Some worrying news is emerging from Hamilton about the Ministry of Transport’s latest steps on the commercialisation of public transport and what the effects of the proposed changes to the Public Transport Management Act might be. Here’s an article from the Waikato Times:
Ministry bus plans anger councillors
A project initiated by Transport Minister Steven Joyce to examine increased commercialisation of public transport has irritated members of Waikato’s Regional Transport Committee.
This week’s meeting of the multi-agency committee heard Mr Joyce wanted to see greater commercialisation of bus services, with subsidy support restricted to only those routes deemed to be non-profitable.
He also saw an increased role for the private sector in operating and developing bus routes, with less input from councils or the Government.
Mr Joyce has asked his ministry to develop a policy to ensure the Government is getting “best value for money” from its investment in passenger transport.
But Hauraki Mayor John Tregidga thought the whole project showed little appreciation of the wider role of public transport.
“This really annoys me,” he said. “What the hang are they doing?
“We have worked really hard at getting people out of cars and into buses and on to our networks… but these things will never be commercial.
“This is a real backward step. This is a community service, and will always need subsidies, though the benefits of getting people out of cars are significant in other areas.”
Environment Waikato councillor Paula Southgate said the regional council operated its contracts on a gross basis so it could use the gains from the peak to develop off-peak services.
“Building transport systems just for the peak would be cherry-picking of commercial services.”
Hamilton city councillor Daphne Bell was also unimpressed.
“Isn’t it funny we don’t get a similar directive from the minister to ensure we are getting best value from our huge investment in roading?”
EW transport manager Bevan Dale warned that if the current bus contract system was forced along the more commercial lines favoured by Mr Joyce, it might lessen the ability of the council to determine fares and routes that services operate on.
The meeting was told the Auckland Airport service was the only fully commercial bus service in New Zealand…
Hamilton has been very lucky to retain the gross-contracting of all their services over the past decade. While of course public transport share in Hamilton remains relatively low because it’s a small city, in recent years some effort has been really put into increasing the number of people using public transport – and it has paid off really well, as shown in the graph below:
The huge advantage of gross contracting is that you can use the busier and more profitable routes to help subsidise the less popular routes, with this cross-subsidy making it possible to create a full network. It also generally means that you get a single agency planning and co-ordinating things – rather than the mess that we’ve ended up in Auckland with bus routes duplicating train routes, coinciding services never having their timetables aligned and huge inefficiencies.
Now while I don’t necessarily agree with Steven Joyce’s massive drive to increase the financial efficiency of public transport (why aren’t these same standards being applied to state highway cost-benefit analyses?) the bizarre thing about moves like this is that they’re utterly guaranteed to reduce the value for money from public transport subsidies. The split between commercial and subsidised services means that the profits get privatised into the operators’ profit levels while the losses get socialised in having to be covered by subsidies. Which makes me think that Infratil have been doing some serious lobbying in recent times.
If you look at what has happened in Auckland over the past decade, subsidies spent on public transport have increased from $45 million to $145 million a year – while patronage has only increased from 44 million to 58 million trips a year. Where has all the extra money gone? One suspects that a pretty big chunk of it has disappeared because of this “privatise the profits, socialise the losses” ideology that has sat behind the commercial/subsidised split here in Auckland. There is absolutely no way that this system has led to “value for money” in Auckland – which means that they will achieve exactly the opposite to what they’re supposedly designed to achieve in Hamilton.
It beggars belief that going down the very road that has led to worse value for money in the past will somehow achieve a different result this time around. Maybe in backwards land where if you want to go forwards you put your car in reverse, but not here on planet earth.
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This is the sort of crap that makes young people leave NZ, Joyce spouting on about creating opportunites through motorway construction and gutting PT is missing the point that young people want transport choices, we don’t want to being chained to motorways and the bottomless money pit of car costs. I honestly find it hard to conceive ever moving back to country being run by old parochial car obsessed white males like Joyce.
The stupid thing is that it’s not even going to result in best value for money. It’s like a deliberate policy to ruin public transport while making Infratil really really really rich.
It is a frustrating step back to the 80s and 90s… All we can do is fight the change as best we can and ensure Labour change it back very quickly when back in office…
and then have National change it back again when they come back….
I agree it’s complete idiocy, and actually when you think about it more or less corruption, policy is being developed with the intention of robbing the public purse and giving it to private companies, with absolutely no intention of better value for money.
“He also saw an increased role for the private sector in operating and developing bus routes, with less input from councils or the Government.”
This sentence makes it even worse, what does he plan? Removing council’s ability to even regulate bus routes and how they interconnect? This sort of policy will ensure we never have any sort of connection between buses run by company A with buses run by company C or trains run by companies D, E, F G…..
Quote:
//The stupid thing is that it’s not even going to result in best value for money. It’s like a deliberate policy to ruin public transport while making Infratil really really really rich.//
Hardly. If you go to Infratil’s last annual report, it shows that the free cash before any capex spending for their last financial year was $9m (EBITDA less interest – tax – deprecation). On an investment valued at $200m, that’s not that strong, and it is prior to some $40m of capital expenditure. By contrast, Wellington Airport, which they value at $300m, generated free cash of some $30m, effectively double the rate of return. Why do you think Stagecoach sold up to them in the first place? Also, Infratil have fronted with a lot of money in the last couple of years to invest back into the bus businesses. Refer here, page 27 of the .pdf:
http://www.infratil.com/media/PDF/ift_ar2009.pdf
Specifically, the final row of numbers.
(For those who wonder why we ended up with a commercial services system – I was working for the old Transit NZ/Urban Transport Council in 1989, when the buses were de (or re) regulated. The thought in at least some quarters was that the change of regime would allow commercial services to prosper, and that this would also reduce the subsidy demand. This was using the UK example – where the bulk of services in a large urban area will be commercial, if supported by large lumps of concessions income – but that pattern was never going to happen here. The emphasis in the early years on net cost contracts, was because these were seen to need a lot less administration by the regional councils than the equivalent gross cost contracts).
@ross clark – exactly Infratil aren’t happy with their current return on investment and they’ve had a friendly ear in the form of Joyce who’d happy to send more public money their way in terms of profits. All your link goes to show is why Infratil have been lobbying the government for these changes to allow them to make more money.
@Ross, the UK model is a disaster, patronage plummeted when it was introduced…
“One suspects that a pretty big chunk of it has disappeared because of this “privatise the profits, socialise the losses” ideology that has sat behind the commercial/subsidised split here in Auckland. ”
Quoted for truth, then Joyce will use the “losses” as amunition as to exactly why nz taxpayers can’t afford new PT investment etc…
I remember the saga about richard branson coming to nz airways..the argument was basically similar…the profitable routes are privatised.. another money quote from this blog.
Has Stephen Joyce even bothered to have a look at how this has working the past? ie: Auckland in the 90s. Or does he not care? Does his ideology just tell him this is the right thing to do.
Thank for the comments. I think we are agreed that Infratil are not making a lot of money out of the business; which means that the scope to cross-subsidise social routes from the profits of the commercial ones, which is what is frequently suggested here, is not really there. Also:
* Pre-1985, the bus industry in the UK had been in a very longterm decline, no matter who owned it – patronage had been falling for years by the time bus privatisation was introduced. It continued to fall after 1985, basically because car ownership (low by NZ standards) was still growing, esp during the separate eighties’ and nineties’ booms. Car ownership is still growing now. Patronage in Scotland (the situation I know well) has been static in the last few years, although Edinburgh’s has picked up sharply from better services and a local boom in the numbers of students.
* If we want to see investment in the bus sector, it will have to be paid for somehow, and public money is not free. Shifting to gross cost contracts could lead to an /increase/ in contract costs, if it reduces incentives to the operators to grow the market. The current regime is not especially generous, and this does mean that operators have quite a sharp stimulus to get things right. Also, note the situation in Wellington where Infratil registered as ‘commercial’ some key Hutt Valley services. This was intended to secure their market position; it also saved the regional council some $2m per year (which they did not put back into the sector, giving a very good indicator as to what their priorities are).
Ross, the thing is to compare what happened in London with what happened in the rest of the UK. In London the gross-contracting model was retained – with the council (and eventually TfL) in charge of planning the public transport network, whereas elsewhere you ended up with the situation like what we have had in NZ.
In London bus patronage has boomed over the past 15 years, in the rest of the UK it has continued to fall. In London you get far better ‘value for money’ from the public investment in the bus service compared to the rest of the UK. Jeremy has my copy of “Transport for Suburbia” at the moment so perhaps he can find the stats to back this up – but what they show is that one system has clearly worked and one system has clearly failed. In NZ we had the sense to realise that a couple of years ago and shift back to the system that worked, goodness knows why Joyce now wants to shift us back again to the system that failed.
From page 77:
Bus patronage in English Cities (millions)
_________________London_______English metropolitan Counties
85/86____________1152_________2068
95/96____________1205_________1292
05/06____________1881_________1111
07/08____________2090_________1121
Change(%) 86-96__+4.6%________-37.5%
Change(%) 86-08__+81.4%_______-45.8%
The table says it all really. Maggie actually provided a perfect test to prove herself wrong.
Public Transport is one of the few areas where private provision is demonstratably worse (such as healthcare) than public. This makes sense as you need one powerful controlling body to organise and integrate services to make them more attractive. Additionally given the fact we have found a very efficient way to subsidise and expand the road system, public transport needs to be substituted to compete, meaning the profit motive of private companies only adds to the public monies being spent on the subsidies.
Cheers Jeremy. Yes that pretty much says it all.
Jeremy –
These nos. are very helpful, but:
(a) there are factors in London’s situation which don’t apply in the metropolitan counties, like several factors which serve to *dis*courage car use; and (b) London’s buses receive a lot more subsidy, for each resident, than what the bus networks in the metropolitan counties do. So a better-quality system is reflected in higher patronage. Also, the bus companies that tender for the work in London are privately-owned, so there is a profit motive involved. The critical thing, as we would both agree, is the integrated planning.
In Edinburgh, private commercial supply does provide an excellent level of service, but the factors in the city which make this possible are not found in NZ and IMHO never will be.
I don’t think there is any problem having the companies that actually run the services being privately owned, as long as you have gross contracting in place and one public agency managing the system to ensure integration etc.