FINES AGAINST SMRT ARE USELESS, GIVE S'POREANS FREE TRAVEL INSTEAD

State media today commented that SMRT could be hit with a $50 million fine for Tuesday’s service breakdown. This might look like an impressively draconian penalty but it is really just wayang as I have highlighted before. SMRT is a Government-owned corporation, albeit with private shareholders. This means a huge conflict of interest since it is both regulated by and leases its infrastructure (stations, track, signalling equipment, even rolling stock) from the LTA, which is part of the Government.

Any fine paid by SMRT goes effectively from one Government pocket to another, or as one person put it, from the pants pocket to the shirt pocket, so does not hurt the people ultimately responsible for the breakdown.

It can also be clawed back, either from the consumer by SMRT saving money through lower service standards or skimping on maintenance, which is at the root of their continuing problems, or through transfer pricing between LTA, the regulator and lessor of SMRT’s capital stock, and SMRT.

A far better way of compensating the much put-upon commuter is by forcing SMRT to allow free public transport for a number of days. As Singaporeans have paid for their network through higher taxes and more austerity, the free travel should only be extended to those holding pink ICs and their immediate family.

Longer term, what we need is to change the rolling stock. SMRT are paying Desmond Kuek, the former top general and head of the armed forces who replaced Ms Saw in 2011, a staggering $2.25-$2.5 million p.a., considerably higher than the amount Ms Saw was earning, and as much as Lee Hsien Loong’s publicly disclosed remuneration. This is part of a huge inflation of the pay of Temasek portfolio companies’ senior manangement, with Ms Chua at SingTel taking home at least $12 million and possibly as much as $18 million, without any increase in underlying performance. This inflation in executive compensation undoubtedly extends all the way to the top of Temasek and particularly to Lee Hsien Loong’s wife, the CEO.

Desmond Kuek’s abject failure and casting around for excuses is scary when he was formerly in charge of defending Singapore from invasion. Would our F15s have fallen out of the sky and our M1 tanks failed to start and would Desmond then have shrugged it off by saying that it was impossible to catch every flaw? SMRT should claw back his excessive pay for the last two years and replace him with someone with actual experience of running a mass transit system. Just like Ms Saw, he has concentrated more on easy stuff like the non-operating businesses and not enough on improving safety and service standards. SMRT should not be run primarily as a profit centre shopping mall business with a cost centre train business tacked on. It is fortunate that so far we have not had a serious accident. The compensation structure and incentives need changing radically so it is not tied to the share price.

In fact SMRT should not be run as a profit-maximising corporation and should not be listed. It is a farce to have private shareholders who are being subsidised at the expense of the taxpayer. SMRT only makes money because most of its costs are paid for by the Government which provides and pays for most of the infrastructure. The Government should separate the property business from the rail one and accept that the latter will run at a loss. Singapore’s public transport system is a natural monopoly because of the high investment costs of MRT lines and the inelastic nature of demand. The PAP Government have maintained this monopoly by preventing any effective competition to the MRT to protect their huge investment .

We should not incentivise management to boost the share price which in the absence of fare increases they can most easily do by pushing more of the costs to the Government or by skimping on maintenance and service standards. Increasing efficiency and productivity is harder. We need a new type of compensation incentive structure for management that does the latter.