Why public transport should be the real campaign promise

By Dhananath Fernando

Originally appeared on the Morning

All political parties want to make promises during the election to attract their voter base.

Some politicians in the Opposition provide material benefits such as roofing sheets, sarees, and mobile phones. Additionally, the ruling party often announces salary hikes for Government servants, special interest rates for retirees, fuel cost reductions, and fertiliser subsidies, expecting to provide relief for voters and secure their votes in return.

The biggest benefit voters can receive from politicians and their manifestos is the improvement of the public transport system. A solid mechanism to improve public transport is more beneficial compared to all other promises combined.

However, the way most politicians are opting to provide relief for the problem of commuting is by removing the vehicle import ban. Removing the ban is necessary because our vehicle stock has not been renewed for the last 4-5 years. However, vehicle imports will not solve the problem of public transportation. Not many politicians or parties understand that our economy and many of the other struggles related to the cost of living are connected to the problem of commuting.

Given the poor status of our public transport system, every middle-class family living in suburban areas within a 20-30 km radius of Colombo wants to travel in their own vehicle. To own a personal vehicle, a middle-income family pays about 150-200% in tariffs on imported vehicles. Simply put, this means that middle-class people pay twice the value of a car, often with a vehicle loan taken at about 12-14% interest.

The solution many middle-class families choose to solve their commuting problem comes at a significant cost to their living expenses and lifestyle. As a result, they end up spending two to three times the value of a vehicle at high-interest rates, cutting down on other potential expenditure, such as higher education or investing in a business.

When the middle class cuts down on spending, many other industries that could have benefited from middle-class expenditure are negatively impacted.

Moreover, as middle-class citizens purchase personal vehicles to solve their commuting problems, the roads become overcrowded. Our average speed during peak hours is dropping below 20 km/h. By spending a fortune on a car at a very high-interest rate, we spend valuable time on the road.

During peak hours, residents from the stretch of Moratuwa, Wattala, Pelawatta, Battaramulla, Maharagama, Kottawa, and Homagama take at least one hour to enter Colombo and another hour to return home. Spending two hours a day commuting means that if a person works for 22 days per month for 12 months, they spend about 22 full days (24-hour days) on the road. This translates to spending at least one month out of 12 on daily commuting. We are spending a month in the most expensive and uncomfortable way possible.

Politicians need to understand the need for a solid public transport system, which will not only provide relief for people but also improve our productivity manifold and boost economic growth and investments.

How can we fix it?

Many political parties make only broad statements, but none specify how to solve the problem. An often-tried solution is buying extra buses from India for the Sri Lanka Transport Board (SLTB) or purchasing new train engines or compartments from India. Despite trying this approach for over two decades, the situation remains the same.

Recent data reveals that after Covid-19, the number of bus routes has declined. One notable bus route that disappeared in Colombo was route number 155, which operated from Mount Lavinia to Mattakkuliya.

While the problem is complicated, the first step to solving it is to encourage people to commute to the city using public transport rather than personal vehicles. Therefore, we need to prioritise high-passenger capacity vehicles in traffic lanes. The priority lane system for buses was a step in the right direction, but the condition of the buses remains very poor. Bus owners are already complaining that high costs and a lack of labour are causing them to leave the industry.

The framework for the solution is to provide a public transport option that is less expensive than travelling by personal vehicle and allows for faster commuting with the same level of comfort as a personal vehicle. In terms of buses, the option is to allow more air-conditioned buses and permit them to charge a higher price.

However, the route permit system must be abolished or replaced with a new mechanism where supply and demand can be matched. With the current route permit system, even if there are many passengers on a particular route, no new buses can be introduced. With controlled pricing, service providers have no incentive to improve their services. Therefore, allowing players to enter with different price points is the first requirement.

Secondly, we can consider high-level options such as a Light Rail Transit (LRT) system, where we can tap into bilateral and multilateral funds.

In terms of trains, private investment must also be allowed. For instance, railway stations across the island are generally located at points where real estate values are the highest. With amendments to the Railways Authority Act, private investments can be tapped to generate alternative revenue models for these stations. Additionally, railway tracks, compartments, and operations can be unbundled, allowing different players to enter each segment rather than running it as a State-run, loss-making monopoly.

Solutions for public transport do not lie solely in Government investments. They lie in making regulatory changes that can unleash the potential of capital, allowing players to enter the market according to demand, and making regulatory changes that offer the public more choices.

Let’s hope that the manifestos of political parties will address the above issues in the upcoming Presidential and General Elections.

Unveiling the true culprit behind economic woes

By Dhananath Fernando

Originally appeared on the Morning

Sri Lankans have a very negative view of imports, which are often portrayed on TV as the problem behind the economic crisis. Not only politicians, but also those who have opinions on our economy subscribe to the idea that imports are the problem.

Our politicians’ favourite pastime is to blame imports and impose various tariffs or ban imports. Banning imports also makes for a very pro-Sri Lankan image, because a common excuse provided is that high imports are damaging to local industries. Accordingly, the banning of imports has been portrayed as a measure to help develop local industries.

A favourite area when it comes to cutting down imports is food imports. Often, media headlines and politicians comment aggressively, even quoting figures on the value of food imported. The middle class, upper middle class, and wealthiest of society often make the argument of needing to save valuable foreign exchange by cutting down food imports.

However, when we consider the data, it indicates the exact opposite. The middle class, upper middle class, and the wealthiest are the ones who consume the most amount of imports in the form of fuel, mainly through personal vehicles and as energy. About 27% of our imports in January was fuel. Fuel is the largest component of our import basket as a single commodity.

What we have imported as food is less than 11% of our total imports. Non-food consumer goods are just 8% of our total imports. Most pharmaceutical products and medicines for patients fall under the non-food consumer goods category, which are primarily consumed by the most vulnerable people in society.

Imported food items are also consumed by the most vulnerable sections of society. Food items such as canned fish, maize, green gram, lentils, black gram, sprats, b-onions, potatoes, and wheat flour are critical food items for the poorest of the poor.

Firstly, these can be stored without a refrigerator, which saves their energy cost. Secondly, they are easily available and affordable compared to many other items of food they consume. Therefore, the request of politicians and academics to cut back on these food items, which comprise less than 11% of our total imports, is nearly impossible to fulfil, and reducing these imports further is tantamount to asking the poor to live in hunger and their children to suffer from malnutrition.

Thirty-seven percent of our import basket comprises intermediate goods, besides food. These are goods required for exports and to produce many things without interrupting the supply chain. For instance while our main export is apparels, our main import is also apparels. Therefore, asking to reduce apparel sector imports amounts to reducing our valuable exports.

In reality, while there persists a belief that imports have to be reduced, it is not the solution it is touted to be. If we have to cut down on food imports, it will lead to increased malnutrition, hunger levels, or food costs for Sri Lankans.

Ways of reducing imports

If we want to bring down our imports, cutting down on fuel is one way to consider. A World Bank study revealed that 70% of the fuel is consumed by the wealthiest 30% of society. Therefore, it only makes sense to maintain fuel prices at market price.

As indicated in the graphs, there is a correlation between high fuel prices and fuel imports. Our fuel imports have decreased when prices are high as people use it sparingly. Compared to January 2023, our fuel imports had declined by about $ 100 million per month by January this year. With the expansion of the economy, this number is expected to slowly grow. Prices can bring imports down without import bans or tariffs.

Another way to reduce fuel imports is by improving public transport. Most of our fuel is wasted in traffic jams as a result of our poor public transportation infrastructure. If we invest in public transport, not only will it reduce fuel imports, but it will also uplift many Sri Lankans and provide significant relief in terms of their purchasing power. Many middle class Sri Lankans pay a 200% tariff to buy a second-hand vehicle at an interest rate of above 12% because they have no other choice but to commute.

Saving foreign exchange

Sri Lanka has been offered many grants, including for the Light Rail Transit (LRT) project, which we turned down on numerous occasions, leading to geopolitical tensions. When people spend less money on commuting and waste less time in traffic congestion, it will not only improve productivity but also their purchasing power, creating many jobs and generating income.

It is an inalienable truth that we need more food imports with different varieties of protein sources for the benefit of the impoverished. Foreign exchange has to be earned through exports, tourism, and remittances.

Saving foreign exchange is a function of the monetary policy or the supply of the Sri Lankan Rupee to the financial system rather than a function of imports and exports. When the rupee becomes expensive, the US Dollar demand decreases automatically because people buy the latter using rupees that they could have used in an alternative manner.

Asking the public to cut down on food imports, which are mainly consumed by the poor, at the expense of allowing the use of more fuel-driven vehicles cannot be justified and borders on cruelty.

Privatisation! the need of the hour

Originally appeared on The Morning.

By Dhananath Fernando

I travel mainly by a common staff transport from Moratuwa to Colombo to work. I travel by train as well as on normal public transport for other travel purposes. Undoubtedly, my staff transport is the most efficient and affordable, providing the most value for money. It not only provides value for the money I pay, but it also provides a great example of why the Government should not do business and why the private sector should be allowed to. Even in the toughest conditions, private enterprises can bring solutions.   

The operator of my private staff transport is Amal, an executive at an office in Colombo. While a normal bus typically has three main stakeholders, Amal has made it so that there’s just one main stakeholder. That’s efficiency. A normal bus on the road generally has an owner, a driver, and a conductor. Amal just has one. He is the driver who drives us all safely and on time. He does not have a conductor because he has an automated door which the driver can operate easily with just a switch in the dashboard.

He charges about Rs. 12,600 for an air-conditioned bus ride for the entire month. That is approximately Rs. 286 per one-way journey from where I live, which is around 20 km. If I were to calculate my cost per kilometre for a peaceful air-conditioned bus ride where I can sleep comfortably or work on my computer, it costs just Rs. 14. 

Even if I travel by a normal non-air-conditioned bus, the incremental value I pay for Amal is negligible. If I use an air-conditioned bus, my costs are higher than what Amal charges. In the first place, there are no air-conditioned buses where I live and with Amal, my travel time is almost one-third of the total time taken on the normal route. I believe that travelling with Amal not only saves time but also reduces carbon emissions as well. 

A win-win situation 

Amal is just one man in the private sector who adds value to my life while making a profit and a living out of it. He recently bought another bus and now he has two rosters both ways with a time gap of about 30 minutes, meaning I can choose either the first bus or the second according to my convenience. He shares the live location on WhatsApp before every ride, so I can track where the bus is and be prepared. 

Amal is not the only such person. If you observe Colombo between 7-9 a.m. you will notice that there are many buses operating on the same model as Amal’s. There is no regulatory authority on staff transports in Colombo and yet it operates efficiently, with both Amal and I being beneficiaries of the system. It’s a complete win-win. I hope that after reading this article, there won’t be any Government regulations set up regarding staff transport to ruin the market. 

Amal is a one-man private operator who solves a burning issue for me or at least provides me with a reasonable solution which my Government has been unable to provide for more than three decades, even with billions worth of funds.    

Amal can improve efficiency because he has an incentive for improving efficiency. His incentive has a ripple effect leading up to minimising carbon emissions. 

Privatisation to solve problems

Given the discussion on privatisation, there is no better example than Amal of how private enterprises help people. Economics and businesses are all about solving people’s problems. Our life is all about solving each other’s problems and depending on each other. Amal solves my transport problem and by paying him, I may be contributing money for his child’s education. 

Our entire economy is a complicated yet interconnected web. Efficiency and getting the maximum out of our resources are needed, which can only be done when the markets are in operation. Markets are operated by private individuals like you and me who read this article. 

While the process of privatisation is complicated, privatisation is just a normal process for market operations. Sri Lanka’s economic problem is that we don’t solve anybody’s problems. When we do not solve problems, how can we earn money? How can others solve our problems? 

Problem-solving is nothing but improving efficiency. Efficiency can only be improved when people have incentives. It is a universal truth, like the earth revolving around the sun. Even if you look at the Return on Equity (ROE) or Return on Assets (ROA), which are indications of a company’s efficiency, it is very clear that under normal circumstances and on level playing fields, the private sector’s efficiency and impact is much higher than when the Government runs businesses. 

Just take a look at Figure 1, which is a comparison between Sri Lanka Telecom (SLT), which has some private sector engagement and Dialog, which is a private sector player.

Figure 1: ROE analysis of SLT vs. Dialog

Source: Annual Reports of SLT and Dialog (2018-2021)

In some cases, the State sector ROE is simply higher because of the absence of a level playing field. The banking sector is a good example. Most State banks get preferential treatment so their returns are high due to the non-competitive nature of getting businesses. Given the size of the Government, most Government banking is done through the State-owned People’s Bank and Bank of Ceylon. Anyone visiting a State bank and a private bank will experience the difference in service levels. This doesn’t mean the private sector is perfect; markets are always imperfect, but it is obviously many miles ahead of businesses run by the State.

Figure 2: ROE comparison of the banking sector

Source: State of the State-Owned Enterprises, Advocata Institute (2022)

The private sector is not anyone else, it is us. We should be given the opportunity to solve our problems instead of making the Government solve them. When the Government tries to solve the problem, it will not only block the private sector but it will also waste our tax money. Just think of Amal; he is providing me with a reasonable solution to a problem that the Government has been unable to solve for over three decades.  

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

The economics behind the fuel crisis

Originally appeared on The Morning.

By Dhananath Fernando

I recently overheard a conversation while taking public transport. The bus I was commuting in was moving at a snail’s pace across Dehiwala as people had blocked the road to show their displeasure over fuel shortages. The fuel queue was long, spanning over a few kilometres, consisting of mostly three-wheelers. The conversation started when a lady seated at the back lost her patience as some three-wheeler drivers tried to block the road. 

“Three-wheelers are a curse on our country,” she said. “Look how long the queue is and how undisciplined these tuk drivers are. They consume a lot of fuel and they just sit and waste their time browsing the internet on their phones while they are in the queue. All these drivers are a part of our labour force and they are part of the problem behind this fuel crisis. We should ban three-wheelers and develop public transport. The Sri Lanka Transport Board should field as many buses as possible. Why can’t they employ more trains at this time?” She had initiated the conversation with a gentleman seated next to her, who was also highlighting some solutions. 

Her opinion would be mirrored by many Sri Lankans if they were asked about the reasons behind the fuel crisis and economic crisis. While we all understand that it is the foreign exchange or USD shortage which led to this fuel crisis, the productive use of our limited fuel stocks has been in discussion for many months. People are now worried that once the latest fuel shipment is exhausted, Sri Lanka will completely run out of fuel as we are scraping the bottom of the barrel of the Indian credit line. 

We all have to admit that fuel has become an extremely scarce resource given the shortage of USD. Another side to the problem is that fuel importation and distribution is mainly done by the Ceylon Petroleum Corporation (CPC) and Lanka IOC (LIOC). Both these companies do not generate USD revenue. 

If we allow anyone to import fuel, then the exporters who have US Dollars will import fuel mainly for their usage for export output. The garment and rubber industries will import fuel on their own with their own US Dollars to run their generators and plants and pay the tax. 

It is far more convenient, efficient, and productive for them to depend on their own supply chains than depend on the inefficient CPC. When there are industries that can afford fuel imports at their own cost, there will be more fuel for common people through CPC and LIOC with the little forex and credit lines they secure. 

Daniel Alponsus has explained this in his recent blog in detail (1), where he further suggested removing price controls on fuel and allowing an open market account for fuel imports so the informal forex will automatically move towards essentials such as fuel while remittances will start flowing.

Before we come to the conclusion that three-wheelers are the problem (as per the conversation I overheard on my journey), we have to first ask why there are so many three-wheelers on the roads. The simple fact of the matter is that they are very efficient – they are lightweight, their fuel economy is about 30 km/litre, and they can transport one to three passengers per trip. By comparison, the fuel efficiency of a personal vehicle – depending on the weight and engine displacement – would on average be approximately one-third of the fuel efficiency of a three-wheeler. 

Secondly, three-wheelers are the main form of last-mile transport. They provide flexibility in labour markets, contributing to their popularity. The final and most significant reason for the large number of three-wheelers is the lack of sufficient public transport – both in terms of quantity and quality. If there was an option for anyone to become a service provider of public transport, most three-wheeler drivers would have become public transport drivers. 

At present, just because you have a bus doesn’t mean that you can field it on the road due to the route permit system. In many cases, the selling price of a route permit is a few times higher than the value of the bus even after a massive excise duty, sometimes above 100%, being imposed on the vehicle. 

Our policies have therefore discouraged many entrepreneurs from entering the market for public transport. In addition, we have strict price controls on bus fares, which limit the ability of service providers to differentiate their services at different price levels. 

For example, a young executive may be willing to leave his vehicle at home and shift to public transport if there is a transport service that provides internet service and a breakfast package. The executive can work while commuting and he can save on his breakfast preparation time at home. However, with the current controlled prices and route permit system, such niches with higher quality of service (and higher prices) cannot be fulfilled. 

So the main reason for the higher number of three-wheelers and more fuel combinations is the absence of market forces in the public transportation sector. The fuel crisis has been exacerbated by bad public policy in relation to public transport. This has compelled us to use 60% of our fuel imports, which is the highest single commodity type import in our import basket. 

The only encouragement provided for public transport was the bus lane priority system – now even that has unfortunately been abandoned. If we want to incentivise the buses for their fuel, another option is to subsidise their fuel based on mileage. This means the bus operators would buy fuel at the same price as a normal customer at the pump but they will obtain a subsidy based on mileage to avoid any leakages (i.e. resale of fuel on the secondary market at a premium) and provide incentive for drivers and consumers. 

Poor data availability and the lack of information systems acts as a bottleneck for such initiatives. However, if private mobile based services like PickMe or Uber can track mileage and location, there cannot be a reason why the same mechanism cannot be implemented for public transport.  

In the midst of rising fuel prices, Germany reduced public transport fares to encourage more people to commute through public transport. This is so that the fuel consumption of using individual vehicles would be lower. Unfortunately, Sri Lanka did otherwise. Our policymakers did not understand the economics and optics of the problem. Until we understand the dynamics of the situation, we will all simply listen to and believe conversations about three-wheelers being the issue without really understanding the fundamental problem.  

References:

1. https://danielalphonsus.substack.com/p/solving-sri-lankas-fuel-crisis?s=w

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Cycling to work in Colombo is easier said than done

Originally appeared on The Morning

By Dhananath Fernando

A new proposal is under discussion to encourage travelling to work by bicycle. No doubt any policymaker who pays a trip to Europe may observe many people commuting to work by bicycle and on foot. So it is normal for anyone to think “if Europeans can do it, why can’t we?”

Some may even believe that countries in Europe have become developed nations because of behaviour involving “a healthier way of life”; commuting to work by bicycles and using electronic vehicles to reduce pollution.

That line of thought is no different to thinking that the work of Usain Bolt, the Olympic Gold Medallist is easy – running 100 metres in about 10 seconds while accumulating millions of dollars in wealth. All this while many other people cannot come close to accumulating the same amount of wealth even by working throughout their lifetime. 

But what many fail to realise is that Bolt had to put about 20 years or more of training to run that 100 metre in 10 seconds under Olympic game conditions. Similarly, most of the outcomes are a result of a series of policies which go hand in hand with culture, geography, and many other economic factors. 

There is no doubt that cycling is good for health and it will help reduce emissions as well. But if policymakers are deeply interested in encouraging people to cycle to work, it has a lot to do with Sri Lanka’s land, housing, and tariffs on construction materials policy rather than being purely based on cycling. 

You may ask how ‘cycling to work’ is connected to housing, construction tariffs, and land policy? 

It goes without saying that people can cycle to work when they reside at a reasonable distance from their workplaces. When many of the members of the workforce live far away from their workplace, they have to have a convenient mode of transportation not only for reporting to work but also for other personal needs. Given the poor public transportation and lack of interest in developing public transportation, the reasonable option available for the middle class is to have their own vehicle. 

As Sri Lanka became a middle-income country, many could afford a vehicle even at very high border taxes, which are as high as above 100%. So for the average middle class, the available reasonable choice is to reside far from the city limits (main cities such as Colombo, Gampaha, Kandy, and Galle) and commute in their personal vehicles.

The question is why people reside so far away from city limits. It is mainly because housing is not affordable within city limits. Unaffordability of housing is due to two main reasons. First, about 82% of the land in Sri Lanka is owned by the Government, including prime properties within city limits. So land prices are very high due to the Government holding land for completely unproductive enterprises. 

A simple walk around Colombo would bring to view a number of  single-storeyed State buildings where the space is utilised in a very unproductive manner due to poor city planning and excessive regulation. 

Secondly, our cost of construction is very high due to tariffs and paratariffs. Hence, the cost of productive land usage housing schemes such as apartments have become only affordable to the elite and not the middle class. Our floor tiles, wall tiles, cement, steel, construction, aluminium, electrical material and a long list of other materials are more expensive than the global market prices. This is due to very high tariff rates that do not generate much revenue for the Government but only benefit a few protectionist industries, which is called ‘rent’ in economic terms. On housing projects there is a regulation which stipulates that every apartment should have a parking space.

A young professional who uses mobile app-based taxi services or lives at a walking distance to their office does not necessarily need to pay for the land, bearing the construction cost for a 300 Sq.Ft. parking slot in an 800 Sq.Ft. apartment. It is such regulations that drive the housing prices within city limits and minimise choice for the consumer.

As a result we have very few vertical housing schemes that are affordable to the working middle class located within city limits. Young professionals who could easily settle in a two-bedroom apartment within walking or cycling distance to their workplace now have to buy unproductively utilised and expensive land far away from the city, along with a vehicle to commute to work.

If the middle class has housing options within city limits, they would be the happiest to settle in Colombo. They can save their hard-earned money on an apartment property which is a transferable asset rather than purchasing five-year-old low quality reconditioned vehicles which are subject to a tariff of more than 100% to commute to the workplace, burning fuel in the congested and traffic-riddled city streets. 

When middle-class aspirational Sri Lankans can afford to reside in the city where they will be able to use a bike instead of a reconditioned vehicle to commute to work, it is then that we will achieve the objective of saving fuel and minimising emissions and valuable foreign exchange, thus increasing productivity across the board. 

A few years ago the Colombo Mayor and Dutch Ambassador also promoted cycling on weekends. It just became a typical Colombo event and now we hardly see people cycling in Colombo. Often cyclists in Colombo are lottery sellers selling a dream of a fortune to the working middle class and aspirational Sri Lankans, where they can buy a house if they have the luck on a State-issued lottery ticket.

Additionally, we have to remember that there are regions in Europe where it’s less humid than Sri Lanka, so cycling to work is easier than in a tropical country.

If our policymakers really want to see a city of cyclists, they have to start working on our land policy, housing, and tariffs on construction. If we set those policies right, many more developments will be achieved rather than just producing cycling professionals within city limits. 

The Government will need to consider enforcing traffic laws and providing cycling space to enable safe and easy cycling to and from work. 

Reference:

• https://www.newswire.lk/2022/01/26/proposal-to-travel-by-bicycles-to-work/

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Public transport reform: Covid is our vehicle

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

We’ve had enough discussions about how Covid-19 could bring about a new normal, and its negative impacts on the economy and our day-to-day lives. However, “crises” do not only bring threats but also open up ample opportunities. That’s probably why wartime UK Prime Minister Sir Winston Churchill said: “Never waste a good crisis.” Reforming our public transportation is one golden opportunity presented to us on a silver platter due to Covid-19. 

What’s wrong with our public transport?

When Sri Lanka progressed to a middle-income country to reach GDP per capita of $ 4,000, people could afford a personal vehicle even with the exorbitant import tariff imposed by the Government. As a result, about 48% of Sri Lankans started commuting to the city in their personal vehicles.

At the same time, our public transport, still lumbering along as it was in the mid-1980s, had not progressed to the aspirations and expectations of a fast-growing middle class. Adding to woes, the quality of public transport depleted at a rapid rate, increasing the number of people commuting in their personal vehicles and burning more fossil fuels, which account for 19% of our total imports. The environment paid the price as our air quality index plummeted. Simply, our problem was that we had been commuting vehicles instead of commuting people. 

Commuting amidst COVID

With Covid-19 hitting us hard, buses and trains cannot operate to their full capacity, according to the Government’s health guidelines. That brings two contradicting problems. People may not have adequate commuting options to adhere to health guidelines, so individuals commuting via crowded public transport pre-pandemic may consider travelling in their own vehicles for health reasons when the economy gradually opens up, spelling disaster and making our existing traffic jam worse.

At the same time, bus owners will be demotivated to field their buses as they cannot make a profit without operating at full capacity without a ticket price revision.

Meanwhile, some commuters may not need to travel at all while “working from home”.

Hidden problems and mediocre solutions

 Whenever the topic of public transportation enters the national discussion, our solutions have been very shallow and out of depth. We have taken a more regulatory and blanket tariff approach instead of understanding the real problems. The popular solutions were increasing tariffs on vehicle imports and discussing a ban on tuk tuks, claiming that they contribute to most of the congestion and accidents, even though hard facts paint a completely different picture.

Looking back 20 years, do you see a different brand or structure of buses running on our roads? It’s the same box-type Leyland or Tata, and the same air-conditioned (AC) Rosa buses. Why has the structure of the buses operating on our roads not changed over the last 20 years, when the world has moved to the extent of offering services of unparalleled comfort and safety?

With limited railway service, the 138 bus route (Maharagama/Homagama-Pettah) is considered the most congested bus route to the commercial capital of Colombo. Even at an electoral level, Maharagama/Homagama is considered one of the most densely populated suburbs where aspirational Sri Lankans live, or in other words, where the educated middle class reside.

Have you ever wondered why AC buses do not operate on this route? Most of the main routes (Galle Road, Kandy Road, Negombo Road, Battaramulla Road, Gampaha, etc.) on which most educated middle-class citizens commute to the city on a daily basis for employment, business, and education, use buses which are in the dilapidated state; the so-called luxury service (AC) is horrendous, despite passengers being charged double the usual price.

Have you ever thought about why, while there is a big demand for people to commute comfortably even at a higher price, no one ever thought to have more AC buses, at least as a surface-level solution? That is where a pragmatic approach to public policy, in this case, transport policy, comes into play.

Deadly combination

Ideology aside, the deadly combination for any market, which leads to its stagnation, is lack of competition, over-regulation, and price controls. Unfortunately, our public transport system has all three in just the right amounts to brew a recipe for disaster, costing the Sri Lankan economy a colossal amount of money and having a significant environmental impact.

The route permit for buses that commute between districts costs several times more than the bus itself. At the same time, the route permit is not competitively priced, creating entry barriers and restricting supply. Private bus owners request that even if new route permits are issued, the existing bus owners should be given priority. Simply put, the public bus owners run a cartel, creating meticulous entry barriers so they can continue to provide a ramshackle service to the public and get away with it. On the other hand, a maximum price ceiling on a ticket price is imposed by the Transport Authority. 

On the flip side, bus owners have no incentive to field a higher quality bus and a higher quality service as the ticket price would be the same, whether a new or old bus. In a similar way, buses can’t charge a premium for providing a friendly and courteous service. Irrespective of whether they operate during off-peak hours or peak hours, the price of a ticket is the same. Due to this, there’s no incentive for buses to operate after dark and the few that do run are often seen racing each other to grab passengers at the next halt, in contrast to the crawl during rush hour.

Think of a situation where airline ticket prices are regulated – undoubtedly, it looks silly, given the dynamism of the industry. The same applies to public transport. As a result, there is no competition in the public transport space. Trains are a government monopoly and there is no competition and no pressure for them to increase their services as they have no incentive, even if they improve the quality and quantity of service. Their incentive is securing overtime via inefficiencies; they earn the same salary regardless of service levels.

The taxi service which has evolved without single government regulation, respecting market forces, is the only hope for the people. As we all know, the night rates are higher in taxis. The taximeter works in a system where when demand in a specific area is high, prices are higher. As a result, resources are better managed and utilised. People can plan their lives methodically and decisions can be made rationally, while convenience is delivered to your fingertips. Of course, there are areas for improvement, but undoubtedly, service levels, experience, and value for money are far superior. 

Central Bank Annual Report 2019 Table 81

Opportunity post Covid-19

Subject experts such as Prof. Amal Kumarage of the University of Moratuwa have done enough research and listed solutions to bring an end to this debacle in many forums.

What the Government could do is reconsider the route permit system and do away with entry barriers for businesses to enter the public transport market which would then end the present cartel.

The Government has to reconsider the pricing formula for bus fares and deploy a flexible pricing structure with the proposed pay card system where buses can charge a higher fare if they operate at night.

A test run has already been done with the participation of some cabinet ministers in this Government.

Given lower fuel prices in the world market, even a concessionary rate can be provided for public transportation to encourage them to operate at lower costs, considering the damage to the environment.

Simultaneously, the Railway Department requires more competition. The Government can consider keeping the ownership of the railway tracks with the Department and provide private investors with the space to join in a public-private partnership to run train compartments, operations, and cargo. If we can check the location of our tuk-tuk taxi, obviously it isn’t rocket science to develop an application to monitor the arrival and departure times and locations of trains. 

Most of these regulatory reforms won’t affect the Government’s fiscal position, and we should look at options to take maximum mileage of market-based pragmatic solutions rather than inefficient government interventions.

When public transportation sees significant improvement, the Government should consider imposing a congestion tax as done in London, where vehicle entry to the city is expensive, so more people are encouraged to use public transport and congestion is discouraged.

The current higher taxes on vehicle imports is a blanket tariff which has no impact on reducing congestion. When the public transportation is up to the mark, vehicle imports (mainly low efficiency-engine vehicles) will automatically drop, so the Government will not have to crush the dreams of aspirational Sri Lankans progressing to four wheels from two or three. Additionally, the Colombo Municipality will earn extra revenue via the congestion charge. 

Last but not least, the Government should abolish the vehicle permit system and treat all its hard-working residents equally. The vehicle permit system has indirectly allowed daylight robbery of taxpayer money, and of course, it has to be kept active for political reasons. This is the golden opportunity to move from the “do nothing” seat to the “do reform” seat, and we should not waste this crisis without making reforms in our public transport system.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.