TO: FROM: DATE: SUBJECT:

Tan Sri Syed Hamid Albar, Chairman, Land Public Transport Commission (LPTC) M Zulkarnain Hamzah, McGill Universitys Department of Urban Planning 30 November 2012 Cost-Effective Bus Transit Competition in Greater Kuala Lumpur (GKL)

GKLs Draft Land Public Transport Master Plan1 acknowledges bus transit as one of the plans four building blocks towards LPTCs mandate of sustainable and quality transit service, but the plans Bus Transformation section is silent on the present bus operations sustainability. The main bus operator, RapidKL (which monopolizes access to public-funded assets through its parent company, Prasarana) is under pressure to increase fares2, and the private operators (which cut corners to cope with fare price ceiling) are at risk of solvency3. RapidKLs ambition to collude with private operators on resource sharing agreements4 and private operators demands for new license freeze and mileage-based revenues5 reveals the public and private operators desires for monopoly and oligopoly respectively. This brief seeks to evaluate the market structures effectiveness in achieving GKL bus operations value for money objective, drawing from the experiences of both the developed and the developing countries. North American transit agencies, which embody the classical monopolistic arrangement of publicly-owned bus asset-owner, regulator and operator, have relatively higher subsidy share as part of the operating cost among the developed nations6. Competitive tendering (CT) of services formerly served by mostly publiclyowned bus operators from 20 cities in 10 developed countries yielded unit operating cost reduction of mostly between 20 to 55 percent (30 to 46 percent in the United States)7. The savings derived from economies of scale of a monopolistic provider8 can easily be cancelled by poorly incentivised operational management9. Many topperforming Canadian transit management boards (such as in Toronto which has the

highest fare recovery ratio in the continent10) are scrutinized by elected city councillors and citizen members11. In view of Malaysias absence of local council (LC) election, lack of scrutiny over the solidification of policy and operational jurisdiction from LCs12 to federal-level LPTC13 and RapidKLs monopoly over bus assets and route planning, it is recommended that LPTC opens up CT of transit assets to RapidKLs competitors, and that LPTC empowers LCs to plan and enforce routes and schedules of bus transit. For CT to meet tendered bus operations value for money objective, the criteria 14 of competency (sufficient market players and freedom of entry/exit barriers) and transparency (symmetric knowledge among players), which do not exist in an oligopoly, are required. Norwegian transit agencies, which adopted operating cost unit (e.g. per km) payouts to ensure efficiency gains, resort to performance-based CT to avoid collusion15, which limited the number of players in the long term as evidenced in Chile, Italy and Norway16, 17. LPTC should replace the present entrepreneurial bus licensing model with a more transparent performance-based CT. Prasarana, as the governments consolidated transit infrastructure and asset owner, can eliminate entry barriers through bus lane and signal priority provisions (to counterbalance car-oriented road subsidies). LCs ownership in transit planning and branding, together with operating cost unit payouts will relieve bus operators from asymmetric knowledge on areaspecific ridership, marketing and profit risks. LPTCs offering of a menu of periodical contracts19 allow new and seasoned operators to tender for district-centric and metropolitan-level contracts respectively, ensuring a sustainable pool of competitors. Upon these international monopoly and oligopoly contexts, I recommend LPTC to manage equitable role distributions among local councils, asset-owner and operators and to work with LCs to enforce performance-based CT for the latter towards a more sustainable and cost-effective bus transit in GKL.

APPENDIX References
1. Land Public Transport Commission (LPTC). (2012). Draft Executive Summary of Land Public Transport Masterplan for Greater Kuala Lumpur. Retrieved from http://www.spad.gov.my/news-events/announcements/2012/final-draft-national-landpublic-transport-master-plan 2. RapidKL Losses Due To Fares That Do Not Match Rising Operating Cost. (n.d.). Retrieved November 24, 2012, from http://www.malaysiandigest.com/news/36-local2/146261-rapidkl-losses-due-to-fares-that-do-not-match-rising-operating-cost.html 3. No masterplan for public transport, only red tape. (n.d.). Retrieved November 24, 2012, from http://archive.freemalaysiatoday.com/fmt-english/news/general/14797-no-masterplan-for-public-transport-only-red-tape 4. Prasarana Reiterate Need For Strategic Collaboration Among Bus Operators | Syarikat Prasarana Negara Berhad (Prasarana). (n.d.). Retrieved November 24, 2012, from http://www.prasarana.com.my/news-events/mediareleases/2011/prasarana-reiterate-need-strategic-collaboration-among-bus-operators 5. (Reference No. 2) 6. Washington State Department of Transportation (2009). Transit Farebox Recovery and US and International Transit Subsidization: Synthesis. Retrieved November 24, 2012, from http://www.wsdot.wa.gov/NR/rdonlyres/55CF12C9-9D4E-4762A27A-407A44546BE2/0/TrasitFareboxRecoveryandSubsidiesSynthesisKTaylorFINAL2.pdf 7. Hensher, D. A., & Wallis, I. P. (2005). Competitive Tendering as a Contracting Mechanism for Subsidising Transport: The Bus Experience. Journal of Transport Economics and Policy, 39(3), 295322. 8. Toronto transit for sale | NOW Magazine. (n.d.). Retrieved November 24, 2012, from http://www.nowtoronto.com/news/story.cfm?content=188858 9. Department for International Development of the UK. (2000). Review of Urban Public Transport Competition Final Report, Halcrow Fox Ltd. for Department for International Development of the UK. Retrieved November 24, 2012, from http://siteresources.worldbank.org/INTURBANTRANSPORT/Resources/uk_competition_bayliss.pdf 10. (Reference No. 8) 11. City Council Scorecard: Rob Ford loses control of the TTC Ford For Toronto. (n.d.). Retrieved November 24, 2012, from http://fordfortoronto.mattelliott.ca/2012/03/06/scorecard-ttc-board/ 12. Government of Malaysia (2006). Laws of Malaysia (Act 171) - Local Government Act 1967. Retrieved from http://www.agc.gov.my/Akta/Vol.%204/Act%20171.pdf 13. Government of Malaysia (2010). Laws of Malaysia (Act 715) Land Public Transport Act 2010. Retrieved from http://www.agc.gov.my/Akta/Vol.%204/Act%20171.pdf 14. Cambini, C., & Filippini, M. (2003). Competitive Tendering and Optimal Size in the Regional Bus Transportation Industry: An Example from Italy. Annals of Public and Cooperative Economics, 74(1), 163182. doi:10.1111/1467-8292.00220 15. Mathisen, T. A., & Solvoll, G. (2008). Competitive tendering and structural changes: An example from the bus industry. Transport Policy, 15(1), 111. doi:10.1016/j.tranpol.2007.08.002 16. (References No. 15 and 16) 17. Estache, A., & GMezLobo, A. (2005). Limits to competition in urban bus services in developing countries. Transport Reviews, 25(2), 139158. doi:10.1080/0144164042000289654 18. (Reference No. 17)