SINGAPORE – The operator of the upcoming Thomson-East Coast Line (TEL) will be the first to run a rail service under a contract similar to the model recently introduced for buses.

The successful bidder will operate the new line for a fixed sum over a fixed period, while the Government collects fare revenue, the Land Transport Authority (LTA) said yesterday. This is identical to the bus contracting model, which was rolled out just last year.

The first ridership contract for TEL will be for a period of nine years, with a possible extension of two. Only the existing rail operators, SMRT Trains and SBS Transit, which are familiar with the local operating context, will be invited to participate in the tender in the first quarter of next year, said LTA.

Although the industry is transitioning to the new rail financing framework (NRFF), LTA has chosen to initially depart from that model in the case of the TEL. Under NRFF, the State takes over the ownership of all fixed and operating assets, while the operators maintain and run the lines, pay a licence charge and earn revenues.

LTA has decided to make an exception in the case of TEL, which it described as the “most complex rail project to date”. It said the line, set to be completed by 2024, is being built along with “multiple other projects”, such as an interchange with the future Johor Baru-Singapore Rapid Transit System on its northern end, and new connections to Changi Airport on its east.

It added that the line will open in five stages over several years from 2019, and projection of ridership in the initial years will be “much more uncertain and challenging than earlier train lines”. Given these risks, a tender under the NRFF might result in bids that are “unfavourable to the Government”, said LTA.

After the first licence for TEL expires, ridership figures would have stabilised, and LTA will “revert to the NRFF for subsequent tenders”.

SMRT Trains managing director Lee Ling Wee said the firm “welcomes LTA’s decision to call for a limited tender to operate the new TEL”.

SBS Transit spokesman Tammy Tan said “we will assess the tender as we do all competitive bids”.

SIM University economist Walter Theseira said: “The past model of having for-profit private operators responsible for fare-based profit and loss worked well to concentrate the operators’ minds on efficiency. Unfortunately, too much concentration on efficiency, coupled with tight margins due to fare regulation, led to compromises.

“Today’s public transport model has swung decisively in the direction of focusing on reliability and quality – but will efficiency be compromised?”

He said this was possible as the Government will now assume revenue risk for the line – the first time it is doing so for a rail contract.

“Commuters will benefit from today’s renewed emphasis on quality, but taxpayers may yet pay the cost for this,” he noted.

This article was first published on Nov 05, 2016.
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The Aljunied-Hougang Town Council (AHTC) has seven days to respond to the Housing Board on whether it will appoint a third party to recover improper past payments it has made.

It was given the deadline by HDB in a letter yesterday.

Observers interviewed said the town council faces an uphill task in getting its money back, adding that a more detailed forensic audit may be necessary.

They were commenting on the options available to the Government, following a statement by the Ministry of National Development (MND) and a letter sent by the HDB to AHTC yesterday.

In it, the HDB said: “It is clear that town council monies have been wrongfully paid, in substantial amounts that run into millions… It is imperative that immediate steps be taken to recover the improper payments, including, where necessary, the commencement of legal proceedings.”

It added: “As the improper payments may give rise to personal claims against existing town councillors, a suitable third party should have charge and conduct of these proceedings, on the town council’s behalf.”

Singapore Management University law don Eugene Tan said the town council would have to determine the extent of questionable transactions in order to recover any money paid erroneously.

But this would be difficult, he said, given its lack of discipline in record-keeping and financial operations highlighted in independent accountant KPMG’s report.

KPMG, citing AHTC’s spotty track record in this area, had said it could not conclude if the payments identified as improper, totalling about $6.9 million, are “exhaustive and on the complete quantum of improper payments that ought to be recovered”.

Institute of Singapore Chartered Accountants president Gerard Ee suggested that a possible next step would be to conduct a detailed forensic audit to analyse all the transactions to see if any were “seriously questionable”.

But even if this was established, there is no guarantee that the parties paid erroneously would cooperate, added Mr Ee.

The KPMG report established that some of the improper payments were made to AHTC’s then managing agent FM Solutions and Services (FMSS).

AHTC and FMSS are currently in arbitration over a financial dispute emerging from the lapses at the town council.

Mr Ee said that if FMSS refuses to pay back any sum deemed to be improper or excessive, AHTC may have to take FMSS to court and “building a case for such claims is not easy”.

Prof Tan said that even if monies cannot be legally recovered, the town councillors could be taken to task for potential breach of statutory and fiduciary duties.

In its letter to the town council, the HDB had also said: “The town councillors were under a duty not to improperly use or apply the public funds entrusted to them. They had a personal and collective responsibility for improper payments enabled or permitted by such a system.”

The HDB added that AHTC could “potentially look to the town councillors for recovery of losses or costs-savings arising from any breaches of fiduciary duties”.

The KPMG report had raised the possibility of criminal conduct if the improper payments were made intentionally, like criminal breach of trust under the Penal Code. Legal and town council governance experts, however, said the task of establishing such intent could be onerous.

“They might have been very careless in not observing certain rules, but were they being intentional?” said real estate don Yu Shi-Ming of the National University of Singapore.

Prof Tan also cautioned that it was crucial to “not get ahead of ourselves by presuming the town councillors to be guilty”.

“Ultimately, it could boil down to a question of competence,” he said.

The observers also pointed out that the current Town Councils Act does not give the Ministry of National Development the powers to obtain information on finances or relevant documents from town councils, let alone impose penalties on offenders.

MND has proposed changes to the Act and had asked for public feedback last month.

Prof Tan said that since public monies are involved, there will be the expectation for the Government to take a more “interventionist role”.

He added: “The MND statement suggests that it’s going to be a long road ahead for all concerned, especially for AHTC.”

How KPMG report came about

The statement the Ministry of National Development issued yesterday was prompted by findings of improper payments by the Aljunied-Hougang Town Council.

Independent auditor KPMG, appointed by AHTC following a court order, found that the improper payments the town council made between 2011 and last year amounted to at least $6.9 million.

KPMG had been tasked to determine if any past payments made by AHTC were improper and should be recovered, as part of a review into the town council’s books following lapses uncovered by the Auditor-General’s Office in a special audit.These events came after the AHTC’s own auditors declined to give an opinion about its financial performance and accounts four years in a row, indicating insufficient information.

In a report, released by AHTC on Tuesday, KPMG highlighted “pervasive control failures” in governance at the town council that had exposed $23 million of public funds to risks of improper use.

The sum was paid to AHTC’s managing agent FM Solutions and Services (FMSS), and had been approved by six of the town council’s key officers who were also shareholders of FMSS. KPMG found 748 transactions in which the six people had “effectively certified or approved payments to themselves”.

Of the $23 million, more than $1.5 million has been determined by KPMG to be improper payments, including overpayments, payments for work or services without proof that they were performed, or payments in breach of the law or the town council’s policies.

Separately, the accountant found AHTC had made another $5.4 million of improper payments through awarding tenders to higher-priced contractors and overpaying a town councillor, among other things.

AHTC, responding to KPMG, had disagreed that most of the payments were improper.

KPMG also said it was “outside our mandate to conclude whether any offence has or has not been committed”, but added it had flagged instances where facts and circumstances observed could “potentially give rise to an offence”.”We are advised that the issues identified… may give rise to personal claims against the town councillors or disclose the commission of criminality,” it said.

KPMG also said the “lack of discipline in financial operations and record-keeping” at AHTC meant it could not “conclude whether the improper payments identified… are exhaustive”.

This article was first published on Nov 05, 2016.
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The authorities have asked Aljunied-Hougang Town Council (AHTC), run by the Workers’ Party, to take steps to recover improper payments that it made.

The Housing Board, in a letter to AHTC yesterday, also asked that it confirms within seven days that it will appoint a suitable third party to take steps on its behalf, “to recover the monies which have been lost”.

These steps include taking legal action where necessary, the HDB said.

The Ministry of National Development (MND), parent ministry of the HDB, was similarly stern when it said: “To protect residents’ interests, steps must be taken to recover the monies which have been lost, and to ensure that those who acted wrongfully are held to account.”

Read also: AHTC faces uphill task to recover payments: Observers

Accounting firm KPMG, hired by AHTC to review its accounts, said that at least $23 million of payments were approved by town council members who had a conflict of interest. This included $1.5 million which AHTC paid to its then managing agent FM Solutions and Services (FMSS) and service provider FM Solutions and Integrated Services.

KPMG said that at least $624,621 paid to FMSS should be recovered.

It also said that if the payments were made intentionally, it could amount to criminal wrongdoing.

The MND said that given the concerns KPMG highlighted, the Government is considering what other steps are necessary.

These relate to “the way some of the town councillors have behaved, in dealing with public funds”.

AHTC disagrees that most of the payments were improper.

This article was first published on Nov 05, 2016.
Get a copy of The Straits Times or go to straitstimes.com for more stories.