This article was downloaded by: [Universitaets und Landesbibliothek] On: 17 December 2013, At: 07:48 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Transport Reviews: A Transnational Transdisciplinary Journal Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/ttrv20 The modernization of Santiago's public transport: 1990–1992 Daniel Fernández Koprich a a Investment Planning Commission for Transportation Infrastructure , Ahumada 48, 5o. piso, Santiago, Chile Published online: 13 Mar 2007. To cite this article: Daniel Fernández Koprich (1994) The modernization of Santiago's public transport: 1990–1992, Transport Reviews: A Transnational Transdisciplinary Journal, 14:2, 167-185, DOI: 10.1080/01441649408716875 To link to this article: http://dx.doi.org/10.1080/01441649408716875 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub- licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http:// www.tandfonline.com/page/terms-and-conditions
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This article was downloaded by: [Universitaets und Landesbibliothek]On: 17 December 2013, At: 07:48Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
Transport Reviews: ATransnational TransdisciplinaryJournalPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/ttrv20
The modernization of Santiago'spublic transport: 1990–1992Daniel Fernández Koprich aa Investment Planning Commission for TransportationInfrastructure , Ahumada 48, 5o. piso, Santiago, ChilePublished online: 13 Mar 2007.
To cite this article: Daniel Fernández Koprich (1994) The modernization of Santiago'spublic transport: 1990–1992, Transport Reviews: A Transnational Transdisciplinary Journal,14:2, 167-185, DOI: 10.1080/01441649408716875
To link to this article: http://dx.doi.org/10.1080/01441649408716875
PLEASE SCROLL DOWN FOR ARTICLE
Taylor & Francis makes every effort to ensure the accuracy of all the information(the “Content”) contained in the publications on our platform. However, Taylor& Francis, our agents, and our licensors make no representations or warrantieswhatsoever as to the accuracy, completeness, or suitability for any purposeof the Content. Any opinions and views expressed in this publication are theopinions and views of the authors, and are not the views of or endorsed byTaylor & Francis. The accuracy of the Content should not be relied upon andshould be independently verified with primary sources of information. Taylor andFrancis shall not be liable for any losses, actions, claims, proceedings, demands,costs, expenses, damages, and other liabilities whatsoever or howsoever causedarising directly or indirectly in connection with, in relation to or arising out of theuse of the Content.
This article may be used for research, teaching, and private study purposes.Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expresslyforbidden. Terms & Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions
Since 1978, a policy of public transport deregulation has been applied in Chile,which has been extensively commented upon in several articles related to the topic.This experience, whose main errors consisted of misinterpreting deregulation as theabsolute absence of market rules and pretending that the basic productive unit inthe public transport market is a vehicle instead of a service, had seriousconsequences on the development of the activity, particularly in the city of Santiago.In 1989, after 11 years of applying such a policy, the number of vehicles had doubled(at the same time reducing the transport capacity per vehicle), the fares more thandoubled in real terms, the cartel of operators was strengthened, the external effectswere strongly increased (traffic congestion, pollution and accidents) and so thecontemporary view of the population in relation to public transport had becometotally negative. On the other hand, the areal coverage of the system increased, thusreducing the waiting and walking times. This article presents the experience of theMinistry's technical team in the modernization process of the transport sector, atthe arrival of the democratic government: the creation of rules for the activity, theentrepreneurial transformation, the use of evaluation polls to take into account users'opinions towards the actions taken, the auctioning of the routes for the operationof the services, the establishment of standards for the emission of pollutants and thegeneration of a strategic plan to carry out the changes.
1. BackgroundSince the tramway disappeared from Santiago, in the 1930s, public transport
operations have been private, with the exception of the State Public Transport Company(ETC), which operated until the end of the 1970s. In its heydays, the ETC provided 9%of the daily trips in Santiago. At the beginning of 1975, deregulation of transportservices began in Chile, affecting particularly the urban public transport system. Thisprocess started eliminating the obstacles for new operators willing to enter the publictransport market, allowing them to get into the activity, but maintaining the policy inwhich both the Transport and the Economy Ministries fixed the fares.
In 1979, the fares were liberalized (Decree 320 of 2 November 1979), allowing theoperators to decide themselves the amount to be charged, without any restrictionwhatsoever. The Transport Ministry kept the power to authorize through a resolutionthe acceptance of new vehicles on existing routes or the incorporation of totallynew routes, but it never denied an incorporation application, except for formalreasons.
Due to the substantial increase in the number of vehicles in operation as aconsequence of these measures—and the consequent increase of traffic congestion inthe main cities of the country, in those areas with high passengers' demand—theTransport Ministry created a market-access restriction mechanism for the routes thatwere to operate on those areas. These routes progressively received more vehiclesbetween 1982 and 1988 (since Decree 100 of 29 September 1982).
On the other hand, the Chilean economic crisis which occurred in that sameperiod motivated the authorities to grant US$80 million in subsidies to operatorsfor vehicle purchasing, through credits at preferential interest rates and furtherrenegotiations. But neither before nor after deregulation were there direct operatingsubsidies.
Because of the constant rise of the number of vehicles and the fares in the system,the authorities attempted to liberalize the activity completely, through the dictation ofthe Law 18696, passed in March 1988 by the Finance Ministry; in an effort to generatecompetition conditions, this eliminated even the need for authorization from theTransport Ministry. Therefore, any operator whose vehicle passed a mechanical test wasallowed to operate without any restriction on fares or routes. Furthermore, in 1980 theETC was closed and its assets auctioned.
2. Consequences of applying the deregulation policyIn order to analyse the consequences of the deregulation policy, we will concentrate
on the city of Santiago, the country' s capital, in which the effects of such policy exposethemselves clearly.
Santiago is a city of 5-5 million inhabitants, covering an area of 55 000 hectares,with an average population density of 100 inhabitants per hectare. According to dataobtained in the 1991 survey of departure-arrival trips in Greater Santiago, throughoutthe whole city there are 6-7 million motor vehicle trips per day, 70% of which are madeby public transport (including the underground, which provides for 8% of the daily tripsthrough both of its lines, which have a total length of 25 km). Twenty per cent of thetrips are made by cars and 10% by other (motorized) means. The city has an averagevehicle ownership rate of 90 vehicles per 1000 inhabitants; although, in highsocio-economic zones it is possible to find European-like rates. Public transport servesmainly people of middle and low income levels, who do not have the option of usinga car, and, therefore, are captives of the public transport system.
In 1989, after 11 years of applying the deregulation policy, the fleet of publictransport vehicles in Santiago had doubled (at the same time reducing the transportcapacity per vehicle) the fare more than doubled in real terms, the cartel of operatorswas strengthened, the external effects were strongly increased (traffic congestion,pollution and accidents) and public opinion at the time had become totally negative inrelation to public transport. On the other hand, the areal coverage of the system grew,and waiting periods and walking distances were reduced. At the same time, anintermediate service was created, mixing public transport and cars, in the form ofcollective taxis (shared taxis), which in 1991 were able to serve 3% of the daily trips.Figures 1 and 2 and tables in this paper show the evolution of the public transportvehicles fleet and the fares of different types of services for this period. Previousevaluations dealing with the results of the deregulation policy can also be found inFernandez and De Cea (1986) and Hohmann and Fernandez (1990).
The above consequences mentioned occurred mainly because in reality no realderegulation took place. Instead, an operators' cartel took over control of the fares andoperation of the vehicles. The fares fixed by the cartel reached levels which guaranteedhigh profits for the owners, which in turn encouraged the incorporation of newoperators, putting additional pressure on the fares. In this manner, from the start of faresliberalization (1979) until 1985, bus fares had increased 131% in real terms, and thoseof 'taxibuses' (minibuses) had increased 75%. Buses have an average capacity of 80passengers, and taxibuses, 47 passengers. During this period, the fleet increased from
Figure 2. Development of public transport fares, June 1989-August 1992.
5440 to 8500 vehicles, and by 1987 it had grown to 10 300 vehicles. The demand duringthis period was relatively stable at an average of 1050 million trips per year.
At the same time, the average vehicle age increased considerably between 1980 and1988 (from 7 to 10 years for buses and from 5 to 10 for taxibuses), and by the end ofthis period there were more than 400 different kinds of vehicles, with different types
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170 D. Fernandez Koprich
Table 1. Classification of public transport variables according to its users.
Service characteristics ofbuses and taxibuses
Accident riskComfort of the vehicleAttitude and appearance of the driverCost of the trip (fare)Waiting periodTravelling periodNumber of standing passengersVariability of waiting period
Frequent
Bad-regular(%)
6659675449497055
travellers
Averagegradef
3-74-03-84-04-54-43-54-2
Infrequent
Bad-regular(%)
7358646261606565
travellers
Averagegradef
3-24-13-83-8404-23-83-9
t The scale of grades is from 1 to 7.Note. Infrequent travellers are regular users of other transport modes with an informed
opinion about the mode under analysis.
of engines, framework designs, etc. Also, the dispersion of the business structure, whichalready existed, was increased. In 1989 there were 3900 'one vehicle' owners out ofa total 6200 operators, with an average of 1-8 vehicles per owner.
On the other hand, as a result of the technological change of the vehicles' engines(from gasoline to diesel fuel) in order to reduce operation and maintenance costs, thematerial emissions with breathable particles increased considerably (including aromatichydrocarbons and a non-combusting component considered as a cancer-producingagent), up to levels such that 71 % of this type of material found in the atmosphere camefrom public transport vehicles. This was not only due to the change of engine type, butalso to the lack of maintenance caused by the absence of clear emission standards whichcould be effectively controlled and sanctioned. In a highly-contaminated city, theresponsibility of the public-vehicle owners relative to the emission of pollutantsconstituted the main element which later made it possible to act against theentrepreneurial sector with great support from the community.
The Antimonopoly Preventive Commission never applied sanctions against thecartel, amongst other things, because of its inability to demonstrate satisfactorily theexistence of agreed (monopolistic) behaviours; nevertheless, prior to the passing ofLaw 18696 in March 1988, the Commission recommended the auctioning of routes withthe goal of introducing elements of competition into the activity. One aspect whichespecially called for attention was that, despite the existence of a diverse number oflines, types of vehicles, lengths of routes, operation costs and demand levels, the fareswere flat and identical for all services. This did not occur in Valparaiso; the presenceof a private trolleybus company, independent from the cartel, acted as a fare regulatorwithin its area of influence.
In order to find out the users' image of public transport and to estimate the priorityand qualification they gave to each characteristic of the system, 387 surveys were doneon the Transport Ministry's behalf. Users were interviewed at their work places,between July and August 1990 (Fernandez 1991). Table 1 shows the results of thesurvey, expressed as the percentage of users who qualified each variable as bad orregular (grade less than 4 in a 1 to 7 scale).
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Santiago's public transport modernization 171
3. Design of a transformation strategy
3.1. General aimAll this went to show that the public transport services market was facing serious
distortions, which led to clear incentives for a constant increase in the number ofvehicles in operation and, consequently, an increase of the service fares (as a productof the decreasing rates of use per vehicle, given a constant demand). As a consequenceof the latter there was also an incentive for the acquisition of smaller vehicles, with lowerprices and operation costs, which created more pollution and congestion per passenger.At the same time, the system lacked a framework of basic rules, establishing theconditions that an eventual private investor should follow, with clear and stable rulesof the game. There was also lack of technical capacity in the Transport Ministry toimprove its management and undertake the necessary changes.
This being the situation, the Democratic Government, which was established inMarch 1990, gave the Transport Ministry the technical capacity and the necessaryresources for the initiation of the transformation of public transport. The advisers' teamin the urban transport area, together with the Minister and the Undersecretary,established the fundamental policy objectives. This policy contained clear and stablerules for the activity, the definition of regulation mechanisms in those areas whereimportant external effects are produced (congestion and pollution), establishingincentives for modernizing the management, improving control and supervisionmechanisms, modernizing the public transport vehicles and creating economicdisincentives for the use of private vehicles (Hohmann and Fernandez 1990).
Dealing with the specific regulations actions, it was recommended that the type ofvehicle for urban public transport should be defined, that a National Register ofPassenger Transport Services should be created, and a time table of stricter norms forthe emission of pollutants should be set. In relation to private vehicles, which duringthe most contaminated periods (winter) suffer a circulation restriction based upon thelast digit of their licence plate, it was decided to recommend a road pricing scheme forthe city's most congested roads.
Although the elements of the urban transport policy, which should have beenimplemented in order to improve the transport system, were relatively clear from atechnical point of view, the feasibility of accomplishing the changes depended on thepolitical and practical circumstances. The moment of applying such measures, itssequences and the possibility of simultaneous effects (positive or negative) on variousagents of the system, were elements which should have been considered in thetransformation strategy. Upon the correct design of this policy depended thepossibilities of success in its implementation, which from a technical point of view wasnever questioned.
3.2. Agents of the urban transport system (UTS)When designing transport policies which would have a real possibility of
implementation, not only should the technical elements be correctly considered, but itis also necessary to find out what impacts such political actions will have on the agentsof the system, in order to reconcile, whenever possible, the different interests, and makethe policy feasible.
The different agents participating in the UTS are listed below. Because of theinterest that they represent in relation to this article, only the users and the Government
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172 D. Fernandez Koprich
are described. A detailed analysis of the system agents, especially owners and drivers,can be found in Citra-Cis (1991).
(a) Services' suppliers: the owners.(b) Carriers and importers of chassis and buses.(c) Transport workers.(d) Users (passengers, both adult and students).(e) The Government.(/) The community.(g) The press.(h) Members of parliament and political parties.(/) The motorists.0") Suppliers of parts, lubricants and fuel.(k) The police force.
3.2.1. UsersBeing the main agents of the system (they are the ones who provide financial support
for the existing public transport services and all the other economic activities relatedto it), users do not have even a minimum degree of organization, which would allowthem to exert significant influence on the rest of the system agents. This is mainly dueto the fact that they do not realize that a united action of public transport users wouldgenerate a change in the conditions of the service, and that the actions they could carryout would exercise pressure on the Government and the owners. In this respect it isessential to point out that in Chile the legislation on consumer protection is scarce andinappropriate; in fact, no controlling power on behalf of the customers exists.
3.2.2. The governmentIts duty, through the Transport Ministry, the Special Commission for Decontami-
nation and other public organs.is to establish the sector's policies, to dictate the norms,rules and regulations which are considered necessary and to take the initiative in sendingto Parliament law proposals, which are considered necessary for the implementationof transport policy. On the other hand, in democratic conditions, it is assumed that theauthorities represent the interests of the users and the community.
3.3. Relations between the UTS participants: main conflictsThe main relations between the different agents of the UTS are shown in figure 3.
Table 2 shows the main conflicts between the UTS participants.The solving, treatment or progress of the different conflicts are various. In those
where the Government plays a role, it is usually necessary to apply combinedmechanisms of persuasion, negotiation or imposition (when political conditions makeit possible), through the dictation of regulations or by drafting law proposals toParliament.
On their part, the owners try to turn the solution of the conflicts in theirfavour—especially in those where they have to face the Government—by threateningtransport paralysis. In some cases they take advantage of the dissatisfaction of thedrivers in order to promote the stopping of services, faking the roots of the conflictsto make them appear as starting with the drivers.
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Santiago's public transport modernization 173
INPUTSUPPLIERS
Fixed policies
Represent their point of view
Create policieswhich define
!thelrDEALERS OP
Offer services
PUBLICTRANSPORTDRIVERS
provide funds tofinance wages
GOVERNMENT
Defendtheir
interest
Demand theiraction
POLICE FORCE
giveopinioi
Receive the rules
Propose lawi
Carry outlaws andevaluationpolicies
CONGRESSMENAND POLITICAL
PARTIES
Figure 3. Interrelations between the main agents of the UTS.
Table 2. Conflicts between the UTS participants.
Agents in conflicts Causes of conflict
Government-owners
Government-dealers andimporters of chassis
Drivers-owners
Community and users-owners
Users-driversMotorists-owners
Press-ownersPolice force-owners
The implementation of the transport policy in general.In particular the Government wishes to reduce the fleetvehicles and the owners wish to maintain it. Another basiccause of conflict is the control of the streets and the normsof emission of pollutants
The Government wants to reduce the addition of morevehicles and as soon as possible to improve the technologyused. The dealers want to continue selling the same amountof vehicles, hopefully with the present quality.
Mechanism of salary payments, working hours, pension,working hygiene, income levels, stability of contracts
The responsibility for atmospheric pollution, abusive treat-ment (especially in dealing with fares). The communitybegan to realize that there are high profits to be had
Bad service, especially to studentsThe responsibility for atmospheric pollution, road space
allocated to each of the means of transportThe responsibility for atmospheric pollutionGuidelines in the establishment of fines
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174 D. Fernandez Koprich
Table 3. Effects concerning variables of the UTS.
Effects
Issue
AuctionRoad pricingCBD access restrictions
(D.S. 145)Prohibition of collectives
taxis in AlamedaPublic transport vehicles' norms
(D.S. 122)Emission normsRegistration rulesService rulesThe creation of companiesIncorporation of trolley busesLaw of superintendenceVehicles' obsolescenceBuses retirement planLaw of used parts and piecesSchool for driversChanges of traffic lawsScatEnlargement of the road
3.4. Action strategyThe aspects which in March 1990 were seen as crucial for the undertaking of an
action strategy were:
(a) In the short term, and as a response to the populations demand:(i) to control the expansion of the public transport vehicles' fleet;
(ii) to control increase in fares;(iii) to reduce the emission of pollutants;(iv) to reduce the congestion produced by public transport vehicles in the
central area (especially in the Alameda, Santiago's main avenue).
(b) In the medium term, with the aim of introducing structural improvements to thesystem:
(i) to regain for the State the control of the routes used by the differentservices;
(ii) to weaken the mechanisms of owners' agreement (preventing monopolis-tic behaviour);
(iii) to introduce technological innovations in the vehicles;(iv) to generate incentives for the introduction of services with non-polluting
vehicles and better standard (trolley buses, for example);(v) to promote the creation of public transport companies, by reducing
dispersion of ownership.
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Santiago's public transport modernization 175
(c) In the long term, with the aim of guaranteeing the permanence of the changesand to generate conditions for future stability:
(i) to get licence contracts between the owners and the State, upon which thefulfilment of the agreed services could be demanded;
(ii) to disband the cartel;(iii) to guarantee the possibility of the fleet renewal;(iv) to form networks of joint routes (road transport and the underground), with
a common fare system;(v) to strengthen the institutional capacity of the state, particularly in the areas
of inspection and control;(vi) to create economic disadvantages for private vehicles' use.
The possibility of introducing a state-owned public transport system (partially ortotally) was completely disregarded. However, in 1990 the Government decided toenlarge the underground network which is managed by a state-owned company.Therefore, from 1997 the underground system will have three lines instead two,increasing its length from 25 to 35 km.
Based upon these conditions, specific measures to be considered were designed,which are shown in table 3, with the expected effects over the main variables of thesystem.
In order to analyse the effects of the different measures upon the UTS agents andto avoid simultaneous negative effects or incentives for solidarizing attitudes amongthem, a table of impacts (table 4) was used to define the sequence of actions.
4. Main accomplishmentsConsidering the general objectives of the policy, stated in 3.4, and taking into
account the conflicts shown in table 2, the specific actions to be accomplished wereestablished.
4.1. Removing planThe main element to be controlled in the short term was the excessive increase in
the number of vehicles and the fares. There were two classical options to undertake thistask: to fix the fares or to limit access to the activity (in the latter there should also befixed fares, due to the existence of an established monopolistic condition).
Nevertheless, and mainly to avoid wrong economic signals at the start of aGovernment which needed to give confidence to the entrepreneurial sector about itscommitment to a market economy, both options were discarded, choosing a morecreative and original solution: to eliminate a certain amount of vehicles in use, allowingaccess only to new vehicles, thus increasing the short-term profit for those who wouldremain in the system. In addition, it was decided to make public the fact that the ownerswould increase their profits, generating public pressure to raise long-lasting obstaclesto the foreseeable owners' attempts to increase fares. This scheme had an additionaladvantage: it divided the operators into those who remained in operation (with ahigher profit rate) and those who had to leave, weakening the usual solidarity withinthem.
In this way, the 2300 oldest vehicles (all of them manufactured before 1974), whichrepresented 20% of the vehicles' fleet, were removed from the streets, paying US$7million to their owners (through the purchase of buses by the State). In order to do this,
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Table 4. Impacts upon agents of the UTS. o\
Issue
AuctionRoad pricingCBD access restrictions
(D.S. 145)Prohibition of collective
taxis in AlamedaPublic transport vehicles'
norms (D.S. 122)Emission normsRegistration rulesService rulesCreation of companiesIncorporation of trolley
busesLaw of superintendenceVehicles' obsolescenceBuses retirement planLaw of used parts and
piecesSchool for driversChanges of traffic lawsScatEnlargement of the road
a law proposal was sent to Parliament, which was promulgated on 2 May, 1991,becoming the Law 19040 (the so-called withdraw plan law).
4.2. Changes to the legal contextIn order to avoid—among other things—a greater incentive for the arrival of
newcomers to the system, the proposal of a modified Law 18696 (which establishedthe total deregulation of the system) was forwarded to Parliament, establishing a newframe for the activity. This law, approved on 12 December 1990, which is completelyin force, established that access to the public transport activity is free but subject to thefulfilment of the technical norms and rules defined by the Transport Ministry.Furthermore, the Ministry was authorized to restrict the operation of vehicles or servicesto a limited number in the roads or zones in which high levels of congestion, pollutionor high risk to passengers' safety would be registered, establishing licence contractsthrough public auctioning mechanisms. It also established that the Ministry shouldcreate a passengers transport services' register, at a national level.
The above-mentioned legal modification was unanimously approved by the Senateof the Republic; the executive power agreed a consensus text with the Parliament, withthe purpose of counting on a solid backing when confronting the operators' cartel,and to guarantee long term stability for the policies that would govern theactivity, independent of the changes which might occur in the country's politicalsituation.
4.3. Restriction to collective taxis' circulationIn February 1991, the Transport Ministry ordered the prohibition of collective taxis'
circulation in Alameda Avenue, with the immediate objective of clearing the street,which showed serious traffic congestion problems; indirectly, it was intended to givea signal that the corrective actions aimed at ordering the transport system were notdiscriminatory against the bus operators, but that they would affect all the UTSparticipants.
4.4. Pollutants' emission normsAdditionally, the Transport Ministry created a table of pollutants' emission norms
for public transport vehicles, which are controlled every three months in speciallyequipped plants, measuring the vehicle emissions' smoke opacity, both in gear andrunning idle, whose maximum limits are shown in table 5.
Table 5. Demands of maximum smoke opacity (0%-100%) permitted in charge for publictransport vehicles (according to the power of the engine).
Month/year
March 1990May 1990April 1991October 1991January 1992May 1992January 1993
80-120 CV
25%25%22%18%17%15%12%
More than 120 CV
34%34%30%23%20%17%15%
Running idle
2%2%1%1%1%1%
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178 D. Fernandez Koprich
4.5. A brief history of the auctioning processWhen the public transport owners realized that auctioning of the routes was
inevitable, because the law that so established was approved and the Ministry showeda clear decision to put it into effect, they scheduled a one-day general strike in Santiago,which took place at the beginning of April 1991. The response which they received wasvery negative: the population tried to find other ways of getting to their work; theunderground increased the frequency of its services; in one way or another, the citycarried out its activities; the Transport Ministry received public endorsement from thepolitical ministries of the Government and from the President of the Republic; and theowners did not succeed in achieving even the smallest part of their petitions. In this way,they exhausted in the first skirmish the main element of pressure at their disposal: toparalyse the city. Therefore, the Ministry decided to accelerate the transformationprocess.
The day after the owner's strike, mainly because of the political and public supportreceived, the Minister of Transport signed Decree 122, which established thecharacteristics that public transport vehicles should have if they were to initiateoperations in the city's public transport service. This Decree, largely opposed by theoperators, went into effect on 18 July 1991, establishing a term for the fulfilling of thenew requirements. That same day, Decree 72 was signed, which established theNational Register of Passenger Transport Services, in which whoever wished to givea national service of any form is obliged to register. This Decree came into effect on7 July 1991.
The first call for auctioning, in order to give the licences of Santiago's central routes,for an initial period of 18 months, took place on 13 April 1991. The auction embraceda set of routes which until that date were used by 85% of the bus routes which operatedin the city, and the criterion used was the auctioning of quotas of bus flow throughcertain streets, associated to the service of a number of trip origin-destination pairs.Auctioning is a transparent tool for assigning the concessions for the use of the routesto a limited number of services. In no case is there a payment or economic offer forthe use of the routes; the criteria for the assignment relate solely to the fares and levelsof service.
The operators cartel acted coordinately in order to oppose this auction, and theysucceeded: only a small number of independent routes presented their bids in theauction. This gave rise to a representation by the Minister of Transport to the NationalEconomic Attorney. After investigating the case and taking declarations from theleaders of the owners' union, the Antimonopoly Preventive Commission concluded thatthere had been concerted behaviour to avoid the auctioning, which was understood tobe a mechanism destined, among other things, to introduce elements of competition inthe public transport market (Judgement No. 779-761 of 12 September 1991).
At the beginning of September 1991, as an answer to the owners' boycott of theauction, the Ministry dictated Decree 145, which prevented access to the most congestedcentral zone public transport vehicles manufactured before 1979 (for buses) and 1981(for taxibuses). This measure caused a reduction of the number of public transportvehicles qualifying them entry to the city centre from 10200 to 7500, leaving a wakeof two entrepreneurial groups with different interests and establishing a sort of'preauctioning', in which those who had access to the centre had to face latentcompetition in the future auctionings from those who could not qualify to enter thecentral area.
On 8 October 1991 the second auctioning call took place, which was totally
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successful: on 27 December—the last date for presenting the offers—307 proposalswere received for 255 services (or routes) auctioned. Two hundred and twenty-six weregranted, leaving only 29 vacant. These were auctioned once again, and thecorresponding proposals were received on 5 June 1992. Eighty-two per cent of theoffers corresponded to incorporated or limited responsibility companies, and 18% toformal groups of the public transport sector. The latter were given a six month term,from the start of the contracts, to transform themselves into societies.
The proposals were evaluated according to the average age of the vehicle fleet, thefare, the average capacity of the vehicles, the toll collection system (manually, by thedriver or a special collector, or automatically), and the service coverage. In this manner,the Ministry approved contracts for 5200 public transport vehicles from a total of 7500vehicles operating in the central area before the auction. The vehicles accepted had anaverage age of 3-2 years, an average nominal fare of $91 -5 (as against a nominal of $100(US$0-27) before the auctioning), and the average total length of the routescorresponding to the auctioned services reached 58-8 km (Hohmann and San Martin1992).
Regarding the establishment of economic disincentives for the use of private cars,the Ministry worked out a road pricing law proposal, which was passed to Parliamenton 6 August 1991, but is unlikely to get early approval.
Finally, on 24 December 1991, the first trolley bus line started operations, 16 yearsafter its disappearance from the streets of Santiago. The new line is completely operatedby private companies and the service comprises 24 vehicles.
The data contained in tables 6 and 7 show the evolution of the fares, the numbersof vehicles and their average age. The results obtained are clearly favourable: betweenJune 1990 and August 1992, there was a 29% fall in the real value of buses andtaxibuses' fares; between the beginning of May 1990 and December 1991, astabilization in the amount of vehicles can be observed, and a decrease in the averageage of the vehicles' fleet, which in the city as a whole can be estimated at four years,whereas in the central area, as already said, the average age fell to 3-2 years. It is stillnecessary to evaluate the level of variation of services as a result of these changes (whichconstitute, in a certain form, the social cost of the decisions).
Concerning the flows in the Alameda Avenue, they gradually fell from 1200 busesper hour in March 1990 to 550 buses per hour after the auction. Another favourableresult is the change of tendency in the entrepreneurial structure, from an amateurishpoint of view to a commercial vision of the activity, through the creation of enterprises(generally one enterprise per route).
5. Analysis and recommendationsOne of the mistakes made in the implementation of the public transport deregulation
process in Chile was that the authorities of the time confused the regulation mechanismswith the basic rules of the activity, eliminating the latter (with the unique exception ofthe mechanical checks). Thus, the establishment of the norms which were going to rulethe activity was transferred to a cartel. In fact, the cartel, which could not hinder theincrease of new operators, was charging a kind of 'operation tax' access to the route,which sometimes reached as much as US$3000.
Another mistake was to confuse deregulation with the absence of planning. In fact,the authority weakened the scarce technical capacities related to the planning, theestablishment of policies and the supervision of the system. Only the technicalmechanism of making decisions concerning investment in urban transport infrastructure
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Table 6. Evolution of public transport fares ($ 1 May 1992).
tThis is the figure of May 1992, as delivered by the National Institute of Statistics, as anestimation for the value of June.
$ Prediction for August 1992 (once the auctioned contracts start). The August 1992 nominalfares for buses and taxibuses was estimated at $91-5. A monthly inflation rate of 1-2% wasassumed between the months of June and August 1992.
Note. 1US$ = $370 in June 1992.
Table 7. The development of the average age and size of the fleet of public transport vehicles.
t Includes 710 buses of the ETC (State Public Transport Company).$ No information available.§ Includes 44 buses of the ETC.
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was strengthened, through the creation of the Interministerial Commission of UrbanTransport in 1981, which was supported by an executive secretariat consisting ofhigh-level technical personnel. Nevertheless, this technical team was explicitlyprohibited from intervening in transport policy matters, having to orientate their workexclusively to the evaluation of projects for urban route infrastructure.
The third error consisted in believing that the basic productive unit of the urbanpublic transport system was a vehicle; it is well-known that it is not possible to establisha service without reckoning in a specific routes' plan, frequency, terminals and jointadministration of the vehicles which would allow, among other things, advantage to betake of operation's scale economies.
Finally, transport markets are peculiar compared with other markets: the operationtakes place on public goods; there exists no payment for the right to use those publicgoods; there exist natural conditions for an agreement in establishing the layout of theroutes, the frequencies and, therefore, the fares; a stock of products (trips) cannot beaccumulated; the operation of the vehicles generates important external effects, mainlycongestion and pollution, which are taken into account neither by the operator nor bythe consumers in their decision-making; part of the demand for public transport iscaptive; in order for the transaction of a product (a trip) to occur, there must exist spatialand temporal coincidence between supply and demand. This last characteristic isparticularly relevant: a user at a public transport stop (station), under competitiveconditions, and supposing that there exists a diversity of fares and levels of services,has no way of knowing how long to wait in order to take a bus with a lower fare, whichwill reach the desired destination, which will have free space and will give a better levelof service. This means that if the first bus is allowed to pass by, in the expectation ofgetting another one which will offer a better level of service or a lower fare, if the nextone gives the same level of service (or worse), at the same price (or higher), the userand also society, if we take into consideration the economic value of time, willautomatically have a net loss. The situation is worse if the user has a fixed time forstarting work (see Fernandez and De Cea 1991).
These elements show that the transport services market is singular, and as such thegeneral rules of classic economics cannot be applied directly to it.
So what does deregulation mean in this quite singular market? The answer is thatthere exist different levels of deregulation:
(a) free access to the system;(b) free route layout;(c) free intervals;(d) free pricing;(e) combinations or the sum of all of the above mentioned.
Nevertheless, the deregulated market should never be understood as the eliminationof the market rules, nor the creation of incentives for an entrepreneurial disintegrationof the one-vehicle-one-owner type, nor to have as an aim different fares for each vehicleof a service. On the other hand, which are the reasons to deregulate?
Usually, the idea of deregulating comes from the authorities of the countries or citiesin which there are public enterprises operating, which need heavy subsidies; but thatcan be corrected by privatization and not necessarily by deregulation. These twoelements are essentially different and should not be confused.
The intention to deregulate also arises in the search for a mechanism which willenhance the transport capacity of the system and renew the vehicle fleet. Nevertheless,
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the capacity deficit or the age of the fleet are usually associated with low fares. Thiscan be corrected by increasing the fares, which will attract new operators; in this sense,the only advantage—from a political point of view—in deregulation is that fare fixingis done by the operator and not by the Government.
It should be pointed out that the value of the fares is the main element whichconditions the fleet size, its renewal possibility and the quality of the service. If the Statefixes the fares, it will probably—as seen in the international experience—bring themto lower levels, which will not allow for fleet renewal or the gradual enlargement ofsystem capacity, according to increases in demand. On the other hand, if it is freepricing, in the end the operators will fix prices according to their own criterion—appro-priate for a private owner—of maximizing their profits. Faced with a captive demand,it is possible to raise fares to whatever level the operators find acceptable, encouragingnew operators to enter the market, which in the medium term produces an unnecessaryincrease in the fleet size and a large increase in the fares, causing a strong regressiveeffect. This circle generates an inflationary effect on the fleet size, the fares and theeconomic resources for the operation. This kind of effect will inevitably be followedby an adjustment process, which will cause strong disputes between the Governmentand the owners, with known consequences for the customers.
It is evident, as such, that the fares' level should be controlled in some way (becauseto control the supply will at the same time fix the fares). The proposed mechanism forthis purpose is the auctioning of routes in areas with high demand concentration,conditioning the granting of a service to certain requirements of capacity and thecoverage of a predetermined set of trip origin-destination pairs. In this context theconditions for competition can be generated (by presenting offers, in which everyenterprise evaluates its costs and risks of latent competition from other operators) andnot on public roads.
The underlying approach for this criterion is that the entrepreneurs (at a publictransport line's level) cannot have a vision of the demand scale for the whole city; buta transport planning organization can have it, with the support of appropriate technicalresources. This planning entity can establish the requirements of minimum supply togive a level of service established both politically and with the community agreementfor the central areas with higher demand, leaving the rest of the city completely free(in terms of frequency, routes and fares). For these conditions, the entrepreneurs offera certain service quality at a certain fare through a formal proposal ensuring theireconomic interests and receiving guarantees from the State of a stable operation for adetermined period of time through a concession contract.
In this way, the auction creates an equilibrium between supply and demand theposition of the equilibrium point depending on the level of service established, due tothe fact that the market cannot do it in this particular case as it has been explained. Thecomplete liberalization of the services outside the auctioned area allows the offer toadjust itself according to the local demand, but the auctioned services will play afare-regulating role in the whole system.
Therefore, deregulation of urban public transport has to be understood as makingmore flexible the administrative State control, usually arbitrary, in favour of a technicalplanning action; for the entrepreneurs, it implies a change in their attitude towards theauthorities from the pressures for fares increases and control of the market to preventaccess of new competitors, to a commercial relationship, from a supplier of servicesto the users. The entrepreneurs will have to decide whether they want to operate certainservices at a certain price, which will be defined by themselves, in a system of desk
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competition and not on public roads. In summary, to deregulate it is not necessary topretend that competition will exist every day in all the bus stops of the city (as it wasin Santiago).
On the other hand, if the private sector is to operate the activity, and if it has to doit in a deregulated environment, the State's supervision and control mechanisms shouldbe strengthened, more than if it acted as an operator. It becomes essential to createplanning and coordination entities for sector policies, such as a Superintendenceof Passenger Transport Services, whose main function would be the control of themarket.
To summarize, among the recommendations which should be adopted relating tothe process of deregulation—which have positive effects in certain cases and undercertain conditions, especially regarding the diversification of services—the followingcan be highlighted:
(a) the public sector should have an adequate institutional environment andresources should be given for planning;
(b) it is essential to establish an adequate rule frame, rigorous stable in time;(c) the elements and the appropriate regulation mechanisms for each city and each
case should be created (auctioning, for example);(d) it is necessary to ensure an appropriate access to information for users, investors
and operators;(e) it is essential to allow the community to participate in the decisions and to
follow up the actions taken;(/) it is necessary to create economic disincentives for the use of private cars, with
the aim of avoiding the public transport deterioration cycle.
Finally, it should not be forgotten that requirement for implementing urban transportpolicies must be adequately considered in the light of the users' and the community'sperceptions concerning the transport system and the actions which the authorities willadopt. At the same time, it is necessary to take into account the impacts generated onthe rest of the UTS participants. On all these depends the success of the strategieselaborated.
AcknowledgmentsThe author wishes to thank the engineers Jaime San Martin and Enrique Cabrera
and the system analyst Guillermo Allendes, for their support in the collection andsystematization of the fares and public transport vehicles fleet information reported inthis work. The author also wishes to thank Marcelo Farah for the translation and helpingwith the editing of this work.
Foreign summariesLa dérégulation des transports publics au Chili a commencé en 1968; elle a entraîné, entre
autres choses, une abondance d'articles à ce propos. La confusion y est souvent faite entre ladéréglementation des marchés et l'absence totale de règles sur le fonctionnement de ces marchés.Les auteurs de la réforme ont commis une erreur fondamentale consistant à confondre le véhiculeet l'unité de service comme unité de base pour servir de mesure de l'activité, en particulier dansla ville de Santiago. Eh 1989, après 11 ans d'application de cette politique, le nombre de véhiculesa doublé, mais la capacité de transport par véhicule a diminué; les prix, en termes réels, ont plusque doublé; la puissance du cartel des opérateurs s'est renforcée; les effets négatifs externes(congestion, pollution, accidents) se sont aggravés et l'image du transport public dans lapopulation est devenue tout à fait négative. Cependant, les zones couvertes par les transports
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publics se sont agrandies, les temps d'attente et les distances pédestres moyennes pour arriverà un arrêt ont diminué. L'article se situe au moment du passage à la démocratie dans le pays;il exprime le point de vue technique du Ministère des transports à l'égard du processusde modernisation du transport. De nouvelles règles s'appliquent désormais, changeantl'organisation de la profession, instituant le recours aux sondages pour prendre en comptel'avis des usagers, l'adjudication des itinéraires et des niveaux de service correspondants, lafixation de normes maximales de pollution et la réalisation d'un plan stratégique demodernisation.
Seit 1978 wird eine Politik der Deregulierung im öffentlichen Verkehr in Chile verfolgt, dieausgiebiger Gegenstand verschiedener einschlägiger Artikel war. Diese Erfahrung, derenHauptfehler in der Misinterpretation von Deregulierung als absolutes Fehlen von Marktregelnsowie in der Vorgabe bestanden, daß die Grundeinheit der Produktion im öffentlichenVerkehrsmarkt das Fahrzeug und nicht der Service ist, hatte schwerwiegende Konsequenzen fürdie Entwicklung von Aktivitäten, speziell in Santiago. 1989, nach elf Jahren der Anwendungdieser Politik, hatte sich die Zahl der Fahrzeuge verdoppelt (gleichzeitig wurden dieTransportkapazitäten je Fahrzeug verringert), die Tarife waren real auf mehr als das Doppeltegestiegen, das Kartell der Unternehmer was gestärkt, die externen Effekte waren starkangestiegen (Verkehrsstaus, Luftverunreinigung und Unfälle) und die augenblicklicheBeurteilung des öffentlichen Verkehrs durch die Bevölkerung hat sich auf diese Weise ganz undgar ins Negative gewandelt. Auf der anderen Seite hat sich die vom Verkehrssystem erschlosseneFläche vergrößert, wodurch sich die Zugangs- und Wartezeiten verkürzt haben. Dieser Artikelstellt die Erfahrungen der technischen Arbeitsgruppe des Ministeriums beim Modern-isierungsprozeß des Verkehrssektors zu Beginn der demokratischen Regierung dar: dieSchaffung von Regeln für Handlungen, die unternehmerische Umsetzung, den Einsatz vonMeinungsumfragen, um die Meinungen der Nutzer zu bestimmten getroffenen Maßnahmen zuerfahren, die Versteigerung von Linienkonzessionen, die Schaffung von Standards fürLuftemissionen sowie die Erarbeitung eines strategischen Plans, um die Veränderungenumzusetzen.
Desde 1978, se aplicó en Chile una política de desregulación del transporte público, la queha sido extensamente comentada en diversos trabajos relativos al tema. Esta experiencia, cuyosprincipales errores consistieron en confundir la desregulación con la ausencia absoluta dereglamentaciones de mercado, y pretender que la unidad productiva básica en el mercado deltransporte público es un vehículo, en lugar de un servicio, tuvo graves consecuencias sobre eldesarrollo de la actividad, particularmente en el caso de Santiago. En 1989, al cabo de 11 añosde aplicación de dicha política, se duplicó la flota de vehículos (reduciéndose a su vez lacapacidad de transporte por vehículo), la tarifa creció a más del doble en términos reales, sefortaleció el cartel empresarial de operadores, aumentaron fuertemente las externalidades(congestión, contaminación y accidentes) y la percepción actual de la población en relación altransporte público resulta sumamente negativa. Como contrapartida, la cobertura espacial delsistema aumentó, y se redujeron los tiempos de espera y caminata. En el presente trabajo se relatala experiencia desarrollada por el equipo técnico del Ministerio en el proceso de modernizacióndel sector: la reglamentación de la actividad, la transformación empresarial, la consideración dela percepción de los usuarios mediante encuestas de evalución de las medidas, la licitación devías para la operación de servicios, las normativas de emisión de contaminantes, y la estrategiade acción para efectuar los cambios.
ReferencesCITRA-CIS, 1991, Estudio de análisis de estrategias de desarrollo del transporte urbano. Final
Report for the Transport and Telecommunications Ministry, Santiago, Chile.FERNÁNDEZ, D., 1991, La consideración de la percepción de los usuarios en la elaboración de
políticas de transporte urbano. Actas del V Congreso Chileno de Ingeniería de Transporte,Universidad de Chile, Santiago.
FERNÁNDEZ, J. E., and DE CEA, J., 1986, An evaluation of the effects of deregulation policies onthe Santiago (Chile) public transport system. Proceedings of the World Conference onTransport Research, Vancouver, Canada.
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FERNANDEZ, J. E., and D E CEA, J., 1991, Microeconomic model of a public transport system undercompetitive conditions. Proceedings of the 2nd International Conference on Privatizationand Deregulation in Passenger Transportation, Tampere, Finland.
HOHMANN, C., and FERNANDEZ, D., 1990, El transporte publico en Chile: análisis y proposiciones.Actas de la V Conferencia sobre Transportes Urbanos en los Países en Desarrollo, SãoPaulo, Brasil.
HOHMANN, C., and SAN MARTÍN, J., 1992, La licitación de vías para servicios de locomocióncolectiva: aplicación al Caso de Santiago. Actas del VII Congreso Panamericano deIngenieía de Tránsito y Transporte, Caracas, Venezuela.
Editorial suggestions for further readingDARBJIRA, R., 1993, Deregulation of urban transport in Chile: What have we learned in
the decade 1979-1989? Transport Reviews, 13 (1), pp. 45-59.
Urban bus operation in Chile is totally deregulated. This is the only example in theworld where access to the urban bus transport market is totally free, and where thegovernment does not exercise any control over the fares. This policy has beenimplemented progressively since 1979. Ten years later, it is possible to draw someconclusions from the experience. To summarize these conclusions, one could say that(i) the impact of deregulation has been almost exactly the opposite of what wasexpected: fares have risen and the diversity of services has been reduced, (ii) the reasonsfor this discrepancy lie less in the action of a cartel than in the specifics of urban transportsupply and (iii) there is probably more to be expected from a refined deregulation policy,taking into account these specifics, than from a drive back to the traditional regulationsystem. (Author)
