Over the last few years in India, public-private transport partnerships are being keenly considered to make city transportation efficient and more viable for all stakeholders – from citizens to vehicle fleet owners. While private operators will do what they do best, namely, deliver services, the public enterprise is needed to put the requisite checks and balances in place to ensure regulated planning. If privately managed public fleets are done right, eco-driving, happy drivers and planned preventive maintenance can cut operating costs by as much as 40%. However, these cost reductions, while laudable, have not materialised in reality.
Indore model: Limited success
In 2006, Indore sought to reinvent urban mobility using public-private partnerships to deliver public transport. It auctioned bus routes to private operators on net-cost contracts. The bus company would agree on a route premium through an open bidding process and the operator was then granted the right to operate buses and collect revenue on a certain route. Soon, several cities like Bhubaneswar, Kota and Surat followed suit. Other cities such as Bhopal, Jaipur and Rajkot ran similar systems after the launch of the bus procurement scheme under the Jawaharlal Nehru Urban Renewal Mission in December 2005.
However, very few of these systems continue to operate today. The ones that still run, like in Bhopal and Indore, operate on profitable routes only and the quality of buses has deteriorated significantly. There are several lessons that have emerged from these success stories gone to seed, red-flagging the route ahead for private entrepreneurs seeking to operate vehicles for public transport. One key lesson is to understand life cycle costs and invest in preventive maintenance.
- In the first two years, fleet vehicles were largely in mint condition with few breakdowns and running nearly 98% of the time. On most routes, operators made very good profits.
- Once the third-year mark was breached, the vehicle that triumphantly ferried 600 to 800 passengers and ran 175 km to 200 km a day began showing signs of wear and tear. Vehicles that used to run 350 days a year began running for 300 days in the third year, 270 days in the fourth, and the figures dipped abysmally as the years rolled by.
- With little or no preventive maintenance, maintenance costs increased and revenues were lost on breakdown days.
The operators did not have the foresight to set aside money earned in the first two years to balance out lower revenues in the third and fourth years, and began struggling to pay the EMIs for their vehicles. Operations had to stop in most cities even as poorly maintained buses had to be scrapped in a scant four to five years.
Taxi aggregators: Driven to despair
Another example of private fleets providing public transport that has become popular of late is drivers of cars operating under taxi aggregators such as Uber and Ola. However, in February, Uber and Ola drivers went on strike citing poor revenues and their inability to pay EMIs.
- India has close to 550,000 cars operating under the taxi aggregator umbrella. Many of these vehicles, especially the late entrants into the business, are struggling to pay their EMIs. The car owners do not do any preventive maintenance, nor do they set aside money for lower revenues in case of breakdowns and higher maintenance costs in future. The drivers who survived the first two years will struggle in the next two.
- Now, let’s assume that 80% of these 550,000 vehicles are bought on 80% loan and the average cost of a vehicle is Rs 5 lakhs. If these vehicles are unable to pay their EMIs, it would add up to over Rs 10,000 crores of a non-performing asset. With banks having to write off these bad loans, will they be willing to shoulder this risk in the future?
There is a need to act urgently, else the much needed system of private fleets for public transport is headed for yet another failure. Regulators, taxi aggregators and banks need to come together and put in place instruments that enable preventive maintenance and help drivers save money for higher maintenance costs in the future. Economies of scale (cost savings due to increased production) will allow costs of maintenance to be lower and hopefully ensure the quality of preventive maintenance. Taxi aggregators are best placed to play this role and advance a solution, given that they facilitate aggregate individuals into fleets. Banks need to do their part since they have the biggest liability.
Madhav Pai is the WRI India Ross Centre Director. He has been working closely with cities across India advancing ideas of sustainable mobility and liveable cities for over a decade.