Wednesday, June 28, 2017

Contesting bus privatisation in Sydney

Back in May, NSW Transport Minister Andrew Constance announced plans to go to competitive tender for buses in the inner west of Sydney - effectively privatising bus services in that densely-populated region.

(In Sydney, bus services in different parts of the city are divided up into 'contract regions'. The government-owned State Transit Authority (STA) currently holds the contract to provide services in four of those regions. Region 6 is the one to be privatised. On average, there are around 3.5 million trips on buses in this region every month - making it the second busiest contract region in Sydney, after the STA-run Region 9 in the city's east.)

Sydney bus contract regions: STA regions 6-9 in blue

This is the latest in a long line of privatisations of urban infrastructures by this government: electricity infrastructure, crown land, government-owned buildings, train lines, ferries, hospitals, land titles registry, public housing all over the city (especially inner city) to name a few. A defining characteristic of their policy agenda is to shrink the role and assets of the public sector.

A terrific union-community campaign is taking shape to oppose this move, and to fight for publicly-owned and operated public transport that serves the public good. Drivers walked off the job for 24 hours the day after the announcement. A couple of weeks later, they swapped their uniform for Hawaiian shirts, switched off the Opal machines that collect fares, and handed out leaflets about the privatisation to happy commuters travelling for free. This month, there's been leafletting at bus stops, letterbox drops, a social media campaign, and well-attended community meetings across the affected area.

I was honoured to be invited to talk to a community meeting about the issue that took place in Pitt St Uniting Church on 28 June, alongside union leaders, community leaders, and politicians from both Labor and the Greens. Here's the long version of what I said, including links to sources. It's a critical analysis of the main arguments being used to support the privatisation.


I’m here to offer some critical analysis of the case for privatization that has been made by the Transport Minister, Andrew Constance, and his supporters.

There’s a lot at stake here. Tonight we’re talking about the privatization of buses in Sydney’s inner west. But if this goes ahead, it won’t end there. Back in March, Minister Constance told the Australian Financial Review that: “In 10 to 15 years' time government will not be in the provision of transport services”.

He has been strongly supported in this by the Tourism Transport Forum (TTF), a lobby group of tourism and transport operators. Last year, the TTF produced a report on "the benefits of private sector involvement in the delivery of bus services", urging governments around Australia to divest from public ownership and operation of bus services. When Constance made his announcement about inner west buses, they were highly supportive, and urged him to go further: “Today’s announcement the NSW Government will franchise the Inner West STA region is a very good start that hopefully signals a shift towards franchising more and more regions in due course.”

Four main arguments have been used to justify this privatisation. So let's do some fact-checking.

Claim #1: Inner west buses attract more complaints than privately-operated buses

In announcing the planned privatisation, Minister Constance frequently cited the high level of complaints received in about buses in Region 6 - for instance, telling the ABC: "If you consider that the private sector's had 19,000 complaints statewide verse 12,000 in this one region alone something had to give, and when it's complaints about buses not turning up, poor performance, we need to take action for our customers."

Now, it's not easy to check this claim, as the complaint data has not been made public by Transport for NSW. I have asked for the data, and have been told by Transport for NSW that I will need to lodge a Freedom of Information request, which I plan to do.

Guardian journalist Nick Evershed has seen, and analysed, the complaints data. He found that once you take account of the much higher number of passengers that use public buses in Region 6, they don’t receive way more complaints than private buses. Here's his figures:

Nick Evershed analysis of bus complaints. Source: Guardian Australia

This analysis undermines the Minter's claims. Indeed, he surely knew he was bending the truth in citing those statistics out of context.

What's more, the Minister's point makes little sense until we know more about the reasons for those complaints. For example, it’s possible that they’re about buses running late, or being full – factors that are beyond the control of the STA and its drivers. This leads to the second claim...

Claim #2: Inner west buses run late more often than privately-operated buses

The privatisation announcement included the claim that buses in the inner west had one of the worst on-time running performance results in 2016.

Well, this claim is technically true. But, as with the claim about complaints it is also pretty meaningless, when the data is offered without any context. Traffic congestion is also much worse in parts of the city covered by public buses. I have crunched some numbers from the Roads and Maritime Services Roads Report. For the period June 2016-May 2017, in the morning peak, traffic crawled along at an average of 54% of the speed limit in parts of the city where public buses operate. In less congested private bus areas, it averaged 62% of speed limit. Congestion influences on-time performance, having effects on punctual departures and keeping to timetabled stops.

On-time running 2016 x AM peak road congestion 2016-17. STA Regions shaded in blue. Sources: Transport for NSW Performance Reports; Roads and Maritime Services Roads Report

So, given the different road conditions across the city, it's just not meaningful or reasonable to compare on-time performance in congested and less congested areas.

Claim #3: Public buses cost more than privately-operated buses

As with all privatisation debates, supporters are talking up the financial benefits of expanding the role of private operators in Sydney's bus network. But their claims in this case are overblown, and/or blinkered.

Tourism Transport Forum CEO Margy Osmond was quoted on ABC news saying that "With a complete franchising of the bus service here in New South Wales, on the basis of research we did at the end of last year, it could mean up to a billion dollars over a five-year period for the NSW Government."

Well, actually, their research did not show that at all. It purported to show that a privatisation of all publicly-owned buses across Australia (ie, not just in Sydney and Newcastle, but in Brisbane, Canberra and Hobart) would save governments up to $1 billion over 5 years (see TTF, On the Buses, p. 4). Back in February, before being in the trenches defending the Minister, Osmond had said full bus privatisation in NSW could generate up to $500 million in savings over the 5 year period.

So ... what's half a billion among friends? Either way, these are big numbers. On what basis are such savings claimed?

The TTF never breaks down their calculations in its report, but it cites a 2005 journal article by Hensher and Wallis in support of its claims about the financial savings associated with privatisation. I've had a read of that article. And while Hensher and Wallis are by no means opponents of bus privatisation, their position is far more nuanced and critical than one might think from reading the TTF report. In particular, they identify several deficiencies in the process of competitive tendering for bus services that are relevant to our situation here in Sydney.

First, they note that the evidence on cost-savings is not particularly reliable. Indeed, they put the word 'evidence' in scare-quotes when discussing cost-savings (p. 300).

Second, while they certainly do think that competitive tendering seems to have generated savings where it has been implemented, they note some concerns about how such savings have been achieved in different contexts. In some contexts, particularly developing contexts, this has been achieved by driving down wages (p. 314). They also worry that "Although competitive tendering is market driven at the time of bidding, given the dominating focus on cost efficiency, it generally provides the wrong set of incentives to do more in line with social obligations or external benefits" (p. 318).

Third, they note that while there are often significant savings in the short-term from competitive tendering of bus services, the long-term is another story: "Evidence is accumulating of cases where some of the initial cost savings through CT are eroded through cost escalation in subsequent tendering rounds" (p. 313).

The competitive tendering of bus services in London in the 1980s provides a case of some of these points. There, it was reported that there was a significant 50% unit cost reduction in bus services between 1985 and 2000. A major factor was a reduction in labour costs. Another factor was a substantial increase in farebox cost recovery - a growth of 60-95% that does not seem to be accounted for by the increase in patronage of 12%, but by higher fares. Further, in the five years from 1995-2000, costs were back on the rise, at an average of 10% per year (pp. 301, 306).

Another case a bit closer to home is Perth. Bus services were privatised there in the 1990s. The TTF report points to cost reductions in the first decade of private contracting (p. 12). But costs have risen since then. The cost per passenger kilometre of bus services run by private operators in Perth has more than doubled since 2002, a rate of increase much higher than inflation over that period.

Perth, Bus Costs per Passenger Kilometre, 2002-2016. Sources: WA Public Transport Authority Annual Reports, Reserve Bank Inflation Calculator

As I noted above, Hensher and Wallis are far from advocates of public ownership (much less nationalisation!). But their review comes to the conclusion that a system of 'negotiated contracts' with established providers might be a more effective way to ensure cost efficiencies are matched with effective services levels that meet the important social obligations of a good public transport system.

Guess what we currently have with the STA for Regions 6-9 in Sydney? A negotiated contract, of course! And that negotiated contract has in fact been delivering performance improvements and cost reductions, through the hard work of staff, over the past several years.

Indeed, even the Tourism Transport Forum is forced to admit, in a small-print footnote on the last page of their report: "Sydney buses has begun to reduce its operating costs during 2013/2014, somewhat closing the gap to the private sector" (p. 31). These reductions have continued since then. It was being reported last year that as a result of these reductions, which were often painful for staff, in-principle agreement had been reached between the Government and STA to extend the STA's contracts for a further five years from 2017 with competitive tendering.

Now, Minister Constance is saying that the cost reductions have not gone far enough, and that STA buses still cost more to run than privately-operated buses in the rest of the city. Well, of course they do! The STA also happens to run a much more frequent service than those private operators - with regular services all the way from 5am to midnight, as we found when we mapped public transport frequencies for the Sydney Alliance a few years ago (see below). Benchmarking the STA against private operators with much less frequent services is just not reasonable.

Areas in purple = areas within 400m of public transport that has frequency of at least 15 minutes between 5am and midnight - note the overlap of high frequency parts of the city with STA contract areas. Source: Troy and Iveson for Sydney Alliance

Even the hard-line economists at the Independent Pricing and Regulatory Tribunal recognised in their 2015 report into the efficiency of NSW public transport services  that you could not directly benchmark the STA against private operators (pp. 52-57). While they attempted to take account of congestion and weekend services in their comparison, they too failed to take any account of the higher frequency of STA services during the average weekday. So IPART's conclusion that STA buses are less efficient than private operators is flawed. It does not value the STA's role in running more expensive bus services early in the morning and late into the evening. These non-peak services provide an essential social and economic service to the city - for shift-workers, people participating in the 'night-time economy', and many more besides. So comparing public and private here is like comparing apples and oranges.


Claim #4: The private sector provides more innovative services

Finally, both the Minister and the TTF make the claim that the private sector will provide more innovative service offerings. The Minister, in particular, seems very enamoured of 'on-demand' bus services - in which passengers can effectively hail a small bus that could adjust its route in real-time. For him, cracking open the market to the private sector might allow such wonders to emerge.

Such services have been trialled now in a few cities – for example, in Helsinki (in a scheme called Kutsuplus that was run by the Helsinki Regional Transport Authority), and in Boston, Washington and Kansas by a company called Bridj. There was plenty of hype about all of these services when they started up. But Kutsuplus, Bridj, and other similar services like Split have all fallen apart in the past few months. Evidently, the subsidies per rider were simply too high. In Kansas City, Bridj services (which were offered in partnership with the public transit authority there, and at least offered union jobs to drivers) were apparently being subsidised to the tune of $1000 per rider in the first six months of their operation. The public authorities and the venture capitalists who were funding the schemes eventually cut their losses.

Surely there are some lessons to be learnt here. It seems that right now, these on-demand, app-enabled mini-buses are no match for mass public transport in dense urban environments, from a cost perspective. So far, it seems the private sector is having no more luck delivering some of these techo-fantasies than the public sector.

Beyond the techno-fantasies, there's plenty of evidence for publicly-owned transport operators providing great, innovative services right here in Australia. Brisbane offers another example of this. There, the publicly-owned service includes a sector-leading Bus Rapid Transit network.

Conclusion: What kind of public transport do we want?

So, the case for privatisation has some big holes in it.

This is not to say that buses in the inner west, or anywhere else in Sydney, are perfect. Far from it.

But as we’ve been arguing in the Sydney Alliance for some years now, the biggest improvements we could make to public transport in Sydney are about filling the gaps in the network. We need to make sure that everyone is in walking distance to frequent public transport services, that form a coordinated network across the city that can get people wherever they need to go, whenever they need to travel.

That’s the job of … the government! It’s the government who ultimately has responsibility for network planning and service levels.

It seems that Minister Constance and Premier Berejiklian are trying to deflect our attention away from their failings to deliver the integrated network they promised in a series of previous plans. Worse still, they’re trying to redirect our frustration towards the drivers who deal with lousy Sydney traffic on our behalf, and the staff who keep those buses safe and clean.

I’m so heartened to see people in our city not failing for this attempt to divide us, sticking together with the drivers and maintenance workers and demanding that our public buses remain in public hands, serving the public good. And I look forward to working with you as we get ourselves organised to assert and win this demand.