Private Sector Bus Contracting & Operations Urban Mass Transit Company Ltd. Types of Bus Operations Public Monopoly public sector authority plans and operates Service Contracts Cost plus, Gross Cost, Net Cost, Quality Incentives, Revenue Incentives, Deregulation
A Cycle of Privatization in Passenger Transport Before 1950 Private Sector RTC Act, 1950 1950-1980 Public Sector 1980 onwards Public Private Partnership 2005 onwards Public Monopoly No separation of management and operation functions Inefficiencies in planning and operations High cost and poor service quality- no incentive to improve it Obligation of continuing with concessions Assured budgetary support from Govt. acts as a disincentive to improve operations
City Bus Operations through PPP: recent attempts Basic philosophy behind PPP: Distributing to each Public Domain Planning Private Domain the functions they are best capable of performing Infrastructure Development Operation City Bus Operations Began with Indore Model Monitoring Regulation Contracting options Major risks that are taken into account in the contracting philosophy are: Operating risk Demand risk or revenue risk Allocate risk to the partner (private or public) that can best control it
Cost plus Contracts The public authority reimburses operating costs plus a management fee The fares are collected by the public authority The operator does not bear either cost or demand risk Cost plus Contracts Pros and Cons Pros Contracting is simple Cons No incentive for operator to reduce costs, increase patronage or improve efficiency Flexibility in change in services Difficult for SPV to monitor costs Revenue collection with SPV
Gross Cost Compensation is based on kilometers operated Usually bid parameter is compensation sought for each km of operation as per specified standards and on a specified route/set of routes Gross Cost Pros and Cons Pros Easy bid process and contract management Flexibility in changing schedules based on needs Flexibility in changing fares Flexibility in changing in services Limited potential for disputes Better integration between modes/services Avoid discrimination against concession fare passengers Cons Risk of revenue leakage borne by public entity No incentive for high ridership Need effective monitoring Financial commitments of public authority can be high Higher cost of staffing, monitoring operation & revenues
Gross Cost with Incentives Quality Incentives Typically gross cost contracts with significant bonuses or penalties linked to service targets Possible service targets Fleet utilization Vehicle utilization Up-keep of the bus Adherence to schedule, punctuality Crew behavior, driving practices Customer information Customer service Equipment, special services Rate of accidents
Gross Cost with Incentives Revenue Incentives - Typically gross cost contracts with incentives linked to revenue targets Net Cost Compensation is based on operating cost less revenue Bid parameter is premium/subsidy payable for operating on a specified route as per a specified schedule and as per specified standards
Net Cost Pros and Cons Pros Risk of revenue leakage borne by operator Effective incentive for high ridership Cons Risk of passenger capture techniques being adopted Need to specify fares and other details upfront Financial commitments of public entity are low Complex tendering and contracting process Difficult to make changes (route, schedule, fleet size) during contract period Potential for disputes high Selection of appropriate model Selection of contracting model depend on various factors: Capacity (financial as well as human resource) of public authority Risk appetite of private operators Legal and regulatory framework Competition from informal and IPT sectors
Structuring of Contract Duration of services, scope of services (including operating schedule, time schedules, routes) Compliance with all laws, standards and requirements Performance standards Reporting obligations Penalties and incentives Financing and provision of additional services Provision of infrastructure facilities Sharing of non fare box revenues Cost and fare revision mechanism Monitoring and evaluation Case Study - Bhopal SPV contracts and monitors Hand holding support by UMTC Buses procured by SPV (funded under JnNURM) and contracted to private operator on net cost basis No subsidy from SPV Exclusivity provided on routes initially but not enforced Automatic fare revision formula but not implemented Operator meeting operational costs
Case Study Ahmedabad, BRTS SPV contracts and monitors Buses procured by operator and operating on gross cost + incentives basis SPV has financial as well as manpower support from MC Fare revision linked with change in fuel price & WPI Cost/km revision linked with change in fuel & WPI Incentives/penalties linked with pre-defined performance parameters Change in schedule, fleet size at the discretion of SPV Case Study - Jaipur SPV contracts and monitors Buses procured by SPV (funded by JnNURM) and operated by RSRTC on reimbursement of cost basis Fare collected by SPV SPV has no resources for monitoring No fare revision mechanism Performance parameters not defined SPV has no terminals and depots RSRTC uses own depots Maintenance major issue
Case Study Mira Bhayander SPV (MBMC) contracts & monitor Financing of buses by private operator Royalty offered- Rs 1/km (Rs 180/bus/day) for 10 year Revenue to SPV (FY 11-12)- Rs 3.6 million Increase in royalty linked with increase in fare Fare revision mechanism not defined Infrastructure for maintenance by operator Performance parameters defined No monitoring of performance Some other case studies - Ranchi City procured 250 buses under JnNURM Could not form SPV handed over buses to JTDC! JTDC made two attempts to procure operator on net cost basis Refusal to pay subsidy No infrastructure provision JTDC now operating buses on their own Limited availability of operational data No monitoring or performance evaluation
Some other case studies - Raipur City placed orders for 100 buses under JnNURM Has an existing SPV which has contracted operations on net cost No provision for service changes No provision for termination of services though issues about quality of services City does not want to hand over buses to existing SPV or existing operator City unable to find a way of operationalizing the new buses and hence has not taken possession of the buses Issues Limited private players single or limited bids Shortage of drivers and maintenance staff buses idling Absence of fare policy subsidy increasing or operator walking out of contracts Infrastructural shortages buses parked on road Inadequate operations planning not responsive to shifts in demand Performance monitoring and evaluation lack of telematics data Capacity building & training inadequate contract designing and management skills Weak institutions paper institutions without resources
Sustaining PPP. Concluding remarks Gross cost with quality incentives most appropriate for Indian cities Need for robust institutional structure Automatic fare revision mechanism Integrated planning Better contract designs Huge investment required in infrastructure Better maintenance practices Need for capacity building Public Authority, Private Operators, Consultants etc
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