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Bus Rapid Transit Planning Guide

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Bus Rapid Transit Planning Guide Introduction Part I Project Preparation Part II Operational Design Part III Physical Design Part IV Integration 4Part V Business Plan Part VI Evaluation and Implementation Resources, Annexes, and References ������������������ �������������� ��������� Part V – Business Plan CHAPTER 15 CHAPTER 16 Business and institutional structure Operating costs and fares CHAPTER 17 CHAPTER 18 Financing Marketing Bus Rapid Transit - Planning Guide 2007 15. Business and institutional structure 4. Operator compensation based upon vehicle- kilometres travelled rather than number of “Whenever you see a successful business, some- passengers; one once made a courageous decision.” 5. Independently concessioned fare collection —Peter Drucker, educator and writer, 1909–2005 system that distributes revenues in a wholly transparent manner. The ultimate sustainability of the proposed BRT system is likely to depend as much on the Monopoly public bus operators and unregulated system’s “software” (the business and regulatory private operators both result in well known structure) as it is on the “hardware” (buses, problems that end up compromising the quality stations, busways, and other infrastructure). of the public transport service. While circum- stances will vary from case to case, there is an Ideally, the institutional structure of a BRT emerging consensus that some institutional and system should (roughly in order of priority): business structures work better than others. n Maximise the quality of the service over the long term; Well-designed business structures for BRT n Minimise the cost of the service over the long systems have tended to seek considerable com- term; petition for the market but limited competition n Maximise the level of private sector invest- in the market. This strategic use of competitive ment over the long term; motivations means that firms will have to n Maximise the public benefit from the public compete aggressively to be allowed to operate. investment. However, once the winning firms have been selected, there will not be competition on the In examples around the world, the clever ap- streets to wrestle passengers away from other plication of well-placed incentives has persuaded companies. Thus, firms will have an incen- operators to concentrate more on customer tive to provide a high-level of service while service and less on battles between competing simultaneously not generating the negative vehicles. From the BRT projects undertaken attributes of reckless driving, speeding, low to date, there is a growing consensus over the profit margins, and cutting off other public core principles that lead to an effective business transport vehicles to gain an advantage known model. The principal components of this busi- as the “war of the cent”. ness model are: 1. Institutional regulatory environment in This mixed system of public regulation and which privately concessioned firms operate private operation is increasingly seen as the the system with strong public oversight; optimal approach to achieving a competitive 2. Achievement of cost sharing within a frame- and transparent system responsive to user needs. work of Public-Private Partnerships (e.g., pri- This approach also generally makes it possible to vate sector finances the vehicles); attract private investment into modern vehicles, 3. Operator bidding process that encourages which is a critical factor in developing countries competition for the market but limits compe- where public money is scarce. tition within the market; The topics discussed in this chapter include: 15.1 Transforming existing systems 15.2 Business structure 15.3 Institutional structure 15.4 Operator tendering Part V Business Plan 547 Bus Rapid Transit - Planning Guide 2007 15.1 Transforming existing systems “To open a shop is easy, to keep it open is an art.” —Chinese proverb Establishing a good institutional structure for a BRT system is an intensely political process. Ultimately, success or failure depends largely on the political skill of the project sponsor. ������������� ������������ ������������ Management consultants and BRT experts can �������� ������������ �������� advise decision makers about their institutional ����������� ��������� options, but ultimately the decision must be ����������������� confirmed by the political process. Fig. 15.1 The first step in developing a viable institutional The market transformation process structure and business plan for a BRT project is Source: Adapted from Meakin (2003) to review the existing transit regulatory struc- market implies that operators must compete to ture and decision-making process. This may vary win the right to operate in a corridor or an area. considerably from city to city. Which national, By contrast, competition in the market implies provincial and municipal institutions to involve that a firm will operate simultaneously with in the establishment of the BRT institutional other operators in the same corridor or area and structure, and which civil society organizations will be directly competing for market share. to involve or not involve, is also highly political. Some cities are caught in a vicious circle, mov- Nevertheless, there are some fairly common ing between public and private systems along issues that all BRT systems face. How this with intermediary steps of a highly-regulated process is handled varies, but there are common private oligopoly and a mix of a publicly-oper- approaches for dealing with similar existing ated entity competing with scores of unregu- institutional structures. lated operators (Figure 15.2). Cities such as The challenge becomes how to transform an Colombo (Sri Lanka) and Santiago (Chile) have existing market structure into one delivering a moved around the entire spectrum of possibili- cost-effective and high-quality service. Figure ties without ever finding a workable solution. 15.1 shows a pictorial view of the challenge The cycle’s characteristics, along with the within the transformation process. reasons for inevitable collapse of each stage Most developing cities begin with one of the are given in Table 15.2. As the spread of three basic conditions: unregulated informal operators creates chaos 1. Regulated – Public systems; on the street and poor quality services to the 2. Non Regulated – Private sector systems; population, officials step in to regulate the 3. Partially Regulated – Mixed systems (public industry. However, oligopo- and private roles). listic tendencies The actual number of business structures ����������� amongst is actually far greater than the simple �������������� categorisation of public, private, and mixed systems. Different types of contractual arrangements are possible within ������������� the framework of mixed systems. ����������� ���������������� ����������� ���������������� Table 15.1 outlines some of the ��������� options. Table 15.1 also distin- guishes between situations where there is competition for the market and ����������� situations where there is �������� competition in the mar- Fig. 15.2 ket. Competition for the The regulatory cycle Source: Meakin (2003) 548 Part V Business Plan Bus Rapid Transit - Planning Guide 2007 Table 15.1: Contractual options for different market structures Competition Competition Type Description for market in market Public monopoly All system assets and operations are under the control of a public agency. Management System assets remain in control of the public sector contracting but certain operational and management functions X are contracted to private firms. Gross cost Private firms compete to operate routes but are paid service on the basis of performance and not on the basis of X contracting passenger fare revenues. Net cost service Private firms compete to operate routes and are paid X contracting on the basis of passenger fare revenues. Franchising Operator wins contract for exclusive operation of (exclusive) route, and has the ability to innovate; public agency X still sets fares and service parameters. Concessions Operator wins contract for exclusive operation of (exclusive) route, and full financial, planning, and operational X responsibility within parameters set by the public agency. Franchising Franchising with multiple operators in the same Possible X (non-exclusive) market. Concessions Concessions with multiple operators in the same Possible X (non-exclusive) market. Open market Operators provide services without any restraints or control; routes, schedules, fares, number of X X operators and vehicles, and levels of quality are left to the private sector. Source: Adapted from Meakin (2002a) Table 15.2: The regulatory cycle Industry Characteristics “Solution” composition 1. Unregulated private Chaotic, aggressive competition, dangerous Comprehensive regulation operators driving, unstable services, no integration, by Government. variable fares. 2. Highly regulated Industry consolidates into large companies Government nationalisation private oligopoly producing low levels of competition followed of firms (because ‘only the by fare increases; political pressures from state can assure adequate increased fares result in lower-quality services services’). or company bankruptcies. 3. State-owned Low cost-effectiveness due to confused Government tolerates monopoly corporate objectives (service or profit?); low, ‘illegal’ private operators sporadic or inappropriate investment; poor to meet unfulfilled market services. demands. 4. Mix of public Deficits from public company become Government gets out of company and un- politically unacceptable resulting
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