Hints of rail restructuring add fuel to SMRT’s fire

The current model needs to be tweaked.

Transport operator SMRT saw a sharp spike in its share price after a speech by Transport Minister Khaw Boon Wan hinted at the possible restructuring of Singapore’s rail system.

Singapore’s rail system needs to be integrated for better reliability, Minister Khaw said in a speech at the Joint Forum on Infrastructure Maintenance on December 4.

“Our current model separates the designer and builder, which is LTA, from the maintainer and operator, which is SMRT and SBST. From an economist's viewpoint, this allows for more competition so that we can pick and choose the operator.But from an engineer's viewpoint, I think it is not so ideal from the life-cycle perspective,” said Minister Khaw.

Although Khaw conceded that it will be difficult to change the current system, he still called for an integrated approach wherein SMRT, SBS, and the LTA will work as one team despite their differences.

“Instead, the more immediate thing we can do is to improve integration through process, by forging a culture of One Team, despite coming from different employers. This is the second-best we can do,” he said.

In a recent report, analysts at RHB said that there is a likelihood that SMRT will be nationalised in the future.

“The market has certainly played up to this, with SMRT’s stock up 31% since Aug 2015, despite its rail operations suffering a third straight quarter of operating losses as a result of rising maintenance costs,” RHB said.

“While we do not discount the possibility of SMRT being nationalised, we believe that implementation of the new rail financing framework, which will improve the profitability of SMRT’s rail operations and free up capital through the transfer of rail assets to the Government, appears more palatable at this juncture and could happen latest by 2019, which more clarity being received from Land Transport Authority,” RHB said.