Ponty, buses and PPPs

By Sunita Narain
Last Updated: Monday 17 August 2015

imageLiquor baron Ponty Chadha and his brother who were killed in a fratricide incident had another business not widely known. Ponty had recently acquired the concession to run public transport buses in Delhi. His company had won the bids for three clusters with a combined fleet of 600-odd vehicles. Now questions are being asked about who will run the business.

Even before he died this private foray into public buses was turning sour. With public-private partnerships (PPPs) becoming the country’s favourite pastime, it is important to ask if we really understand how to create and sustain essential public infrastructure for the relatively poor and middle class. In other words, how do we work with private enterprise for facilities to keep costs affordable—often through public subsidy or through innovative fiscal management?

Take buses, for example. Delhi (and all other cities) desperately needs a viable and convenient transport system. Without it, the growth of private vehicles will choke the city’s roads and poison its air. The question is: what will be the shape of this system?

City bus transport in India is largely publicly managed. Be it Mumbai, Bengaluru, Kolkata, Hyderabad or Delhi, city corporations run this key service. Some do a better job than others but the accounts of all agencies show they are bleeding because of high operation costs and low ticket prices. The bus fare has to be kept lower than the cost of running a two-wheeler, roughly Rs 1-2/km in India. The price of a bus ticket can only increase if there are adequate barriers to substitute options. For instance, high parking rates for private vehicles and a steep penalty for unauthorised parking make people switch to public transport.

Cities with little money to cover operational costs of running buses, do not invest in new buses or modern bus infrastructure. The Centre’s funding for public transport does not cover the cost of the “rolling stock”. It only meets the cost of building roads or flyover. As a result, buses get overcrowded and service becomes poor. The only competitor is the informal bus service, like the infamous blueline service of Delhi, which operate on a shoestring budget and offer poor service. But people use them out of compulsion and its economics works because of low overheads and because it has a single owner. This poorly functioning PPP model thrives.

The other option is to transform the disorganised private buses into a corporatised model, where a single entity has the contract for running buses and where service conditions are clearly laid down. Delhi did this a few years ago. It divided the city into clusters and decided that each area will have only two bus operators—Delhi Transport Corporation and a private player. This would create competition and build a scalable model for this service. It also decided to call for bids for this service on a gross cost basis—it would estimate capital and operation costs, and the contractor will have to meet the service conditions.

The organised bus service has to pay for capital—the cost of buses. Delhi invested in low-floor buses for commuter convenience. The Equated Monthly Installment of a swanky bus is Rs 24 per km and that of its cheaper kind is Rs 12 per km—computed assuming that the bus travels some 200 km a day. Then bus services have to pay for the cost of fuel, staff, maintenance, insurance and tax. Bengaluru runs the most efficient operations, which cost Rs 30 per km, while the service in Mumbai costs close to Rs 60 per km, without accounting capital costs.

In Delhi, the operation cost was fixed at Rs 28 per km. Management costs add another Rs 7-9 per km. The cost does not even take into account the cost of building a bus depot. Master plans of India’s modern and growing cities do not provide space for this essential facility. Most cities are today busy selling the land under transport corporations as unused assets. All in all, the cost of buying and running an on-time and modern bus service in Delhi comes to Rs 50-60 per km, of which the state pays a gap financing of Rs 10 per km. The aim is to recover the costs from the sale of tickets; the city earns Rs 37 per km for running the service and this can be supplemented with advertisement revenue. But in any revenue model there will be a deficit. The costs (particularly if the capital is added) will be higher than what can be recovered, especially in a market pre-determined by cheap private transport options. The service will have to be topped up with public subsidy or some form of innovative financing.

This was the model that Ponty’s company bid for. But all was not well. Private operators with little incentive to meet the tough service conditions prefer to cut corners. The Delhi government had already issued a penalty notice against Ponty for non-compliance with its agreement. Where does the city go from here? We better find answers because there is no alternative to public transport. Car exhaust is already taking a toll on our lungs.

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  • It is the keen competition

    It is the keen competition between big timers like TATA, Reliance, Airtel, etc that brought the phone and call rates down to a level where it was the cheapest in the world, and affordable to even the lowest of low-lie aam aadmi, leading to a revolution of a kind where everyone benefited, including the economy. This resulted out of the then policy of incentivising such players through a "moderate license fee combined with revenue-sharing" formula. Seeing the potential, many other big names too joined the band-wagon, some teaming up with global players from across the world. If not for a A Raja messing around at this stage, and causing the emasculation of the TRAI, our telecom sector would very likely have evolved into the most robust model, compared to any in the world. Well, even with the way things have evolved, our telecom sector is still rateable perhaps at 'not too bad', on a global comparison.

    Now, imagine if the sector was still the monopoly of BSNL. Our rating would perhaps have been 'pathetic', if the scale provided for it at all.

    The analogy applies equally to the public bus transport services sector too, as also any other sector, for all their individual peculiarities.

    Now, there are at least two cities that I know of where the private sector is doing a fairly good job of providing public bus transport services - Kochi and Mangalore. But, the government's license-permit raaj, apart from the respective neta-babu combos' desperation to impose state monopoly, which they can then milk, is slowly leading to the services in these two cities also going the way of Bangalore, and other cities, where the government monopoly service providers are largely the vehicle for siphoning off JnNURM funds into netas' pockets.

    It is surprising that the Sunita Narains of this world can't see through all of these, but instead chooses to make snide remarks (terming PPPs pastime etc) targeted at the Corporate sector. The question she should be asking is "can as important and vital an infrastructure sector as public bus transport services do without the participation of the big players"? The answer being a clear no, she has then to push the government into coming up with the right kind of models to facilitate their entry (Like I have repeatedly stated, my first exposure to the name TVS was as a bus service provider in the city of Madurai, and the late Sri T V Sundaram Iyengar's scions who are today cluttering the roads with their bikes, will be more than happy to go back to their forefathers' business, and help de-clutter the cities, provided the government creates the right climate for the same).

    The so-called "relatively poor and middle-class" who raise objections when the private players request the government for nominal upward revisions of fares consequent on their input costs going up, are the same lot who spend over Rs 100/- a day on their phone chats even as the bus they are sitting in takes them some 10 Km for less than Rs 10/- even. For the genuine commuters, who earn a minimum of Rs 20/- an hour in a city, an hour saved through good bus connectivity, is time they can they put to more productive use, including spending the same with the family. If you take the cost of alternate means of commuting for want of good connectivity (auto's in cities), the family commute budget could then exceed even the food budget. As such, most genuine commuters will be more than happy to pay an additional Rs 5/- per day for their commute, for good connectivity, which is more than what the private players are asking for.

    The Ponty Chaddha's enter the picture because you have the likes of A Raja making the decisions.

    Posted by: Anonymous | 8 years ago | Reply
  • I must say Ms sunita Nrayan

    I must say Ms sunita Nrayan is doing Yeoman service to the public at large.This country may need another 100 yrs to get rid of the insensitive corrupt to the core politicians. but that does not mean we shud not protest and devise different solutions to the problems and others if anycrippling the society.In stead of giving contract to persons like ponty Govt shud hv called tenders only from manufacturer of these vehicles namely TATA,ASHOK LEYLAND,EICHER,MAHINDERA& mahindera and Sawraj Mazda and others if anyThey an be asked to ply only electric buses.

    Posted by: Anonymous | 8 years ago | Reply
  • nice aarticle......very good

    nice aarticle......very good

    Posted by: Anonymous | 8 years ago | Reply