Some members of the public have written in to the ministry seeking clarification on the Transport Minister's remarks that public transport fares are pegged to national inflation and wage levels, and not oil prices. As they pointed out that this contradicts the reasons public transport operators gave when they applied for fare increases, we would like to explain how the public transport fare review process works.
Adjustments to public transport fares each year are based on a formula that is pegged to changes in two overall economic indicators, the Consumer Price Index (CPI) and the Wage Index (WI, which measures national average monthly earnings) over the preceding year.
We explicitly decided not to allow operators to pass on their direct costs, such as fuel and wage costs, or to base their fares on these costs. This is to give operators every incentive to operate efficiently, and keep their costs as low as possible. Thus, even though the operators have sought to justify fare increases based on rising fuel prices, the Public Transport Council (PTC) will adjust fares only according to this prescribed formula.
This is why last year, despite a 40 per cent increase in diesel prices, the increase in CPI and WI was only 2.1 per cent and 6.9 per cent respectively, leading to an allowable fare adjustment of 3 per cent. As the PTC also made the operators absorb a large part of the increase in transfer rebate, fares went up by only 0.7 per cent in October last year.
In assessing the fare applications, the PTC takes into consideration extenuating circumstances, such as adverse economic conditions and significant deterioration in the affordability of fares. Furthermore, as a reality check on the fares, the PTC compares the operator's return-on-total-assets values against those of other industries with similar risk.
The PTC has used these powers before. In 2001, it rejected applications to raise fares, in view of the economic climate then. In 2007, the PTC turned down the application to raise train fares after assessing that the rail industry had done very well the year before.
We understand commuters' concerns about the affordability of public transport. Early last year, the Land Transport Authority announced the plan to introduce distance-based through fares this year.
As we have seen in last year's fare revision exercise, this initiative has helped to reduce fares for most commuters, particularly those who make frequent transfers. When the PTC next deliberates the fare adjustment for this year, we can expect it to move further towards distance-based through fares.
The fare review process is detailed at www.ptc.gov.sg/publi&papers.asp.
Phua Hooi Boon
Director (Land Transport Division)
Ministry of Transport
