Assessing the paradigm shift in Sri Lanka's development of the transport sector. 1. Identifying the Changing Demand Function for Transport

Transcription

1 Assessing the paradigm shift in Sri Lanka's development of the transport sector 1. Identifying the Changing Demand Function for Transport A country requires transport for a multitude of different functions. These functions change with time. The changes in political ideology, trade opportunities, technology and socio-economic conditions are the reasons for change. A country needs to regularly evaluate these conditions. Sri Lanka s historical sketch of these needs can be identified as follows: Period Demand Function Supply Function Pre- Colonial Self Sustaining Communities Internal trade less and infrastructure mostly provided by the respective communities. International trade routes were supported by the Kings- ports, roads. Routes opened and closed with the movement of capital cities. Dutch Development of Export trade Development of the hinterland Canal Systems in WP, emergence of Colombo as the primary international trade node for spices and coconut. Other parts largely ignored. British Development of plantation economy Development of agricultural export supported by the rail and road system radiating from Colombo to serve the entire country. Neglect of rural transport. Post- Independence Development of rural economy Rapid expansion of rural road and bus transport network. Neglect of urban and inter-urban transport. Post- Agricultural Emergence of urban economy Rapid expansion of inter-urban and urban transport infrastructure and services. Modern Emergence of leisure lifestyle Change of travel patterns, destinations, modes 2. Determining the Correct Role of Government in Transport In the early years of motorized transport, the required provision of both infrastructure as well as rolling stock was by government since the people did not have the means to either of these. However with more wealth in the hands of the people with individual ability to provide their own vehicles has increased tremendously, particularly after the mass production of motor vehicles over the last 100 years. The corporate sector too has become wealthy enough to be able to invest in infrastructure. While in the early years only auxiliaries facilities such as fuel filling stations and repair facilities were provided by the private sector, the last 2-3 decades has seen an exponential increase in private investment into roads, railways, airports, ports, terminals, warehouses etc. In some countries such as Japan and the US, private sector investment happened early, while in most of Europe and other Asian countries this began to happen over the last 2-3 decades.

2 As a result, the role of government has changed from being a provider in the early years to being a regulator who fixes and supervises the rules by which private sector performs. However, with more wealth in the hands of the private sector and the discovery of processes where market-oriented selfregulatory systems can be introduced, the role of the government is changing yet again. The new role is that of a reformer or changer of undesirable features to achieve desired and beneficial outcomes. This new role requires government to take initiative to identify and manage change particularly using the private sector. It should develop processes that are customer satisfaction oriented and are market based. Refromer Reformer Regulator Regulator Provider Provider 3. Ensuring Transport Development leads to Economic Growth Transport does not have a positive consumption utility. In other words, unless it is recreational, travel it has a negative utility cost. This means that travel take place only where there is a net saving for a consumer after bearing the cost of travel. For example, an employee will travel to a work place only if the negative utility of the travel is less than the benefits he receives in the job. Similarly a farmer will send his produce to the market only if the return he gets is more than the cost of transport. In both cases, a reduction in the transport cost will increase the amount of travel either in distance or in number of journeys. In the first case it will provide for available human resources to be more gainfully used while in the latter case increased production. Thus lower cost of transport contributes to greater economic activity. Consumer Surplus/Producer Surplus figure It is interesting to study how Sri Lanka over time has utilized transport activity for economic growth, especially in connecting transport for trade. Lets take the case of the ancient capitals of Anuradhapura and Polonnaruwa which was located around 100 km upstream from the coast along navigable rivers. Smaller vessels carried both export and import cargo along these rivers to the respective ports to be taken by the Arab traders to the west or the

3 Chinese traders to the east or from xxx by the Indian traders. The capitals were located sufficiently inland to be at a safe distance from possible foreign threats. There is growing evidence that these cities were supported by roads that connected the entire kingdom to the capital city. Map of ancient ports and capitals Later during the colonial periods these trading places were moved to the coasts by providing fortifications against such invaders we still call forts. As such Colombo and Galle and Trincomalee became the trading hubs that processed the export trade. The Colombo port in particular had a system of internal canals that connected the areas producing spices and coconut. As railway and road transport replaced canal transport the world over, the British during their rule extended the connectivity of the Port of Colombo to areas where they began growing tea and rubber for export. This is why the entire road system centres on the Fort and the Port. The trucking and bus networks also developed around this. It was this integration of the export trade that made Sri Lanka an export economy achieving the second highest per capita income in Asia by the time of Independence. The Port of Colombo functioned as a leading maritime hub for several centuries due to its export cargo. Map of transport system during colonial times The backbone of Sri Lanka becoming a future maritime hub would be through increasing its transshipment cargo which should result in comparative cost advantages arising from higher frequencies due to large transshipment volumes. While the port should pass on this advantage to exports, the cost of accessing the port should also be its concern. Only integrated infrastructure and facilities that connects the port to the exporter will enable the reduction of costs and total travel time that constitute the land transport costs. With imports also becoming increasingly a component of exports the need for ports to be integrated with manufacturing zones as well as logistics parks that facilitate multi modal container movements is vital if new port infrastructure is to be fully utilized. The expressways for example, must integrate regional development to the export nodes. In addition they must connect producer areas and consumer areas within the country to encourage domestic trade. They must provide direct access to modern logistics centres where export processing would take place. This is yet to happen on the Southern Expressway or the Katunayake Expressway. This is evident when you observe how many trucks use these roads. Map of modern transport infrastructure The primary reason for this lapse in integrating transport infrastructure and services for greater economic outcomes is the administrative partition of transport to different modes such as highways, ports and airports, buses and railways and where in Sri Lanka where we have a separate minister and ministry for each means we no longer see transport as a single seamless activity. Thus it has become impossible to provide this integrated end user requirement. Increase in trades such as tourism and other services that require movement of persons efficiently is equally important. This includes servicing foreign visitors arriving at an airport who need to access their

4 hotels and conferences in a seamless manner. Every visitor has a different need and a different budget when he arrives. Sometimes they have small time budgets and sometimes small financial budgets. There must be different transport choices they can choose from. There is still no noteworthy quality public transport access to and from the airport even though we have put in a 400 mn dollar expressway. Similarly when a provincial road is rehabilitated after spending around mn rupees per km, the outcomes are marginal since the number of people who own a vehicle to make use of it and enjoy the increased efficiency is still very small. Investing a fraction of the sum spent on the infrastructure on improving transport services by providing Sisu Sareiya school bus services and Gami Saeriya rural bus services to improve the use of such road projects or programs to develop small industries or improve agricultural production to access new markets connected by the improved road would be a practical way in which infrastructure investment can result in significant outcomes as opposed to mere outputs. 4. Ensuring Transport Development leads to Balanced and Sustainable Development (BSD) The benefits of economic growth unless equitably distributed leads to social instability. For example, the efficiency of a road can be increased by restricting use of slow and old vehicles. This would invariably mean that poorer sections of society would lose while those in higher income groups would stand to gain in the increase of sped resulting from slower vehicles being taken off the road. Efforts of rapid economic growth results in efforts at developing infrastructure that may be efficient but not be accessible to all sections of society. For example expressways have limited access. In Sri Lanka only xx percentage of vehicles can use the expressways. With public transport services on these being below par and disproportionately expensive, clearly this is limited access. The question of social justice also enters the picture if one considers that the very people who lost their lands may not stand to gain from the sacrifice they made. The age old equity poser, who pays and who benefits should be asked to ensure BSD. Similarly, over exploitation of resources in pursuit of economic growth leads to environmental instability. Balanced and Sustainable Development (BSD) is where resource use is minimized while benefits are equitably spread across the entire society. Transport should thus aim at BSD practices. The resulting outcome of increased prosperity also leads to new travel seeking new opportunities. This increased travel should contribute to increasing social wealth. Thus the aggregation of distributed economic prosperity and social wealth and environmental sustainability defines livability and thus happiness. Thus the aim of improved transport should be improved livability and happiness arising from these 3 sources. Colombo is ranked 128 of 140 cities by the Economic Intelligence Unit in terms of livability of cities. While Colombo has improved its ranking in the last few years with respect to security and safety issues, it has fallen further in terms of transport and traffic related issues. Today the total cost of mobility if measured including the cost of vehicles, cost of fuel, cost of accidents and road and railway maintenance, cost a staggering Rs 1,000 bn of which the fuel cost alone is 400 bn and the cost of providing highways is also nearly 200 bn. The cost of road vehicles imported and spares is another Rs 250 bn. When we compare this to current GDP, this is around 12%. This is without costs of

5 time loss, accidents and environmental impacts. Of course transport provides employment, trade and profit for maybe a million people who are directly engaged in the transport industry. But the benefit to the country is when the sector is efficient in its use of input resources producing improved mobility at a lower cost. It is this reduction in overall cost that will encourage the overall economic activity with consumer prices decreasing and producers being able to produce more and still earn the same revenue and Sri Lank being able to provide the same amount of employment and business in transport. Businesses report that cost of transport to cost of sales is often as high as 20%. When the entire component of transport including employee transport is added this can easily exceed 25% or 30% dragging the economy and making returns from investment not viable. 5. Identifying the Required Supply Function for Transport The supply of transport requires the following Who Infrastructure Facilities Rolling Stock Services Delivery Processes (policies+ regulations + institutions + procedures + people) Pre- Colonial Colonial Post Independence Modern Infrastructure State State State State Private Rolling Stock State Railway (State) StatePrivate Private Roads (Private) Processes State State State State Market Oriented The manner in which these have been provided through the years has changed as shown in the above table. There has been a steady move from state domination of the sector to a regulated private provision. Currently, there is an invitation for the private sector to invest in transport infrastructure, with the state indicting the gradual withdrawal of the Sate as the principle infrastructure provider which will allow for market based competition. The issues related to protecting State operations to ensure that low income users are not neglected in rushing for private sector supply is a natural safeguard. There must however be a strategic exit rather than a reluctant journey. What 6. The Supply Function: Public Investment in Transport

6 Public expenditure in transport has remained at 2-3% of GDP over the last decade. Over 50% of this has gone to the highways sector, while the share of railways has been around 23%. Bus transport has accounted for less than 5%, with ports and airports making up the balance 23% up from 9% in , , ,000 50, Ports Aviation Highways Public Transport Over the last several decades Sri Lanka has spent most of the money allocated for transport investment in to highways. The motor vehicle fleet now exceeds 3 million units. An average car costing 3 million rupees in the market includes a tax of Rs 1 million. Fuel, especially petrol is also taxed substantially. Both these instruments ensure that government regularly covers its expenditure on highways, except at times where high world fuel prices have resulted in fuel being sold below costs. The demand for vehicles is thus good news for the government for which directly finances the roads with the tax revenues of vehicles. As of 2012 tax revisions now, all types of vehicles except small hybrid vehicles, trucks and buses pay taxes of 100% or more. A luxury car which pays taxes of around 5 million rupees effectively pays a road user charge of around Rs 20 per km it travels. A three wheeler pays around Rs 2 per km. All this adds to the cost of transport. However it is not necessarily a burden for the government. Road building is also politically of high value and thus the political will to allocate higher proportion of public expenditure for highways is tempting. On the other hand, its investments in public transport require more recurrent expenditure. The railway in particular requires bridging its operating losses which are now 1/3 of the total expenditure. The state buses fare no better. Thus the current transport policy and trend of rapid motorization stems from this underlying policy of encouraging private vehicles in order to finance the road building program, while expenditure on public transport is minimized due to requirements of having to subsidize state transport providers, namely the railways and the SLTB. 7. Directing Private Investment in Transport For commercial private transport services, there is an investment of over Rs 15 bn on private buses and over Rs 25 bn on goods vehicles while the investment on three wheelers now exceed another Rs 50 bn. Thus private investment on providing commercial road transport services now exceeds the government capital expenditure which is around Rs 50 bn by over 100%. When investment in all road vehicles including private vehicles is added it exceeds Rs 400 bn making private investment in transport higher than government.

7 While state owned public transport services have struggled to be cost efficient and provide a reliable service, private services have increased market share earning profit. Private buses, three wheelers, trucking services as well as taxi services have continued to expand. However, in all cases the utilization of vehicles is low. The customer satisfaction is poor as is reliability. The level of technology lags behind and the human resource management is also deficient. This inability to direct the very large private investment to commercial transport is a tremendous loss to the economy where at least 20-30% cost inefficiencies exist. Thus government intervention in initiating more efficient and modern public transport services would be a shift in strategy. The government from looking at the private sector as a mere alternate investor must now move on to recognizing it as a partner in providing transport services. The improvement to efficient service delivery will result in lower overall cost of mobility to society. The cost of accidents, cost of congestion, cost of delays in public transport and the cost of damage and waste in goods transport has been estimated at Rs 400 bn or 5% of the GDP. Sri Lanka follows many Asian countries in having a majority of its transport services in the hands of small scale operators. Such operators are difficult to organise or improve. As such one of the challenges is to group such operators to suitable business units such as cooperatives as was done in many parts of South America to provide improve services. Thus state must become a facilitator for improving the operation of private transport services. 8. Improving Delivery Processes in Transport Sector In many instances the reason for providing transport services in Sri Lanka appears to be for the benefit of the workers and the investors. There are nearly 500,000 people who are directly employed in the three wheeler and taxi industry. The bus sector employs another 80,000 people while the trucking industry employs easily another 300,000 to 400,000. The absence of proper codes of practice, assessment of service makes transport services in Sri Lanka customer unfriendly. Both the state owned transport as well as private transport demonstrate this deficiency. The primary reason for this is that the management structures are incapable of providing supervision. The politicization of trade unions in the railways and the SLTB have resulted in a lack of mutual understanding and cooperation to improve these institutions. Both the state institutions and the private institutions lack adequate technical leadership. This is a required change in the industry. The industry should open out to employing highly competent managers who could bring about technical and operational changes. The loss and wastage arising from lack of proper supervision in the bus industry is at least 30% including leakages of revenues. Sri Lanka is host to a number of degree programs that produce transport graduates. In addition there are also several private courses and universities offering subjects allied to transport. The industry by and large follows traditional systems which are handed down over the years from one to another employee. The poor working environments in terminals, stations and warehouses reduce attraction for more capable persons.

8 Examples Urban mass transit Fuel pricing Vehicle taxation Expressway programs International ports and airports Expressway developments Budget expenditure Sisu saeriya /Gami Saeriya Bus Time tables Traffic Control Systems (trade offs delay vs death) Rule of Law Park and Ride Electronic Road Pricing