Transition to improved Bus Regulatory Regimes in Developing Countries: a review of international experiences Honey Gupta & Rijit Sengupta CUTS International.

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Transition to improved Bus Regulatory Regimes in Developing

Countries: a review of international experiences

Honey Gupta & Rijit SenguptaCUTS International

5th May, 2015 Manila, The Philippines

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Outline

Introduction (Overview of the CREW Project)

Key Findings (Countries)

Context and Need of Regulation

Bus Transport System – basic elements

Select country experiences

Counter-Balancing Measures for Different Bus Industry Structures in Developing Cities

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1. Introduction (Overview of CREW Project)

• CUTS work on competition policy and law across Asia & Africa (www.cuts-ccier.org) supported by development partners and recognised internationally

• Partnership with various public agencies/authorities in the countries, and regional authorities

• Competition reforms can be used as a tool for achieving developmental outcomes – CREW project (www.cuts-ccier.org/CREW). Making competition reforms work for people

• Demonstrate benefits of competition reforms on consumers and producers in key markets- Countries: Ghana, India, The Philippines & Zambia- Sectors: Staple Food (Wheat, Maize and Rice) & Bus Transport- Approach: Evidence highlighting linkage of competition/regulatory reforms with

consumer and producer welfare- Evidence base advocacy for policy change through a consensus-based, multi-stakeholder

driven process

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2. Key Findings from Research (Countries)

Ghana Inter-city and intra-city is dominated by private operators, with the public operator (MMT)

only acting as a ‘public interest’ (welfare) measure There are no fixed service schedules, with coverage largely restricted to high demand routes Women prefer bigger buses Lack of a scientific, inclusive fare setting process – strong influence of the ‘Transport Union’ Political economy constraints affect implementation

Zambia Characterized by imported second hand buses that often lack quality Staff/crew not professional and often rude High load factor (passenger km/seat km) and uncomfortable ride, in spite of high fares General dissatisfaction among consumers (about 70%) – fares perceived too high for quality

of service in city transport

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2. Key Findings from Research (Countries)

Philippines Evolved from highly regulated and concentrated in 1970s to a liberalised market composed of

private operators Current intra-city (Metro Manila) bus market is beset with excess capacity and weak enforcement of

rules Presence of a large number of buses (and private cars) in Metro Manila affecting consumers’

mobility and leading to huge time delays

India Different states have different approaches to transport service provision (only public

providers/public + private/only private) Govt monopoly in state like Gujarat leading to financial loss; purely private system in Madhya

Pradesh creates consumer concerns Welfare and Popular schemes for Women and Students exist Fare determination is done by states through a proper formula Process of reforms of the archaic MV Act has been taken up as a priority by the present Govt.

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3. Context, Need & Areas in Bus Transport Regulation

Most critical areas in Bus Transport Reforms:

- Fare setting

- Route Allocation

- Contract Management

- Gender considerations (Women’s comfort and Safety)

- Taxation (Licensing Fees)

- Bus Stations Development

Market driven Economy

Public Welfare (Public Interest)

Fig: Achieving the right balance (purpose of regulation)

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3. Need for Regulation (Countries)

GHANA Route planning and Fare setting mechanism (scientific, inclusive and transparent) Enhancing bus availability for consumers through equitable distribution of bus routes Establishment of Road Transport Authority (key functions and capacity building) Capacity development of Accra Municipality on Route Rationalisation/Allocation

ZAMBIA Review of the regulatory framework and institutional settings of RTSA Review of the ‘fare setting’ process in bus transport in Zambia Capacity building of Lusaka City Council on route rationalisation Bus Standards to make the journey comfortable and safe (ZABS, RTSA, Cons Orgn)

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3. Need for Regulation (Countries)

PHILIPPINES Strengthening enforcement mechanisms (identifying priority institutional issues) Metro Manila Development Authority and LTFRB to work in harmony to address public transport related concerns – what more needs to be done? Rational fare setting, as a measure to regulate competition (fares seem high – LTFRB to should consider conducting a ‘consumer survey’ in Metro Manila) Long-term sustainability of Metro Manila will require reduction in excess bus capacity (vehicular population) – comprehensive process of urban transport reforms

INDIA PPP seem to the way forward for promoting competition, need guidance for developing pro-

competitive procurement State level Transport Regulator proposed under the RTSA Bill 2014 – but lack consensus Need to move away from Govt monopoly – but maintain city bus transport as a ‘public welfare’

measure

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3. How and What to Reform? What Experiences Exist?

CUTS Discussion Paper:

Highlights basic elements of bus transport regulationReviews select country experiences – regulatory transition

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4. Bus Transport System – basic elements

The regulatory strategy, market type and access to the market together define the typology of regulation

Classification Degree of Competition Characteristics

Monopoly No Competition Administered Public Supply - Responsibility for services vested with a private co. or more commonly a public sector agency which plans and operates

Management contractingService Contracting

Controlled Competition (the ‘middle ground’ between monopoly and an open market): - Competition FOR the market

Regulated Market Model – The city sets out its requirements from the market and encourages operators to compete for the right to provide services in line with the requirements. These operators may be exclusively in the private sector or a mix of public and private sector operators. Operators are granted rights to operate by the city will normally have assurances that they will be protected from external competition ‘on-the-road’ (Need = Pro-Competitive Procurement Guidelines)

Open MarketOpen Competition- Competition IN the market

The Free Market Model – Ownership, control and operation is entirely within the private sector in the most extreme examples of this model. On-street competition between operators and companies is allowed and indeed encouraged. The full innovation and expertise of the private sector is engaged, but there is very limited if any scope for the city to influence outcomes. Regulation is limited to safety, environmental and as appropriate a city or government’s monopoly and competition regulations. The most well-documented example is in the UK cities outside London (Need = Govt plays a close Supervisory Role)

This approach balances public sector control of

policy and service planning decisions

with the active involvement of the

private sector.

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4. Bus Transport System – basic elements

• Competition is key element of reform; incentives provided by competition are generally more effective in promoting efficiency and demand-responsiveness

• Competition in urban bus transport can take two forms:

“On the Road” competition, also called “Competition in the Market”

• “On-the-road” competition allows operators to compete directly with each other for customers, with or without restrictions.

• This is the closest that public transport comes to a totally open market, which is rare

“Regulated” competition, also called “Competition for the Market”

• “Regulated” or “off-the-road” competition is the strongest emerging trend, and allows operators to bid for the contract or franchise for specified operating services.

• The winning bidder usually enters a contract and is given protected or exclusive rights for the service provision

• Most developed cities of, EU including London; Australia; New Zealand and US exercise controlled competition for the market, i.e. the competition is for the right to operate

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4. Bus Transport System – basic elements

Bus route and service planning need not be sophisticated or require large resources, but progressive, systematic and realistic.

Planning invariably involves route identification based on demand assessment and development of a service plan

Public Transport Corridors (Origination/ destination data)

Load Profiling / Peak

- Demand Analysis

Bus Fleet (size and frequency

estimation)

Service Plan Optimisation

Recommended resource: ‘Bus Karo: A Guidebook on Bus Planning & Operations’ available at http://embarqindia.org/bus-karo

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4. Bus Transport System – basic elements

Fare regulation is an integral component of a regulated passenger transport regime• Controlled competition - fare control is usual; tender award criteria - highest revenue share or lowest

subsidy for the right to operate • If no fare controls - the award criteria may be lowest level of fares proposed for the service• In a fully deregulated regime, there are no direct fare controls (is this acceptably from a ‘welfare’

angle?)• Fares should either allow for full cost recovery, else Subsidy should be acceptable

Fare Setting involves two important considerations – Fare structure - Fare structure refers to the types of fares charged

• Flat fare (irrespective of distance travelled)• Graduated fare - fare increases with distance travelled, often increasing at a decreasing

(telescopic) rate• Zonal fare - fare increases with distance usually independent of bus routes used

Fare level - Average fare paid per passenger (or per passenger-kilometer) for the whole system. Raising or lowering this average level changes the total income of the bus system.

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4. Bus Transport System – basic elements

Contracts - Primary reference document laying down conditions that form the basis of the business agreement between the city authority and the service providerDifferent formats of contracts are used to procure bus services from private companies

What ‘unit of system’ is contracted out How is Operator ‘Paid’ for the services

Area ContractExclusive right to provide services on all bus routes in a given area of the city or urban agglomeration

Net CostOperator gets the right to collect fares from the service users; does not receive compensation from the authority. Operators may pay the authority a fixed sum (or royalty) / bus basis agreed at the time of contracting

Route ContractRight to provide all services on a specified route

Gross CostAll revenue accrues to the transport authority who then pays an annual fixed sum to the Operator for the production of services

RemarksThe authority may ‘bundle’ single route contracts to create a de facto exclusive area franchise. Some of the key advantages of an Area Contract may only be realized if the operator has an incentive to increase bus patronage, i.e. the contract is on a fully commercial, or a net cost basis

RemarksGross and Net Cost contracting represent different allocation of revenue risk among the Transport Authority and the Operator. Net Cost contracts usually allocate some right of initiative to the operator

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5. Select Country Experiences

Almost all developed and developing countries have experimented with different forms of ownership and regulation of bus transport.

1. SEOUL - Deregulation to Controlled (franchised bus) Competition Mostly deregulated prior to reforms, Seoul Metropolitan Government overhauled its bus transport system in

2004 Drivers for reform - Financial crisis of Seoul public transport system, Poor regulation, low service levels, Increased

car ownership, traffic congestion, air pollution

Reforms:o Bus Route Rationalisation – redesign of route structure, integrating > 400 bus routeso Transport Infrastructure and system Improvement – exclusive bus lanes, easy transfers, better user information o Distance based integrated fare charging – unified fare structure applicable to both bus and rail services

Reform Experienceo Initial public discontent with reforms could have been avoided with proper communication, involvemento By Oct 2004, almost 90% Seoul residents expressed satisfaction with the restructured bus services and new fare

systemo Gradually, average bus speeds increased by 33%o Total bus accidents and injuries on all routes combined have fallen by about one-third o Distance-based fare charging resulted in commuters paying about 30% less on average for using public transport

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5. Select Country Experiences 2. Sri Lanka – Monopoly to Regulated bus transport market Experienced distinctively different bus transport services in terms of ownership, management and regulatory structures during

the past 100 years Current form - regulated mixed competition that began in 1979 The unplanned and rapid growth between 1979 and 1983 led to many owner driven buses entering the industry

Reforms:o Incorporation of Ceylon Transport Board - nationalised the Bus operations creating Monopolyo Introduced individual private minibuses in 1979- to enhance bus transport capacity through competition; district based

operators' associations given regulatory powerso National Transport Commission Act in 1991 – to develop national policy for bus transport and for financial support o Fare rationalisation in 2000 – fares indexed to bus input cost; not effectively applied due to oppositiono In 2005, 11 Regional State Public owned and operated bus companies were reformed into a single entity - Sri Lanka Transport

Board (SLTB)

Reform Experienceo Operators selected their own vehicles, route frequencies and hours of operation. o Competition led to crush loads, excessive speeds, congestion in the central area and safety violationso National Transport Commission did not develop effective regulatory measures despite NTCA, 1991o Private sector fleet increased rapidly but reliability and productivity decline o Fare rationalisation reform in 2000 was ineffective due to weak regulatory structure o Competitive tendering of subsidised services to allow the private sector was not usedo Wrong emphasis on revenues instead of sector development

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Inherent challenges with different Bus Transport Market structures and common regulatory responses are compiled for self-assessment of strategies best suited to context….

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6. Counter-Balancing Measures for Different Bus Industry Structures in Developing Cities

Industry Structure

Inherent Problems Counter-Balancing Regulatory Measures

Monopoly

Low incentives to productivity and cost control Low demand-responsiveness Ill-defined corporate service/financial objectives Vulnerable to political interventions, especially on

fares, staffing Vulnerable to imposition of social obligations – fare

concessions, loss-making routes Tendency for ‘regulatory capture’ Illegal operators develop to fill quantity and quality

gaps in market

Establish performance targets and accountability for their achievement within a sound legal basis

Public service obligations to be defined, provision to be tendered, cost to be borne by sponsoring agency

Establish surrogate measures of efficiency & cost-effectiveness

License private operators to provide ‘niche’ services Define corporate objectives esp. for public service

and cost recovery.

Few large-scale operators(oligopoly)

All Private Tend to enter non-competition arrangements Competitive incentives muted Lack of competition inflates costs, reduces demand-

responsivenessMix of state-owned enterprises (SOE) and private operators SOEs enjoy privileged access to best routes and/or

are burdened with public service obligations SOEs enjoy some protection against competition

All Private Structure franchises to promote competition

(operating areas, duration, replaceability Establish objective, de-politicised fare escalation

strategy, possibly including performance incentivesMix of state-owned enterprises (SOE) and private operators Create ‘level playing field’ in the market Establish benchmarking to compare performance Establish objective, de-politicised, fare escalation

strategy.

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6. Counter-Balancing Measures for Different Bus Industry Structures in Developing Cities

Industry Structure

Inherent Problems Counter-Balancing Regulatory Measures

Mix of small and large-scalepublic/privateoperators

Large operators engage in predatory competition against small operators

Large operators buy out small operators Small operators form association to protect their

interests Private operators neglect unviable services

Regulatory framework to define structure of competition

Establish a de-politicised fare escalation strategy Encourage small operators to provide ‘niche’ services Maintain realistic service and infrastructure

obligations Regulator maintains vigilance thru’ systematic

surveys & inspections

Multiple small scale& individualprivate operators

Each vehicle is a separate business; no operator will accept low demand routes and times or be accountable for performance of the whole route

Operators tend to wait until full of passengers, causing uneven headways, lack of capacity, unreliability

Too many licensees for effective control by authority Tendency of control of routes, territories by illicit

groups Small-scale operators tend to breach service and

vehicle rules

To establish control - must consolidate operators into groups capable of accepting collective responsibility for a route

Since cross-subsidy is not feasible, unviable routes must be supported by external subsidy.

Source: Bus Regulation and Planning – Bus Sector Reform, Federal Ministry for Economic Cooperation and Development, Germany

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THANK YOU!