SINGAPORE (July 15): Singapore Land Transport Authority (LTA) on Friday announced it is taking over more than 60,000 operating assets from Temasek-owned rail operator SMRT under a new rail financing framework to kick in on Oct 1.

Pending approval from SMRT shareholders, the transfer will see LTA pay SMRT close to S$1 billion for its operating assets, including its trains, signalling system, and maintenance equipment.

The rail financing framework, which was first announced by the government in 2008 and implemented for the Downtown Line (DTL) in 2011, will now include SMRT’s North-South and East-West Lines, Circle Line and Bukit Panjang LRT.

SMRT will pay a licensing charge for the right to operate and earn revenue from the lines.

These licence charges, supplemented by government funds, will be used for building up, replacing, and upgrading the operating assets.

LTA said the licence charge, which comprises fixed and variable components, is structured to allow SMRT to achieve a composite (fare and non-fare) Earnings before Interest and Taxes (EBIT) margin of about 5%. Comparable asset-light rail operators in other jurisdictions earn similar margins, it said.

The structure offers some protection for the operator in case fare revenue growth fails to keep pace with cost growth, as LTA will share some of the shortfall of SMRT’s fare revenue and profits.

At the same time, the structure provides for an increased licence charge to be paid by SMRT should their profits outperform. In addition, LTA may reimburse SMRT, or vice-versa, when new regulatory changes initiated by LTA lead to changes in SMRT’s operating costs or composite revenue.

LTA said this would put the government agency “in the driving seat to make timely investments in capacity expansion and the replacement and upgrading of operating assets”.

“SMRT Trains, relieved of ownership responsibility over the rail operating assets, will be able to better focus on the operations and maintenance of the rail network,” it added.

In addition, operating licences will be shortened to 15 years under the new framework, down from the 30-40 years previously, to make the industry “more contestable”, LTA said.

LTA will impose new Maintenance Performance Standards (MPS) to improve maintenance performance and consequently the reliability of the rail system. To meet these enhanced standards, SMRT Trains intends to increase its maintenance staff by 20%, equivalent to about 700 employees, over the next three years.

LTA said it is still in discussion with SBS Transit on the possibility of transiting its North East Line and Sengkang-Punggol LRT to the NRFF.

If approved by shareholders, SMRT Trains and SMRT Light Rail will transfer to LTA their respective operating assets at Net Book Value as at Sept 30, 2016. 

LTA will conduct asset condition surveys for the older operating assets, and make payment for them in tranches: 60% of the payment will be made on the date of transition, with 15%, 15% and 10% of the payment made on the next three anniversaries of the transition.

SMRT Group called for a trading halt at 11.59am before the announcement.

As at 3.47pm, SMRT is trading 0.36% higher at S$1.545.