Prasarana should not be directly blamed for its high debt levels. Some of it was accumulated as a result of having to ‘bail out’ the companies which built and operated the STAR and PUTRA LRT lines as well as the KL Monorail and also to buy buses from certain bus operators namely Intrakota, Cityliner and Putraline.
But at the same time, Prasarana needs to take responsibility for taking on excess debt as a result of expensive public infrastructure projects. For example, 70% of the cost of the RM634m elevated Bus Rapid Transit (BRT) line in Sunway, Subang Jaya, had to be borne by Prasarana. At RM117m per km, the 5.4km BRT must count as one of the more expensive BRT projects in the world on a km basis (approximately US$30m per km). [5]
Moving ahead, it is hard to imagine the fare rise at the end of 2015 helping to increase Prasarana’s profitability because of the continued increase in its debt. As of April 2016, Prasarana’s debt has ballooned to more than RM20 billion which will definitely increase its finance costs. [7] So for those of you who are thinking that LRT or Rapid fares will remain where they are, you may want to think again!
3) Prasarana has a relatively low non-fare revenue
Operators of public transportation often have to depend on other sources of income in addition to the revenue collected from ticket sales. These income sources are known as non-fare revenue which would include revenue from advertising, rental of space at LRT stations and even property development at LRT stations. Currently, Prasarana’s non-fare revenue is less than 15% compared to 28% for SMRT in Singapore. [8]
Prasarana faces certain challenges when it comes to increasing its non-fare revenue. Advertising at bus stops, on buses and at train stations are regular income earners for public transport operators around the world. In Malaysia, many advertisers are reluctant to advertise via these channels because of the perception that the middle class drive cars rather than take public transport. For example, most of the bus stops in the Klang Valley do not feature any advertisements, even in places where there is a high number of passengers. From my conversation with some industry sources, it seems that advertisers would rather spend their money on big billboards along major highways to capture the ‘eyeballs’ in cars rather than to advertise on buses or at bus stops. To overcome this challenge, Prasarana has to make it much more convenient for people to switch from their cars to public transportation which includes expanding its network of feeder buses, shortening waiting times for buses and making sure that taking the LRT during peak periods is not an unpleasant experience, to put it mildly.
Prasarana, also has ambitious plans to increase property related income through its property development arm, Prasarana Integrated Development Sdn Bhd or PRIDE. [9] The target is to achieve as much as 50% of revenue via non fare sources by 2020. [10] The model of public transport operators going into property development to cover its operating and even some of its capital expenditure is Hong Kong’s MTR. Given Prasarana’s financial position, this is not necessarily a bad move but property development ventures should not distract Prasarana from its main goal as a public transport operator.
4) SPAD has done a very poor job of fare regulation in Malaysia
One of Prasarana’s reasons for why it was always making losses is because the LRT fares had not been revised for 15 years. This is prior to the fare hike which took place in December 2015. One of the reasons why the quantum of the fare hike was so high (by more than 100% on some routes) is because Prasarana did not know when SPAD would allow it to increase its fare again. So they decided to strike while the iron is hot and to maximise the fare increase.
SPAD has done a very poor job in terms of fare regulation in Malaysia. There is little to no justification or explanation on how fares for various forms of public transportation are adjusted, usually upwards. It almost seems as if SPAD bases its decision on how much of a rise in taxi or train fares the public can withstand or ‘tahan’. And then, it will wait for some time before fares are adjusted again. This creates a vicious cycle whereby public transport operators will try to get the highest possible fare raise when SPAD allows for a fare adjustment.
Singapore established a statutory body called the Public Transport Council (PTC) which has the power to regulate train and bus fares. [11] It works close with but is separate from the Land Transport Authority (LTA) which is the equivalent of SPAD in Singapore. Since 2013, the PTC conducts an annual fare review exercise to adjust the bus and train fares based on a publicly announced formula which includes inflation, changes in wages and the cost of energy. [12]Not only is this a more transparent way to determining the fare structure, in some cases, it can also result in the reduction of fares because of a drop in energy prices as was the case in December 2015. [13] The fare adjustments are usually in small amounts so that public transportation users are not unfairly ‘hit’ by a sudden hike in prices.
The PTC also introduced progressive pricing policies such as distance pricing meaning that the cost of a journey is calculated based on distance regardless of whether you take a bus or train or both. This means that you won’t be charged extra if you change from a bus to a train or vice versa since it is part of a single journey you are taking, to work or to school, for instance.
5) The Malaysian government does not want to directly fund public transportation infrastructure
It is not feasible or realistic to expect public transport operators to cover the high costs of constructing a rapid transit train line. What usually happens is that the government will pay for the costs of construction while expecting the operator to cover at least its operation costs and perhaps make a small operating profit.
Singapore has been moving to a model where the government funds the construction of the public transportation assets e.g. train tracks, rolling stock while a separate operator e.g. SMRT will run the services related to these assets. In a recent development under the New Rail Financing Framework (NRFF), the government will buy over all the operating assets of SMRT and then sign a long term contract with SMRT to run and operate the MRT services. [14]This means that the operator can fully focus on the running of the trains without having to worry about paying for new rolling stock or funding future train lines. The government benefits too because it can impose more stringent standards of efficiency and quality on the operator and fine the operator if these standards are not met.
In Malaysia, at least for the LRT, the funding of the previous and upcoming lines comes directly from Prasarana including the proposed LRT 3 line. This means that the debt of Prasarana will continue to grow as mentioned above.
One of the main reasons why the Malaysian government does not want to directly fund the construction costs of these public transportation projects is because of its budget position. Malaysia has been registering budget deficits since the 1998 Asian financial crisis (See chart 4 below). To assure foreign investors that government debts are manageable, the government has made a commitment to reduce its budget deficit to zero by 2020 and not to exceed a 55% government debt to GDP ratio. What this means is that the costs of financing public infrastructure projects have been shifted to government owned companies such as Prasarana. Prasarana’s debt is not registered officially as Malaysian government debt which means the government can continue to pretend that it is reducing the budget deficit. The cost of this ‘pretence’ is that companies such as Prasarana will be forced to resort to increasing the amount of revenue it can extract from the ‘rakyat’ via measures such as fare increases.
The Singapore government is able to absorb the costs of public infrastructure directly because it has a record of running healthy budget surpluses with the exception 2009 and 2015 (see Chart 5 below). This is why the Land Transport Authority (LTA) was able to announce recently that it was buying the operating assets of SMRT at a price tag of SGD1.06 billion. [15]
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