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.
- 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
The Downtown Line (DTL) operated by SBS Transit was the first line to operate under the NRFF, starting at launch. 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), Sengkang LRT (SKLRT), and Punggol LRT (PGLRT) 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 NEWL, SKLRT and PGLRT 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.
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.
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.
The transition will benefit commuters by:
- enabling the Government to ensure timely procurement of additional trains and operating assets to enhance reliability and keep pace with growing ridership demand,
- 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
- 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.
External Links & References:
- SMRT Trains and SMRT Light Rail to Transit to New Rail Financing Framework – LTA
- North East Line, Sengkang LRT and Punggol LRT to Transit to the New Rail Financing Framework: Completion of the Transition of all existing Rail Lines, Benefitting Commuters – LTA
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