Wednesday, November 08, 2017

TOTD: SMRT: The Instant Failure of Privatization

Thought of the Day - SMRT: The Instant Failure of Privatization

In Economics study, there is always a debate over the pros and cons of "Privatization" of companies providing public goods like public transport.

Companies providing public goods are natural monopolies because they need economies of scale. But the downside is, it tends to be inefficient if it is under government administration. However, this may not be always true.

Natural monopolies are preferred to be under government control because this will prevent them from "exercising their monopolistic power" to "overcharged" and gain abnormal profits through maximization of profits pricing strategy.

Even when natural monopolies are turned into private companies, they will be heavily regulated due to the enormous monopoly power over pricing. This is in the interests of the public.

However, there are other issues when you try to achieve "efficiency" via privatization a monopoly like SMRT. When it becomes a private company, it will shift its priorities from providing reliable public service to making good returns to its private shareholders to sustain its stock market value.

SMRT's privatization exercise in 2000 is a typical example of how such shift of priorities will harm public interests.

After its privatization and public listing on SGX in 2000, SMRT appointed Saw, a lady from DFS and with only skill set in retail to become its CEO. The motive is simple. They wanted to MAXIMIZE profits from the vast potentials of the properties it owns under its MRT stations.

But Saw went beyond extending the retail space in MRT stations. As a person without any Engineering skillsets but with vested interests in getting hefty bonuses by increasing profitability and cutting costs, she started to cut the "Cost Centers" of SMRT operations. Obviously, the Maintenance Division is considered as a huge cost center that doesn't generate sales nor revenue but costly to SMRT!

Just like any ignorant money smelling face, she thought she could cut down expenses in Maintenance by replacing "expensive" but experienced engineers and technicians with "Foreign Talents" who have only some paper qualifications (oh, never mind if these paper certificates are fake or not) but extremely cheap at a fraction of the experienced staffs. All thanks to PAP government opening the Floodgate to "Foreign Talents" so that SMRT could capitalize on this fully!

She thought she could just ignore the need of upgrading or replacement of critical assets of the rail system so to boost the profits of SMRT further!

Well, in the short run, SMRT did "extremely well" in giving out good dividends to shareholders. Dividends jumped more than 5 folds after 2002 in some years.

However, it is just obvious and common sense that such management of a company which is heavily depended on good engineering to keep the CORE business running smoothly cannot be sustainable. Eventually, the rail system broke down. This is also partly due to the "overloading" problem due to the extensive influx of foreigners which inflated our population up to 5 million and beyond!

The MRT system was designed and built for a capacity of 3 million. It is supposed to have 8 cabins (like the Hong Kong MTR) in order to cope with a 5-8 million population.

While it is possible to mitigate the problem of overloading by building extensive by-routing rail network like the NW line, Circle lines and Downtown lines, but the stress on the main line NS and EW lines are still extremely heavy. Furthermore, the increase of the number of lines and stations would also mean the need to expand the maintenance division extensively!

How could SMRT keep the growth of expenditure on its maintenance division comparatively low while the number of lines and stations keep increasing in such a speed? You need time to train and get new engineers and technicians to familiarize with the job scope!

The proportion of money spent in maintenance as compared to Hong Kong MTR is extremely low. Do they really want us to believe that SMRT engineers are magicians or superman and women who could do wonders?

The entire system ended up in the current sorry state just because PAP screws it up with its Money-face-cronyism management strategy. They just anyhow send in someone who know nuts about running an effective and efficient rail system to become CEO just because she might be great in squeezing every penny out of SMRT!

And the most ridiculous thing is that they made the SAME mistake of sending in a replacement from the army who also knows nuts about running a rail system and hope that he could clean up the mess the previous idiot has done!!!???

What is worse than putting people who are totally clueless about the job scope to run an important rail company? And both just took in their own KAKIs from the same UNRELATED industry who similarly, CLUELESS and lack of the relevant skill set and in-depth technical knowledge of rail system to run the departments!

Instead of headhunting people with REAL Experience in running a rail system, we ended up with these mulit-million dollar parasites who are clueless of running a rail system!

This is how Privatization of such an important public goods provider cum monopoly ended up so wrong. I guess this will enter into World Wide Economic and Management Text Books!

On the side note, PAP has always treated GLCs as their "dumping ground" for their "scholars" who have expired their usefulness in SAF or civil service. Maybe it is time for us to rethink whether the extensive Scholar system we have right now, especially the SAF scholarship system, is still useful or relevant. We cannot just dump them anyhow into GLCs which they lack the skillsets and experience to work in!

Goh Meng Seng

7 comments:

not-so-simple said...

If the floods had not become facts, truth will never be discovered. How many more organizations out there are "eating snakes" only God knows?

Anonymous said...

Goh Meng Seng, do you think PAP will still win the next election, despite this MRT management fiasco?

And if so, do you think it is actually the opposition that is the mother of all fiascos which enable the PAP to win, despite this MRT management fiasco, among many other fiascos of PAP?

And if opposition is indeed the fiasco and as a opposition leader, how do you intend to salvage the situation, between now and the next election?

Anonymous said...

What do you called a minister who hold too many positions?
Scatter- brain.

Why do some ministers wear white?
Cos they are not hands-on in the ground to get themselves dirty.

What do we called ministers who puted all their fingers in our piggy bank?
Finger-linkin good.

Why should short ones not be minister?
Cos they short-change the people are short-sighted and short of being a special person.

Anonymous said...

Prime Minister Loong, you need to get some serious good help before your body gets over fried.
You need to sieve out the NATO diseases from your ministers, which in my humble opinion would be almost all of them.

You are a good man, please do the right thing.

And another thing with the Law Minister . Not sure if he is one. Tell him his greatest obstacle now would be some or maybe all the lawyers who are doing the usual in day light robberies from the gullible hostages.

When things are old, in every cases wear and tear appears. Its part and parcel of every day living. If we look at some extreme old homes, like Pearlbank do you think its safe to live in? The electrical wiring which has been added over the years of Starhub and Singtel for computers and TVS are they overloading? If these unsafe old buildings have been trying so hard for collective sale which has worn out the many lives of owners, you should also try collective sale for the MRT? Possible or not?

Everything seemed so angry nowadays. Trees are fainting and killing people. Bet record said it just been checked . Lifts were dancing and killing people. They also said its been service just last week. Vehicles and pedestrians kiss one another till they fell out of love daily.

If this continues do we have to wear tyres around us because nothing is safe anymore. Even going to nightclubs also kenna punched for nothing.



Anonymous said...

Economic landscape in our country's forecasts vary. Are we out of the downturn? Another store

brand GAP shutting here next year? Wise stewardship.

Anonymous said...

Correct but you can still order online. Heard shutting here in February.

Anonymous said...

Can screw the people with fake maintenance record and play with our lives.

Make sure we don't screw them with fake paying taxes and play with their money. True.