SINGAPORE: Having regular fare increases is one way to ensure the financial sustainability of the new bus contracting model, Transport Minister Lui Tuck Yew told Parliament on Monday (July 7).

Mr Lui said there are also other ways to do so, including regular assessment of the viability of new bus routes as well as the cost of maintaining service standards.

Under the new bus contracting model, bus routes will be planned centrally by the Government, and bus operators will have to bid for these routes. The Government also owns all bus operating assets and pays operators a fee to deliver bus services.

Mr Lui said this helps to lower barriers to entry for new players interested to enter the industry.

" For each package, you may be looking at perhaps 400 to 500 buses. So for 400 buses, you may be talking at between S$150 million and S$200 million - quite a significant capital investment if it has to be invested by a new player,&rdquo said the Transport Minister.

&ldquo We certainly don' t want to preclude the possibility of operators that are already in the local market running private buses quite efficiently who may be prepared to make a bid for one of these packages, provided we lower the barriers to entry."

Mr Lui said this would also lead to genuine contestability in the bidding process while reducing uncertainty for operators. However, several MPs questioned how much this new model cost would the Government.

" I think it is probably not in the Government' s interest to reveal any budget that we may have set aside and how much we are prepared to subsidise before the tenders are issued and the returns are seen as this may well skew the bids against us," said the transport minister.

He added that it is not clear at this point which packages of bus routes would need subsidies and how much that would cost - something the Government is now studying based on the number of buses, frequency, service quality and revenue collected on certain packages of routes.

MP for Holland-Bukit Timah GRC Chris De Souza asked Mr Lui how he intends to keep this endeavour financially sustainable in the long term.

Mr Lui said this would be done in several ways:

• By assessing whether new bus routes have enough ridership to cover operating costs
• By weighing the cost of providing better service standards against increasing operating costs
• By having regular fare increases

" From the middle of the last decade, I think we had actually allowed operating costs to well exceed the fare increases that were taking place each year. So for example, from 2005 until 2012, when we had the fare review committee' s work and we suspended any fare increases thereon - 2005 to 2012, the annual fare increase was on average, 0.3 per cent,&rdquo said Mr Lui.

&ldquo We know, of course, that wage increases were much higher than this 0.3 per cent. Likewise, fuel cost. So there will be a need for us to make sure that we have regular fare increases of the right quantum.&rdquo

&ldquo We will continue to be guided over the next few years by the formula that has been established by the fare review committee led by Mr Richard Magnus, as well as the decision that the Public Transport Council will make with regard to each and every fare increase.&rdquo

However, Mr Lui said bus operators will need to compete on the basis of cost and service quality, and over time, this would lead to the provision of better bus services in a cost-competitive manner, which would benefit commuters.