Organisation and ownership of public transport service*

David A. Hensher

2.1 INTRODUCTION

The land passenger transport sector continues to undergo noticeable changes in the structure, performance and ownership of the organisations providing services to the market. These changes can be viewed from two perspectives: the relatively narrow focus on service delivery (‘the operational’ focus) and the broader and more holistic domain of system-wide performance (the full spectrum of strategical, tactical and operational foci). The former is best represented by the accumulating experiences associated with alternative models of exposure to market forces (economic deregulation, competitive regulation (or what is referred to in Europe as ‘controlled competition’), monopoly, oligopoly), and ownership in its various guises (private and public with the former diversified to various levels of government). The latter focuses on ways in which full integration of land passenger transport (and public transport in particular) contributes to the economic, social and environmental goals of urban performance as implemented at the strategic, tactical and operational levels.

This paper is a summary of a workshop that sought to add to our understanding of the synergistic capability of these organisational themes and to identify ways in which the benefits of injecting the competitive ethic within the more holistic framework, as is being promoted (albeit cautiously) in Europe through proposed revisions to regulation 1191/69,1 can deliver an improvement in the ‘fitness of the system’ rather than assessing the gains from the more narrowly focused (albeit still important) operator perspective. This emphasis is likened to the notion of the organisational supply chain in which clear gains can be achieved for the system as a whole through a closer integration (alliance or co-ordination, in the strict sense of taking concerted actions towards the achievement of a common objective) between the interdependent elements of the full life cycle of performance delivery.

In this chapter, we also highlight specific issues that help to improve our understanding of specific organisational reforms and ownership profiles that add to or detract from the fulfillment of the two perspectives above. We also offer a set of recommendations that contain actionable items for research and policy agendas.

2.2 ORGANISATIONAL REFORM DEVELOPMENTS

The organisational framework developed by researchers such as van de Velde (1992, 1997, 1999), Viegas and Macário (1997, 2001) as synthesised in Macário (2001) offers an attractive setting within which to evaluate mechanisms consistent with an holistic (of system-wide) perspective on service delivery. The main features of the framework (given in more detail below), are represented by three levels:

• The strategic level where the focus is on the establishment of broad goals and objectives and guidance on ways of achieving outcomes consistent with such goals (“what do you want to achieve” – Van de Velde, 1999).

• The tactical level which highlights the supporting mechanisms to achieve the strategic goals.

• The operational level which focuses on delivering the desired services to the market consistent with the strategic intent and aided by tactical mechanisms.

The strategic tactical operations (STO) framework provides the context in which we can put to test the reforms that to various degrees support mixtures of the Napoleon and the Anglo-Saxon codes2 on delivery of services to the market and the community at large. Economists describe this mixture as the ability to deliver social welfare maximising outcomes under conditions of cost efficiency that can still support stakeholders in the supply chain whose pricing objective is profit maximisation (i.e, strictly commercial). Regardless of policy objective, a necessary but not sufficient condition is the provision of a given level of service at the lowest cost.3

Since the mid-1980s when the debate on potential instruments for reform began (with active implementation in some countries, notably UK and New Zealand), we have witnessed a smorgasbord of initiatives varying from a reinforcement of the status quo (principally, public sector monopoly) through to open market competition. The most popular initiative has been competitive tendering (CT) with a variety of contract specifications ranging from early incentive incompatible gross contracts (e.g., London in the late 1980s – see Toner, 2001) through to the more recent innovative incentive-based contracts as in Hordaland County Norway (see Larsen, 2001). At one extreme we had the Anglo-Saxon model where the focus was on the operational level and cost efficiency and effectiveness (with relatively little emphasis on service levels except in the preservation of the existing levels as defined variously by delivered vehicle kilometres or hours and passenger trips). Here the links back the holistic interest in system-wide gains, value for money and other terms for social welfare maximisation (SWM) and optimal subsidy profiles were extremely blurred to the extent that commentators felt that the model had abandoned SWM except in so far as gap-filling contracts were awarded to preserve the status quo in markets not capable of delivering commercial services. The other extreme is best exemplified by the French position (Code-Napoleon), in which organisational reform meant the ‘principle of authority initiative’ (Thome, 2001) which gave stronger powers to regional and local government to decide where CT may be introduced and where government authorities would continue to provide services directly or through their own protected companies. With rare exception, subsidies continued at a high level and collateral effects such as X-inefficiency accrued, with public companies in particular. The implicit commitment to SWM drives this agenda. In the last two years we have seen a blurring (or some might say coalescing) of the boundaries between these two extremes as the Anglo-Saxon model recognises the deficiency in service levels and the Napoleon-code recognises opportunities for subsidy reduction without forgoing the argued benefits of a more holistic regime as captured by the STO paradigm. The popular CT approach is thus justified by the aim of overcoming the pitfalls of the two extreme models (Napoleon vs. Anglo-Saxon).

What has now become a very real challenge, however, is establishing appropriate ways of integrating the intent at the three levels of the holistic ‘plan’. In a very real sense, this is at the heart of the current debate on reform in Europe as each member country starts from a different institutional/market base and manoeuvres for a position that is politically acceptable. There are two generic models:

• A facilitation partnership between all stakeholders in the STO supply chain, identifying the gaps between enablers and processes and moving the exclusive foci on the operator to a more holistic focus, under which individual and aggregate performance (system performance) should be assessed.

• Establishing sufficient ‘freedom’ in the operator's contract to deliver the best to the community (i.e., a performance/incentive-based contract structure) where one taps the operator expertise as revealed in their market actions through incentive-driven service improvements. This can be achieved under both commercial and non-commercial delivery regimes.

The last two decades provided evidence around the world that within the limited (or controlled) competition approach, net cost contracts have the right ingredients to become the first choice for formal relationships between authorities and operators. Specification of service was possible, as well as control through incentives, while leaving room for operators to innovate their services and make it more flexible and responsive to market needs. Grounded in these beliefs we have seen the public transport world moving from highly regulated environments to the choice of economic deregulation, and more recently to compromise solutions of light-touch regulation aiming to control market concentration trends.

Yet many challenges remain: public transport is still loosing market share; congestion is worsening in big cities; citizens are becoming more informed and raising their voices against a public management that keeps mobility systems far below their needs and expectations. Consequently, political support to finance mobility issues is reducing. Although efficiency in production has been on the agenda for a long time, efficiency in consumption has been left for a second-level priority. Most notably, recent years have revealed some pitfalls of CT procedures hindering and challenging the so-called ‘best choice’. These concerns include the following.

(i) The dominant position of operators through possession of market information,

(ii) The impact of contracts on the general contestability of the market,

(iii) The duration of contract versus ownership of assets at the terms of the contracts, in particular where high capital intensity exists (e.g., railways),...