19
The 2008 New Zealand public transport management act: Rationale, key provisions, and parallels with the United Kingdom q David P. Ashmore a, * , Andrew D. Mellor b a Auckland Regional Transport Authority, Auckland, New Zealand b Steer Davies Gleave, London, UK Keywords: Bus sector regulation Public transport Legislation New Zealand Bus contracting Market failure Monopolies Value for money Bus procurement abstract In January 2009, following a lengthy industry review and consultation process, the New Zealand Public Transport Management Act (PTMA) came into force. The Act allows Regional Transport Authorities, as the primary procurers of public transport services, to place either a control or a contracting requirement upon services that are registered as commercial requiring no subsidy. The imposition of either the control or the contracting requirement is designed to facilitate greater system integration, improve service continuity and enhance services to the customer, andallow the Authority to invest in key strategic projects, such as integrated fares and ticketing, so as to grow patronage. The PTMAs other objective is to ensure improved value for public subsidies. Recent years have seen signicant subsidy ination for seemingly little commensurate benets. The Act will allow the Regional Transport Authority to achieve greater value for money through improved farebox, a shift to longer, larger contracts to increase competition in the market, a more appropriate allocation of risk, and the removal of the ability of operators to gamethe current system by using strategically placed commercial services as barriers to competition. Similar concerns have also stimulated new legislation in the UK and this paper illustrates the parallels in the environment and proposed response. Ó 2010 Elsevier Ltd. All rights reserved. 1. Introduction and structure This paper describes the rationale for the recent New Zealand Public Transport Management Act (PTMA, 2008) and in doing so highlights the deciencies within the previous public transport procurement model in Auckland, as dened by the Transport Service Licensing Act (TSLA, 1991). Many of the themes espoused within this paper do have international parallels and relevance, especially with the situation in Britain (the country from which the principles of the TSLA were largely exported), so whilst the context is New Zealand (indeed Auckland) based, the lessons described are applicable to an international context. The paper is structured in the following manner. The rst section describes the rationale for the TSLA and its underlying goals. Section 2 describes the on the groundoutcomes of the TSLA. Section 3 describes the concerns raised in Auckland which led to the initiation of a review of the TSLA by the Ministry of Transport in 2005, and Section 4 broadly describes the PTMA and the powers inherent within the Act. The paper seeks not to criticise the principle of a deregulated urban bus regulatory framework, but rather to demonstrate that the approach is only suited to certain environments with particular market conditions. Moreover the tone of the paper adopts a you cant have your cake and eat itapproach: whilst deregulated systems can minimise subsidies there are also likely to be sacrices in terms of market contestability, the ability to enact public policy and the enforcement of system integration and subsequent patronage impacts. 2. The TSLA and its rationale During the 1970s and early 1980s, New Zealand economic indi- cators fell dramatically; by 1980 the country had slipped from the top ve OECD countries to 19th (Mein Smith, 2005, pp. 201e216) primarily due to the removal of dairy products monopoly provider q This paper documents the provisions within the Public Transport Management Act when it was passed in September 2008 and as it currently stands as of March 2010. A change of Government from Labour to National in 2008, however, has led to a lengthy review key aspects of the Bill and there is a strong possibility certain provisions within the Bill may be liable to change in the short to medium term to reect the Minister of Transports desire that opportunities for commercial services be maximised to lessen overall subsidies to public transport. * Corresponding author. E-mail addresses: [email protected] (D.P. Ashmore), andrew.mellor@ sdgworld.net (A.D. Mellor). Contents lists available at ScienceDirect Research in Transportation Economics journal homepage: www.elsevier.com/locate/retrec 0739-8859/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.retrec.2010.07.022 Research in Transportation Economics 29 (2010) 164e182

The 2008 New Zealand public transport management act: Rationale, key provisions, and parallels with the United Kingdom

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Research in Transportation Economics 29 (2010) 164e182

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Research in Transportation Economics

journal homepage: www.elsevier .com/locate/retrec

The 2008 New Zealand public transport management act: Rationale, keyprovisions, and parallels with the United Kingdomq

David P. Ashmore a,*, Andrew D. Mellor b

aAuckland Regional Transport Authority, Auckland, New Zealandb Steer Davies Gleave, London, UK

Keywords:Bus sector regulationPublic transportLegislationNew ZealandBus contractingMarket failureMonopoliesValue for moneyBus procurement

q This paper documents the provisions within the PAct when it was passed in September 2008 and as it2010. A change of Government from Labour to Nationaa lengthy review key aspects of the Bill and there iprovisions within the Bill may be liable to change inreflect the Minister of Transport’s desire that opportunbe maximised to lessen overall subsidies to public tra* Corresponding author.

E-mail addresses: [email protected] (D.sdgworld.net (A.D. Mellor).

0739-8859/$ e see front matter � 2010 Elsevier Ltd.doi:10.1016/j.retrec.2010.07.022

a b s t r a c t

In January 2009, following a lengthy industry review and consultation process, the New Zealand PublicTransport Management Act (PTMA) came into force. The Act allows Regional Transport Authorities, as theprimary procurers of public transport services, to place either a control or a contracting requirementupon services that are registered as commercial requiring no subsidy. The imposition of either thecontrol or the contracting requirement is designed to facilitate greater system integration, improveservice continuity and enhance services to the customer, andallow the Authority to invest in key strategicprojects, such as integrated fares and ticketing, so as to grow patronage.

The PTMA’s other objective is to ensure improved value for public subsidies. Recent years have seensignificant subsidy inflation for seemingly little commensurate benefits. The Act will allow the RegionalTransport Authority to achieve greater value for money through improved farebox, a shift to longer,larger contracts to increase competition in the market, a more appropriate allocation of risk, and theremoval of the ability of operators to ‘game’ the current system by using strategically placed commercialservices as barriers to competition.

Similar concerns have also stimulated new legislation in the UK and this paper illustrates the parallelsin the environment and proposed response.

� 2010 Elsevier Ltd. All rights reserved.

1. Introduction and structure

This paper describes the rationale for the recent New ZealandPublic Transport Management Act (PTMA, 2008) and in doing sohighlights the deficiencies within the previous public transportprocurement model in Auckland, as defined by the TransportService Licensing Act (TSLA, 1991). Many of the themes espousedwithin this paper do have international parallels and relevance,especially with the situation in Britain (the country fromwhich theprinciples of the TSLA were largely exported), so whilst the contextis New Zealand (indeed Auckland) based, the lessons described areapplicable to an international context.

ublic Transport Managementcurrently stands as of Marchl in 2008, however, has led tos a strong possibility certainthe short to medium term toities for commercial servicesnsport.

P. Ashmore), andrew.mellor@

All rights reserved.

The paper is structured in the following manner. The firstsection describes the rationale for the TSLA and its underlyinggoals. Section 2 describes the ‘on the ground’ outcomes of the TSLA.Section 3 describes the concerns raised in Auckland which led tothe initiation of a review of the TSLA by the Ministry of Transport in2005, and Section 4 broadly describes the PTMA and the powersinherent within the Act.

The paper seeks not to criticise the principle of a deregulatedurban bus regulatory framework, but rather to demonstrate thatthe approach is only suited to certain environments with particularmarket conditions. Moreover the tone of the paper adopts a ‘youcan’t have your cake and eat it’ approach: whilst deregulatedsystems can minimise subsidies there are also likely to be sacrificesin terms of market contestability, the ability to enact public policyand the enforcement of system integration and subsequentpatronage impacts.

2. The TSLA and its rationale

During the 1970s and early 1980s, New Zealand economic indi-cators fell dramatically; by 1980 the country had slipped from thetop five OECD countries to 19th (Mein Smith, 2005, pp. 201e216)primarily due to the removal of dairy products monopoly provider

D.P. Ashmore, A.D. Mellor / Research in Transportation Economics 29 (2010) 164e182 165

status to theUK. By theearly 1980s the futureFinanceMinisterRogerDouglas was of the viewpoint that the country was at ‘the brink ofeconomic ruin’ (Douglas, 1980, p. 9). Upon becoming FinanceMinister in 1984 Douglas began deregulating New Zealand’seconomy in a fashion similar to the reforms being enacted in the UKat the time byMargaret Thatcher, theoretically underpinned by neoliberal economic policies of the ChicagoSchool. These reformsbecame know in New Zealand as ‘Rogernomics’.

As per the UK and USA, financial markets in New Zealand werederegulated together with removal of foreign exchange controls.Import tariffs andmany subsidies to certain industries,most notablyagriculture,were eliminated. Economic stimulationwas encouragedthrough lower tax rates on income, although sales taxes wereintroduced to compensate the Treasury shortfalls (King, 2003,pp.490, pp. 490). Local Government was reformed throughout NewZealand; streamlining several hundred Local Government Authori-ties into less than one hundred larger entities to foster greatertransparency and accountability (Rouse & Putterill, 2005).

The transport industry was not exempt from these reforms.With the aim of dramatically reducing subsidies to the municipaland state run bus companies the Government passed the TransportServices Licensing Act, 1991 (TSLA). It took effect in 1991. Accordingto Manukau City Council (2006) it was broadly modelled on theUK’s 1985 Transport Act which had deregulated services outsideLondon (Wallis, 1993).

The TSLA removed the protection bus operators had previouslyenjoyed through exclusive licences to operate in a specific area. Ineffect it introduced potential for ‘competition in the market’ byallowing any eligible person or company to operate bus servicesprovided base safety and quality standards (certificate of fitness forvehicles etc) were met.

Under the TSLA Regional Transport Authorities retainedmuch ofthe planning function and would signal to the market the serviceswhich would constitute a desirable public transport network interms of routes and levels of service. Any company wishing tooperate any service, at any time of day, with zero subsidy (excludingcompensation for providing concessionary fares) could do so.Regional Authorities could only decline these services if theyabstracted (i.e. ‘cherry picked’) revenue from contracted services.Only 21 days notice was required to register a commercial serviceand, until recently, to deregister it (which contrasts with the 42days e now 56 days e required in Britain).

The Regional Authority was unable to access patronage, revenueor cost information in relation to these commercial services asthese were deemed commercially sensitive data. As a result, in thelarger cities with significant pockets of commercial services, theregulator was left with only a partial view of patronage levels andtraffic patterns across the city as a whole.

For the remainderof thenetwork, i.e. thatwhich theprivate sectoris not willing to operate without a subsidy, the Regional Authoritiescan competitively tender services (as single routes typically withintranches) to (theoretically) achieve best value. Contracts arepredominantlynet costwhere theoperatorassumes revenuerisk (thesubsidy being the difference between cost plus margin and antici-pated revenues). By allowing the operators to own the farebox it wasfelt they would be incentivised to grow demand. Operators mustabide by a maximum fares schedule but are free to introduce addi-tional ticketing products. In practice the tariffs are broadly alignedwith those for their commercial services for simplicity and adherenceto concessionary fare conditions. The length of current contractsvaries between three and five years with staggered expiry dates to,theoretically, stimulate and maintain competition.

Fewer than 30% of services are commercial in Auckland, the restbeing let under largely net cost contracts. This contrasts with thesituation in Britain where over 80% of bus-kms in England are

provided commercially, rising to 89% in the Metropolitan PassengerTransport Executive (PTE) areas.

The rationale for this system was straightforward. If the privatesector is willing, at zero cost to pick up x% of the network, thengovernment merely has to pay for 100-x% for the remainder e

keeping subsidies to a minimum. The reality has proved somewhatdifferent and in the next section we will show that this theoreticalpremise is only true where there are no market distortions.

3. Market outcomes of the TSLA

The deregulatory legislation facilitated a restructuring and pri-vatisation of the bus industry (as it did in the United Kingdom). TheTransit New Zealand Act 1989, required the ten New Zealandmunicipal operators to be either corporatised or divested, asa condition of receiving a government subsidy. Prior to July 1991most were corporatised with ownership being retained by the localcouncils (Wallis, 1993). In the UK the National Bus Company andScottish Bus Groups were broken up and privatised, together withthe former PTE owned operating companies and several municipaloperators. The policy formed the foundation for the rapid growth ofnew UK private sector operators such as First and Stagecoach.

In 1998, Auckland’s Yellow Bus Company was purchased byStagecoach, who had already purchased Wellington City Transportin 1992. From that period Stagecoach registered certain services ascommercial. The extent of commercial services was lower than insimilar size UK cities due to lower urban density and higher levelsof car ownership.

Stagecoach sold their business to investment company Infratil in2005, who then rebranded the business ‘New Zealand Bus’ (NZBus). NZ Bus/Stagecoach has been the dominant player in theAuckland bus market from 1998. As Figs. 1 and 2 demonstrates, forAuckland and its regions, by 2008 NZ Bus catered to 68% of the totalcurrent urban market (over 90% in the central area), with somesmaller operators operating both contract and commercial servicesaround the periphery. The New Zealand Commerce Commissionhas regulations in place to prevent complete urban monopolies, aswas tested in Wellington in the landmark case: NZ Bus’ attemptedacquisition of Mana Coachlines (NZ Commence New ZealandCommerce Commission, 2006).

Whilst the TSLA was designed to open up the bus market tocompetition, it is the view of the Auckland Regional TransportAuthority (ARTA,2007submission) that ithas leadtoade factoprivatemonopoly with all the accompanying disbenefits. It is important notto overlook some positive aspects of the TSLA: there was been a clearreduction in subsidy payments in real terms, following deregulation.In addition, transferringoperationalaspectsof theserviceprovision tothe private sector has arguably led to lower operating costs throughmore efficient working practices, less labour unrest and more cost-effectiveprocurement (e.g. less ‘goldplating’ofvehicle specifications).

However, over time the Regional Authorities became increasinglyfrustratedby the impactof theTSLAwithdecliningor staticpatronagein a regulatory environmentwhere they could do little to redress anyfundamental problems, but continued to be held responsible by thepublic for deficiencies in provision and performance.

The situation changed markedly for the worse in 2005, withlarge scale service de-registrations (see Appendix A, Case Study B,taken fromAuckland Regional Transport Authority, 2007; AppendixA also describes a deregistration in the ferry sector in 2005) anda correspondingly rise in subsidies. In fact the amount ofcommercial deregistration in the bus sector was the maximumallowed under the TSLA. Following lobbying from RegionalAuthorities, the Ministry of Transport undertook a review of thelegislation (New Zealand Ministry of Transport, 2006). For a fulldescription of this review see Sergejew (2007).

NZ Bus Ritchies

Urban Express

2.5%

14%

6.5%

9%

68%

0% 20% 40% 60% 80% 100%

North

West

South & East

Birkenhead

Howick & Eastern

Richies

Howick &

Eastern

South& East

North

West

Central

Fig. 1. Market Shares 2008 (based on service-kms) at regional level.

D.P. Ashmore, A.D. Mellor / Research in Transportation Economics 29 (2010) 164e182166

The following subsections demonstrate the flaws of the systemidentified in the review (and which the PTMA is attempting toredress). These flaws subdivide into two major themes: gamingpotential and an inability to integrate the system.

3.1. Gaming potential

Perhaps the most important finding of the review was that thesystemwas liable to ‘gaming’. This does not imply any improprietyon the part of any operator; it merely highlights that the TSLA mayhave given rise to perverse incentives. Instead of using commercialregistrations to ‘cherry pick’ the most lucrative peak routes,significant commercial services were being registered in the offpeak when, traditionally, demand would be anticipated too low tocover average costs.

The review concluded that EBIT (earnings before interest andtax) were considerably lower on commercial services, than thecontract service: a direct inversion of the intention of the TSLA(Auckland Sustainable Cities Programme, 2006). LEK Consulting’sanalysis as cited in document is presented in Fig. 3 e actual figureswere not shown in the review for reasons of commercial

Bus & ferry patronage has stagnated in

growth, whilst subsidies have risen

Year

)$

,s

re

gn

es

sa

P(

sn

oi

lli

M

Auckland Bus Patronage and Subsidies (

0

10

20

30

40

50

60

70

80

90

100

2001 2002 2003 2004

Bus Patronage (millions) Subsidie

Major bus deregistrations

2005

Fig. 2. Patronage and subsidy levels on bus and ferry network 2001

confidentiality but the order of magnitude is clear. However, it isnot clear what assumptions were being made in terms of costallocation, as this could radically change the picture. For example,operators may have decided that all bus ownership costs (financeand depreciation) and a substantial proportion of overheads shouldbe allocated to the peaks, as is common practice in the UK, thencontract margins would be significantly lower and those forcommercial services considerably higher. The key is, of course, theavailability of sufficient peak contracts to provide resources to runthe off-peak commercial operations at marginal cost.

In theory any new operator could win a contract and play thesame game. Indeed this has happened on occasion in Britain, withsignificant commercial off-peak operations built up on the back ofschool contract wins. However, the average number of bids pertender in Auckland and Wellington is very low - only 1.33 and 1.12respectively, although the Christchurchmarket is more competitivebecause an absence of commercial services ensures a more openmarket (Fig. 4). Whilst the number of tenders in Britain is generallyhigher, at 2.6 in Passenger Transport Executive (major urban) andUnitary Authority areas and 3.1 in English Counties, it is notablethat 20% of UK tenders in 2006 received only one bid.

recent years despite population

millions) 2001-2008; source ARTA

2005 2006 2007 2008

s (millions $) Ferry Patronage (millions)

in

e2008 (source Auckland Regional Transport Authority (ARTA).

Combined Commercialand Contracted Services

(Example NZ City)

TIBE

Farebox(Contract)

ContractPayment

FareboxRevenue

CommercialConcessionTop-up

(Commercial)Concession

Top-up(Contracted)

euneveR

XEPO

ConcessionTop-up

Farebox

ContractPayment

euneveR

XEPO

TIBE

FareboxRevenue

Commercial

ConcessionTop-up

euneveR

XEPO

TIBE

Commercial Services

EBIT Margin

Higher

EBIT Margin

Lower

Contracted Services

Fig. 3. Apparent cross subsidy of contract services by commercial services, reducing competition. Source: LEKConsulting citiedwithin Auckland Sustainable Cities Programme (2006).

1.331.12

2.39

0

0.5

1

1.5

2

2.5

3

Auckland Wellington Christchurch

redneTrepsdi

B

83% 88% 61%

Fig. 4. Number of bids per tender for bus contracts in Auckland, Wellington andChristchurch (2004e2005), Source: LEK Consulting, citied within Auckland SustainableCities Programme (2006).

D.P. Ashmore, A.D. Mellor / Research in Transportation Economics 29 (2010) 164e182 167

It has been shown by certain commentators that net costcontracts can lower competitive tension in a market where there isinformation asymmetry, i.e. new operators are forced to bid againstan incumbent without knowing actual farebox revenues (White &Tough, 1995). This situation makes it risky for a new entrant to bid.

The review implied (ARTA, 2007) that commercial services couldbe registered strategically and that this was apparently inflatingcontract prices inAucklandwhere net cost contractswere concerned.Tenderers for a net cost contract are required to bid assumed revenueand, if there is no competitive tension, there is little to discouragerevenue being under-quoted to maximise the subsidy and achieveeven higher profitability on contracts. This could, over time, lead toselective deregistration of marginal commercial services to increasethe potential volume of lucrative contracts to ensure continuedprofitability despite falling patronage and/or higher costs.

In fact following significant patronage falls across the networkin 2005 the largest operator de-registered large volumes ofcommercial services and ARTA had little choice but to contractthem back at a premium with little warning. The TSLA thus affectsARTA’s ability to manage their operating budget: subsidy blow outsare a real risk during periods of declining patronage. Converselyone would imagine the opportunity for operator windfall profitsare substantial during times of patronage growth. Quoting ARTA’s(2007), PTMB submission:

“An example of the commercial service abandonment problemwas an operator’s 2005 decision to deregister a selection ofcommercial services from 12 routes in the Otara, MtWellington,Te Atatu Peninsula and East CoastBay regions. An operator runferry services from Half Moon Bay to Auckland were also tar-geted for deregistration. Subsidies of c.$7.7m p.a. (includingferry subsidy) were subsequently requested by an operator tokeep these services operating, with the company claiming thatrising diesel prices and declining patronage had made theseservices unprofitable. In the absence of a suitable competitivetendering environment, ARTA and Land Transport New Zealandreluctantly agreed to provide these subsidies to the incumbentin order to avoid ‘huge gaps in timetables that would disad-vantage people who do not have an alternative travel option”

Furthermore, the TSLA allows tender exercises themselves to bethreatened: post tender competition is an ever present risk (see

ARTA, 2007). The size of the incumbent operatormayhave a bearingon this pattern. Market entrants must recognise the potentialopportunity for the incumbent to register competing commercialservices (effectively cross-subsidised from other contract income)which could be used to render a smaller competitor’s contractunsustainable. The relatively limited value of business available ineach tender round prevents new entrants from gaining the criticalmass which would offer protection against a predatory attack.

ARTA’s experience with the North Shore Busway provides a casestudy. When a local operator was not declared to be the preferredbidder for the contracts, they immediately registered significantvolumes of commercial services along the busway (Appendix A,ARTA, 2007). ARTA refused to cancel the tendering process and thuscompeted with this operator ‘on the road’. There was a significantrisk to ARTA that the media and public could interpret the situationincorrectly, i.e. that the public authority could have been seen to beduplicating and funding something that the private sector could

D.P. Ashmore, A.D. Mellor / Research in Transportation Economics 29 (2010) 164e182168

‘provide for free’, even though the private sector didn’t registerthese services until after the tender process was initiated. However,faced with ARTA’s determination to stand firm, after several weeksthe operator withdrew these commercial registrations, presumablybecause they were not financially viable. A similar occurrence tookplace in 2005 in the ferry sector where an incumbent operatorremoved a commercial service and ARTA contracted back theservice from that operator without tendering on the open market(see Appendix B).

This suggests that a means of circumventing the competitionproblems would be to let tenders on a gross cost basis, potentiallywith incentives to grow patronage as is the model in Sydney (NewSouth Wales, Ministry of New South Wales Ministry of Transport,2004). This would rebalance the available information andprovide protection against predatory attacks: the authority wouldbe less vulnerable, than an operator, to short run financial pres-sures, particularly with regard to the long term implications forcontract costs and competition of yielding to such tactics.

3.2. An inability to integrate the system

Under the current system, where ARTA cannot regulatecommercial services, and the farebox income accrues to the oper-ators, it is difficult for ARTA to stimulate demand through standardtools such as performance incentives and system integration.

Penalties and incentives for punctuality and reliability are inplace under the current contracts but there are no correspondingservice quality controls on the quarter of the network which iscommercially registered (which has no penalties for cancelled orexcessively late/early running).

Furthermore the network remains, bymost criteria, significantlyless integrated thanother cities in the regionand further afield. Fig. 5demonstrates that in terms of fares and ticketing, services, time-tabling and information, Auckland is less integrated than otherregional counterparts. Whilst service integration remains one ofARTA’s primary aspirations, integrated services require integratedtickets and fares. Integrated fares are difficult to accomplish whenrevenue risk lies with the operator, patronage is not known acrossthe network, and ARTA cannot mandate that commercial servicesaccept the integrated ticket or charge standard fares. Operatorsremain free to under cut the integrated farewith their ownproducts.

This scenario is remarkably similar to the situation in Britain(outside London). Although the UK city authorities can, and oftendo, promote multi-operator tickets these are generally at a signifi-cant price premium, 15e30% higher than the equivalent single-operator product.

The House of Commons Select Committee on Transport’s FifthReport (UK House of Commons, 2008) documents:

“the competitive structure of the industry outside Lon-don..mean that, outside the main cities, multi-operatortickets are still an expensive rarity; ..a journey that involvesbuying two or more bus tickets each way will be expensive,which is likely to dissuade young people and others on lowincomes from travelling. The situation is somewhat better in thepassenger transport executive areas where multi-modal, multi-operator travelcards are generally available, (but) even here,however, difficulties remain. In West Yorkshire, with 37 opera-tors, a total of 88 different single-operator ticket types areavailable. Sometimes single-operator and multi-operator bustickets will be in competition with each other. This provideschoice for the passenger but it also makes the ticketing processconfusing and expensive.”

Sexton (2008) in his evidence to the House of Commons (2008)cites:

“The legal regimes governing British public transport (busderegulation and over-centralised rail franchising) means that itis impossible to integrate public transport in the way it is doneby the Swiss and by some of our EU partners (notably the Ger-mans and the Swedes).. bus deregulation, with operatorscompeting against each other, is the antithesis of integration.Each bus operator has its own fare structure and its own tickets,and (except in rare cases) tickets are not inter-available betweenoperators.”

Competition law actually makes agreement on fares betweenoperators illegal, except with the active involvement of the publicauthority.

Sexton concludes: “The only practical way of achievinga comprehensive integrated ticketing system is to have all publictransport controlled by franchising bodies.”

ARTA (2007) concluded that the TSLA system has preventedARTA delivering integrated fares/ticketing and an integratednetwork to support patronage growth.

4. PTMA and its provisions

4.1. The process leading to the PTMA

In Auckland, the Ministry Review led to the establishment ofa technical working group comprising representatives from theMinistry of Transport, ARTA, the Auckland Regional Council, NorthShore City, Land Transport New Zealand, and Auckland bus andferry operators to assess the shortcomings of the TSLA.

Four options were consulted upon in June 2006:

1. Status quo of commercial/contract mix2. Minor changes to commercial services3. Application of rules and controls around commercial services4. Ability for Regional Authorities to choose the procurement

model most suited to the specific procurement requirements inorder to obtain best value.

ARTA supported Option 4 as enabling a fully contracted procure-ment model to be implemented in Auckland. This position was sup-portedby LocalGovernmentNewZealand, all local AucklandCouncilsand all but one Regional Council across New Zealand. In addition,a number of passenger transport operators supported this option.

Passenger transport stakeholders were also asked to assist thelegislative review process. In October 2007 the draft Public Trans-port Management Bill (PTMB) was released for consultation withsubmissions due 14 December 2007. ARTA provided a comprehen-sive submission on the draft PTMB.

Until the final debate in Parliament it seemed that the Bill wouldbe passed with rules and controls around commercial services. Thefinal reading of the Bill, however, took place just before Parliamentwas dissolved for a general election in September 2008 and at thispoint a coalition of the Labour, Green, M�aori and ACT parties votedthrough a last minute amendment to the Bill which allowed forOption 4 and a discretionary fully contract option. The Bill wasfinally passed into legislation on 25 September 2008.

The PTMA is designed to enable Regional Authorities to havea strongerdegreeof influenceover the scheduledpassenger transportservices in their regions, including commercial services. Its statedpurpose is to contribute to the aim of achieving an affordable, inte-grated, safe, responsive and sustainable land transport system.

The PTMA repeals the TSLA, and replaces the previous provi-sions of Part 2 of the TSLAwith amore rigorous set of measures thatallow Regional Authorities to choose the appropriate level ofinfluence that theywish to have over the public transport system in

Fig. 5. Auckland’s Public Transport Integration relative to other cities in the region. Source: ARTA (2005) adapted from Booz Allen Hamilton’s 2005 Bus Procurement Strategy.

D.P. Ashmore, A.D. Mellor / Research in Transportation Economics 29 (2010) 164e182 169

their region. This may include the introduction of specific controlsover commercial registrations or, under certain circumstances,allow the regional council to move to a fully contracted system.

As part of these changes, the PTMA includes a much moredetailed set of content and process requirements for the prepara-tion of Regional Public Transport Plans (RPTPs) which is in essenceset out by a Region’s strategic goals and the regulatory model theysee as being most appropriate for delivery. According to the NewZealand Transport Agency1 (NZTA, 2008) the key elements of anRPTP can be summarised as follows.

4.2. Regional passenger transport plans

Regional Public Transport Plans (RPTPs) replace regionalpassenger transport plans prepared under the TSLA. They must beprepared within three years of the PTMAwhich came into force on1 January 2009.

The purpose of an RPTP is to specify how the regional councilintends to give effect to the public transport service components ofthe regional land transport strategy (RLTS); and to contribute to thepurpose of the PTMA in an efficient and effective manner. In effect itsets out what a Regional Authority is seeking to achieve in terms ofpublic transport. ThePTMAincludesanumberofmatters that anRPTPmust include, including a description of the public transport servicesthat the regional council proposes tobeprovided in its region, andanypolicies relating to public transport services in the region.

A regional council must adopt an RPTP, unless it does not intendto enter into a contract to pay for the supply of public transportservices, impose controls on commercial public transport services,or provide financial assistance to the operators or users of a taxi orshuttle service (regardless of whether this is from council orNational Land Transport Programme (NLTP) funds).

Significant consultation procedures accompany the adoption ofan RPTP. The Regional Authorities are required to follow a specificset of consultation requirements before adopting an RPTP,including using the special consultative procedure in the LocalGovernment Act (LGA).

Finally, an RPTP must be kept current for a period of not lessthan 3 years in advance, but not more than 10 years, and must be

1 NZTA and its predecessor Land Transport New Zealand (LTNZ) are the nationalgovernment body responsible for significant funding of New Zealand’s urbantransport system. In Auckland half of required subsidies come from NZTA, theremainder from local rates.

renewed at least once every 3 years. Amendments that are notsignificant can be made without the need for the full consultationrequirements to be observed.

Within the RPTP the Region sets out the preferred regulatoryframework for delivery. There are two ways in which commercialservices can be regulated: a contracting requirement or controls oncommercial services.

Both are described below.

4.3. Contracting requirements

The PTMA permits the regional council to introduce a “contract-ing requirement”, wherebyall or any of the public transport servicesdescribed in the RPTP are required to be contracted (in effect a fullycontracted model as present in Sydney or London). In thesecircumstances, the RPTPmust followa certain set of procedures. TheRegional Authority can choose to adopt a contracting requirement ifit shows that the requirement contributes to the implementation ofthe policies in the RPTP. Any contracting requirements must meetcriteria that can be appealed against in the Environment Court byoperators of existing commercial services. Contracting require-ments do not have to apply to a whole region; a regional councilmust specify in the plan what services will be subject to the con-tracting requirement.

Under a contracting requirement, any existing commercialservices will be discontinued, by virtue of the Act, 12 months afterthe council has formally notified operators of the adoption of a plancontaining the requirement. No new commercial services may beregistered after this date.

4.4. Controls on commercial services

Regional Authorities are also permitted to establish controls oncommercial services, either with or without a contractingrequirement, and include these in the RPTP. The PTMA sets outa number of procedural and transitional requirements for controlswhich must be observed: it is fair to say that the process ofimposing a control over a commercial service is much moreonerous than opting for a contracting requirement.

� Controls can require:� Integrated service bundles� Common emblems, signs, or designs (not common colourschemes)

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� Operators to use integrated technology specified in the plan� Operators to issue, use and accept integrated tickets specifiedin the plan

� The setting and apportioning of integrated fares on a reason-able basis without undue discrimination in accordance with:B timeB zoneB mode of travelB any concessionary fares policyB the number of journeys to be travelled

� Operators to collect an integrated fare on behalf of otheroperators

� The specification of the point at which an integrated farebecomes payable

� Operators to accept a portion of an integrated fare as fullpayment for travel on their services

� That operators may not collect any additional fare froma transferring passenger who has paid an integrated fare onanother service.

A control cannot be made:� For the purpose of eliminating any existing commercial service� Applying to a service that operates outside the region� That applies to a service that is specified in regulations as anexempt commercial service

� Thatwould require an operator to breach a rulemade under theLand Transport Act 1998 or the Maritime Transport Act 1994

A control may impose no higher standard on a commercial servicethan a standard applying to a comparable service provided undercontract to the council (this does not apply to controls that requireservices to be operated as a group). If there is more than one compa-rable contracted service, the contract that imposes the lesser standardis to be used for the comparison. Operators of existing commercialservices subject tocontrolsmayappeal to theEnvironmentCourt if the:

� Regional council has not properly considered the impact of thecontrol on existing commercial services and operators in theregion

� Control is not consistent with the purpose of the plan aftertaking into account the matters referred to in the Act

� Control does not contribute to the implementation of thepolices in the plan

� Policy, the control is implementing, can be more effectivelyimplemented in another way

� Control does not comply with section 13 of the Act (whichprescribes the scope of the control making power) or any otherprovisions of the Act

The onus of providing proof, in terms of impacts uponcommercial services is on the Regional Council and given thesubjectivity of this test, controls represent a potentially more liti-gious option than the contracting requirement.

4.5. Parallels with the United Kingdom

In Britain, similar dissatisfaction with aspects of the existingderegulated regime led to a series of reforms. There was frustrationthat the public sector made a considerable financial contribution tothe bus industry in terms of providing concessionary reimburse-ment, fuel related grants and provision of infrastructure, butactually had little control over the pattern and quality of services,which restricted their ability to implement strategic plans. Somechanges were introduced in the Transport Act 2000, but these werefurther amended and reinforced by added powers in the LocalTransport Act 2008.

The 2008 Act provided for Voluntary Partnership Agreements(VPA) whereby a local transport authority agrees to provide somefacilities or other benefits, in return for which one or more busoperators agreeing to operate their services to a required standards.The definitions of “facility” and “standard” are wide ranging andflexible. However, where more than one bus operator is involved,care is needed to ensure compliance with competition law. Suchissues are particularly likely to arise where timings, frequencies orfares are being discussed. Unlike the former Quality PartnershipAgreements which the VPAs replace, certain restrictions oncompetition are permitted if it can be demonstrated that theagreement will deliver significant benefits in terms of BusImprovement Objectives which are defined as:

� Securing improvements in the quality of vehicles or facilitiesused for or in connection with the provision of local services

� Securing other improvements in local services of benefit tousers of local services

� Reducing or limiting traffic congestion, noise or air pollution

VPAs can include agreement to run bus services to specifiedminimum frequencies at suitable times of the day and agreementbetween two or more operators to co-ordinate timings on commonsections of route. However, they cannot include agreement betweenoperators on fares to be charged, although the faresmay be subject toa maximum cap agreed with the authority to prevent bus operatorsfrom “cashing in” on the reduction of “on the road” competition.

Where agreement cannot be reached voluntarily, authoritiescan introduce a Quality Partnership Scheme which provides theopportunity for the authority to specify a similar range of servicestandards and fare controls, but this time on a statutory basis.Operators can object if it would not be commercially viable to meetthe specified standards.

There is also provision to suspend deregulation altogether in anarea by means of a Quality Contract (QC). Although there wasprovision for QCs under the 2000 Act, in practice it was difficult foran Authority to meet the requirements in any reasonable timescale.Under the new proposals a Local Authority can specify all the routeson which it wants buses to run, and as many details as it wishesregarding, the timetables, fares and ticketing arrangements. Theoperation of these services is then put out to tender. However, inrecognition of the potential impact on existing operators, theauthority is required to demonstrate to a “QCs Board” that thescheme would bring benefits to users and improve services inmeasurable respects leading to an increase in the use of busservices or reducing/reversing a decline in use. It must also showthat any adverse effect of the scheme on operators is proportionateto the improvement in thewell-being of people living or working inthe area.

As in New Zealand, incumbent operators are likely to stronglyresist a move to implement a QC. In addition, promoters of QCschemes would need to carefully assess the numbers of potentialbidders, as there is a risk that operators could use their local marketposition to “name their price” and drive up costs to the authority:should this be a risk then open book negotiations, similar to thoseused in New South Wales, and cited in Myers and Ashmore (2007)may be worth considering.

5. Conclusions

Authorities in both New Zealand and the UK have struggledwiththe impact of deregulation on the local services, including thepower of locally dominant operators, lack of network integrationand diminishing competition/increased prices for contractedservices. In both countries there have been moves to secure greater

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public control over the pattern and standards of services provided,with the aim of achieving better value for the funding provided. Theexperience, and the proposed solutions, are strikingly similardespite the differences in the extent of commercial operations. Itremains to be seen how the respective legislation will shape thefuture markets, and the extent to which legislation may change as

Appendix A. ALL TAKEN FROM ARTA (2007) A1.1 Northern Express c2004/05 tendering process for the new NorthShore & Hibiscus Coasdelay the tender process through the registration of commercial seauthority was eventually forced to “contract over” the commercial sservice delivery.

a result of changes in National Government, but the authors are ofthe view that an eventual move to the regulatory ‘middle ground’ isinevitable if public transport targets are to be met. This move toa middle ground is not likely to be straightforward, however, asvested interests protect their current businesses, through lobbying,and potentially, as a final resort, litigation.

ontract manipulation. The following case study relates to thet bus services. In this example, a private operator was able torvices prior to and during the tender process. The tenderingervice operator in order to ensure adequate and uninterrupted

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Appendix B. A1.2 Abandonment of commercial services in the Otara, Mt Wellington, Te Atatu Peninsula and East CoastBay regionsThe following case study relates to the June 2005 abandonment of a selection of commercial services on 12 routes in the Otara, MtWellington, Te Atatu Peninsula and East CoastBay regions. Due to the absence of effective competition on the routes in question,the local transport authority was forced to provide an additional $6.7m in subsidies to the incumbent operator to keep the servicesrunning on a contract basis.

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Appendix C. A1.3 HalfMoon Bay Ferry Service commercial service abandonment The following case study relates to the June 2005abandonment of the Half Moon Bay commercial ferry service. Due to the absence of effective competition for the service, the localtransport authority was forced to provide an additional $1m in subsidies to the incumbent operator to keep the service running ona contract basis.

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