Summary
History of the bus sector in Colombo
Structure and organization
Bus routing and scheduling
Effect of unions
Perceived problems
Options for reform
Reviving the public sector
Comprehensive competitive tendering
Sri Lanka is an island of 65,610 km2. Out of a total population of 19.6 million, 650,000 of the population live in the capital, Colombo.
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History of the bus sector in Colombo
Bus services were privately provided until the creation of a state owned monopoly, the Ceylon Transport Board (CTB), in 1958. CTB was subject to stringent government control of fares, and while the Treasury financed the operating deficits of the Board, in the absence of adequate finance the condition of the fleet, and hence the quality of service, gradually deteriorated.
Management became increasingly politicized, resulting in overstaffing, weak staff discipline, and loss of many of the more competent managers.
In 1977, a new government adopted a policy of introducing a market economy in the formerly state controlled sectors. The operations of the CTB were divided into regional companies (RTBs), and the CTB was given the power to issue permits to private operators to supplement the services of the RTBs. In 1982 a separate government department, the Department of Private Omnibuses, was created with powers to issue permits, sanction the creation of associations of private operators, and to regulate operations.
In 1987, responsibility for intra-provincial transport was devolved to the provinces. The RTBs were split into 94 peopleized companies with a majority of the shares of the company being transferred to employees. Under increasing pressure from the private sector the deficits of the public sector continued to increase. In an attempt to avoid the budget burden the 1991 National Transport Commission Act legislated that no permits to operate bus transport services were to be issued to state or provincial owned companies, abolished the DPO, and passed the regulatory functions to the NTC.
While the scale of deficit financing was reduced, the government was forced to continue to give financial support to the peoplized companies in order to maintain services. The NTC Act was amended in 1996 to consolidate the peoplized companies into 11 cluster companies, and to require that no permits should be offered to private companies with fewer than 50 buses.
Throughout the 1990s, the government continued to support the cluster companies with the provision of new buses and other forms of support.
In 2002, the government agreed the sale of a 39% stake in six of the thirteen cluster companies, on the basis that the winning bidder should maintain the existing services and employment on the then current terms as well as engage in a major re-investment. There were to be no subsidies or guarantees. The remaining seven companies were expected to go up for sale later on. The intention was that the management of the companies would be handed over entirely to the private sector, with the relationship between the private sector operators and their public sector co-owners governed by the management contracts.
Only one serious bidder emerged, to whom there was considerable local objection. The bus privatization was challenged in court and the government agreed to re advertise. However, a new government was elected in 2004 and the sale process was halted.
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Structure and organization
Bus services in Sri Lanka are provided by about 9,000 private owners of 18,000 vehicles, which provided for 76% of passenger trips, and 13 publicly owned cluster companies, which carry 24%. In addition to the total current operational fleet size of approximately 22,500, there are a further 6,500 vehicles registered but not operational in the public sector.
The responsible authorities for strategic management of the sector are the National Transport Commission (NTC) which is responsible for inter-provincial services and general policy advice to the minister, and the provincial councils, which are responsible for intra-provincial services. The NTC falls formally under the Ministry of Transport, to which it regularly reports, but acts as a quasi-independent regulatory body.
According to the relevant statutes all services should be provided under permissions, either from the NTC (in the case of inter-provincial services) or the relevant provincial departments (in the case of intra-provincial services). There is no exemption contained in the relevant statutes applying to the cluster companies. In 2001, a ministerial directive clarified the legal position that cluster companies should obtain permissions from the relevant authorities, but this directive has been ignored by the cluster companies and not enforced.
Since 1978, governments issued permits to private bus operators on a vehicle-by-vehicle basis without regard to the real transport supply needs. This system has become an important source of patronage.
There is a general perception that political intervention has led to an over issuance of permits to private operators, and two control mechanisms on the use of vehicles are now employed. Some permissions limit the number of days per month on which vehicles can be operated, and in some cases the number of trips per day that a vehicle can perform. Marshals control the dispatching of vehicles to try to ensure a fair distribution of the available business between operators. There is a suggestion that the marshals are sometimes subject to corrupt or criminal influence.
There is little effective monitoring of on-the-road behavior of operators, either private or public, and there is a general perception that behavior of operators is extremely undisciplined.
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Bus routing and scheduling
Bus routes and fares are determined by the regulatory authorities. Cluster companies and/or private operators may be assigned to any route.
The private sector companies have no incentive to operate on unremunerative routes as they are not eligible for subsidy. In contrast, there is a formal arrangement for the cluster bus companies to receive formula based subsidy for operating routes that have been formally declared as unremunerative routes.
While the cluster companies have a formal company timetable to which they do not adhere the private sector operators, because of their fragmentation, are assigned to a route on which, in most provinces there is no formal timetable.
The normal arrangement is that individual operators are allowed a specific number of turns per day and the dispatch of private sector vehicles is controlled by marshals.
The separation of the regulation of the private and public sector fleets means that intervals between services are often uneven and unpredictable. During the last two or three years the NTC and the Southern Province have drawn up integrated timetables including both cluster and private vehicles, and control the dispatching according to timetable. Within these timetables the cluster companies claim, and are usually allocated, slots according to their traditional timetable requirement rather than their actual operating capability. The non-appearance of their buses is covered by the maintenance of a private sector reserve that fills in on demand. While this is a sub-optimal arrangement in terms of vehicle utilization it does allow a scheduled service to be maintained.
The fact that permissions have been used as an instrument of political patronage means that they have tended to be granted in excess of real needs. For that reason, the NTC recently decided that no further permissions would be granted for inter-municipal services except in the special conditions of a competitive tender for new services. Existing permit holders are also now becoming concerned that there is an excess supply and are trying to resist the issue of new permits on routes on which they operate. Hence entry to the market is beginning to slow down. However, if the cluster bus companies were to again receive grants from government for vehicle purchase the effective fleet available could increase again.
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Effect of unions
The cluster bus companies have very strong, politicized, unions, supported by the current Minister of Transport. The effect of union strength is that the cluster companies are heavily overstaffed. Moreover, promotions within the cluster companies have been treated as a form of political patronage, with the result that too large a proportion of staff is designated in junior management categories. There is also a strong protection of job descriptions with the result that, despite the excessive numbers, there are often insufficient drivers or conductors to ensure that all available vehicles are actually run.
The private sector does not have traditional unionized labor. However, there are route associations of the incumbent operators that have on occasions opposed the introduction of new operators on already overprovided routes, and have been able to withdraw all services in support of their grievance.
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Perceived problems
There is a high and increasing budget burden, as a consequence of the continuation of uncontrolled deficit financing of the publicly owned operators. The majority arises from a general wage payment subsidy that allows the continuation of excessive levels of staff in the public companies.
Bus passengers are dissatisfied by operators’ behavior in a number of ways, including aggressive, competitive driving practices, failure to carry school children when there are full fare passengers to carry, and overloading.
Subsidies are poorly targeted, including payment of school transport subsidies exclusively to the public sector operators for services that are generally not provided, and the exclusive channeling of unremunerative service subsidies also through the public companies without any role being performed by the relevant authorities and without adequate independent audit of the subsidy claims.
Accident rates associated with buses are high. There is a public perception that this is primarily a problem with the private sector buses, associated with racing for patronage.
A major cause for concern is maintenance of service on unremunerative routes. The private sector is often criticized for its unwillingness to maintain services on such routes. The fact that the public sector is in receipt of massive subsidies, explicitly because of the role it plays in providing unremunerative services tends to be ignored, and the value for money of the public sector support to the cluster companies is not often publicly questioned.
The dispatching arrangements and the restrictions on the use of private sector vehicles have resulted in poor utilization of private sector vehicles and a poorer quality of service to the public than would otherwise be possible.
The private sector is currently extremely fragmented making it difficult to plan and implement services effectively. The introduction of combined timetables has improved service in some areas. Consolidation of the operators into strong associations and eventually into companies could be achieved through a route-based competitive-tendering system.
Some of the perceived problems, such as overcrowding at particular times and locations, are a result of the way in which the current regulatory system works. Complete deregulation might lead to a greater concentration of vehicles at the times and locations where demand is highest but it would also tend to exacerbate the problems of behavior discussed above. Moreover, the experience of quasi-legal self regulation as in the minibus market in apartheid South Africa, is that it tends to be associated with violence and mafia type control. Because that is already perceived to be a serious problem of a similar kind in Sri Lanka, complete deregulation is not advised here.
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Options for reform
Generic solutions that have been suggested to meet these problems are:
Commercializing operations and eliminating deficit financing of the selected state operators.
Ensuring that all operators supply services under contractual agreementswith the relevant authority.
Channeling all social subsidiesthrough the relevant authorities which have the duties to secure the provision of services.
The instruments for the achievement of these solutions are:
Enforcement of current legal provisions.
Introduction of competitive tendering of franchiseson a progressive basis, gradually extending to all services on a route basis.
Assistance to all parties to adjust to the requirements of the more commercial regime.
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Reviving the public sector
The declared strategy of the recently appointed Chairman of Sri Lanka CTB involves an ambitious strategy for the public sector cluster bus companies, including an increase in fleet sizes. While adding vehicles might spread the staff overheads, and reduce costs per vehicle kilometer, the fact that, despite a total staff complement of nearly 10 per vehicle operated, even the present available fleet is not fully deployed suggests severe management problems within the sector. Moreover, for the sector as a whole there are more than sufficient vehicles due to the low average daily operating miles of the private sector.
It was estimated in 2002 that the bus requirement of the country was then only 12,400, compared with the 23,600 actually existing. Public sector investment in new vehicles would thus simply further exacerbate the general problem of oversupply of in the sector and be wasteful to the economy.
It would therefore appear that any reconstitution of the public sector, which constitutes about one quarter of the supply of bus services would be at the cost of the other three quarters.
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Comprehensive competitive tendering
Given the nature of the problems in Sri Lanka, and the aspirations of government to take control of the balance between fares, service quality and budget cost, some form of franchising arrangement appears appropriate.
In principle, the size of the package put out to tender could be as small as an individual vehicle. That would make it very similar to the existing permission system with the exception that the number of permits would be limited to the number required to operate the service with full vehicle utilization and the selection of the providers would be subject to competition. It would involve the least structural change for the private sector.
But the use of the single vehicle as the unit of contract does not encourage the development of a professional disciplined industry, and needs a large enforcement effort.
Though this may not be the long term objective, various aspects of this approach may have an important role to play in the phased approach towards an area- or route-based franchising-system.
At the other extreme the package might be all of the services in a city or an area. This has the advantage of reducing the need for coordinating effort, but requires relatively large companies with high management skills to implement. Because the initial structure of the private sector in Sri Lanka is very fragmented, it would probably limit the number of competitors and be resisted by the bulk of the small scale operators presently in the market. It is not recommended for that reason.
Between the extremes is the option of franchises issued on a route-by-route basis. The contract would specify the route and the required frequency or timetable and it would be the responsibility of the management of the franchisee to ensure that service was performed to contract. Because some routes would require very few vehicles it would give scope for operators of different sizes, with larger operators able to win several contracts and to grow as they display their relative efficiency in performance to contract. It is likely, however, that for the majority of routes a number of vehicles would be required in excess of the size of current ownership structure. Hence even a route based franchising system would require the creation of companies or associations of operators.
