Making Public Private Partnerships (PPPs) in City Bus Services in India Work

This is second in series of blogs on Public Private Partnerships in city bus services in India. Read the first one here.

Use of Public Private Partnerships (PPP) to introduce and scale bus services is becoming common in Indian cities. PPPs help combine public sector’s expertise in planning and managing bus services and private sector’s capabilities to access finance and introduce cost-effectiveness in bus operations and maintenance. As discussed in the previous blog, PPPs are conducted either through a Net Cost Contract (NCC) or a Gross Cost Contract (GCC) or their hybrids.

Evidence suggests that some cities like Indore have used PPPs well, but several others have faced challenges in utilizing the benefits. To realize the potential of PPPs in bus operations, there is a need to identify and address the inherent and localized challenges in bus service planning and improve the execution of PPP contracts. Key interventions that can make PPPs work include:

Ensure funding support

Bus systems inherently make losses because fare revenue — the main income source for operators — falls short in covering bus operations costs that increase with rising fuel prices, aging fleet, traffic congestion, etc. As fares must be kept affordable to ensure equity, and with limited government subsidies and revenue from alternate sources to compensate, operators compromise service quality. Resulting reliability, comfort and safety concerns discourage commuters from using buses.

To overcome revenue deficit, while keeping fares affordable, regular financial support from government is required. Support can be in the form of viability gap funding (VGF) — a type of financial support that covers cost-revenue gaps based on system performance. Gujarat state government provides VGF to its urban local bodies to operate buses on a PPP basis from the state budget. Bus agencies need to reduce the need for VGF by using alternate revenue generation sources like real estate development, advertisement, branding, etc.

Improve Service Planning and Monitoring

Inefficient bus service planning impacts service coverage, quality and reliability which in turn leads to a cyclic reduction in ridership and revenue. Cities need to adopt a data-based approach that considers land use associated travel demand patterns to create network-level route plans that are integrated with other public transport modes. Bus agencies also need to periodically revise route networks as travel patterns in cities are dynamic.

In 2018, Gurugram launched its bus service after extensive technical analysis and used passenger feedback to design and implement routes. It resulted in continuous ridership growth, until the pandemic stalled services. However, a data-driven approach will require robust data collection mechanisms and technical trainings for public and private staff.

Data based approach is equally important to monitor services and ensure quality. Use of Intelligent Transport Systems (ITS) is essential for cities to collect and analyse operational data for performance measurement.

Strengthen Tendering and Contracting

While cities have ironed out several issues in tendering and contracting bus operations to private parties, further improvements are possible. Cities can facilitate greater participation form the private sector in bidding process by providing clarity on risk related aspects such as revenue models, route plans and depot development. This will help them secure competitive deals.

Once operators are selected, contracts need to specify measurable indicators such as bus occupancy, trips completed etc. to assess service performance. Contracts also need to define and cap penalties for underperformance and incentives for achieving/exceeding performance benchmarks. Currently, PPP contracts are unclear on fixing penalties, which in turn are linked to qualitative measurement indicators which are open to interpretation and thereby arbitration. Cities, barring Delhi Cluster bus operations, have not included incentive-based mechanisms to improve performance.

Develop Technical capacity

Limited technical capacity within the public and private sector impacts service planning and operations. To overcome this, there is a need to identify right qualifications for various job responsibilities and hire appropriate candidates with long term employability assurance and retention benefits. Additionally, periodic trainings are required for both public and private stakeholders as bus service planning and operations require specialized skills. Trainings need to focus on data collection and analysis, route network planning, long-term planning, bus procurement, bus maintenance, operations and monitoring, contract management and use of ITS.

Trainings can be conducted by existing centres of excellence established by governments, such as Central Institute of Road Transport (CIRT) or by involving specialized institutions. There is also a need to capitalize on existing procedures and guidelines developed by established state-owned bus agencies over the years and use them for training purposes.

Currently, there is a greater push to use PPPs for bus services. Cities are adopting PPPs to deploy electric buses under the ongoing FAME II scheme. The recent Union Budget 2021 announcement to launch a scheme for augmentation of bus service in urban areas also mentions deployment of PPP models to finance acquire, operate, and maintain over 20,000 buses. However, in their current form, PPPs fall short. By building resilient business models and tackling planning, contracting and technical capacity issues, cities can create robust PPP models and help develop reliable and efficient public bus transport services.

Udit Khandelwal is an EPP consultant with the Sustainable Cities and Transport program at WRI India.

Views expressed are the authors’ own.