Ponty, buses and PPPs

Liquor baron Ponty Chadha and his brother who were killed in a fratricide incident had another business not widely known. Ponty had recently acquired the concession to run public transport buses in Delhi. His company had won the bids for three clusters with a combined fleet of 600-odd vehicles. Now questions are being asked about who will run the business.

Even before he died this private foray into public buses was turning sour. With public-private partnerships (PPPs) becoming the country’s favourite pastime, it is important to ask if we really understand how to create and sustain essential public infrastructure for the relatively poor and middle class. In other words, how do we work with private enterprise for facilities to keep costs affordable—often through public subsidy or through innovative fiscal management?

Take buses, for example. Delhi (and all other cities) desperately needs a viable and convenient transport system. Without it, the growth of private vehicles will choke the city’s roads and poison its air. The question is: what will be the shape of this system?

City bus transport in India is largely publicly managed. Be it Mumbai, Bengaluru, Kolkata, Hyderabad or Delhi, city corporations run this key service. Some do a better job than others but the accounts of all agencies show they are bleeding because of high operation costs and low ticket prices. The bus fare has to be kept lower than the cost of running a two-wheeler, roughly Rs 1-2/km in India. The price of a bus ticket can only increase if there are adequate barriers to substitute options. For instance, high parking rates for private vehicles and a steep penalty for unauthorised parking make people switch to public transport.

Cities with little money to cover operational costs of running buses, do not invest in new buses or modern bus infrastructure. The Centre’s funding for public transport does not cover the cost of the “rolling stock”. It only meets the cost of building roads or flyover. As a result, buses get overcrowded and service becomes poor. The only competitor is the informal bus service, like the infamous blueline service of Delhi, which operate on a shoestring budget and offer poor service. But people use them out of compulsion and its economics works because of low overheads and because it has a single owner. This poorly functioning PPP model thrives.

The other option is to transform the disorganised private buses into a corporatised model, where a single entity has the contract for running buses and where service conditions are clearly laid down. Delhi did this a few years ago. It divided the city into clusters and decided that each area will have only two bus operators—Delhi Transport Corporation and a private player. This would create competition and build a scalable model for this service. It also decided to call for bids for this service on a gross cost basis—it would estimate capital and operation costs, and the contractor will have to meet the service conditions.

The organised bus service has to pay for capital—the cost of buses. Delhi invested in low-floor buses for commuter convenience. The Equated Monthly Installment of a swanky bus is Rs 24 per km and that of its cheaper kind is Rs 12 per km—computed assuming that the bus travels some 200 km a day. Then bus services have to pay for the cost of fuel, staff, maintenance, insurance and tax. Bengaluru runs the most efficient operations, which cost Rs 30 per km, while the service in Mumbai costs close to Rs 60 per km, without accounting capital costs.

In Delhi, the operation cost was fixed at Rs 28 per km. Management costs add another Rs 7-9 per km. The cost does not even take into account the cost of building a bus depot. Master plans of India’s modern and growing cities do not provide space for this essential facility. Most cities are today busy selling the land under transport corporations as unused assets. All in all, the cost of buying and running an on-time and modern bus service in Delhi comes to Rs 50-60 per km, of which the state pays a gap financing of Rs 10 per km. The aim is to recover the costs from the sale of tickets; the city earns Rs 37 per km for running the service and this can be supplemented with advertisement revenue. But in any revenue model there will be a deficit. The costs (particularly if the capital is added) will be higher than what can be recovered, especially in a market pre-determined by cheap private transport options. The service will have to be topped up with public subsidy or some form of innovative financing.

This was the model that Ponty’s company bid for. But all was not well. Private operators with little incentive to meet the tough service conditions prefer to cut corners. The Delhi government had already issued a penalty notice against Ponty for non-compliance with its agreement. Where does the city go from here? We better find answers because there is no alternative to public transport. Car exhaust is already taking a toll on our lungs.