In a media interview with the state media, SMRT chief Desmond Kwek said that the government’s intervention to purchase the physical assets helped made SMRT profitable again. According to the former army general, SMRT incurred S$1.2 billion losses in the last five financial years. With a further S$2.8 billion commitment in the next five years, Desmond Kwek said, “the rail business would be unsustainable”, and the Ebit (earnings before interest and tax) for FY2016 would fall from 9.5% to 0.7%. However, thanks to the Singapore government’s S$1.06 billion bailout, the Ebit for FY2016 will rise back to 5.3%.
Henceforth, the S$2.8 billion costs for upkeep of the physical assets will be paid for by Singaporean taxpayers through the Ministry of Transport.
Desmond Kwek also revealed that the Singapore government is helping to insure SMRT’s profits under the new rail financing framework:
“The new framework will also have a risk-and-reward sharing formula. If SMRT makes substantially more, the Government can cream off some in the form of a higher licence fee. But if its margin is crimped by new regulations or fare changes, the fee can likewise be reduced.”
When queried if the SMRT’s monopoly on Singapore’s train system is risky, Desmond Kwek said the risk has been lowered by the government.
“Clearly, it will be a lower risk environment compared with the current arrangement.”
The SMRT chief then claimed that “No business is risk-free”, because profits for the government-linked company depends on the fare prices set by the authority, Public Transport Council.