NZ Bus
Frequently Asked Questions
What is the attraction of public transport to Infratil?
Infratil invests in infrastructure sectors where change is likely to create growth and where Infratil has management expertise.
The New Zealand bus sector fits both criteria.
Also, Infratil has developed expertise and experience in working with local government. All of Infratil’s investments have been undertaken in partnership with local community representatives, whether councils or community trusts. Public transport is inherently a partnership of private operators and regional and local authorities.
There is a global trend towards urban mobility through public rather than private transport. This is being reflected in developments in transport in New Zealand. For it to be really successful will require a change in the business model. A move away from single minded focus on cost minimization to much greater interest in what users want.
The new model will involve creating a service which users want to use and which offers excellent value for money rather than just the lowest cost. As Infratil has shown at Wellington Airport it is possible to be very efficient (Wellington Airport is rated as the most efficient in Australasia by Standard & Poors’) and to offer excellent services which provides a win/win for users, the regional and for shareholders.How is public transport regulated and financed by local and central government?
Operators register services with the relevant regional transport authority. The authority monitors the quality and safety of services and can reject registrations if they would somehow counter the overall effectiveness of the network. For instance if a bus operator was to compete with a heavily subsidized train service during peak times the regional authority could bloc this happening on the grounds that the bus service was “cherry picking the good bits” making the train service even less commercial.
The regional authority has an overall network plan covering all the bus, rail and ferry services it wants to have running. To the extent services are not provided on a completely commercial basis by operators, the regional authority will look to fill in the gaps.
“Filling in the gaps” means specifying the required services and calling for tenders from operators. The operator who wins the tender will be contracted, usually for 3 years, to provide the service. At the end of that period the service will be retendered.
The subsidies a regional authority provides on these contracted services are funded 50/50 by rate and tax payers. For each $1 a regional authority applies to bus and ferry subsidies it will receive $1 from government care of Land Transport New Zealand.Roughly how big is the subsidy?
Land Transport New Zealand dispenses about $3.2 billion a year on transport. Perhaps $100 million of this goes towards supporting regional council funding of bus and ferry services.
Last year NZ Bus received $74 million of subsidies.Why can’t more services run without subsidies?
Bus public transport faces three hurdles to being able to operate without subsidies:
1. Regional authorities’ priority is peak time services. It is during 7AM to 9AM and 3PM to 7PM that the road network becomes congested. During those hours it is crucial that people use public transport as without buses, trains, ferries there would literally not be enough road to fit under all the cars. The problem with this for a bus operator is that the bus and driver are only required for 7 to 8 hours a day. For 16 to 17 hours the expensive equipment and staff are idle or, at least, less fully employed.
2. Regional authorities have social as well as transport objectives. They want people in low density and remote locations to have access to public transport.
3. If some services get subsidies and draw patronage from unsubsidized services those previously purely commercial services come to need external funding support if they are going to be able to continue.
The problem with subsidies is that they tend to change the shape of the market and subsidized services crowd out those without a subsidy. It is hoped that as public transport gains popularity the need for subsides declines. A more attractive model, which is used in the UK, amongst other places, involves bus public transport not having to pay fuel tax (if NZ Bus did not have to pay road user tax it would save $7 million pa.), pensioners use of public transport being paid for by government and there are schemes for commuters who use public transport to get tax breaks. Providing general financial assistance to the industry means that the need for specific route subsidies is markedly reduced.
In the UK if an operator wants to gain the benefit of lower fuel costs, pensioners who travel at no cost and commuters traveling at lower cost, they have to compete and provide the best value for money service, ie. provide a value for money good service.Does New Zealand’s model of regulation and funding work?
In general the model is effective as evidenced by studies which show that New Zealand bus public transport has relatively low per-ride fares and relatively low per-ride subsidies. It is low cost.
Operators are encouraged to be efficient and to focus on getting people on their buses.
Regional authorities focus on the needs of their electorates and the overall network.
Government’s purse is protected as their funding is capped by being only at the same level as parsimonious, cash strapped, regional authorities. However, like any model that has been in place for a while, and which is facing changing priorities, change is desirable. In particular the current model absolutely prioritizes low cost provision, which will cap growth.What changes are happening to the regulatory regime?
While change to the funding and regulatory model is desirable, at present it is coming from several directions and some of it seems more motivated by central planning tendencies than a desire to improve the quality and quantity of public transport via a competitive market.
Land Transport NZ is reviewing public transport procurement procedures. That is the day to day rules governing how regional authorities seek services and the terms of their contracts. More substantially, Government is looking to change the law which governs the sector. At present the Public Transport Management Bill is before Parliament. This draft legislation is creating uncertainty for all operators providing bus public transport services. As proposed it would significantly increase NZ Bus’s risk and is a diversion from the improvement programme. While it may allow regional authorities greater power to lift the quality of public transport services and the function of the network, in its current form it grants discretion which cut across operators’ property rights. Most crucially it could make the bureaucrat an operator’s main customer, rather than the person on the bus and it would markedly slow implementation of change. But the Bill is still in its initial draft and operators, investors, users and other with an interest in better public transport will have a say.
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