New Rail Financing Framework (NRFF)

The New Rail Financing Framework, or NRFF for short, is a new model of rail operations in Singapore that places operating assets in the hands of the Land Transport Authority (LTA), the statutory board under the Singapore Government.

Under the NRFF, infrastructure and rail asset management will now come under the purview of the LTA. In turn, the train operators run the day-to-day operations of trains and retain a share of profits –  but it pays an annual licence charge to the LTA, which varies according to the rail operators’ profitability.

The scheme was launched in 2008 under the Land Transport Master Plan and implemented in stages since 2011.

Milestones
  • 2008: Announced under the Land Transport Master Plan
  • 2011: NRFF implemented on the DTL
  • 2016 (Oct 1): NSL, EWL, CCL and BPLRT transitioned to NRFF
  • 2018 (Apr 1): NEL, SKLRT, PGLRT transitioned to NRFF
  • 2022 (Jan 1): Transition of DTL to NRFF Version 2
Types of Frameworks

Due to the staggered rollout of the NRFF, there are differences in the financing framework between each train line. As of 2021, there are three separate financing frameworks as follows:


Bombardier Movia C951 (Set 05) at Gali Batu Depot
Bombardier Movia C951 (Set 05) at Gali Batu Depot
SBS Transit

The Downtown Line (DTL) operated by SBS Transit was the first line to operate under the NRFF, starting at launch (under NRFF Version 1). One outcome of the NRFF is the appearance of the DTL’s C951 trains, which are predominantly white with turquoise and dark blue reflecting the assigned colour of the line.

SBS Transit made a full transition to the NRFF on 1 April 2018 with a licence for SBS Transit Ltd to operate the lines until 31 March 2033. The Land Transport Authority took over all operating assets of the North East Line (NEL), SengkangPunggol LRT (SPLRT) from SBS Transit for $30.8 million, representing the net book value (cost less depreciation) of the assets, plus GST.

The company continues operating the NEL, SPLRT on a daily basis and retains a share of the earnings. It pays a licence charge to LTA annually, which varies according to SBS Transit’s profitability, and the money goes into a sinking fund for asset replacement. SBS Transit also has to abide by a more stringent maintenance regimen, as well as higher service standards. Financial penalties faced are also greater than the ones in place now if SBS Transit fails to do so.

Downtown Line transition to NRFF Version 2

In November 2021, LTA announced that DTL would transition to NRFF Version 2 from 1 Jan 2022. This would be under a single licence with the other rail lines operated by SBS Transit (NEL & SPLRT) with a licence term of 11 years.

As part of the agreement, SBST will hand over its rail advertising business to LTA from 1 January 2024. Prior to this date, LTA will review the arrangements and may consider requiring SBST to pay a concession fee to continue operating the rail advertising businesses from 2024 instead. This fee will be set by LTA in consultation with SBST.

In addition, LTA and SBST have reviewed the service fee for five of SBST’s existing bus contracts, and SBST has agreed to a revised rate that is lower than the current service fee and is benchmarked against recent bus tenders. The contracts will be extended (by an average of three years) at these revised rates.

These five contracts are [as published in an article on The Straits Times]:

The exact number of years extended for each affected bus package has not been announced publicly by LTA.

SMRT Trains

SMRT Trains made a full transition to the NRFF on 1 October 2016 with a licence for SMRT Trains to operate the lines until 30 September 2031. The Land Transport Authority took over all operating assets of the North South Line (NSL), East West Line (EWL), Circle Line (CCL) and Bukit Panjang LRT (BPLRT) from SMRT for $1.06 billion, representing the net book value (cost less depreciation) of the assets, plus GST.

The decision was made after more than four years of intense negotiations between SMRT and LTA. The rail operator will also continue to operate the NSEWL, CCL and BPLRT up till 2031 with an option for a 5-year extension. Under the old system, SMRT’s NSEWL and BPLRT contracts expire in 2028, while its Circle Line contract expires in 2019. Both come with an option for a 30-year extension.

SMRT continues operating the NSEWL, CCL and BPLRT on a daily basis and retains a share of the earnings. It pays a licence charge to LTA annually, which varies according to SMRT’s profitability, and the money goes into a sinking fund for asset replacement. SMRT also has to abide by a more stringent maintenance regimen, as well as higher service standards. Financial penalties faced are also greater than the ones in place now if SMRT fails to do so.

For the Thomson-East Coast Line (TEL), SMRT Trains was awarded the limited tender to operate the Thomson-East Coast Line (Contract T200 – Operation of Thomson-East Coast Line) in August 2017, with a total service fee of about $1.7 billion over 9 years from the commencement of revenue service for the Thomson-East Coast Line in 2020. The contract comes with an option to extend the operator license for 2 additional years.

The NRFF Version 3 for TEL entails the government collecting all fare revenue, while granting the operator a service fee to operate the train line.


Comparison between Previous and New Rail Financing Framework:

Previous Financing Framework After Transition
License Period 30 to 40 years 15 years, and possibly a 5-year extension
Rail Infrastructure (Viaducts, tunnels, tracks, etc.) LTA owns and make decisions on building-up, replacing and upgrading while Rail Operator maintain the rail infrastructure
Operating Assets (Trains, signalling system, etc.) Rail Operators own, maintain and make decisions on building-up, replacement and upgrading LTA owns and make decisions on  building-up, replacement and upgrading, while Rail Operator remains responsible for maintenance
Regulatory Regime Outcome-based regulation Outcome-based regulation coupled with process-based regulation for maintenance (e.g. Maintenance Performance Standards)
Revenue Risk All fare and non-fare revenue risk borne by Rail Operators LTA shares in revenue risk with Rail Operator
Regulatory Risk All regulatory risk borne by Rail Operators If there are any regulatory changes introduced by LTA after 1 October 2016 that results in changes to costs or revenues, LTA may provide grants to Rail Operator (if Rail Operator’ costs increase or revenues decrease consequentially) or require Rail Operator to reimburse LTA (if Rail Operator’ costs decrease or revenues increase)
License Charge No License Charge Rail Operator pays an annual License Charge into the Railway Sinking Fund, which will help pay for the building-up, replacement and upgrading of operating assets
Operators’ Profit Margin No cap on EBIT margin In line with comparable asset-light rail operators in other jurisdictions. The License Charge which Rail Operators pay to the Railway Sinking Fund increases with higher profits
Fares Regulated by Public Transport Council

Under the framework, new rail operating licenses would be valid for only about 15 years, and the LTA would also take over ownership of new rail lines’ operating assets, such as trains, and lease them to the operators. The shorter licensing periods would boost competition in the rail industry, compel incumbents to improve their efficiency and service, and allow LTA to change the licences’ conditions more quickly to adapt to developments in the sector.

By taking on the assets’ ownership, the LTA would also free operators from heavy capital expenditures and enable them to focus on providing reliable rail service. The LTA could also undertake integrated and long-term planning for the whole rail network.

For their part, the companies that were appointed to manage rail lines under the new regime would have to maintain the operating assets according to a new set of requirements, or be penalised. The firms would also have to pay an annual licence fee for the right and responsibility to operate and maintain the lines and earn revenue from them.

The money from the fees would go into a new Railway Sinking Fund, managed by the LTA and set up specifically to pay for expenditure related to the building, replacing and upgrading of the lines’ operating assets.

In Summary:

The transition will benefit commuters by:

  1. enabling the Government to ensure timely procurement of additional trains and operating assets to enhance reliability and keep pace with growing ridership demand,
  2. relieving rail operators from heavy capital expenditure and large fare revenue risks so that they can focus on their core role of operating and maintaining the rail network, and
  3. making the industry more contestable by shortening the licence period from 30 – 40 years under the previous financing framework to 15 years, with a possible 5-year extension.

NRFF Version 1 & 2 Comparison

NRFF Version 1 Version 2
Rail Lines and Year Downtown Line (since 2011 and will transition to version two from 2022)
  • North-South Line, East-West Line, Circle Line, Bukit Panjang LRT (since 2016)
  • North East Line, Sengkang LRT and Punggol LRT (since 2018)
Revenue from fares paid by commuters Collected by operator
Licence Charge Operator pays Licence Charge to Government every year
Fixed component regardless of fare revenue and profitability + variable component depending on revenue and profitability.

No mechanism for Government to co-share in profits or fare revenue shortfall.

Varies depending on fare revenue and profitability.

Mechanisms for Government to co-share in fare revenue shortfall if actual fare revenue is below projected revenue, and for operators to pay a higher licence charge if profits outperform expectations.

Commercial risk borne by operators High Medium
Rail Infrastructure (e.g. viaducts, tunnels, tracks)

LTA owns and makes decisions on building up, replacing and upgrading of rail infrastructure and operating assets; the operator is responsible for operating and maintaining them.

*Prior to NRFF, rail infrastructure was also owned by LTA and maintained by operators.

Operating Assets (e.g. trains, signalling system)
Fares Regulated by Public Transport Council

 


External Links & References:

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One thought on “New Rail Financing Framework (NRFF)

  • 11 April 2020 at 5:29 AM
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    LTA must scrapped the NRFF for the citizens benefit.Just do a Contracting model like buses with 10 years and an option of 5 years extension for good performance.For bus extend to 7 years with 3 years extension based on good performance.I would be glad if LTA award the EWL to SBST instead an award the DTL to GAS which run UK rail system in more efficient way.The JRL can awarded to other establish foreign multi-modal operator and SMRT takes the CRL.

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