Weekly Commentaries

This is Sunday Chronicle's weekly commentaries on various issues of interest affecting the country. All individual commentators are done by elite Papua New Guineans from diverse educational backgrounds.

Saturday, January 30, 2010

Commentary - Transport


IT IS a delight and a breather of fresh air to read that the good Governor for NCD has once again gone out of his way to deliver another very important service to the city residents. The import and the introduction of the 10 buses to ease the problem of ineffective delivery of public transport service to the public is in itself a great achievement.

As rightly pointed out by him Port Moresby is rapidly changing in all facets of life, particularly with a growing population that is hampering service delivery in the public transport sector of the economy.

Commuters would by now be imagining themselves at the unusual driver's seat by deciding what kind of buses to get on at the expense of the private bus owners and their off sides. At least for now the driver and the offside are going to be at the back seat and hoping that the ride is not going to be a bumpy one.

For so long I guess a cartel of some sort was emerging and that this provided the bus owners the outright advantage to manipulate the system resulting in incompletion of routes, lack of concern to maintain the safety of the passengers and the roadworthiness of the bus which has resulted in a lot of traffic rules infringement and bus related accidents/incidents.

The introduction of the 10 new buses will have a very important effect on the public transportation sector and may well signal the start of a major revamp/overhaul exercise of the entire transportation system in the city. The only major concern will be that the introduction of the new buses does not provide competition in a bad way (shifting too much demand away from the private operators to the new buses) to those operated by the private operators.

It is the prerogative of any government of the day to decide what it considers to be in the best interest of the public when it comes to modifying, refining, re-introducing or simply creating a new policy or system from the old ones when dealing with any issue.

In this case the NCD Governor has decided to more or less refine the current transportation system by opting to provide a much larger and spacious form of public transport to the existing ones. Nevertheless, this approach has the possibility of transforming the entire public transportation system and in the process create some problems (most of which could be anti-competitive in nature) if the private operators are being pushed out of the market (crowding out effect).

First in my opinion an approach of this nature would only be successful in the long run if there exists a Public-Private Partnership (PPP) agreement between NCDC and the private operators. This is so given the unique set up of the transportation system where virtually all the public buses are owned and run by private operators. Many of them depend heavily on income generated from this service to sustain their day to day needs.

A PPP would go a long way in encapsulating the government's desire to stimulate the economy through private sector investment. Evidence from countries around the world has shown that economies that place more emphasis on private sector investment growth grow at a rapid pace. A classic example involves the so called Seven Tigers of Asia, which include countries such as Hong Kong , Malaysia , Taiwan , Korea and Singapore. Their ability to transform their economy by undertaking deregulation in many key industries and freeing up the economy from too much Government influence has allowed the economy to grow rapidly under the miracles of private sector expansion.

The trick is to introduce competition and regulatory measures to ensure that anti-competitive effects are greatly minimized and controlled. In other words, keeping the competitors on the market honest by adopting industry's best practice because competition without control is like letting the lions in the cage on the loose. Through the PPP bus operators will be asked to bid for routes that will be on tender and what this does is that it basically provides the authority with a microscopic view when choosing the bus operator (company) that will eventually be given the contract to operate the routes under tender.

Also through PPP the government and the private operators can share the cost of running the bus services within the city while simultaneously going about with their normal services. Of course for the PPP to have any success a key recipe would be to encourage or even introduce a policy whereby private operators will be required to form bus service companies. In this way it is transparent and also it makes it easier for the city authority and the Transport Department to monitor the performance of each of the bus companies.

This can be done say on an annual basis where a review will be conducted jointly by the Department of Transport and NCDC based on certain key performance indicators (KPI). Based on the KPI Assessment appropriate actions will then be taken such as whether to extend or terminate the contract. All this provides a conducive environment for the ticketing system to be introduced and implemented effectively plus the public transport will become a source of revenue making for the government (NCDC) as public operators through their companies will be required to pay tax.

It must be noted that when the ticketing system is introduced it must be solely to control fare related problems. The zoning of routes should help in coming up with various fare structures but for a start a blanket fare policy can be imposed to trial the system. However, in the long run to make the system fair it should be based on distance within designated zones.

In this discussion a very important lesson to be learnt is that, in economics monopoly or too much government intervention has the effect of giving out false signals to the market, for instance, the market values could be considered to be overvalued or undervalued when doing a comparison against a simulated market set-up that would have eventuated in a perfect market where the dynamics of supply and demand are the sole determinants of the market outcome.

A classic example is the housing market where the ICCC in their determination of the housing review raised concerns that one of the reasons why the housing market is now overvalued was because of the lack of competition and unscrupulous dealings apart from the inadequate availability of land for commercial use. This has led to increase in rental rates and housing price. The key outcomes that any person or groups whether it be the government or an individual want out of competition is efficiency, improvements in productivity and of course getting the best service on offer at competitive rates.

Coming back to our public transport system, the current fare of K1.00 approved by the ICCC maybe too much but may closely reflect the real values of fares in a competitive market environment, given that the current market set-up has resulted in on average a commuter paying about 30t (say from 5 Mile to 4Mile) for shorter bus ride and 50t for longer bus ride (say from 4 Mile to Town). The entire set-up of the transportations system needs to be looked into from all angles.

Such include improving bus service (complete all routes) and cutting down on traffic infringement to upgrading bus terminals around the city.
It is good to walk on two legs rather than one so this approach definitely needs to be an holistic one but in any case at least it is start

Safe travel everyone and always observe traffic rules.

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