[sustran] Regulating fares in public transport

[Brendan Finn]

Hi,

I'm new to the group, so I don't know if there's a lot of background to
messages 759-762 which include discussion on regulating fares for urban
public transport. Sorry if I'm going over ground that's been well covered
already or is well known by the group members - I'll get the hang of this
after a while.

Also, I have been having a little difficulty in getting the mail through to
the group (probably my fault). My sincere apologies if you are getting this
for the third or fourth time - please bear with me until I get the hang of
it !

Replying specifically to the two issues in the mail of John Ernst :

1) Fares in Singapore

Yes, fares are regulated here for urban public transport including Metro,
LRT, Bus. However, the taxi fares have been deregulated since 1998. Public
transport services here are profitable without either subvention or support
for concessionary fares. However, it should be noted that major
infrastructure is provided by the Land Transport Authority.

While different fares exist for the various modes, fares are consistent
across the bus operators. Fare level changes are proposed by the operators
to the Public Transport Council. The PTC is a statutory board under the
aegis of the Ministry of Communications and Information Technology, and it
is also the body which approves (or rejects) bus route proposals and
regulates bus service standards. Their website is http://www.ptc.gov.sg

2) Do fare controls lead to deterioration of transit in developing countries
?

I don't have any ideological problem with fare controls, and I don't think
that they automatically lead to a deterioration of transit. A key
characteristic of developing countries is the large number of people who are
on low income, and are dependent on public transport for their work-related
and personal mobility. It's reasonable for their governments or local
councils to protect them against unfair tariffs and to strive for affordable
transit. When the costs of providing the transport are reasonably allowed
for, price regulation can be well used to balance the needs of citizens and
business. For example, a maximum price rather than full specification of the
tariffs for every route/operator could allow operators to make interesting
pricing and service volume/quality choices.

However, price control can be seriously abused, most clearly when a populist
approach is taken. In this scenario, the government deliberately defers or
prevents necessary increases, just to avoid public reaction or to position
itself as a "friend of the masses". The effect of this is to extract cash
out of the operating companies as their inputs prices continue to increase
whereas their income remains static. In developing countries this is
reinforced not only by regular inflation, but especially by the huge
inflation in price for imported goods which are denominated in foreign
currency. This includes fuel, tyres, spare parts, IT, and of course
investment in replacement vehicles. (Note, a variant on this in parts of the
former Soviet Union was formal linkage of the tariff to the official minimum
wage which had to be approved by Parliament. Since changing this value had
impacts on pensions, welfare etc., it tended to get left alone for a long
while, followed by a huge increase which was a shock to the system and
caused patronage loss.)

The impacts are well known - without fares increases, the available cash
declines, corners get cut, and there are discontinuities in essential
supplies. Preventive maintenance goes by the wayside, vehicles sit idle
awaiting expensive spare parts, the available vehicles are put out until
they drop, and are patched up just enough to get them out again. When
tariffs are finally increased, it usually only brings them up to where they
should have been months before, and the cash drain begins again. The fares
increase is usually huge in percentage terms, and there is a reaction and
fall-off in ridership. Morale drops, and occasional delays in paying wages
encourage staff to pilfer fuel and parts, or peculate the revenue, making
the situation worse.

On the street, the services become fewer and unreliable, leading also to
overcrowding, and vehicles become dilapidated and dirty. The management of
the company must choosing between abandoning chunks of the network, or
spreading the resources very thinly. Either scenario is an open invitation
to the emergence of low-cost private operators, usually of the
owner-operator category using whatever vehicle and service type is available
and understood in the local culture. While they serve a very genuine need of
the citizens, they abstract revenue from the core network and build up their
market share.

By this stage, the cost of intervention is high. Fares need to be put up to
an economic level (political cost and pain), the current costs involved in
bringing the fleet back to standard must overcome the period of neglect, and
the need for capital investment remains. Of course, the market balance has
now shifted, and a new equilibrium is necessary. Unfortunately, in the
developing or transition economies with which I am familiar, there is
neither the political will nor the allocated funds to deal with the problem.
Roads or rail projects get the available donor or loan funds, on the
somewhat evasive basis that the market will provide for the urban public
transport.

You will note that I have focussed on the impacts on companies. I do this
since the original equilibrium (if it exists) will almost always have formal
bus companies which can become subject to regulation for political purposes.
A period of disastrous fare control only has to happen once in a city's
history to set the serious damage cycle in motion. Also, I feel that when
people are desperate for means of transport, fare control of the private
paratransit system breaks down, loopholes such as "special" or "premium"
services are used to justify double or triple tariffs, and authorities are
in no position to put them off the road.

Incidentally, lest anyone should think that fare control only impacts on
developing countries, successive Irish Governments refused any fares
increases to Dublin Bus from 1991 to 2000 ! This was for a mix of populist
reasons, and to try to force the company to get productivity efficiencies
deals through their labour force. Subvention was already down to about 10%
of total costs by 1991. While the service did not deteriorate over this
period of low inflation, one wonders if the funds generated by moderate
fares increases would have allowed substantial improvements in comfort,
service levels and service diversity ?

OK, to sum it up. I don't think that fares control is wrong in itself. But
when authorities deliberately prevent or even delay needed increases, they
set in place a dynamic which is seriously damaging to established bus
companies. In developing countries, there is usually not the available funds
to undo the damage later, and private sector paratransit is about the only
practical mobility service that can emerge in locations where investment
funds are not readily available. These are usually priced much higher than
the original bus services. In that sense, the poor have lost out twice - the
affordable transit service has deteriorated (or gone) and essential mobility
is done at a high price. This means suppression of trips and of
participation in society, and we all know that this always hits hardest the
people who are already marginalised. Ironically, for people with some
disposable income, the paratransit services may actually work out better
than the fixed route bus services.


I'd like to hear any opinions people have on this issue, especially with
real-world examples which can illustrate either the processes involved or
the impacts on the different players (operators, drivers, passengers,
communities).

Yours sincerely,



Brendan Finn.

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