The Future of Public Transport in Singapore

Singapore's public transport sector is dominated by two companies, ComfortDelgro Corporation and SMRT Corporation.

ComfortDelgro owns 75% of the bus routes through SBS Transit, 22% of train services through the NEL line and 62% of taxi market share.

On the other hand, we have SMRT with 25% of bus routes, 78% of train services and 11% market share of taxi services.

Together, they own 100% market share of bus and train routes and 78% market share of taxi services.

This duopoly in the public transport sector has led to a dearth of innovation as evidenced by how quickly taxi booking applications such as GrabTaxi and Uber have captured a sizable market share without owning a single taxi. In the absence of competitive forces, their first reaction to rising costs is not to innovate but to pass on the costs to consumers.

A strong example of this is credit card fees. Most merchants absorb credit card fees, choosing to utilize credit card services as a way to legitimize the business, gain additional sales and reduce the cost of payments reconciliation.

SMRT and ComfortDelgro however, chooses to pass on this cost to consumers through a 10% administrative charge when credit card fees are typically only 2% of transaction value. This unfair surcharging practice led to Visa pulling out its services from taxi operators in 2013.

Therefore, it is hardly surprising when transport operators choose to reach out to the Public Transport Council (PTC) as a first instinct to raise fares, since this has become their modus operandi when faced with falling profits or rising costs.

However, change is on the horizon. Taxi booking applications have the ability to revitalize the taxi industry and to force this duopoly to embrace innovation or see itself becoming the Kodak of taxi operators.

Furthermore, a new entrant to the bus services industry, Tower Transit is on track to bring in new industry best practices that allows the operator to pay competitive salaries while keeping costs low and meeting the Bus Service Enhancement Programme (BSEP) objectives.

One such practice is having a separate team to refuel, maintain and park buses at the end of the day, utilizing economies of scale to keep costs low while allowing bus captains to concentrate on their primary duty; driving.

In the near future and with the implementation of the Government Contracting Model in the public transport sector, there will inevitably be changes in the public transport industry. Whether these changes come about through the revitalization of existing operators or through new entrants with new tricks up their sleeves, will be the big question.

L.A.M.

On the National Swing

The votes are in and PAP has won big this GE with 69.89% of the popularity vote, a 9.79% increase over 2011. This was a surprise to many political analysts but is a timely reminder that the middle ground exists, that the political battlefield is not just a division between the opposition and the PAP. 

It is also a reminder that ultimately, the middle ground who do not vote along party lines have the biggest impact and surprises up their sleeves. That they have the capability to provide the government with a true barometer of how their policies fare, since they do not vote according to sentiments or alliances but to sound policies and judgments. 

It is hard to determine the size of the middle ground. But the best opportunity came during the Presidential Elections in 2011, when we had 4 Tans trying to get into the IsTANa. 



There was:

• Tony Tan, the PAP backed candidate who scored 35.2% of the vote. 

• Tan Jee Say and Tan Kin Lian, the pro-opposition candidates and who scored a combined 29.95% of the vote 

• And Tan Cheng Bock, the most middle ground of the lot who scored 34.85% of the vote. 

This in itself is very similar to the voting sentiment on the ground where the opposition scored 30.11% in GE 2015.

Middle ground voters have been a difficult lot to tie down and have traditionally been silent. When we step up to criticize PAP policies, we have been told by hardcore PAP supporters (such as Calvin Cheng) to migrate if we hate Singapore so much.

And when we mention that the opposition needs to get its act together and that we don’t want just any troublemaker in parliament, we have been told that we are unpatriotic or self-serving. 

Although, some of the effects of swaying the middle ground could be due to the SG50 sentiments and the passing of Lee Kuan Yew, I believe that the current voting percentages compared to 2011 is an endorsement of how the average Singaporean really feels across 3 important issues.

Housing

In 2011, we had just come out of 5 years where there were only less than 6000 BTOs built a year (the lowest in Singapore's independent history), leading to escalating costs of housing and lack of housing for young couples. 

Post 2011, HDB has ramped up housing construction to record levels and put in place a slew of measures to cool the property market. Subsequently, wait times for BTOs have come down significantly enough that this hot button issue appears to be on its way to resolution.

Foreign Workers

Another key issue in 2011, was the influx of foreign workers/talents who have crowded the work force. However, since then there has been a slew of action such as:

• More checks on firms hiring foreign PMEs to support Singapore workers, under the Fair Consideration Framework. 

• The Singapore Jobsbank, where employers are required to advertise their job vacancies for at least 14 days before they can submit applications for Employment Passes.

• Singapore has also seeked to cut quota on Foreign Workers (having seen the growth in the foreign worker workforce fall from 7.61% to 2.58%. 

• We have also seen Tan Chuan Jin, the Minister of Manpower holding closed door talks to encourage banks and other industries to hire more Singaporeans or place greater emphasis on developing Singaporean talent.

Empathy in Public Policy

Thirdly, another issue is the lack of empathy in public policy. Post 2011, the ruling government has created more channels to listen to ground sentiment, pushed unpopular ministers such as Mah Bow Tan and Wong Kan Seng out of the Cabinet and spent $8b on the Pioneer Generation Fund to recognise the contributions of first-generation Singaporeans born on or before 1949.

In the end, Singaporeans have spoken and the message is that if the PAP listens and puts in place policies that benefits Singaporeans, we will vote for them. 

Finally, I would like to congratulate to the PAP on a landslide victory. This is a huge endorsement by voters that you are moving in the right direction, but, although there has been marked improvement in 2011, that the work is not over. We place the trust of the nation in your hands for the next 5 years.  

L.A.M.

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On Whether AHPETC Overpaid it's Managing Agent?

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 On SG Budget Babe's: The Truth about Temasek vs Chee Soon Juan's Claims

Did AHPETC inherit a deficit or a surplus from Punggol East SMC? If you are confused about it, read this:

 The Day the Father of Accounting Rolled in His Grave

PS: To the opposition parties. The results are a time of reflection. Although in general, Singaporeans want more opposition voices in parliament, we do not want any Roy, Han Hui Hui or Cheo Chai Chen in Parliament. We need quality candidates and not just troublemakers. I hope that with this result, the non-Worker’s Party opposition parties can get its act together. 

The NSP, the biggest opposition party in 2011 is in shambles due to in-fighting and over inflated egos. The RP has been lying in bed with the wrong crowd, choosing to pick from among the pariah for its candidates. Hopefully in 2020, we can see more qualified opposition candidates who are in a better position to bring alternative voices to Parliament.

On SG Budget Babe's: The Truth About Temasek vs Chee Soon Juan's Claims

A friend of mine asked me to take a stab at the article from SG Budget Babe about Chee Soon Juan's Claims about Temasek (see below).

This was the first time I have come across this blog. But I was impressed by the quality of her writing and her blogpost. (Ok I know, I'm not here to promote other people's blog. I'm here to analyze, so I'll continue)

She had 3 major investigations:

1) Did Temasek really pay $4 billion for Shin Corp, an "investment that ultimately ended up in smoke?"

SG Budget Babe's (SGBB) analysis led to her conclusion that Temasek made a 57% increase in unrealized gain. Therefore, the "investment did not ultimately end up in smoke."

To run my analysis, I analysed various news report and poured through 9 years of Temasek's Annual Reports from 2006 to 2014. My analysis results below.

Based on the analysis, Temasek indeed realized SGD 1.9Bn from the investment in Shin Corp and this is a 61.8% gain over a 9 year period or a CAGR of 5.46%.

Conclusion to Investigation 1: The investment in Temasek did not end up in smoke. Although, the value of Shin Corp fell substantially immediately after the sale, Temasek patiently waited for 9 years before selling it's stake in Shin Corp. 

Although it was a substantial gain of 61.8%, the compounded annual growth rate of this investment was a slightly more modest 5.46%. 

In summary, SG Budget Babe was right in this aspect.

Her second investigation was:

2: Did Temasek really lose "billions through investments in banks like Citigroup and UBS" in 2008?

SG Budget Babe's (SGBB) analysis led to her conclusion that

i) GIC sold it's stake in Citigroup in 2009 for $1.6bn profit. 

ii) She wasn't sure if Temasek who bought Citigroup at it's peak has sold it's stake in Citigroup but she concluded that the share price had increased 70% in just 4 years.

I did some research and came to slightly different conclusions

i) GIC sold it's stake in Citigroup in 2009 for $1.6bn profit. That is correct and widely documented in news sources.

ii) Citigroup share prices did NOT increase 70% in just 4 years. 

Her conclusion that Citigroup shares went up 70% was false. She had failed to account for the 10-1 reverse stock split by Citi in 2011.

In layman term's, a reverse stock split is when a company reduces the number of shares it has.

For example, 

A company has 200 shares outstanding. Each share is worth 10 cents each. The total value of the company is 200 * 10 cents = $20.

If the company did a 10-1 reverse stock split, it would have 20 shares outstanding. However, the total value of the company is still the same at $20. This means that each share of the company will be worth $20 / 20 = $1.

Therefore for a true apples to apples comparison, Citi would be worth about $5 per share and not $50. This is a huge loss from the $29.50 she claimed Temasek bought Citi for in 2007.

However, she can heave a sigh of relief, because Temasek Holdings did not buy Citibank shares in 2007, she got the whole transaction confused with GIC's. (who thankfully made a $1.9bn gain. Phew!) 

Instead, Temasek had invested in Merrill Lynch shares, investing USD4.4bn at USD48 per share in 2007.

So therefore Temasek did not make a loss on Citibank shares. (Phew!)

In conclusion, Temasek's performance isn't as bad as it is made out to be but there were some discrepancies in SGBB's analysis. However this was a case where 2 wrongs happened to make a right.

L.A.M.

Which Town Council Was Managed the Most Wisely

On Beauty Parades and General Elections

Whether We Can Cut Military Spending by 5.75Bn.

On Whether AHPETC Overpaid it's Managing Agent?

Why do Opposition Parties need to sell stuff to raise money but the PAP doesn't?

The Day The Father of Accounting Rolled in His Grave

On the National Swing

Link to Excel File: 

Temasek's Shin Corp Investment Analysis:

On Whether AHPETC Overpaid it's Managing Agent?

Previously, I wrote about which Town Council was managed the most wisely, and I made comparison across a range of ratios. However, there was one pertinent question that I did not answer and that question is whether AHPETC overpaid it's managing agent.

To answer this question, I had to hit the Annual Reports again to examine whether AHPETC overpaid it's managing agent, I relied on 2 key figures from the Income and Expense Statement as well as Electorate numbers to generate 2 different analysis.

The 2 key figures from the Income and Expense Statement were:

1) Managing Agent Fees (duh!)
2) Total Operating Expenses

They are located in the Operating Expenditure part of the Income and Expense Statement (sample from Moulmein Kallang Annual Report 2013/2014 below)



As explained earlier, I did 2 analysis

1) Proportion of Managing Agent Fees to Total Operating Expenses (MA/OE)

I divided the Managing Agent (MA) Fees against Total Operating Expenses to see the proportion of total operating expenses that are taken up by MA Fees. If AHPETC had a larger proportion than other TCs, this could be a sign that it is overpaying it's MA.

2) MA Fees per electorate

I have used electorate numbers as a denominator to compare the performance between Town Councils which have different sizes and number of residents. (Ideally, I would prefer to use the number of residents/residential units in the estate as a denominator, however, in the absence of such data, I will use the electorate numbers as a proxy and pray to the god of large numbers that any discrepancies will be wiped clean.)

Based on the analysis I have done, 

On per voter basis, AHPETC was ranked 6th and 10th place in 2014 and 2013 respectively. On the surface this means that their spending on Managing Agent fees are pretty much in line with other town councils. The worst performers based on this matrix are Pasir Ris-Punggol and Bishan-Toa Payoh.

However, one thing that is worth nothing is that AHPETC's Managing Agent's Fees were a significantly large proportion of their overall Operating Expense at 15.2% and 15.0% for 2014 and 2013 respectively. 

If I were to average MA/OE numbers from all the other TCs, we can see that AHPETC is 2.4% to 3.6% higher than the other TCs (depending on whether we exclude BTTC or not). This in itself is rather strange. Based on this matrix, either AHPETC is over-paying it's MA or it's MA is so efficient that all other costs comes down significantly.

Another interesting thing to note is that the worst performer based on this matrix is Bishan-Toa Payoh, who is the only TC who have employees on it's payroll instead of Managing Agents. This is very interesting because on Feb 13, 2014 Hri Kumar said the following in parliament.

Based on the metrics above, Bishan-Toa Payoh may be coping just fine, but there is a potential to reduce costs if they were to outsource the task of Town Management to a Managing Agent instead of relying on internal staff. They could then rely on the economies of scale of the Managing Agent to perform Town Council works for them and hopefully pass on these savings to the residents of Bishan-Toa Payoh.

In conclusion:

I performed 2 analysis on AHPETC's Managing Agent's Fees. In 1 of them, they were in line with other TCs. In the other one, it was the 2nd worst performer in both years. Based on the analysis, I cannot immediately conclude that AHPETC did not overpay it's Managing Agent. This is something that needs to be explored further. 

Furthermore, we concluded that Bishan-Toa Payoh might be better off (at least financially), if it outsources Town Council works to a Managing Agent.

L.A.M.

Link to file: https://onedrive.live.com/redir?resid=CF7F78C43CE14ADC!3937&authkey=!ADt3Y_jYG-s2QPc&ithint=file%2cxlsx

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The Day the Father of Accounting Rolled in His Grave

 

On the National Swing

The Day The Father of Accounting Rolled in His Grave

Not many people will know who Luca Pacioli is. Luca Pacioli is the Father of accounting and bookkeeping. He is the accounting equivalent of Albert Einstein to the Theory of General Relativity and Tony Hawk to skateboarding and at 9:48am (SGT) yesterday, he rolled in his grave.

The reason for this was because two members of parliament (names and identity removed to protect them) could not tell the difference between a balance sheet item and an income and expense item. And worst of all, they had the audacity to add an asset (a balance sheet item) to a deficit (an income and expense item) and claimed that it turned a deficit into a surplus!

Pictorial evidence below:


 

Names and photos redacted to protect their identities and to prevent personal attacks against these MPs

To summarise MP #2, he said that although there was a deficit of $282,009 (accumulated deficit as of 30 April 2013), there was a $303,372 receivable from CCC. So adding the 2 together, would result in a net surplus of $21,363 (see below).

For those not trained in accounting, a receivable is an asset. It is not a form of income but is a balance sheet item. 

Sounds confusing? Let me give you an example:

If you own a house, that is an asset and is therefore a balance sheet item. 

If you have $50 in your bank, that is cash and is an asset and is therefore a balance sheet item. 

If you performed a service for somebody and the person writes you an IOU, the IOU is "technically" a receivable for cash at a later stage but you would have recorded the transaction as an income in the income statement at the time of the sale.This IOU is an asset. 

However, you CANNOT add it to your income statement because at the time of the transaction (when the IOU was issued to you), you would have recorded that transaction as an income in your income statement. 

So technically, if you add the asset to your income statement, you would be double counting, but you can't do that in the first place because it's ridiculous to add an asset to a deficit and I will explain why below:

Let's say that this year the following happened:

1) You had income of $1
2) You had expenses of $3

3) You own a house that is worth $7

What is your deficit/surplus for the year?

Your deficit/surplus would be 

= income - expense 

= $1 - $3 

= -$2

However, what the 2 MPs did would be equivalent to adding the $7 value of the house to the deficit and claiming that they made a surplus of $5 for that year!

In conclusion, in our Parliament, it appears that basic accounting skills are very lacking. On the one hand, we have the AHPETC issue which shows signs of bad book-keeping since no auditor was willing to give an unqualified opinion. 

On the other hand on the opposing side, we have MPs confusing balance sheet items and income and expense items and adding and subtracting them together.

Either way, both sides have demonstrated a startling lack of accounting knowledge and discipline.

L.A.M.

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On SG Budget Babe's: The Truth About Temasek vs Chee Soon Juan's Claims

Still confused? Let me give you another example:

Let's say you performed a service for somebody and that person paid you USD100 worth of gold. Let's say the gold is 1kg (although this is not important).

At the time when you performed the service, you would have recorded the transaction as income of $100 (even though you received gold and not cash).

So in your income statement you would have earned $100 from this transaction. 

5 days later, you sold this gold to the goldsmith for USD $100 cash.

Do you then go and record this $100 as an income in your income and expense line?

If you did, you would have $200 of income but the only thing you did was a $100 service. This completely doesn't make any sense, how did this one service become a $200 income? That is because you treated an asset worth $100 (the gold) as income.

Replace the gold with accounts receivables and the logic stays the same.

On Whether We Can Cut Military Spending by 5.75Bn

In SDP's manifesto, the SDP suggested that it intends to to cut SGD $5.75 billion from our current defence spending, or approximately 44% of our defence spending to pay for the increased budget spending on welfare and other plans.

Someone asked me if this was feasible or wise?

I am not a military expert, although I did serve 2 years of National Service as an Armour Recce Commander.

However, I am good at creating Monte Carlo simulations. Which is what I did to try to answer the question of whether Singapore can our military spending by SGD $5.75bn (40%)

Picture taken from Janes:

From Janes Defence, Singapore's National Defence budget is SGD13.1Bn in 2015.

Let's compare the expenditure across the various government ministries:

From the above Data, we can determine that the top 5 biggest spenders are

Mindef: 13.1Bn (19.2%)

MOE: 12.10Bn (17.7%)

MOT: 10.85Bn (15.9%)

MOH: 9.29Bn (13.6%)

MHA: 5.00Bn (7.3%)

In comparison, with other Ministries, Mindef has the largest share of the budget at nearly 20% of Singapore's budget.

Now let us compare with a bucket list of other countries. (Data taken from here)

From the table above, we can see the following characteristics about Singapore:

1) Singapore has the 7th highest absolute Military Budget (MB) 

2) 3rd Highest MB as % of GDP, 

3) Highest MB per capita 

4) Highest MB per land area. 

So comparatively, Singapore has a relatively high budget for it's size, output and population.

Via comparisons with other countries and other ministries, it seems to suggest that Singapore has overspent on military. However, this is not enough to create an objective opinion of whether Singapore can reduce military expenditure.

You can download my model from the link below.

https://onedrive.live.com/redir?resid=CF7F78C43CE14ADC!3935&authkey=!AKWGVtD8qkQxZFA&ithint=file%2cxlsm

In the model, we can simulate the probability of an aggressor winning over Singapore by keying in various inputs.

Inputs:

B2: Input Singapore's Military Spending

B3: Input Singapore's GDP

B4: Select Aggressor

B5: Input Aggressor's Military Spending

B6: For use in Monte Carlo/Optimizer Simulations. Select the number of simulations, the higher, the greater the accuracy of the simulation but the longer it will take.

B7: Indicate what is the level of collateral damage to Singapore's GDP for every Military Damage Singapore Takes.

Buttons:

Start Attack: This simulates 1 attack in Ranges B11 to K32. Includes Short animation involving circles and lightnings

Reset: If you messed up the numbers, click this to reset everything

Monte Carlo Simulation: Runs x number of simulations, depending what you input into cell B6. Results are in table B34:J36

Optimizer: Runs 20 Monte Carlo Simulations from 1.1x of Aggressor's spending to 3.0x of Aggressor's spending.

So I ran the above simulation against aggressor M which has a military spending of 5.4Bn a year. I ran a Monte Carlo Simulation with 100 iterations. Up to a level of spending of 1.4x more than the aggressor, there was still a possibility of losing. However, beyond 1.5x, there is a 100% probability of winning against the aggressor. However, it is worth nothing that the level of losses sustained by the country (both collateral damage and military resources) decreases with each level of spending. Hence, there is some rationale for a country to end up with 3x higher spending than the aggressor. 

However, to truly optimize the level of spending, there are many other issues to consider such as whether military spending crowds out other government expenditure/investments and whether it will lead to an arms race.

In conclusion, Singapore's military spending is very high when compared to our regional neighbours and when compared between ministries. 

In a simple model like this, we cannot conclusively decide on an "optimal" level of military spending but we are able to some extent model the effects of military spending on collateral damage and probability of losing sovereignty. When compared to our neighbours, we could possibly reduce our military spending to 1.7x of Aggressor M's spending and still maintain a significant chance of victory and a deterrent effect (assuming that we only consider Aggressor M as potential military threat.).

If we use 1.7x as the magic number, Singapore's defence budget will be USD 9.17Bn which means we can cut military spending by USD 0.33Bn or SGD 0.47Bn. As such based on a forward defence and deterrence policy, There is little room to reduce military expenditure if Singapore wants to have nearly 0% chance of failure against a military aggressor.

PS: I have assumed a direct correlation between Military Spending and a nation's defensive and offensive ability. In reality, we also need to take into consideration the efficiency of Military Spending. My perspective is that if Military Spending is less efficient than the Aggressor, then we need to take look at how to improve the efficiency, however, if Military Spending is more efficient that the Aggressor, then it creates a bigger buffer. Also, there are many more assumptions which I have taken liberally here, feel free to leave your comments below on how this model can be improved further.

L.A.M.

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