Wednesday, June 25, 2008

Improving Bangkok's BMTA - by renting 6,000 buses

For millions of people whose place of residence has not yet been connected to the mass transit system, public buses remain a necessary evil. Our bus system is known to have failed completely in terms of service quality, safety standards and human convenience.

After all, public buses have been one consistent partner in road accidents, many of them fatal.

Under the circumstances, the government's move to rent 6,000 air-conditioned NGV buses to replace and add to the Bangkok Mass Transit Authority's fleet should be good news.

The project was, however, suspended by Prime Minister Samak Sundaravej last week for want of more detailed study. Not only does the deal raise questions such as why rent the buses for 10 years instead of buying them, it has also been criticised for seeking only one private lessee for the contract worth up to 110 billion baht.

Deputy Transport Minister Songsak Thongsri, who supervises the BMTA, contends that the project is urgently needed as part of a plan to turn the BMTA around from a debt-ridden agency to one that can sustain itself.

At present, the BMTA operates a fleet of 3,800 buses, half of them non-air-conditioned. It earns 500 million baht per month but has an expenditure of 900 million baht. Its accumulated debt stands at 70 billion baht at the moment. This is projected to increase to 160 billion baht in 10 years if the agency continues like this.

Inefficiency is the biggest problem, according to Mr Songsak. More people are employed than there are jobs for them to do. The ratio of employees to each bus is 5:1. He wants it to go down to 2.4 to 1. That means the current number of employees must be reduced from 17,919 to 7,980 - more than 9,000 people will have to go through such management schemes as early retirement.

The new fleet of buses will be helpful, too, as they will use an e-ticket system so there will be no need for a bus conductor.

Banyong Amporntrakul, chairman of the private bus operators club, has questioned whether the rental deal is financially sound. The same kind of bus could be lease-purchased for half the price the minister has quoted and it would belong to the BMTA after four years, he says.

With the lease-purchase option, not only would the BMTA pay less, even including insurance and maintenance costs, but it would also own the buses after four years. It could resell them and earn some money back, Mr Banyong says.

Renting the buses instead of buying them would close a loophole whereby money is believed to be leaking out of the BMTA's coffers. Mr Songsak said that maintenance and repairs was one department where corruption could occur - bills for repair jobs that do not take place, smuggling and trading of spare parts or cheating on the amount of gasoline used.

Outsourcing all these activities - as well as the insurance, the need to find a depot and at least 22 gas stations - to a private partner would tackle the problem of corruption, according to Mr Songsak.

"This is a rent-to-operate scheme. The lessee must ensure that 6,000 buses are in operation all the time. They have to take responsibility for finding replacements if some of the buses break down. We calculate that we will have a net profit of 1,400 baht per vehicle per day [or 8.4 million baht per day for the whole fleet]. It's worth it," the deputy minister said.

An initial estimate to find a mean price for the bid states that the rent per day should be 5,100 baht. That is 30.60 million baht per day for the 6,000 buses. The BMTA expects each new bus to generate about 10,000 baht in revenue per day, or 60 million baht for the whole fleet. With the expected profit of 1,400 baht per bus per day, the new fleet is expected to generate a profit of about 3 billion baht per year, or up to 30 billion baht during the 10-year contract.

Mr Songsak reasoned that the math might not add up at the end of the day, considering the many obstacles out there, but he would still be happy even if the project did not generate any profit at all. It would still be better than the 400 million baht loss the agency is facing today.

Why does the BMTA need as many as 6,000 new buses when its current fleet is fewer than 4,000?

Mr Songsak said the BMTA aims to cover the new routes designed to go along with the electric train network and city's expansion so as to entice people to leave their cars at home and use the public buses for transit. It also wants to increase its share of service from 24% to 50% to cope with a possible strike by private bus operators.

He is of the view that it would be more convenient for the BMTA to have only one lessee to handle the project - no blame game will take place. This aspect of the terms of reference has been criticised as being prone to specifications being manipulated to fit a particular operator.

Another question raised by a BMTA board member regarding the NGV bus project is why must the government serve as the guarantor for the private partner? Would this go against the government's regulations?

A former BMTA board member said that while the bundling up of the rent with repair/maintenance and insurance sounded sensible, to package it with the procurement of an e-ticketing system, GPS navigation system, CCTV and real estate development in the form of bus depots and 22 gas stations make this a gigantic project.

These requirements would thus be met only by a big conglomerate, which could also accrue some benefit by acting as a front company while sub-contracting different parts of the project to smaller partners.

Mr Songsak said he was open to comments and advice from every side so as to close all loopholes in the project being proposed. He says, however, that the rental option is the best one at present.

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