Bus contracts might seem like a fairly boring topic to most people, but they can have a big impact on how our transport system operates – including, obviously, how much we as tax/ratepayers pay. In New Zealand we’re slowly moving towards a new contracting system known as the Public Transport Operating Model (PTOM). I’ll explain a bit more about what PTOM is shortly. According to the most recent Auckland Transport board reports, they are just awaiting approval on the contracts from the NZTA before they can start to tender routes using PTOM. However recent developments suggest a snag in those plans could be forming.
I spoke yesterday about Simon Bridges speech at Infratil’s latest investor day and other presentations suggest the company is no longer happy with PTOM. As they own one of the largest bus companies in NZ – as well as having a strong history of successful lobbying of the government – that could pose a significant risk to the whole process.
So what is PTOM? To understand it, you kind of need to understand the history of bus contracting in New Zealand.
Briefly, regulatory changes saw most of the public bus companies privatised in the early 90’s. The network was split up into commercial and contracted services, and a lot of the responsibility for planning was turned over to the various bus companies. Commercial services existed where the bus companies could provide a run commercially; however, where the local authorities wanted to run services that were not under a commercial agreement, they had to provide subsidies to do so. Because operators were able to cherry pick individual services on a route to be commercial it led to all sorts of issues, not least of which was some operators rorting the system to get extra subsidies. There were lots of other issues too such as explained in this cabinet paper on PTOM from October 2011.
As a comparison, some of the most common contracting methods used overseas are:
- For the transit agency to own and run the buses themselves – this is something that not allowed in NZ. Christchurch gets around this because the bus company is owned by the city council while the routes are tendered by the regional council.
- To gross contract out services – On a gross contract the operator charges the transit agency a set fee to run services with all revenue going to the transit agency. That means that the profits from the routes and services which are commercially viable can be used to help support the less viable services meaning less overall subsidies need to be paid. This is how the Northern Express and the rail network currently run.
The previous Labour government passed the PTMA in 2008 which would have allowed regional councils to take over and gross contract out all PT services. As you can imagine the PT companies didn’t like that idea and were successful in lobbying then-Transport Minister Stephen Joyce to scrap the PTMA. Fast forward a few years, and officials were obviously semi-successful in highlighting to the Minister the issues with the old system, and so from that PTOM was born in collaboration with bus industry.
In essence, PTOM is a bit of a hybrid between gross contracting and the current/old system. The Transit agencies divide up their networks into ‘Units’ which contains one or more routes along with a full timetable for them. Operators can still run commercial services but one slight improvement is they can only do so if they run all services on the timetable. There can still be commercial services but for that to happen an operator has to run all services in a unit – even if that’s 3 in the morning. If they don’t want to make a unit commercial then effectively the unit is gross contracted, however another feature of PTOM is that there is meant to be a partnership based approach where additional revenue is shared with the operators based on the councils.
After having been what is likely a key player in the involved in the formation of the PTOM, NZ Bus like other bus companies were very happy when the details of PTOM were formally announced:
Chief Executive of New Zealand Bus, Zane Fulljames says, “The new framework will drive a quantum leap in service provision and growth in public transport usage through an effective partnership model and performance based agreements. Certainty will enable operators to invest with confidence, recognising the requirement for value for money and an appropriate return on investment”.
And Infratil who own NZ Bus have been upbeat about the prospects of PTOM since then and in their most recent Operational report in December saw them singing Auckland Transport’s praises for patronage growth while noting the following about PTOM.
After a decade of gestation, the new Public Transport Operating Model is moving towards implementation. It is intended to define a new contracting arrangement between bus operators and regional transport agencies with the goals of reducing the cost on tax/rate payers and increasing the use of public transport.
The first offer of the new contracts is expected to occur in Auckland in mid-2015 and is widely recognised as an opportunity to develop partnering arrangements to capitalise on the positive development of the last three years.
Auckland’s public transport has massive upside if the contracts can encapsulate a positive and durable partnering relationship
However that seems to have changed. At the Infratil investor day their CEO talked briefly about it noting in particular (26:55):
I don’t see in the new model encouragement for public transport passenger growth, you know, which you would have thought was one of the key criteria for what’s called the PTOM structure, the new operating methodology. And so that might affect how we bid for these contracts. I don’t get that sense of engagement of what’s happening in Auckland, I don’t get it in Wellington. I think it’s probably one of the more disappointing aspects that you’ll probably hear about during the day.
There’s also bit more detail of some of their issues in this article from back in December.
I’ve heard some suggestions that some of the rewards in the contracts greatly favour the operators over AT while the operators are saying the opposite. As it’s all behind closed doors, it’s hard to know exactly what’s going on – however, given that the bus companies’ natural behaviour is to extract as much revenue as possible, I suspect that’s behind a lot of the issues. As an example, one of the complaints in the article above is that they don’t like the length of the contracts, however they’ve already been successful in getting PTOM contracts pushed out to up to 9 years on tendered routes.
Perhaps these companies are in a last ditch bid to delay the implementation of PTOM as they are the ones likely benefiting the most from the massive patronage growth we’ve been seeing.
While AT likely can’t run the buses themselves, perhaps it’s also time for a Christchurch type solution and have the council through one of its other CCO’s buy or set up a bus company that then goes and competes for routes commercially. If the existing operators don’t like the contracts then that might leave space for someone who does.