process subsidize the commuters.
15. Should we have subsidies? We know our Government is ideologically opposed to subsidy. But perhaps this is one of the sacred cows that we ought to slaughter. The duopoly SMRT and SBS do not have incentives to raise QoS beyond the minimum required. In fact, raising QoS (e.g. by running buses at higher frequency) will increase cost and lead to lower earnings. The misalignment of incentives means that to rely on market forces to improve QoS is a non-starter. Instead to raise the QoS beyond the current standard the Government must step in.
16. The subsidy not only benefits the public transport commuters but also the indirectly private transport users as well. One of the stated aims of the Transport Ministry is to raise public transport usage to 70%. To achieve that public transport must become relatively more attractive and raising the QoS is crucial. The increase use of public transport will also have other knock on effects, including less pollution, lesser demands on new road space, lower COE and ERP prices etc.
17. Given that the Government stated aim for its slew of transport related taxes (ERP, COE) are not for revenue generation purposes, the subsidy should come from these taxes. This is a win-win as the subsidy will improve the QoS, leading to better commuter experiences and more public transport usage, which will in turn help to lower the pressure on road usage, leading to lower ERP and COE etc.
18. What about MRT? As mentioned it is much harder to introduce competition into the MRT system. But that does not mean we cannot introduce competition indirectly. The first thing to do is to delink the MRT fare from bus fares as MRT is faster and therefore ought to command a higher fare than buses. It is also difficult to sustain the unified fares if the duopoly model is abandoned and cross subsidies between buses and MRT disappears, which will be if we are to introduce bus route tenders. With the fares delinked, allow buses to ply along the same route as the MRT. This will introduce competition for MRT and prevent its fare from increasing incessantly without losing commuters to bus services.
Friday, September 19, 2008
Guess who is paying for the finance rescue package?
US Government does not have the ability to raise 1 trillion dollars to resolve the financial crisis; whoever politician that tries to raise that amount of tax is committing political suicide. So they will do something that is much less painful: issue debts.
So who will be buying those debts? A large portion will come from China, Japan, the oil nations and … Singapore! Yes, we will be footing the bill.
Amazing isn’t it?
Remember the 1997 Asian financial crisis?
Remember Indonesia? How it was brought to its knees by IMF (International Monetary Fund)? Yes, that thing that really did Indonesia in was the drying up of credit in their economic system, causing massive collapse of its economy. Why did that happen? Because the IMF insisted that Indonesia went on a harsh austerity fiscal plan before money would be released to them.
Back to 2008. This time round the drying up of credit is in USA. Can we expect IMF and anyone to tell the US that they have to go for an austerity drive? No, instead the US Government intends to spend its way out of trouble.
Tails I win, heads you lose.
Why isn’t US punished for its excesses?
One word: Reserved currency.
What is so great about being a reserved currency? When you are Indonesia Government and you need money, you borrow money, often denominated in reserve currency such as USD. So if your currency crash, your economy gets walloped.
When you are US Government and you need money, you PRINT money (Actually you issue debt). If USD crash, the buyer of your debt suffers, not you.
Wow! So why do we want to even support USD as a reserve currency? The main reason in my opinion is because currently we lack a real contender that that can challenge USD. Because of that, even if many people realize the USD is sick, they still hold onto USD based assets because they cannot effectively change it to something else.
We need another reserve currency
What we need is another reserve currency that can challenge the hegemony of the USD. And China’s RMB seems to be the best contender for that in the long term.
Unfortunately in the short term China is fraught with problems. It is a non-democratic regime, corruption is rife and its financial system is not strong enough to be completely liberalized.
Still, China should act fast and start to establish itself as a reserve currency. Of course to do that, RMB must be legal tender outside of China. That is a giant step for China as it needs to put its house in order before that can happen. But the benefits are enormous as it can raise debts and use the money it raised to develop its economy. It also can trade and buy raw material in RMB rather than to rely on USD.
And if USA needs more money, well it can borrow money from China in RMB instead of issuing USD treasury bills. That is a world of difference.
Until then we are all at the mercy of US excesses. And when the great devaluation of USD finally comes, we will all be the poorer for it.
Monday, July 14, 2008
Land transport in Singapore - Bus service
1. We need to collect analyze human traffic flow data so that LTA knows how to optimize the public transport route.
Before we can seriously improve on our public transport structure, we need data. We need to know how many people are travelling from point A to point B during which time period. Only by comparing these human traffic flows against bus routes can we tell if the bus routes are optimal. And the surprising thing is (surprise because it seemed that no one has mentioned this before) we do have the necessary ingredient to collect these data: Ez-Link card.
Each time a passenger taps his Ez-link card, a computer record is generated and stored in the reader machine. In other words, millions of data points are being generated everyday. Why are we not using them to analyze our traffic flow?
2. We need to overhaul how we plan bus routes.
Armed with these human traffic flow data, the planning of bus routes can be made much more rational. Inefficiency routes can be taken out. Conversely, new rush hour routes can be introduced if the data reveals that a significant traffic flow exists between 2 locations that are not served by direct buses during rush hours.
3. We need to inject competition into bus companies.
We ought to introduce competition into bus services by allowing at least 3 bus companies to operate and compete for routes (More on this later).
4. We need to stop being religious about subsidy.
To the PAP, the word subsidy is a dirty word. It has an almost religious belief that market forces always produce the best outcome. This is intellectual laziness.
The case of bus routes in new town is an example. Normally, the number of bus services in new town is small and grows as the estate matures. Bus companies need to do this or they will incur a loss. But the poor bus services will persuade more people to switch to car! But we all know private transport is much less efficient and less eco-friendly as well. By not wanting to subsidize the less popular lines, the Government creates a bigger problem.
The point is: If we want to take in 6.5 million people, we need a real world class public transport. That means we need to have extensive coverage for all areas, even if meant incurring a loss.
This is how it all fits together.
1. LTA will be the master planner for bus routes.
2. It will be tasked with the collection and analysis of the human traffic flow data and propose new bus routes based on the analysis. It will publish these new bus routes to gather feedback from the public.
3. Once finalized, it will call for tenders for bus routes. This is where the bus companies come in.
4. Winner of a tender shall have the right to operate the bus route at the prevailing bus fare for a fixed number of years (1 . 3 years).
5. The tender will specific where the bus routes will cover as well as the bus frequency schedule. It will also publish projected human flow traffic to enable the bus companies to assess the projected revenue.
6. The bus companies will compete and come back with a tender value. The tender value can be negative if the bus route is expected to make a loss. LTA will collect revenue from popular bus routes while subsidizing less popular ones. Further revenue shortfall will be funded by COE & ERP collections. Car owners should not complain because an improved public transport system will reduce incentive to own a car and result in cheaper COE and ERP in the long run.
By using such a system, LTA will be able to implement a bus system that will closely match travelling pattern. It will also have the ability to lay down top quality bus routes in less populated areas, something it must do if it really wants to choke off demand for cars.
Saturday, July 12, 2008
Political Competition
They are misguided. The single biggest problem Singapore is facing now is not ERP, high petrol prices nor any other issues of the day. The single biggest problem Singapore is the absence of political competition.
Many of us know that in economics a monopoly is considered problematic because the lack of competition will enable the monopoly to maximize its profit at the expense of the consumer of that service. Monopolistic behavior in politics exhibits similar damaging outcome.
I will cite just one example to illustrate the impact of politics on your financial well being: Land supply. In Singapore only the Government of Singapore has the ability to inject new supply of land. All other so called major players such as CDL, Capital Land etc buy land from the Government and then resell the land in turn. So the Government effectively controls the overall land supply and hence the land prices over the long term. By applying a long term policy of suppressing land supply, the Government is able to reap enormous profit at the expense of its people. This is a major factor why many of us may not have enough for retirement despite a CPF contribution rate that is probably the highest in the world.
The current Government is able to get away with that precisely because of the lack of political competition. It knows it can get away with it because there is no credible challenge to its power. And that is precisely why the PAP has done what it did since coming onto power some 50 years ago: To eliminate political competition.
Which is what the SDP is countering: To attack the components within the system that is used to suppress political competition. For without political competition, issues such as your CPF money, housing prices, non-transparency of how our nation’s reserve is being managed, ERP, COE, GST, ministerial pay, wealth gap etc will never be resolved.
So support efforts such as what the SDP is doing. It may seem a waste of taxpayer money but compared to the payoff of multi-billions of dollars benefit from a healthy political competition environment, the cost is worth it.
Thursday, May 8, 2008
On a radical proposal to mitigate traffic congestion problem in Singapore
A major source of unhappiness amongst Singaporeans is the increasingly obvious conclusion that traffic congestion control policies are failing.
The problem we are facing is case of Not having enough roads in a certain place at a certain time; our main problem seems to be congestion going into the CBD areas and congestion coming out from the CBD areas.
What if we build a second CBD?
I am talking about Mandai here.
- It is served by SLE, which connects to BKE and KPE to the west and CTE, TPE to the east.
- It has 3 big satellite towns in the vicinity (Woodlands, Sembawang, Yishun) and another 2 big towns slightly further away (Chua
- It has a large swath of land that is not heavily built up. It consists of mainly forest, nature reserves, army training sites and farm lands. This makes it relatively easy for the Government to clear the land for re-development purposes.
- The area is large enough and therefore will be able to house enough people for it to become a true CBD.
Having a second CBD on the northern side of the island will mean traffic is no longer heading towards the south during morning rush hours but instead will spread out in both directions. The efficiency of roads such as CTE, BKE will be greatly enhanced as it carries traffic in both directions.
Infrastructure
The Government is an old hand at laying down the necessary infrastructure to build such a CBD. The current Marina South is a prime example. All the satellite towns are done in the same way as well.
In fact, with the right amount of money and time, the following infrastructure requirement should pose no special difficulties for the Government:
- Electricity grid
- Telecommunication
- Water
- Sanitation/ Waste treatment
- Roads within the new CBD.
But there is one major exception: Public transport infrastructure.
You cannot have a new CBD without a decent public transport infrastructure to go along with it.
If you ask people to use cars, you are defeating the purpose of setting up a new CBD in the first place. MRT lines will be good, but they will take 5 – 10 years to complete. So the only thing we have is buses. But they will not travel to the new CBD unless there is demand.
That’s where the latest LTA proposal to put out bus routes using tendering system becomes interesting. There is nothing to say that the Government cannot have a system whereby it subsidizes bus routes (by paying fixed sums to bus operators for it to carry out the bus service) initially so as to attract people to use the new CBD and recoup those subsidies through land sales in the new CBD later.
So to elaborate this further, a new suite of express bus services can be introduced that serves the new CBD from various satellite towns. These buses will make use of the expressways to reduce traveling time. The QOS of the bus services can be specified by the Government (e.g. 3 min/bus for rush hours. 5 min/bus for non-peak hours etc. Fare to be made comparable to existing bus fares etc). Bus operators can compete for these routes via the tender process. Initially, the Government will have to pay (i.e. negative tender value) to get these bus operators to serve the bus routes. But as the passenger volume picks up, the subsidy will disappear. The bus routes can be reviewed on a regular basis (by having short term tender contracts etc) to minimize subsidies.
Critical Mass
Another thing that is critical to ensuring the success of CBD2 is how to achieve critical mass. This is a chicken and egg problem. If you do not have enough people who use CBD2, it will not be attractive to new tenants and CBD2 will die a natural death.
But this is by no means an impossible problem. In fact the Government has done it many times with the building up of many HDB towns and is now building up
These are the policies that can improve the success rate of CBD2:
- Cheap land leases. Offer attractive incentive to those who take the plunge. Lease lands to the early adopters at an attractive price. This potential savings and rewards will compel many to make the move. If the Government is concerned about not fully realizing the value of the land, it can offer those lands in shorter lease periods (<50>
- Focus on specific sectors. Industries like to work in clusters. It will be difficult to convince companies to move to CBD2 if most of their peers are residing in CBD. So the idea is to focus on new sectors and sectors that do not have an overwhelming need to stay together and encourage them to move to CBD2.
- Lead the charge. The Government is itself a very big employer. It should redistribute some of its functions to CBD2 to signal the viability of the CBD2 project. A partial list of important Government functions that are clustered in or near the CBD include:
- HDB Hub (Toa Payoh)
- MHA (Novena)
- IRAS (Novena)
- MinEnv, NEA (
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- SMRT HQ (City Hall)
- Supreme Court (CityHall)
- Finance Ministry (CityHall)
- MinLaw (CityHall)
- MTI (CityHall)
- Subordinate Court (Clarke Quay)
- MOM (Clarke Quay)
- MICA, MDA (
- MND (Tanjong Pagar)
- CPF (Tanjong Pagar)
- URA (Tanjong Pagar)
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- Police Cantonment Complex (Outram)
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- LTA (Tanjong Pagar, Little India etc)
If we can move some of these functions from CBD to CBD2, we can
- Free up space in CBD
- Lessen congestion in CBD
- Improve the critical mass in CBD2
Conflict of interest
There is one thing that may spoil the show though. From the Government’s perspective, there is a inherent conflict of interest in terms of developing a 2nd CBD. Simply put, after investing tens of billions of dollars to develop a new CBD, it may find itself with less revenue!
- There will be more land available for commercial purposes. This will dampen the prices of existing CBD land.
- There will be less revenue from things such as ERP as well.
The only way the Government will be able to rise above this is if it sees beyond pure monetary gains for itself:
- That a well rounded economy needs to cater to different sectors and not just sectors who can afford premium rents.
- An island that can truly support a 5.5 – 6.5 million inhabitant and a larger GDP in the long run.
- The lowering cost of doing business here, which hopefully will result in some great local enterprises being nurtured.
- The rise in quality of living and a happier population (Read: Not having to pay through the noses for transport).
Building CBD2 is a long term project; significant results can only be felt 10 – 20 years down the road. It is however absolutely crucial if