Garry Sheeran

AUCKLAND BUREAUCRATS are dangling the carrot of incentive payments to bus operators who are angry over plans to shut them out of running fully- commercial bus services.

And they are promoting the success of a new express service running every 10 minutes across Auckland Harbour Bridge between Albany and the CBD as the model for the future.

Private operator Ritchie's runs the buses, but does not keep the fares it collects. They go to the Auckland Regional Transport Authority (ARTA).

Ritchie's is paid a fee to provide the service and gets an annual bonus for every passenger carried above a set threshold.

Ritchie's director Andrew Ritchie said the incentive payments "are not exactly huge to be honest, but anything is better than nothing".

But the service, structured and marketed by ARTA, had worked out well for his company.

"It's been a huge winner with the public."

ARTA chief executive Fergus Gammie is equally enthusiastic about the success of the Northern Express service. A total 39% of passengers were converts from commuting by cars, and the service is credited with taking 400 cars off the northern motorway and harbour bridge at peak times.

As important for Gammie, the service provides him with a model for the future as local authorities push for much greater control over public transport.

That has raised the ire of private bus operators such as Stagecoach NZ (owned by listed investment company Infratil), who want to continue to run fully-commercial services in Auckland and Wellington, and collect their own income through fares. "Fees are totally outside our demand-driven model," said Infratil manager and Stagecoach director Tim Brown.

"We want to be incentivised to build patronage and customer loyalty by being 100% focused on fare income."

Gammie said: "We understand private operators have their own (profit) drivers, but it is a question of being able to meld those with community needs in regard to public transport."

The debate is coming to a head as the government reviews public transport legislation which ARTA contends has put New Zealand out on a limb.

"New Zealand is one of the few places in the industrialised world to provide passenger transport through the market," said Gammie.

The legislation, passed in 1989, allowed private operators to provide the services they wished.

Regional councils would then contract private operators to run additional services for a fee, and with the help of a council subsidy to make it economic.

Gammie said the assumption was that commercial services would predominate, and contracted subsidised services would fill in the gaps.

"But we've got exactly the opposite."

He estimated up to 80% of New Zealand's passenger transport services were contracted and subsidised by councils, and the rest were run commercially.

Most of those commercial services were in Auckland (where 26% of services were commercial) and Wellington.

New Zealand's small and scattered population meant there were not many routes where private operators could make a profit.

"Tiny, over-crowded Hong Kong is the only place in the world with a fully commercial passenger system."

But the mix of commercial and contracted services in Auckland is frustrating regional government's plans to introduce an integrated route, fares and timetable network of public transport.

ARTA is not able to alter a registered commercial service, and cannot decline to register a commercial service because it may conflict with a planned regional network, something also required by the same legislation.

It also says commercial services can be used in an uncompetitive manner and undermine the competitive process for public funding.

Gammie said: "Fact is, there will more competition in a fully contracted system than there is in the mix of commercial and contract we now have."

Infratil has interpreted ARTA's proposals as the first step to regain public ownership of public transport in Auckland. This Gammie denies: "We've no private agenda to take over private bus operators. We want to work in partnership with them."

There are also suspicions that moves to offer larger (150-bus) rather than smaller (22-bus) tenders are being designed to tempt Australian and French bus firms to enter the market at the expense of local operators.

Gammie said such entrants would face additional hurdles of convincing transport authorities they could operate in New Zealand.

"Our agenda is getting an integrated transport system in terms of fares, routes and timetables the public clearly wants," said Gammie.

To do that, they had gone to the model which worked successfully in many big Australian cities as well as in London. He said Australians looked at New Zealand's free-market public transport model in the early 1990s, but decided against it. Instead, they adopted a system where public authorities planned integrated networks, and where private operators were incentivised by bonus payments to run the services.

"Operators paid a bonus for every passenger carried above a target are driven to provide a higher quality service," said Gammie.

Ritchie said his company had met every bonus target in the 20 months the Northern Express had been operating. "The big worry I have with a fully contracted network is whether ARTA has the money to run it," he said.

Private operators running a fully commercial service took most of the risk; under contracted services that risk would transfer to ARTA.

Ritchie said running contracted services involved more work for private firms than a fully commercial services. Some routes were also more suited to commercial than contracted services.

"I'd like to see some commercial services retained, but only in consultation with the public authority running the network," said Ritchie.

That fits ARTA's plans. It wants new laws that allow it to contract for all services if it wishes, but retain or introduce commercial services where they fit with transport network plans.

As for the perceived miserly bonus payments to Ritchie's on the Northern Express run, ARTA said there was more work to do devising its incentives plans. PUBLIC OWNERSHIP (buses and service owned and operated by public authority): Canberra, Rome.

FEE FOR SERVICE (private companies paid a fee and incentive to run buses): Sydney, Melbourne, Brisbane, London.

PUBLIC SUBSIDIES (private companies collect and keep fares, but get a subsidy to run uneconomic services): Christchurch (98%), Auckland (74%) and some in Wellington.

COMMERCIAL SERVICES (private companies run fully- commercial services, collecting fares and receiving no subsidies): Auckland (26%) and some in Wellington.

FREE MARKET: Hong Kong, Manila, Nairobi.

Source: ARTA.

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CAPTION: The new service model is a hit with the public. Photo: Michael Bradley

Listed infrastructure investor Infratil could exit its $250 million bus and ferry services if radical transport proposals are pursued by local government.

Infratil director Tim Brown said the proposals would ultimately see the country's bus and ferry networks run by bureaucrats who would collect the fares and pay private operators a fee to provide the service.

They would also have the right to buy the business if it did not meet local authority targets.  "It is not a system Infratil would be willing to operate under," he said.

The warning comes after Infratil's ferry company Fullers came under fire for abandoning 120 people overnight on Waiheke Island, near Auckland, last weekend.  Brown said the incident was a very disappointing service failure, "and we will make sure it does not happen again".  But one shortfall in service did not mean the private sector did not have a role in public transport, he said.

The exact nature of that role is once again under the spotlight as central and local government undertake complementary studies intended to rejuvenate Auckland's decaying public transport network.

Scottish transport group Stagecoach put Stagecoach NZ, the country's biggest bus service, on the market nearly two years ago because it was unhappy with new ownership models put forward for public transport.  Infratil bought Stagecoach knowing changes were in the wind, but it believed it would be able to make a difference as a highly-regarded local infrastructure company which had good relations with politicians.

Brown said Infratil hoped that as new rules evolved they would be more sympathetic to private operators than was originally proposed. But the company's expectations were not being realised.  Brown said: "Some officials say extremely encouraging things to us like 'We are keen to work with you'," he said.

Competing with Infratil to buy Stagecoach were two Australian private equity firms, who typically take a position in a business with a definite exit strategy in mind.

Brown said Infratil was an experienced long-term infrastructure investor which took an active involvement in the investment.  "But if the nature of the business ends up dramatically different from what we bought into, then one of New Zealand's major public transport providers may not have a local (private) owner," he said.

Under proposals being considered, regional governments would also have the right to take over ownership of the business of private operators if they failed to perform.

Brown said such proposals were "extremely unattractive" to Infratil.  "We like to invest in businesses where our success is determined by our ability to satisfy customers - in this case bus and ferry users," he said.

Proposals being floated by officials within Land Transport NZ and the Auckland Regional Transport Authority (ARTA) would make bureaucrats the end-customer of a private bus or ferry operator. And that would remove a powerful driver for commercially-driven operators, said Brown.

The end result would be a public transport system run by public operators.  "But we have been there before, and public operators presided over periods of much greater decline in the use of public transport then when private operators became involved," said Brown.

Under existing laws, the Auckland Regional Transport Authority calls for tenders for bus services and relies on the free market to come up with the best price.  If an operator can run a service profitably without a subsidy, then the authority accepts and registers that service.  It then decides what fill-in services are required to complete the network and calls tenders for non-commercial routes.

ARTA has been concerned it cannot require any operator to adopt any performance or customer service standards on commercial services.  Under new proposals, ARTA would introduce integrated timetables, ticketing and fares.

But Brown said that would effectively return public transport to public ownership.  Being paid a fee by bureaucrats rather a fare from an end-passenger removed a huge driver for a private enterprise.  "We would also be giving another party a call-option over our business," he said.