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Conventional bus services being ‘neglected and strangled’

17th April 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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There is a disparity in government funding for integrated transport networks – bus rapid transit (BRT) networks – and for conventional bus services, says Putco executive director Thys Heyns.

“We have neglected and strangled conventional bus services to the point where the industry faces a serious crisis.”

Heyns says the South African bus industry has two stories to tell.

The first one is positive and exists in an environment where government recognises the importance of public transport for the future of the country.

Government’s National Transport Strategy in 2007 ushered in BRT systems as the primary road-based passenger transport system in the country, guaranteeing participation in these systems to existing minibus and bus operators on affected routes, notes Heyns.

People

may have their owns views on BRT systems, he notes, but the infrastructure surrounding it reveals that South Africa has made progress in providing public transport for its people.

However, says Heyns, the “bus industry also has a sad story to tell”.

“This story is about a sector that has been stagnating and neglected for the last two decades.”

Heyns says bus operators and government signed bus transport contracts in the late 1990s, called ‘interim contracts’. These contracts were supposed to be replaced by tendered contracts within 12 to 18 months.

“Today, 18 years later, these interim contracts are still in place, and they have been extended more than a 150 times.”

Heyns says current contracts are “old and outdated”.

“The operational requirements and cost basis of these contracts have changed dramatically since 1997. “As a result, many of these bus contracts are simply no longer financially sustainable.”

Another chapter of the bus industry’s “sad story” started in 2009, with the introduction of the Division of Revenue Act, or DORA, says Heyns.

At this stage, bus subsidies were cut by about 6%, and an 11% escalation that had to be paid in April 2009 was cancelled and never paid.

“That represented a 17% swing in the funding of bus contracts,” notes Heyns.

In some provinces bus operators were allowed to rationalise their services, in line with the 17% reduction in funding, he adds. However, in other provinces, such as Gauteng, operators had to provide the same services using the same number of buses, despite the cut in funding.

“And that signalled the start of problems in our industry.”

A problem that accompanied DORA has been “the nonadherence to contract subsidy escalation formulas”.

Heyns says the purpose of the subsidy escalation formula is to ensure that bus subsidies keep pace with increases in “volatile cost items”, such as fuel and labour.

“A proper escalation formula ensures the viability and sustainability of bus contracts, both for the operator and for the users of bus services.”

However, since 2009, the increases in bus subsidy allocations have been determined on an arbitrary basis by the National Treasury, says Heyns.

“These do not take into account the cost increases bus companies sit with, which, in most cases, they cannot afford.

“The result of this is that the increase in expenses has been outstripping the increase in revenue for the last number of years.”

In the five years after the introduction of DORA, the revenue of a typical bus company has increased by about 30%, at roughly an average of 6% a year, says Heyns.

And, if one considers the 2009 reduction in subsidies, subsidies have increased by 13% over same period.

However, the expenditure of a typical bus company increased over the same period by 50%, at around 10% a year.

“Any business will tell you that this is not sustainable.”

Heyns says this conundrum has resulted in “serious cash flow and profitability problems for many bus companies”, which have manifested in problems with service quality and service delivery.

He adds that the current contracting system has placed the bus commuter sector “in a straight jacket” leaving it “locked into an unsustainable business model”.

He says operators cannot react to market conditions, as they cannot withdraw vehicles or place vehicles as the market demands.

“We are not allowed to significantly reduce our operating costs, because we operate on fixed schedules. “You cannot increase your revenue without the permission of government in terms of fair increases, and you cannot introduce new routes unless you do so on an unsubsidised basis.

“So the question must be asked: Where did things go wrong?”

Heyns says one of the issues that he would like to put on the table is the disparity in funding between BRT networks and conventional bus services.

He says there is a “disproportionate funding bias” in favour of BRT and rail, at the expense of commuter bus services.

“We are busy destroying the system that has to form the backbone of bus transport in South Africa in the years to come. We must get this balance right,” he urges.

Buscor executive chairperson Dr Norah Fakude agrees with Heyns on most points.

She notes that the longest contract her company had clinched with government since 2007 had been a 12-month contract.

“You cannot finance a small car, let alone a bus, over a period of 12 months.”

She says the industry faces a predicament as its inputs are “not taken seriously”.

“If there is no money, then at least give us the comfort of long contracts so that we can finance new buses.”

She notes that maintenance is also a problem, as costs have been outstripping revenues.

Fakude suggests that the industry dispatch a delegation to “remind government of the frustrations we are facing”.

“We appreciate the BRTs, but don’t let us die a natural death. And then, when you want to integrate [conventional bus services with BRTs], you find there is nothing left to integrate.”

Heyns and Fakude spoke at the 2015 South African Bus Operators annual conference, held in Pretoria in March.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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