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Hanoi Case Study
Title: Study of Urban Public Transport Conditions inHanoi, Vietnam
Author: Gordon Neilson
Date: March 2004
Download the case study (MS Word 576KB)


Structural reform
Institutional and regulatory structure
Operational structure
Perceived problems
Problems with introducing market reforms

Hanoi is the capital of Vietnam. It covers an area of 927 km2 and its population in 2003 was estimated at about 3.23 million. Hanoi currently has low levels of public transport usage despite also having a low GDP per capita.

Structural reform
In the period immediately following the end of the U.S.-Vietnam war and the reunification of the country in 1975 almost all business and industry of any size was carried out by state owned enterprises (SOEs). But since the end of the 1980s there has been a gradual shift away from the dominance of SOEs over the economy.

The government encouraged a process of equitization or socialization, under which SOEs were allowed to sell part or all of their capital to the public and other investors, and to issue additional shares to increase capital. This led to the creation of publicly held companies in Vietnam with the state, the businesses' employees, and private shareholders being owners. It has also helped to mobilize capital from various sources for equitized SOEs and increase the efficiency of state enterprises.

The top administrative level in Hanoi is the Hanoi People’s Committee (HPC) which reports to the People’s Council. Under the HPC are the administrative departments of the city, one of the more important being the Transport and Public Works Service (TUPWS), which is responsible for public works including public transport. The division of TUPWS directly responsible for public transport provision is the Transport Management and Operations Centre, TRAMOC.

The central government is keen to introduce the private sector into public transport services in the major cities. While currently all bus services in Hanoi are provided by SOEs, in Ho Chi Minh City (HCMC) the position is rather different, with most public transport routes being operated by cooperatives — essentially private organizations, using lambros (mechanised three wheelers with about 8 seats) and full size buses, with only a small state owned sector. The difference in the situation in the two major cities suggests that the central government did not have any strong views about public transport provision.

The central government now recognizes the importance of public transport for the major cities and would like to encourage the private sector either through tendering of new routes or through equitization of existing SOEs.

The key policy objectives of the city as they relate to public transport are to:

  • Increase bus ridership substantially without an increase in levels of subsidy
  • Avoid the need for the city to purchase buses from its own funds
  • Encourage the participation of private companies in the provision of urban bus services
  • Six routes were put out for tender in 2004 and the evaluation was completed in early 2005. Two companies shared the six routes. There were plans to tender out seven more bus routes in 2005. One problem which arose was that the bidding documents specified gross-cost contracts but following submission of the bids there were disagreements within government and attempts are now being made to amend the bids to net-cost contracts.

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    Institutional and regulatory structure
    As recently as 1980, public transport in Hanoi carried around 200,000 passengers per day. In the late 1980s subsidies to SOEs were cut back, leading to a reduction in public transport services and losses in ridership. By 1990, the subsidies were eliminated which resulted in the near total collapse of public transport in Hanoi with average ridership in 1992 of about 8,000 passengers per day. As bus services declined the public adopted bicycles and subsequently motorcycles as the normal form of urban transport.

    During the following decade the SOEs providing public transport services in Hanoi were reorganized under Transerco, which owns all buses and other assets, which it makes available to the four operating companies at no charge. Since 2001, bus services in Hanoi have experienced a spectacular recovery. The fleet size increased from 237 buses at the end of 2001 to 708 at the end of 2003, and the number of passengers increased to over 660,000 per day in December 2004.

    Since the regulatory agency TRAMOC and the bus operator Transerco were, until May 2004, both subsidiary organisations of TUPWS their relationship was not strictly one of regulator and operator. With the removal of Transerco from TUPWS in May and the proposed introduction of the private sector, there is a need to reform the institutional structure.

    There are a number of private transport enterprises operating in some transport fields such as goods transport, taxi, etc. But none is permitted to engage in public bus transport sector. Currently, the city public transport business is completely under the monopoly of Hanoi Transerco.
    Since public bus transport business in Hanoi is carried out only by SOEs under the subsidy and assignment regime of the state, there are no state regulations specifically governing public bus transport sector other than regulations on public works state-owned enterprises in general and the following regulations on transport enterprises.

    Until the issuance of the interim regulation on transport enterprises participating in public bus passenger transport in Hanoi, there were no specific regulations on public bus transport sector in Hanoi. The interim regulation is considered a substantive reform for the Hanoi public bus transport sector. It sets out for the first time provisions allowing private transport enterprises to join with SOEs to participate in public bus service in Hanoi.

    In Hanoi the informal pubic transport sector takes the form of xe om (motorcycle taxis) and cyclos (three-wheeled bicycles seating two adults).

    Almost all families have at least one motorcycle that serves the same function as a car in more affluent societies. Schoolchildren and many others continue to use bicycles. Thus, since the city is relatively compact, there appears to have been little pressure for alternative informal modes of transport even when the formal public transport system was almost non-existent.

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    Operational structure
    Responsibility for public transport lies with TUPWS it has set up TRAMOC as the division with specific responsibilities for management and operation of public transport. Transerco has de facto control over all the routes while TRAMOC is responsible for planning routes, issuing tickets, monitoring Transerco’s performance and determining the amount of subsidy to be paid. TRAMOC liaises directly with Transerco which in turn liaises with the operating enterprises.

    The current operating arrangement is that all routes are operated under negotiated gross-cost-contracts between TRAMOC and Transerco with back-to-back contracts between Transerco and the operating companies to supply the services. TRAMOC prepares operating schedules that specify the operating hours and the number of departures for each route and thus the distance to be operated. All tickets are the responsibility of TRAMOC and all revenues accrue to TRAMOC. In practice Transerco keeps the revenues it receives and deducts this from the contracted cost that it debits to TRAMOC.

    When Transerco took over the management of the routes at the time of the merger it also imposed standards for maintenance, cleaning, bus livery, etc. on the four operating enterprises.

    Although Transerco subcontracts out the routes to the operating companies under a negotiated price per route depending on the type of bus being used and the number of km operated, if the enterprise is able to operate the service at a cost below the agreed price then it is entitled to keep some of the difference. In the case of costs exceeding the agreed price, the reasons are determined and a case is made to TRAMOC to increase the price for the route.

    The Transerco bus fleet ranges from 24-seat minibuses to 90-passenger capacity buses. At the end of 2004, the fleet comprised 691 buses, mostly of 60 to 80 passenger capacity. Since most buses have been purchased since 2001, the average age of the fleet at end 2003 was very low at 3.4 years.

    The peak vehicle requirement at the end of 2003 was 527 buses, or 74% of the fleet. Given the average fleet age, a figure of 90% or above would have been expected.

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    Perceived problems
    The only significant problem is insufficient service, in the sense that buses cater for only about 7% of passenger trips in the city. It is also apparent that the use of buses is not as efficient as it should be. The reason why there is almost no bus service in Hanoi is historical and arguably is one result of the country’s difficulties following years of war. As such the problems are clearly over and the issue now is how to move forward.

    Financial problems, namely the city’s unwillingness to continue purchasing buses and the increasing operational subsidy, can be addressed without restructuring the service. The main reason to change the bus system in Hanoi today is that the current state owned monopoly no longer complies with government’s policy.

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    Problems with introducing market reforms
    There is a broad understanding of what is required in terms of public transport sector market reform, but the mechanics of implementing the policies pose problems. Even after the more extreme reform approaches have been discounted, there are a number of different approaches that appear possible and the difficulty facing the decision makers in Hanoi is to decide which approach is most appropriate for their vision of the future bus service. The next set of problems is how to introduce the changes on the ground. If there is no imminent crisis, there will almost certainly always be those who are opposed to the changes.

    There is also a certain fear of the unknown. There is little understanding of the need for government to work with the private sector to ensure that if the service is provided as specified then the reasonable demands of the private sector should be met. Paramount among these is the ability to be compensated for cost increases due to inflation. Another factor that appears not well understood is how the private sector treats risk and why it is sometimes better for government to take on risk to keep bid prices down.


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