City bus In demand, out of supply

After years of building roads and flyovers, Delhi government has decided to change tack to address congestion on its roads invest in new, sleek buses to restricted private vehicles. Other cities have followed suit. But their dream bus is either not on the market or just too expensive. Orders placed several months ago are overdue. The two major bus makers, Tata and Ashok Leyland, can barely deliver 100 a month till they ramp up production.

sunita narain and arnab pratim dutta chase India's bus business and ask what would it take to transition to good urban transport

In 2006, the Delhi government issued its first global tender for 525 new buses. It wanted modern, low-floor buses that were comfortable for the passengers and affordable for the Delhi Transport Corporation (dtc). It did not want buses common in India--built on the truck chassis.Tata Motors bagged the contract. In May 2006, it cut a deal with Marcopolo SA, a Brazilian company, which makes buses with the monochoque body (integrated into the bus). Tata's Lucknow plant, which produces heavy commercial vehicles, was to be the temporary facility, as the company built another facility at Dharwad, which was cleared in September 2007. It was to invest Rs 350 crore in two phases. The unit is likely to start rolling out 100-odd buses per month by early 2009.

In 2007, Delhi asked for another 125 buses, including 25 air-conditioned ones. It settled for a base price of Rs 31.56 lakh for its non-ac bus and Rs 51.56 lakh for the ac version. This order fetched Tata a sum of Rs 318.26 crore. Furthermore, the city agreed to pay for the maintenance of the bus, signing a long-term agreement with the company on a yearly charge, almost doubling its total value. Till the dtc order, Tata had not received any booking for these low-floor buses.

Tata received the order in April 2007 and the first bus was to be delivered in October 2007. But no bus came; Tata was unprepared to produce them. The following month, it was to deliver 20 buses, but it did only 10. The air-conditioned buses, due by January 2008, came six months later.

V K Sehgal, general manager of Tata's strategic bus unit, said "As per the contractual agreement between dtc and Tata, there is a delay penalty of 10 per cent per bus. Tata has been fined about Rs 2 crore for this delay." The company then caught up by October 1, 2008, some two years after the order, 543 buses had reached dtc depots. The remaining 82 buses would be delivered by the end of October 2008, Sehgal said.

Not the end of the story
The problems have only begun for the Delhi government. In February 2008, it floated another tender for 2,500 low-floor buses, having figured out it had a winner in the form of the attractive, comfortable buses. Of these, 1,000 are for air-conditioned variants--to get non-bus users aboard.

Only two companies bidded, with Tata's bid the lowest. The rules allow the lowest bidder and the second lowest one to share the order in the proportion of 6535. The second lowest in this case was--no guesses here--Ashok Leyland.

The first 50 of this would be delivered by March 2009, with the remaining coming over another 11 months, said sources in Tata. Though it can supply only 100 low-floor buses now, the company promises to double this. Leyland, which currently holds the cards in India's bus market, said it is considering the offer, and that it can make 100 such buses each month.

But Delhi government said it needs another 3,000 buses for dtc by 2010, and also wants to replace the 'Killer Blueline' fleet (so called for frequently killing people, especially pedestrians, on the road). This means another 4,000 buses, also by 2010. The market is ready. But bus makers seem shy.

Carmageddon
That Indian governments have neglected buses is commonly known. How the country's powerful automobile industry, gearing up to become an international business hub, has treated buses as its step-child is not discussed. India crossed the mark of one million cars produced in a year in 2007. In the celebrations, nobody asked the question what about buses?

In 1951, one of every 10 vehicles sold in India was a bus. Of the 300,000 vehicles registered in the country in that year, 34,000 were buses. Today, this ratio is comical buses have lost a zero that has gone over to the car 1 of every 100 vehicles is a bus. In 2004, of the 73 million vehicles registered, only 768,000 were buses. This despite the fact that buses, surveys show, account for about 50 per cent of all journeys performed by road. Bus sale figures tell it all. In 2007-08 only 38,655 buses were sold against 1.5 million cars.

Result private vehicles have taken over the road. Congestion has peaked. Despite city governments adding road width and flyovers, the time it takes to drive has increased. Bangalore has over 2.5 million private vehicles but city buses number only about 4,185. Since 2003, more than 400,000 private vehicles are added to its roads every year, while the number of city buses increased by only about 300. This means urban commuters do not have the choice of buses.

Buses are trucks
There is no separate category for registering buses in India. They fall into the group light and heavy/medium commercial vehicles. Manufacturers do not make buses but only chassis, which can be used to carry goods or passengers.

Till now, the bus market has been a duopoly. Tata and Eicher Motors share the light commercial vehicle segment. In the medium and heavy segment, Ashok Leyland leads with 45 per cent market share, with Tata following closely at 44 per cent. The market is abuzz with talk of new entrants and joint ventures. Volvo has tied up with Eicher, Mahindra and Mahindra is gearing up for the market and some Chinese companies are waiting in the bays.

The market is growing, defying the slowdown in the auto sector. In 2006-07, the industry sold some 30,000 buses. In 2007-08, the market had grown to 40,000. In cities crowded with private vehicles, buses can get a much bigger piece of the transport pie. But automakers, who stand behind their cars and push their wares, do little to promote the vehicle that could drive millions in the country. The bus is the poor person's vehicle and nobody seems to want any truck with it.

Bus makers and transport companies in an unformed market

The city bus wants to change, it wants to keep step with the times. The question is: can the business reinvent itself and make city buses that are convenient and affordable? Till now, buses in India have been trucks, literally. Taking the chassis designed for heavy-duty trucks, bus builders--largely in the small and unorganized sector--assemble a body on top. The city bus is inimical to comfort; it certainly has no glamour.

The Swedish automaker Volvo broke the mould. It set up a plant near Bangalore and sold comfortable buses with air suspension. It hit upon a hungry market--for inter-state long hauls. Cities were slow to show interest. The first: in November 2005 Bangalore bought some 20 buses, and then asked for more. The city's total order of 370 buses is expected to be completed by March 2009. (Reportedly, the company has firm orders to meet for some years to come; it can deliver only 22 buses each month.)

Each day, Bangalore adds more than 1,000 cars and two-wheelers to its already crowded roads; it is fast losing the battle of the car-bulge. Its profitable city bus service is grappling the need for more buses. Each Volvo bus costs a prohibitive Rs 70-75 lakh for diesel and airconditioned variants. So, glamour and comfort, are losing to economics. Last heard, the city was looking at other bus companies.

Delhi placed the next big order of 525 sleek, low-floor buses from Tata Motors. This single order is changing the image of the bus in India--in fact, the entire bus market (see diagram). But city tranport companies can't find a standard, off-the-shelf bus. There are several variants and, consequently, several prices depending on the specifications. This leads to a peculiar problem.

Taking cities for a ride
While each low-floor cng bus running in Delhi costs at least Rs 41 lakh, a diesel variant with semi-low floor is available for Rs 15-19 lakh, which is about the cost of a cng bus like the ones doing the rounds in Delhi for the past few years.

Ahmedabad tackled this market when it wanted buses--as sleek and comfortable as they come--to run on its upcoming bus rapid transit corridor. After it floated a tender, the first bid left the city administrators shocked: Rs 62 lakh per bus. A careful comparison showed it had the same features or less than what Delhi bought for Rs 41 lakh a piece in 2007.

The city then re-tendered, featuring options for different types of bus and fuel. The cost dropped to Rs 26 lakh for a semi-low floor diesel bus with automatic transmission and a monochoque body, though not a full air suspension. The city engineered a solution to make the modern affordable. It found it cheaper to raise the height of the platform of the bus stations, so that people would not have to climb steps to get on the bus.

This indicates the creativity cities need, all because the bus market is warped. Each city shopping for buses finds a fresh set of rates and specifications.

Cities are still discovering what they want in their bus, and this is driving the market apart. Bus companies said this varying demand prevents them from reducing the price. They blame city managers for window shopping and ordering their own version of city buses. Economies of scale do not come into play to lower the price, they argue; they have to place orders for ancillary parts at high rates for varying bus types that different cities demand.

K K Gandhi, technical director Society of Indian Automobile Manufacturers, acknowledged this: "Different operators place orders citing different specifications, which increases the cost of the bus. "

No standards for a standard bus
India has no basic standards for bus bodies. Till recently, a bus operator would buy a truck chassis from a manufacturer, and get it converted into bus at a body-making facility. The same suspension, brakes and mechanical components would go into a passenger bus as into a truck.

There are mandatory certification tests, but only for chassis, not the bus body. "For all practical purposes, only half the bus was tested," said an official of the Automotive Research Association of India (arai).

This was because third-party builders, largely in the small and informal sector, made the bus bodies, explained Anand Prakash, director of road transport at the Union Ministry of Shipping, Road Transport and Highways. No standards of design or material governed the body building code. Only in September 2001 did the surface transport ministry set up a committee to develop a code of practice for bus body design and approval. "This resulted in the code called the bus body code... for standardizing and testing of bus bodies," said Prakash.

Then, in March 2007, the ministry issued a notification, which provided for bus body builders' accreditation and certification. It announced a national accredition board and four zonal boards, which are to be set up by next year, the ministry said. The accredition process would include surveys of bodymakers' facilities, safety requirements for workers, and the inspection of the bus body.

In September 2007, the Union Ministry of Urban Development queered the pitch and issued its own set of guidelines for buses running in urban areas. S K Lohia, director of urban transport at this ministry, said the draft specifications took into account minimum safety and comfort requirements for passengers. They mandate the urban bus floor's height should be no higher than 650 mm, which would mean one step above the 400 mm height of low-floor, no-step buses.

Bus makers said these codes are not enough.

Government has made state bus companies unprofitable, pricing the bus off city roads

Automakers prefer to sell cars--not buses--because they can sell to individuals, using the gimmicks of advertising, marketing and cheap loans. Buses are owned and operated by transport companies. Invariably, these companies operate in the red. This is because the cost of the bus and its service is often difficult to recover fully. It does not help that public bus companies, often driven by non-revenue concerns like hiring people they do not need, fall behind further in the race for efficient transport.

With Indian cities growing rapidly public bus services declining, private mini-bus operators step in. Their buses rush madly across cities, the most infamous example being Delhi's Blueline buses.Because most cities regulate their bus service only through allocation of routes and permits, nothing formal emerges without a clear public transport plan--just taxis in different shapes and forms.

According to the Union Ministry of Surface Transport, there are about 36 state-run bus utilities in the country. Their combined losses increased from Rs 2,000 crore in 2004-05 to over Rs 2,600 crore the following year.

This when these combined bus utilities earned total revenues of Rs 20,000 crore in that year. But, said the ministry, these figures are misleading. If the tax component of the costs is deducted from the cost incurred by the bus companies, the losses go down to less than Rs 900 crore. In other words, it is partly policy that drives these companies into the red (see table The loss they did not make).

Ungainly, unprofitable
Of the six biggest cities, only the Bangalore Metropolitan Transport Corporation managed to stay in the black--its revenues exceeded costs--making a profit of Rs 113 crore in 2005-06.

Now, the bus company has to use its financial muscle to start carrying more people and taking away the space from cars on the road. All other big bus companies struggled to make ends meet (see table City bus corporations in the red).

While staff salaries crippled large bus undertakings like dtc in Delhi, the cost of fuel and lubricants hit at the bottomline of all bus companies. During 2005-06, total costs increased by 9.7 per cent, with staff costs across the country rising by an average 5 per cent and fuel costs by 20 per cent. Given that new buses are less fuel efficient than the old, this does not augur well for the future.

The loss they did not make Without taxes, 36 bus utilities fared better in 2005-06
Total cost	Rs 22,699 crore
Total revenue	Rs 20,015 crore
Loss	Rs 2,600 crore
Taxes	Rs 1,710 crore
Losses after adjusting taxes	Rs 890 crore
Source Review of the performance of state road transport undertakings, Ministry of Shipping, Road Transport and Highways, Government of India, 2007

Inefficiency is only a part of the story. Running bus companies has a cost and when the cost of interest or depreciation of the 'rolling stock'-the bus-has to be paid, business buckles under. The higher the cost of the capital, the higher the investment to recover, and higher the cost per km.

Why bus services cost?
This provides enough reason to reduce the basic cost of the bus, through manufacturing innovation and slashing taxes, to make operations effective. Now, the trade-off for city operators is simple buy cheap buses or, better still, don't buy new buses at all. On an average, for the year ending March 2006, staff and fuel costs for the countrywide bus fleet was roughly equal-37 per cent and 34 per cent, respectively. The bulk of the non-operating costs was interest and depreciation (some 9 per cent) and taxes another 8 per cent.

But this is partly because the fleet has not been renewed-the non-operational costs were small. But where cities are beginning to buy new buses, these costs of operations are going for a twist.

Passengers pay for bus rides by the distance travelled. The question is what does each km of travel cost the bus company? The analysis of the Union surface transport ministry found the costs differ widely--from a high of Rs 82 per km in Mizoram to a low of Rs 12 per km in Uttar Pradesh.

Cost of modernization
But these costs will have to be reviewed to see how they work for modern bus services. In Bangalore, the Volvo buses cost the city roughly Rs 49 per km because of higher fuel costs as well as the cost of interest and depreciation. In Ahmedabad, the cost per km in the bus rapid transit system has been tendered for Rs 34 per km. In other words, the buses will cost; who will pay?

There is clearly a cost in the business of operating buses and users in Indian cities cannot pay the full costs. This cost increases dramatically when bus corporations try to modernize their fleet with comfortable buses and efficient services, such as well designed bus stops. Will the government, which bends backwards to subsidize car makers and owners, show some interest in filling the revenue gap?

City bus corporations in the red Bangalore is the only city with a profitable city bus service-it also has the largest fleet
Bus company	Fleet size	Average (years)	Fuel efficiency	Staff/ bus ratio	Vehicle productivity (km/bus /day)	Total revenue (Rs crore)	Total costs (Rs crore)	Net profit /loss (Rs crore)
Calcutta	1,144	6.4	3.70	6.65	124	72	177	-105
Mumbai BEST	3,391	5.56	3.31	10.11	194	850	1,088	- 238
Chennai Metro	2,773	8.39	3.77	6.40	209	472	557	- 85
Delhi DTC	3,467	4.70	2.99*	8.21	205	464	1,267	-803
Bangalore MTC	3,977	4.47	4.66	4.78	218	687	574	+ 113
Ahmedabad MTS	685	11	—	5.72	172	76	99	-23
*Runs on CNG, and price has not increased, so costs of fuel are under control Source Review of the performance of state road transport undertakings, Ministry of Shipping, Road Transport and Highways, Government of India, 2007

A range of financial options to choose from

City buses need to be affordable as well as comfortable and efficient. It is well known that bus operations would cost anywhere between Rs 20 per km and Rs 50 per km, depending on the cost of the bus and its operating cost (particularly fuel efficiency and staff). Who will pay this cost?

In Delhi, for instance, a two-km trip costs Rs 3, and no trip costs more than Rs 10. "The answer," said Dinesh Mohan, professor at the transport department of IIT-Delhi, "is that buses not only need to lure motorists but also motorcyclists." A motorcyclist spends as low as Re 1 per km--in order to compete, the bus needs to carge a fare that will attract two-wheeler riders, he said. "There is also about 30 per cent people in a city like Delhi who survive by doing petty jobs, and for them spending even Rs 10 a day or Rs 300 a month only on travel is out of question; hence the fares are low," he said.

Tax and fund

How can bus companies operate on low fares? A toolbox of options came from the non-profit Centre for Science and Environment--ways to reduce the bus cost and ways of paying for bus operations. "It is ironical that buses were charged more excise duty than cars till recently," said Anumita Roychowdhury of its Right to Clean Air Campaign. She had written to the Union finance minister to waive off the excise duty in the last budget. "Instead, we got a 8 per cent reduction, which puts the bus carrying more people per litre of fuel consumed in the same class as the small car," she said.

She suggested ways to reduce the running cost of the bus by reducing passenger and other taxes, and neutralizing it by higher tax on private transport. Cars and two-wheelers pay a small life-time road tax now, while public transport is taxed every year, it pointed out, calculating that cars pay a measly tax of Rs 533 computed annually, as compared to Rs 13,765 that buses pay as annual tax. "This needs to be corrected and reversed," the proposal stressed.

In addition, it proposed a kind of congestion tax as also increased parking rates to finance public transport. In Delhi, the traffic volumes at key intersections and stretches of central business districts like Connaught Place far exceed their designed capacity, observed a city plan made by ILF&S Ecosmart. This area around Connaught Place, along with a proper buffer zone, can be designated a congestion-charged area. This would mean private vehicle owners entering or exiting it would be charged a specified amount as congestion tax.

A 2002 traffic study by the Central Road Research Institute computed a large revenue potential from congestion levies. Another way to collect money for public transport is through a strict parking policy that forces car owners to pay by the hour. A graded fee can also be introduced to have separate rates for parking during peak hours and non peak hours.

For those interested in finding the money for public transport, there are options. But will bus makers build a bus version of the Nano; an ultra-modern bus that is affordable? Would Indian cities find business models to run these buses efficiently? Would these cities let a bus system drive their lives? There is clearly more to the bus, than its idea.

India