The ERP Spike

Written by azhar.

[Updated on 18/7/08]

Singaporean motorists thought they have heard the worst news this year when oil prices surged to a record high. However, the situation has just turned more complicated as the Land Transport Authority (LTA) had just announced its plans to raise the Electronic Road Pricing (ERP) charges this year. The changes will take effect starting from July 7.

According to the LTA, the changes include a rise in ERP charges for up to $2 more and the introduction of five new gantries along the Singapore River which will go live from 6pm to 8pm on weekdays. The introduction of the five new gantries will bring the total number of gantries islandwide to 65. Another change announced affects the actual ERP charges. All new gantries will begin with $2 deductions and as speed continues to decline, each jump will be $1.

The new measures have been introduced to help control traffic congestion on the roads in the Singapore business district. The LTA calculates the congestion level by referring to the 'average' speeds of taxis passing through the ERP gantries. If the figure plummets, this will indicate that there is a congestion as motorists are unable to enjoy a smooth ride. 6,000 taxis are equipped with the LTA devices that measure the distance driven and the trip time. From July 7, motorists will be able to travel at speeds above 20kmh on arterial roads and at least 45kmh on expressways, at least 85 per cent of the time, up from just half the time now. Furthermore, the LTA also hopes that the new changes announced will help encourage more citizens to switch to public transportation.

The changes in the ERP system turned out to be a real can of worms for some motorists, especially the taxi drivers. The escalating petrol prices has already burnt a huge hole in their pockets. The high ERP charges will further leave them in a lurch. The operating costs for the taxi drivers has significantly increased this year. Taxi companies are responding to the problem by introduing schemes which will help alleviate the financial burden. Taxi opearators such as TransCab and Smart Taxis are providing monthly cash rebates worth $90 to each driver to help them deal with the higher ERP charges. A rise in ERP charges will eventually lead to higher taxi fares as taxi drivers transfer the extra costs to consumers. This can result in a decline in the number taxi bookings as taxi rides become more expensive and the business will be less profitable as the quantity demanded falls. The taxi drivers are the worst group of people affected by the new changes which will take effect from July 7.

Besides the taxi drivers, another group of people who will be adversely affected by the changes in the ERP system are the motorists who work in companies located in the charging zone. Crossing all the gantries can cost road tolls for up to $3 or more each day. This illustrates a higher cost of living for the workers who will have to pass through the gantries to get home. Some workers interviewed commented that they will just have to stay in their workplace until after 8pm, when the gantries stop operating. Delivery workers may also be affected by the changes. They will have to incur higher road tolls every time they need to deliver any goods or services to a customer located in the charging zone. However, in the long run, the delivery companies can benefit from the changes when traffic congestion is reduced. They will be able to provide better service to their potential customers.

Nonetheless, some people suggest that the new measures implemented are beneficial to the companies along the roads of the business districts which welcomes motorists with the ERP gantries. The higher ERP rates will discourage motorists from using the roads, and hence reducing traffic congestion. Economists define traffic congestions as a negative externality. While an automobile company has to pay for electricity and other costs of production, the individuals living in the country will have to pay for the traffic congestion since it will cause them to have higher road tolls. When there is minimal congestion along the roads of the companies, customers will find it easier to patronize the businesses there. This is especially true for food and beverage entreprises as the fall in traffic congestion allows greater convenience for their loyal customers. In fact, the Straits Times reported that hotels, restaurants and retail enterprises in the charging zone have since profits go up for the case of London which started levying road tolls downtown in 2005.

It looks like public transportation is the best method to travel for Singaporeans in the future. The Singapore government had introduced initiatives to further improve the quality of our public transportation system such as increasing the train and bus frequencies. While the rich is still able to afford a car despite the high road tolls and surging petrol prices, it seems like taking a bus or a train will be an everyday lifestyle for the middle-class workers in the future. Time to top up your EZ-link!


Anonymous said...

Rise in taxi prices would lead to a fall in QUANTITY demand.

Fall in demand in due to factors other than price.

azhar said...

Thank you for alerting me about the mistake.

Updated on 18/7/08.

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