Greater controls over ownership, management of key transport firms sought under new draft laws

To guard against adverse influences and major interruptions in essential services, a new set of draft laws will subject key Singapore companies in the air, land and sea transport sectors to greater regulatory scrutiny if Parliament approves the changes.

The Transport Sector (Critical Firms) Bill, introduced by Transport Minister Chee Hong Tat in Parliament on April 3, seeks to amend existing laws so that Singapore’s transport authorities have more teeth when deciding which parties are allowed to own, or have control over, designated key entities.

The proposed amendments will also extend existing powers that allow the transport minister to step in during extreme cases when certain essential transport services cannot continue in a safe and reliable way. These powers will apply to a wider range of companies than they do now.

While the Ministry of Transport (MOT) could not provide specific examples, it said designated key entities under the draft laws could include firms providing services that are not easily replaceable because of significant market share or specialised expertise.

These key entities could either be those that provide essential transport services directly in Singapore or those that hold an equity interest in a key transport company here.

According to the Bill, essential transport services include bus and rail operations, port and passenger ferry services, as well as airport ground handling and aircraft maintenance.

MOT said its new Bill seeks to amend four existing laws: the Bus Services Industry Act, the Rapid Transit Systems Act, the Civil Aviation Authority of Singapore Act, and the Maritime and Port Authority of Singapore Act.

The Bill does not cover the Point-to-Point Passenger Transport Industry Act, which regulates operators of taxis and private-hire cars.

The mooted amendments will allow the respective transport authorities – the Land Transport Authority (LTA), Civil Aviation Authority of Singapore (CAAS) and Maritime and Port Authority of Singapore (MPA) – to designate key entities under their purview and subject them to more controls.

These include requiring designated entities to notify the relevant authority and seek approval if there are major ownership and leadership changes.

Designated entities must also keep the authorities informed of events that could materially impair the provision of essential transport services, such as a lawsuit or an insolvency.

Additionally, designated operating entities cannot be wound up or dissolved without consent, and the relevant authority must be made a party to any related liquidation proceedings.

If Parliament green-lights the amendments, approval from CAAS, for example, would be needed before shareholders in a designated aviation company can lower their controlling interest in the firm below certain thresholds – 75 per cent, 50 per cent and 25 per cent specifically.

This applies to parties based in and outside Singapore.

Similarly, buyers of a designated bus or rail company’s shares will have to notify LTA within seven days if they become a 5 per cent controller of the designated firm.

Parties would also need LTA’s approval before they can gain a 25 per cent, 50 per cent and 75 per cent controlling stake, or if they gain indirect control over a designated entity.

An example of such indirect control could include a shadow director who has influence over a company’s affairs but is not formally appointed to the board.

Approval will also be needed before a designated transport entity can appoint a new chief executive or chairperson. This is to ensure appointees are fit and proper, and do not harm national interests, MOT said.

For designated entities licensed by LTA, CAAS or MPA – which may include bus, rail and airport operators – approval will also be needed for the appointment of board directors.

Under the draft laws, any breach of the proposed requirements will be an offence, with the penalties differing by sector.

For bus services, for instance, guilty persons may be fined up to $50,000 or jailed for up to six months, or both. For aviation, the maximum fine for an individual will be $500,000 and the maximum jail term will be three years.

The authorities will also have the power to issue remedial directives in cases where approval was not sought or if approval conditions were not followed. These directives may involve removing key appointment holders, for example.

The amendments proposed by MOT mirror clauses in the Significant Investments Review Act (Sira), which came into force on March 28, and allows Singapore to screen major investments in entities deemed critical to national security interests.

MOT said the Transport Sector (Critical Firms) Bill will complement this new law. Hence, if the proposed amendments are passed, designated transport companies will be regulated by the respective transport authorities, and not under Sira.

MOT told The Straits Times it is taking this sectoral approach because it allows the authorities to tailor their controls to the needs of the respective sectors and “harmonise” controls across key firms.

The ministry added that the proposed changes will complement existing ownership and management controls in transport licensing regimes, and allow the authorities to designate key transport entities that are not licensees.

MOT said industry representatives have been consulted on the Bill, and its potential impact on businesses and investors. Further engagements on the Bill will be held with the entities earmarked for designation, if Parliament approves it.

The aim is for the proposed amendments, if passed, to take effect in the second half of 2024.

A debate on the Bill is expected in May.

Mr Daren Shiau, co-head of law firm Allen & Gledhill’s competition and foreign investment review practice, said the new draft laws are a “rational response” to a need to protect national security interests against a backdrop of deglobalisation.

He noted how a significant number of countries, including most of Europe, have been adopting similar foreign direct investment review regimes in the past three years.

“Given the ubiquity of such cross-border regimes... and the measured approach of the Bill and Sira, I do not see the Bill having any cooling effect on inbound or domestic investment in transport businesses,” Mr Shiau added.

Transport economist Walter Theseira said the new Bill, if passed, may increase participation of new and international players in the market for critical transport services.

“The lack of an established track record or relationship in Singapore could potentially be made up for by this legal safeguard mechanism,” said Associate Professor Theseira.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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