S YNTHESIS R EPORT – C OMPETITION R EFORMS , N ATURE
I MPACTS ON B ENEFICIARIES (B US T RANSPORT )
Nathan Associates on behalf of
Frederic Jenny, Adviser, CREW Project
CREW International Conference
18th Nov 2014, Bangkok
OF
M ARKET &
Importance of the Bus Transport Sector
 A study estimated that congestion costs Europe about 1% of Gross Domestic
Product (GDP) every year.
 In London, a fifth of the commuters spend on the road travelling for more
than two hours a day, adding up to one working day a week.
 On an average, transportation expenses accounts for 4% of cost of
manufacturing. Similarly, it accounts for 10-15% of household expenditure.
2
Bus Transport Sector in India: Background
 2 key central laws governing the sector in India:

Road Transport Corporations (RTC) Act, 1950 - provisions for establishing
RTC for the whole or any part of the state

Motor Vehicles Act (1939 and 1988) - provisions to nationalize road transport
services to be operated by state road transport undertakings (SRTU)
 These laws provide discretion to the state governments in their implementation at
the state level resulting in disparate impact of regulation on competition across
states.
 Eg - The MVA allowed the SRTUs to use discretion to decide on partial or
complete exclusion of private entities in provision of road transport services - The
share of private buses varied from 7% in Maharashtra in 2005 to 97% in Orissa
and 85% in West Bengal.
 Besides the central MV Act, there are state MV rules (within the ambit of the MV
Act) that vary from state to state resulting in varying structure of road transport
across the states. For example, while all intra-city routes are reserved for public
operations in Maharashtra since 1974, Madhya Pradesh (MP) abolished the MP
State Road Transport Corporation (MPSRTC) in 2005.
3
Bus Transport Sector in India: Focus of the Study
 The study analyzes the impact of competition in the transport sector with respect
to the intra and inter city bus transport services in two states – Gujarat and MP.
 The intra-city transport focuses on the two main cities in these states –
Ahmadabad in Gujarat and Bhopal in MP. It is divided into 2 types of bus
transport (a) regular bus transport and (b) bus rapid transport system (BRTS
introduced in 2009 in Gujarat and 2013 in MP).
 The inter city bus transport segment is also divided into 2 types of transport (a)
stage carriage and (b) contract carriage. The policy measures being addressed under
this segment are:

The varying public control over permits issued in the inter-city bus passenger
transport segment - In Gujarat, stage carriage permits are exclusively reserved
for the SRTUs, while in MP, the inter-city bus passenger transport segment is
open for private sector, with the state government retaining only certain
regulatory oversight functions.
4
Intra-City Bus Transport: Ahmadabad
Regulatory
context
Barriers to entry and
concentration
Assessment of
regulations and
competition
• Monopoly of • Regulation restricts entry of • Fare regulation,
public sector
private operators – role of
spread of the
(AMTS) over
private sector limited to
network, fleet
the intra-city
provision of buses to
size, bus
bus
AMTS
routes,
transport
variation in
•
Private
operators
are
network
services, etc.
engaged through
under AMTS.
• BRTS
competitive bidding
introduced
(Revenue is charged on per • Private
in 2009.
km basis irrespective of the
operators
Regulated
route allocated, assuring
receive a fixed
by
the operators a return
amount on per
Ahmedabad
based on distance covered)
km basis.
Janmarg Ltd
• Chartered Speed Carrier is
(SPV of
the only operator for rapid
Ahmedabad
transit in Ahmadabad
Municipal
acting as an extended arm
Corporation)
of Ahmadabad Janmarg .
Policy and market failure
• Limited scope for market to
play a role.
• Inefficiency in the delivery
of service by public
operators in the absence of
significant competition.
Losses from operation for
public operator.
• No incentive for private
operators to provide
efficient service / innovate cost minimization is the
only operational target for
private operators.
• Control of public operators
in deciding the contours of
the bus transport service to
be provided stifles
innovations
5
Intra-City Bus Transport: Bhopal
Regulatory
control /
initiatives
• Operated
through PPP
model.
• BCLL
provides
regulatory
oversight
but
operation
largely in
hands of
private
operators
Barriers to entry and
concentration
• Barriers to entry exist in
the form of high
investment required for
operation in a route.
• Private bus operators,
are chosen through open
route-wise competitive
bidding - There are 2
private operators, each
enjoying monopoly over
its route for 8 years.
Assessment of
regulations
and
competition
Operational
decisions likes
fare regulation,
route
determination,
bus schedule
preparation, etc
are under
BCLL.
Policy and market failure
• Limited scope for market to
play a role
• Control of BCLL in deciding
the contours of the bus
transport service to be
provided stifles innovations
• Limited choice for consumers.
• No competition for operators
in case of BRTS - no incentive
to innovate or improve service
• Capital Roadways is the
only private operator for
BRTS in Bhopal
6
Inter-City Bus Transport: Gujarat
Regulatory
control /
initiatives
• Only GSRTC
permitted to
operate stage
carriage
service
• All private
operators
limited to
contract
carriage only
Barriers to entry and
concentration
• No private players in the
stage carriage segment
legally.
• Entry and exit is easy in
the contract carriage
segment - no restrictions
on the number of permits
or fleet size
• Competitive rivalry
between public and the
illegal private operators
Assessment of
regulations and
competition
• Clandestine
(illegal)
operations of
private
operators in
stage carriage
segment
indicate weak
regulations
Policy and market failure
• Limited private
competition, competitive
benchmarking, presence of
budgetary support, etc. lead
to significant operational
inefficiency by GSRTC.
• Private contract carriage
permits are operating de
facto as stage carriage
operators, however, cannot
publish time schedule of
operation or fare chart,
cannot enter the city limits
during specified hours of
the day, issue tickets etc
7
Inter-City Bus Transport: Madhya Pradesh
Regulatory control /
initiatives
Barriers to entry and
concentration
• In 2005, MPSRTC
was abolished and
the inter-city bus
passenger transport
sector was thrown
open for entry by the
private bus transport
operators.
• Market entry is easy and
there are no restriction on
the number of permits or
fleet size for the private
players - as evident by
market domination by
private players
• Limited oversight by
the STA/RTAs Fares are however
regulated externally
by RTAs
• Sector is fragmented with
200 operators in Bhopal
with 20-30 buses each
Assessment of
regulations and
competition
• Significant
competitive
rivalry between
private and
public operators
• A strong and
effective
regulator is
absent
Policy and market
failure
• Service availability
limited to profitable
routes
• Inefficiencies in the
form of unreliable
schedules, fares
higher than what
regulation allows,
poor condition of
vehicles, etc due to
insufficient
infrastructure and
regulation
8
Bus Transport Sector in India: Conclusion
 MP: Regulatory oversight in terms of legislative backing, availability of resources and
ability to intervene is important in the transport sector to ensure the welfare of
consumers and producers.
 Gujarat: Enhancing efficiency through increased competition from the private sector
needs to be undertaken to enhance welfare and reduce the burden on the public
exchequer.
 Competitive bidding is one way to introduce private competition in the bus transport
sector. Under this system, the operational control in terms of routes, fares, frequency
etc is held with the government, while the operations are delegated to private
operators. Competitive bidding however must be carefully planned to maintain a
balance between entry barriers and service quality.
 It is important to integrate the public operators in a reformed transport framework
with greater private participation and competition. A negotiated performance based
contract model based on parameters such as ratio of on road buses to total fleet,
punctuality in services, revenue per km, cost per km, manpower deployed per bus,
revenue staff, daily operational length per bus, etc. may be identified as targets for
SRTUs, whereby the state budgetary support may be tied to target fulfillment.
Benchmarks can be decided based on the performance of the other private/public
operators plying under identical/ similar service environment.
9
Bus Transport Sector in the Philippines: Background

Move from a highly regulated and concentrated market in the 1970s to a liberalized market
composed primarily of small operators

Major reforms in bus transport regulation were carried out in the early 1990s and a
moratorium on issuance of new franchises was imposed in 2000

The market operates under a highly complicated regime where regulation and enforcement
is shared by several agencies

Entry into the market is now relatively unfettered
Entry category
Entry Into and Exit Out of
Industry
Entry to a New Route
Details/Characteristics
Liberalized to introduce and/or enhance the level of competition in terms of the
rates charged and the quality of service rendered. Minimum of 2 operators in any
route
Protection of investment for a maximum of 2 years, after which, the link/route
shall be opened for entry to at least one (1) additional operator
Entry to an Already
More efficient and cost-effective, competitive service than the existing/authorized
Established Route Served
operators; better quality service; additional capacity to meet an increase in demand;
by Franchise Operator(s)
lack of effective competition; and violation of regulations by existing operator
10
Bus Transport Sector in the Philippines: Impact of Regulations
Regulatory
control /
initiatives
• Liberalization
in the early
1990s
• Moratorium on
issuance of
new franchises
in 2000
Barriers to entry and
concentration
• Numerous operators
(over a thousand)
with a few buses per
operator (11 to 14 on
average) in the major
routes
• The moratorium was
not binding
Assessment of regulations
and competition
Policy and market
failure
• Fragmentation of
enforcement
• Infrastructural
constraints
• Too many operators and
buses resulting to traffic
congestion , despite
moratorium indicating
ineffective regulationExcess of buses on the 30
operational routes with
load factors well below
capacity
• Transport safety
and concerns
• No flagrant
anticompetitive practices
• Congestion costs:
• Foregone
earnings of 4.5
billion PHP
• Bus operators
costs of 900
mil PHP
11
Bus Transport Sector in the Philippines: Conclusion
 The numerous operators and the limited network of roads is akin to a common
pool problem, that left to unfettered competition results in a less than optimal
result in the form of traffic congestion.
 The challenge for the regulator is to come up with a way to maximize social
welfare (availability of affordable mode of transportation at a timely manner)
through a mode of contracting (allocating routes) that is self-regulating, i.e.,
incentive compatible such that operators deploy the optimal number of buses
given the needs of the metropolis.
 The benefit-cost analysis implemented in this DCR shows the tremendous
magnitude of benefits from implementing an effective regulatory regime that
addresses the congestion problem.
 Such a regime may, to be feasible, entail limits in the number of operators.
 Obviously such limits should not be overly restrictive and go the opposite
extreme, leading to failure of contestability and the rise of market power.
12
Bus Transport Sector in Ghana: Background
 The sector was deregulated in 1980s to increase competition and encourage
greater efficiency and service improvements for the benefit of commuters
 Overtime, the Government of Ghana has undertaken various reform initiatives
towards the development of bus transport in Ghana. These include:

Development of the National Transport Policy in 2008

Introduction of various transport plans and programs

Creation of Metro Mass Transit (MMT) service to reduce congestion;

Regulation of fares to meet the needs of the poor; and,

Promoting private sector investment in transport infrastructure and services
to improve service quality and safety.
13
Bus Transport Sector in Ghana: Impact of Regulations
Regulatory
control /
initiatives
• Establishment of
MMT and
subsidization of
its fare to
consumers
Barriers to entry
and concentration
• Low barriers to
entry results in
fragmentation
• The major
barrier to a new
• Regulation of bus
entrant is to do
transport fares
with the choice
of route and
• Transport unions
control of
play a key role in
terminals by
the market
transport unions
• Private players
(mostly
informal)
dominate the
bus transport
market
Assessment of regulations
and competition
• Limited enforcement of
regulation on road transport
operators.
Policy and market
failure
• Poor service quality
• Major safety issues
such as use of unsafe
old vehicles
• Transport unions engage in
anticompetitive practices in
• Worsening access to
the informal sector such as
transport by the poor
market allocation, exclusion
from terminals, and
• Lack of a profit
mandating joining a union to
motive provides
operate a designated route.
little incentive for the
MMT to be efficient
• Unfair competition between
MMT and private operators
on some routes on account
of heavy subsidization of
MMT fares.
14
Bus Transport Sector in Ghana: Conclusion
 Private sector development: The scope of private sector recapitalization is limited
due to high interest rates and the level of risks associated with recovery by the
financial institutions and the control exercised by the unions .
 Route allocation: Presently, bus route allocation is controlled by unions with the
exception of a few free flowing drivers who refuse to join unions. Past efforts at
route allocation under the Urban Transport Project (UTP) whereby bus
management per route would have been through tendering was also rejected.
 Combine route licensing and introduction of quality contract: This will lead to
increased bus patronage by

Increase in commercial fares due to higher operational costs from improved
service quality

Lower travel time

Effective demand management and improvement in local bus services (such
as increased frequency, imaginative fare structures and better real time
information for passengers)

Economies of scale from combination of overhead operational cost such as
management, labor and vehicle maintenance.
15
Bus Transport Sector in Zambia: Background
 Deregulation of the transport sector in 1991 led to entry of private sector
 However, entry did not lead to sufficient supply to meet demand due to high capital
outlay and poor road infrastructure. Thus, tax concessions were offered on bus imports
in 1994 and 1995, which along with the liberalization of the economy and market
determination of bus fares, made bus transport attractive
 Passenger transport trade associations outlawed in the mid-1990s - operate on ad-hoc
basis usually to achieve a specific purpose (like fare revision)
 Proposals of fare revisions by operators are reviewed by the Road Transport and Safety
Agency (RTSA) in consultation with Ministry of Transport, Works, Supply and
Communication (MTWSC) and other stakeholders
16
Bus Transport Sector in Zambia: Impact of Regulations
Regulatory context
• Liberalization in the
1990s
• No route allocation
policy currently.
Instead operators
obtain licenses for
inter or intra-city
routes
• Market determined
fares (to some extent)
Barriers to entry
and concentration
• Promoted entry
through imports,
market
determined fares,
etc
• Private
participation
• Similar fares in
intra-city network
Assessment of regulations
and competition
• Little or no regulatory
barriers to entry
• Competition between the
operators in terms of
price/service
• Potential for revision in
route allocation and fare
determination policies
Policy and
market failure
• Better
coordination
among
regulatory
agencies
• Right mix of
regulation and
competition
• Variation in intercity bus transport
in terms of service
17
Bus Transport Sector in Zambia: Conclusion
 Limiting barriers to entry has resulted in competition on the basis of price/service
 Market determined route allocation and fare determination promotes entry and
competition in the market
 Need to ensure:

coordination between the Ministry of Transport and other regulatory
authorities.

the right mix of competition and regulation
18
Key Findings
 Lack of competition leads to poor performances whether through monopoly
(including public monopoly) or anticompetitive practices (allocation of
routes by unions in Ghana).
 On the other hand, competition without regulation may lead to diminution
of the quality of services (through skimming of the most profitable routes,
lack of respect of schedules, etc.) (see for example Madhya Pradesh inter city
bus transport). But in some cases competition is enough to discipline the
market (Zambia). The fragmentation of regulatory agencies may be
detrimental to the quality and consistency of regulatory enforcement by
creating confusion (Philippines)
 Private anticompetitive practices, sometimes fostered by the existence of
transport unions, lead to poor performance of the bus transportation sector
(Ghana); the abolishment of transport unions in Zambia has not led to
decreasing performances of the sector.
19
Key Findings (Continued…)
 Licensing and allocation of routes can help eliminate congestion but can
create barriers to entry and may reduce competition by excluding informal
operators. Licensing does not alleviate congestion if it is poorly enforced. If
poorly enforced, it may coexist with congestion (multiplication of informal
buses) (Ghana).
 Allocation of routes through competitive bidding must be devised so as to
ensure that the concessionaire has the right incentives to remain efficient and
to maintain the quality of service (see for example India, intra cities bus
services comparison between Gujarat and Madhya Pradesh). It may also be
that allocation of routes is not necessary (Zambia)
 State subsidies given to operators (private or public) often have a
disincentive effect and foster inefficiencies (Ghana - subsidy for the MMT)
 There is a general lack of information or empowerment of consumers in all
countries under review
20
Thank you
21