Bus Contracting Model: New bus model raises hopes for better service

By Christopher Tan, Senior Transport Correspondent, The Straits Times, 21 May 2015

THERE was a public uproar last year when former Public Transport Council chairman Gerard Ee said in an interview with The Straits Times that if commuters wanted better service, they should just pay for it.

But Mr Ee was right, even if what he really meant was "somebody had to pay for it".

Two weeks ago, Anglo-Australian transport group Tower Transit emerged the winner in Singapore's first bus contracting tender.

Its bid of $556 million to run 26 services out of a depot in Jurong West for a five-year period starts from the second quarter of next year. It will begin with 380 buses (up from 290 plying the area today), and ramp up to 500 by the time its contract ends.

From back-of-envelope calculations based on an average annual fleet of 440 buses, Tower's bid works out to $252,727 per bus per year - assuming $556 million is split equally over the five years.

That compares with around $154,500 per bus per year under the current regime, based on the combined bus revenue of SBS Transit (financial year 2013) and SMRT (FY2014) divided by their combined fleet.

The estimated cost of the tax-funded Bus Service Enhancement Programme (BSEP) is around $185,000 per bus per year, after factoring in the resale value of the first 550 buses after the 10-year programme runs out.

Of course, that is not a precise apple-to-apple comparison because, in bus contracting, the Government buys and owns all operating assets and infrastructure. An operator, such as Tower, bids to operate a package of services in a competitive tender.

The successful operator is then paid the sum it bid for, while the Government collects and keeps fare revenue.

Even so, using Tower's operating fee of $556 million as a proxy to the fare revenue of the two incumbents gives us a rough gauge of what it takes to create a sustainable bus operating model.

In both cases, an operator makes money by controlling its operating expenses, which include paying the Government to lease its fleet of buses. In the current regime, neither SBS Transit nor SMRT has been able to cover bus operating expenses with fare revenue alone.

In principle, the new contracting model allows an operator to focus on meeting service standards without having to worry about capital expenditures and fare revenue.

Managing all three objectives, it seems, has been a juggling act made impossible by the fact that fares are controlled by the Public Transport Council.

Clearly, if fares remain unchanged, the Government will end up subsidising bus operations in a big way. That, however, has been the premise of bus contracting.

London, which started bus contracting more than 30 years ago (when the late prime minister Margaret Thatcher began privatising nationalised institutions), has seen its bus subsidies climbing year on year.

According to a 2013 government report, bus subsidies have risen from £24 million or 2p per passenger trip in 2001 to £393 million (about S$814 million) or 17p per passenger trip in 2012.

But supporters of the system point out that service standards have risen, too. And that many commuters travel for free. These include those over 60 years, the disabled, and children up to 15. Those between 16 and 18 pay concessionary rates.

That is what Singapore is trying to achieve.

In the bus contracting model, at least half of all buses will arrive within 10 minutes, up from 30 per cent today. And intervals between buses will not exceed 15 minutes on any route, down from 30 minutes now.

While that may not sound like much, the standards are a feat that requires a disciplined and motivated staff to pull off.

At the same time, an operator has to be efficient, as that affects how much profit it makes at the end of the day.

But to start off, an operator like Tower will have to offer competitive wages to build up its pool of drivers. This is not just because drivers are always in such short supply, but SBS Transit and SMRT - which will lose a number of routes to Tower from next year - are also likely to retain as many of the good ones as possible, so that they can be redeployed to other routes.

So, this competition for drivers will be positive for the profession - just like the liberalisation of the taxi industry some 10 years ago has proven to be beneficial to cabbies.

From a policy perspective, the contracting model is a more transparent and elegant way of doling out subsidies than the multi-billion-dollar BSEP, which is often misconstrued as financial assistance for bus companies.

But will bus contracting be better for commuters, and will it be worth the substantially higher cost it entails?

Well, that really depends on whether the new service standards will be met. If commuters need not wait more than 15 minutes at a bus stop, it will be money well spent (even if frequencies of 10 minutes and less are common in London). Because today, bus intervals here are often long or erratic.

And if service frequency increases, the level of crowdedness will naturally decrease. Hence, bus travel will also become more comfortable with the new operating model, if all goes according to plan.

To make this happen, the regulator has to be watchful. Otherwise, we may end up with an operating model that merely enriches transport companies.

Right now, the only missing piece in this grand ambition is a bus timetable. Several cities publish bus timetables, which allow commuters to plan their day with precision. They provide more certainty than online or smartphone apps, which, even if they are accessible to everybody, merely alert commuters to when the next bus will arrive.

As it stands, government subsidies for buses are set to rise with the contracting model. While future contracts may be less costly as competition hots up, it is clear buses will eventually get nearly as much state support as trains have been getting.

And, in all likelihood, fares will rise too, to reflect the improved service.

As Mr Ee put it, there is no free lunch.

Funding for US transportation system in the slow lane
By Bill De Blasio And Mick Cornett, Published The Straits Times, 21 May 2015

EVERY day, millions of Americans rely on a remarkable network of roads, bridges, subways, trains and buses to connect us to work, school and opportunity. But our transportation system, once the envy of the world, is in jeopardy.

In New York City, subways and buses are overcrowded and often unreliable, and roadways and bridges are in dire need of repair and rehabilitation. From the next phase of the Second Avenue subway to plans to connect the Metro-North Railroad to Pennsylvania Station, to the proposed new subway line under Utica Avenue in Brooklyn, there isn't a short- or long-term expansion project that isn't dependent on federal funding.

In Oklahoma City, highway bridges are failing, city and state roads are unable to keep up with the region's growth, and the bus system struggles to meet demand. Just last week in Oklahoma City, the state Transportation Commission declared an emergency after learning that more than half of the piers supporting a heavily trafficked bridge on an Interstate had been damaged by salt and weather.

The federal government sets transit and highway policies and funding levels for the country through the surface-transportation authorisation laws, generally in six-year cycles. But since 2009, Congress has funded transportation through a dozen short-term measures, ranging from one week to two years.

On May 31, the current transportation authorisation Bill - the Moving Ahead for Progress in the 21st Century Act of 2012, or MAP-21 - is set to expire. Shortly thereafter, the Highway Trust Fund, which invests about US$50 billion (S$67 billion) annually, will run out of money to cover the federal share of urgently needed roadway, bridge and transit projects in cities and states across the country.

Even if Congress averts this immediate crisis, the long-term threat to our economic security is just as serious.

Right now, congressional leaders and the Obama administration are debating the size of the Highway Trust Fund and the direction of the federal surface-transportation programme. Some are content with business as usual: a short-term extension and lurching from crisis to crisis. This would fail to provide the long-term certainty needed to plan and carry out multi-year transportation projects.

Working Americans pay the price of federal apathy. Those with little means have the fewest options; mass transit is often their only way to get around. Transit ridership is at record highs, with 10.8 billion trips last year. Meanwhile, in the 102 largest metropolitan regions, motorists take more than 200 million trips every day across deficient bridges. Freight volumes are expected to increase by 24 per cent in the next seven years.

Federal investment has not kept pace with this demand, resulting in an outdated, over-burdened surface-transportation system that is ill equipped to handle current, let alone future, needs. Spending on infrastructure in the United States has sunk to 1.7 per cent of gross domestic product, a 20-year low.

The Department of Transportation estimates that by 2030, it will cost US$84 billion to US$105 billion a year just to keep the highway, bridge and transit systems in good repair, and up to US$170 billion a year to improve conditions and performance.

Meanwhile, the rest of the world races ahead. Europe spends 5 per cent of GDP on infrastructure, and China, 9 per cent. Global cities like London and Beijing are investing in transit and rail projects on a vast scale, while in New York City, more than 160 bridges were built over a century ago, and large portions of our subway's signal system are more than 50 years old.

This isn't for want of local resources. Over the past decade, New York City has increased commitments to capital projects by 50 per cent. But we could not do it all on the local level even if we wanted to. Without a strong federal partner, the demands of maintaining infrastructure and preparing for future needs are beyond local means.

In Oklahoma City, among the most politically conservative cities in the country, voters passed a temporary sales tax increase in 2009 to build, among other projects, a US$130 million streetcar line. The nearly eight-year programme will raise US$777 million, and it passed with 54 per cent approval. There is an appetite among voters to fund these critical transit projects.

Our bipartisan coalition of mayors is calling on Congress to pass a six-year transportation authorisation measure that significantly increases investments from the current level of US$50 billion a year. Anything less and we will be falling behind. We urge both parties to make a deal that will prevent our cities from becoming casualties of gridlock and impasse.

Bill de Blasio, a Democrat, is the mayor of New York City. Mick Cornett, a Republican, is the mayor of Oklahoma City.

NEW YORK TIMES