This Policy Brief summarizes TRANSIT's recommendations for cost-effective bus transit competition in Greater KL.
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TO: Tan Sri Syed Hamid Albar, Chairman, Land Public Transport Commission (LPTC) FROM: M Zulkarnain Hamzah, McGill University’s Department of Urban Planning DATE: 30 November 2012 SUBJECT: Cost-Effective Bus Transit Competition in Greater Kuala Lumpur (GKL) GKL’s Draft Land Public Transport Master Plan 1 acknowledges bus transit as one of the plan’s four building blocks towards LPTC’s mandate of sustainable and quality transit service, but the plan’s 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 fares 2 , and the private operators (which cut corners to cope with fare price ceiling) are at risk of solvency 3 . RapidKL’s ambition to collude with private operators on resource sharing agreements 4 and private operators’ demands for new license freeze and mileage-based revenues 5 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 nations 6 . Competitive tendering (CT) of services formerly served by mostly publicly- owned 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 provider 8 can easily be cancelled by poorly incentivised operational management 9 . Many top- performing Canadian transit management boards (such as in Toronto which has the
Transcript
TO: Tan Sri Syed Hamid Albar, Chairman, Land Public Transport Commission (LPTC)
FROM: M Zulkarnain Hamzah, McGill University’s Department of Urban Planning
DATE: 30 November 2012
SUBJECT: Cost-Effective Bus Transit Competition in Greater Kuala Lumpur (GKL)
GKL’s Draft Land Public Transport Master Plan1 acknowledges bus transit as one
of the plan’s four building blocks towards LPTC’s mandate of sustainable and quality
transit service, but the plan’s 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. RapidKL’s 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 publicly-
owned 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 top-
performing 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 Malaysia’s absence of local council (LC) election, lack
of scrutiny over the solidification of policy and operational jurisdiction from LCs12 to
federal-level LPTC13 and RapidKL’s monopoly over bus assets and route planning, it is
recommended that LPTC opens up CT of transit assets to RapidKL’s 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 criteria14
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 government’s
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 area-
specific ridership, marketing and profit risks. LPTC’s 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-land-
public-transport-master-plan
2. RapidKL Losses Due To Fares That Do Not Match Rising Operating Cost. (n.d.). Retrieved November 24, 2012, from
