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Finally we learn something about “PTOM”

There has been a long-running debate raging over the future of the “Public Transport Management Act” since it was passed in 2008. Infratil, who run NZ Bus (who are the largest bus operators in Auckland), were very displeased with this legislation and took their concerns to the new Minister of Transport after the 2008 election, Steven Joyce. They received a fairly welcome response from the Minister, who agreed to put the PTMA up for review – in particular the bits of it relating to greater restrictions on the operation of commercial services. I’ve discussed previously why it’s very important for there to be strategic co-ordination of all public transport services, including commercial ones – otherwise you end up in the inefficient situation of private operators “cherry picking” the best routes and leaving the rest to be subsidised (whereas in the alternative situation you could have the more profitable routes cross-subsidising the less profitable routes).

Furthermore, if we look at what happened to public transport expenditure and patronage in Auckland over the last decade (which has all been under the “pre-PTMA system”), it’s pretty obvious we haven’t been getting good value for money. Subsidies have tripled while per capita patronage has remained steady (it’s only increased in the last year or two): My understanding is that there has been quite a “ding-dong” battle between various players in the public transport sector over the last year or two: trying to sort out finding a solution that can keep the government’s ideology of not restricting private enterprise with the reality that the current system (more specifically, the system prior to the PTMA) is extremely inefficient.

After much waiting and speculation, the Ministry of Transport has finally released some information on the preferred system to govern the operation of public transport services in the future – known as the Public Transport Operating Model (PTOM). There’s also a full Cabinet Paper that outlines the background to the issue and the proposed way forward for resolving the matter. The background is consistent with what’s outlined in the table above – that significant increases in public subsidies over the past 10 years haven’t led to the boost in patronage that one would have hoped: I find it somewhat frustrating as a public transport advocate that Joyce is effectively “crowing” to his cabinet colleagues about “capping” the amount of money spent on public transport services, but we’ll set that aside for now. His bigger point is valid, that we (as taxpayers and ratepayers) not getting good value for money out of what we spend on public transport. Where we differ is where it comes to assigning the ‘blame’ for this situation – I would say it’s the contracting model that existed before the PTMA and the inability to ‘strategically co-ordinate’ our public transport services. Joyce would probably blame the regional councils.

So what of the solution – this new PTOM system? What might it look like? How’s it going to work? Well certainly it’s all good if we base this on a ‘partnership approach’ between the bus and ferry operators and the councils. Things have been pretty ugly in recent years – for example the whole Snapper Card debacle. But in the end all this talk of ‘partnerships’ and ‘collaboration’ tend to be just fancy words in a robust and competitive business environment. What’s I’m really interested in are questions like the following:

  • Who designs the bus network and decides on the frequencies to operate the routes at?
  • Will a company be able to operate some of a route as a commercial service but be subsidised for the rest of the day (ie. do you end up with the 9.05am bus being  commercial but the 9.15am bus being subsidised)? This is the good old ‘cherry-picking’ issue.
  • What happens if the council and the bus operators disagree on something?
  • Will there be certainty that all operators need to accept an integrated ticket?
  • Will one agency have the ability to ‘strategically co-ordinate’ services to make sure we don’t have unnecessary duplication of bus services, or unnecessary duplication of bus and train services?

The next few paragraphs seem to go some way towards answering these questions: There are some really important “wins” here compared to the “old system” (by that I mean the pre-PTMA system that still operates around most of Auckland). The requirement to roll public transport networks into “units” I think is a good thing. This will make it impossible to ‘cherry-pick’ particular peak hour services to operate commercially, leaving the council to pick up the tab for the quiet services (the good old ‘privatise the profits, socialise the losses problem). If a company wants to operate the Dominion Road services – which I assume would constitute a ‘unit’ – commercially then they will have to operate all the services on that basis, including the 11pm on a Sunday night service. As far as I know, only the Airport bus operates exclusively as a commercial service for every single one of its trips – so I am not sure whether I see too many commercial services happening.

The whole Cabinet Paper is well worth a read actually. I must say overall I didn’t have high-hopes for PTOM but I find myself pleasantly surprised. In an ideal world I think all services should be gross-contracted (the council pays the operator a fixed cost to operate the service and then the council gets the fare revenue), but short of that outcome I think PTOM is a reasonable compromise. It is a lot better than the pre-PTMA system that still dominates how PT is operated around New Zealand, while retaining an ability for commercial operators to operate a service without subsidy if they should want to do so.

5 comments to Finally we learn something about “PTOM”

  • Matt L

    Interesting and it does sound like a decent way forward, the fact that a unit is defined by not only the full route but full timetables is good but it would be interesting to see kinds of contracts are being entered into. I assume it will be something along the lines of a full cost recovery with a per passenger bonus on top of that which is kind of reasonable as I think it makes it beneficial for providers to encourage patronage by things like better service.

    It does confirm one thing I had suspected/heard about and that is, longer contracts are being given. I believe these contracts are for the effective life of the vehicle (around 12 years) with the idea that at the start of contract the route will get new equipment because the provider knows that they will get a ROI from it. This differs from the previous situation where companies were cautious about buying expensive new equipment incase they lost the contract a few years later and were left out of pocket. A classic example of this is the ferry service which hasn’t had a new boat for quite some time.

    • I’m fine with longer contract periods and I’m also fine with some of the contracts being let by “negotiation” rather than an open tender process (the thing that Joyce seems to have the biggest doubts about).

      As long as the contracts have strong performance-related provisions and as long as those provisions are actually enforced (and we get away from ‘operator reported’ punctuality measurements) I think we’ll soon know which operators aren’t performing as they should.

      I’m not sure whether non-commercial units will be net contracts or gross-contracts though – and the cabinet paper doesn’t shed light on that.

    • Matt L

      I should also add that I believe NZBus’ announcement last month that they were buying 120 new buses was a response to getting agreement on the PTOM and obviously getting some contracts signed.

  • LucyJH

    just wanted to say THANK YOU for highlighting this. An impt issue I had lost sight of.

  • Luke

    not nearly as good at total gross-contracting, but this is a vast improvement on the pre PTMA era, and not nearly as bad as it could have been. As always the devil will be in the detail. If we are going to have longer contracts they need to have really good benchmarking at minimum quality standards.
    We need to stop situations like Chch happening where an unsustainably low bid wins and the image of transport is damaged by terrible service provision.

    Dont like the focus on deteriorating relationships though, this is a result on Councils rightfully becoming more demanding, and the operators have been dragging their feet, and generally have not been helpful.

    Having more competition for the routes that are tendered would also help reduce costs. NZ bus a have advantage in that they own many depots around Auckland, and if a new operator wins a route they would have to set up a new depot, or have long empty runs to a depot far away.
    With the issue regarding investment, there could be an opening here for bus leasing companies to own the buses, then the winning operator can lease buses. Then when a new operator takes over the buses mightn’t have to change. This reduces barriers to entry, and thus encourages competition.

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