Cabinet Committee on Infrastructural Development and Public Private Partnerships REGULATION OF THE BUS MARKET IN THE GREATER DUBLIN AREA Department of Public Enterprise May 2000 CONTENTS 1. Scope 2. Approach to the Review 3. Policy & Strategic Context for the Review 4. Some International Benchmarking 5. Approach to Public Transport Subsidy in Ireland 6. Need for Increased Operational Subsidy 7. Regulatory Models Considered 8. Current Position in Dublin - Bus Átha Cliath Zone - Outside the Bus Átha Cliath Zone 9. Monopolistic Model 10. Full Deregulation 11. Franchising Model 12. Merits/De-merits of Competitive Tendering in Sweden 13. Merits/De-merits of Competitive Tendering in Helsinki

Cabinet Committee on Infrastructural Development and ... · Cabinet Committee on Infrastructural Development and Public Private Partnerships REGULATION OF THE BUS MARKET IN THE GREATER

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Cabinet Committee on Infrastructural Development and Public Private Partnerships


Department of Public Enterprise May 2000


1. Scope

2. Approach to the Review

3. Policy & Strategic Context for the Review

4. Some International Benchmarking

5. Approach to Public Transport Subsidy in Ireland

6. Need for Increased Operational Subsidy

7. Regulatory Models Considered

8. Current Position in Dublin

- Bus Átha Cliath Zone

- Outside the Bus Átha Cliath Zone

9. Monopolistic Model

10. Full Deregulation

11. Franchising Model

12. Merits/De-merits of Competitive Tendering in Sweden

13. Merits/De-merits of Competitive Tendering in Helsinki

14. Countries to which Research Trips were made

15. Lessons Learnt

16. Submissions received during Consultation

17. Relevant Developments at EU level

18. Recommended Regulatory Model for Dublin

19. Recommended Institutional Model to Underpin a Franchise Regime in Dublin

20. Wider Institutional Remit

21. Need for Transition

22. Immediate Plans for Expansion of Bus Services

23. Other Issues to be Considered in Devising a Transition Model

24. Options for Immediate Change

25. Options for Short-Term Change requiring New Legislation

26. Transition to Final Model

Appendix I - Parties who presented Written Submissions in the Consultation

Appendix II - Comparative Table

Appendix III - Options for Short Term Change

1. Scope

In line with the Government Decision S180/20/10/0281, this paper provides a review of legislation governing the regulation of the bus market (the Road Transport Act, 1932) with a view to the introduction of competition in Dublin public bus transport services. For the purposes of this paper, Dublin is defined as the Greater Dublin Area (GDA).

This is the first phase of a wider review of bus market regulation. The second phase will look at the market outside Dublin.

2. Approach to the Review

Extensive desk research was undertaken, as well as research trips to 3 European capitals. Consultation took place and 39 written submissions were received (organisations which contributed are listed at Appendix I). Meetings were held with PAMBO (Private Automobile Motor Bus Operators), CIÉ Group, Bus Átha Cliath, Bus Éireann, Dublin Chamber of Commerce and with a delegation from ICTU, SIPTU and NBRU.

3. Policy and Strategic Context for the Review

The National Development Plan 2000-2006 provides the broad policy and strategic context for this review. The National Plan sets out the objectives of the proposed £1.6 billion public transport investment programme for Dublin as follows:

��to address the projected growth in traffic through a combination of investment in transport infrastructure and facilities and demand management measures;

��to reduce the relative attraction of commuting to work by private car, thereby curtailing congestion and vehicular emissions;

��to increase accessibility for all, particularly mobility impaired and disabled people;

��to better reflect evolving commuter travel patterns by providing for a spatial distribution of public transport which addresses the requirements of the Strategic Planning Guidelines;

��to support sustainable development.

According to the National Plan, the public transport strategy for the Greater Dublin Area will concentrate investment on:

��developing, extending and increasing the capacity of the bus network;

��implementing the light rail network approved by Government in 1998;

��exploiting much more fully the potential for development of the suburban rail network;

��promotion of transport integration through the provision of additional park and ride facilities and the introduction of integrated public transport ticketing and public transport interchange facilities.

This investment programme will also include roads and traffic management measures and be complemented by a demand management strategy, to be developed by the Dublin Transportation Office. The objectives of the £220 million bus investment programme set out in the National Plan are to:

��expand the bus network to meet demand, including the provision of orbital and local routes to complement the existing largely radial network and the provision of local services in development centres;

��provide additional buses to increase passenger capacity and meet the development requirements of the network;

��implement an ongoing fleet replacement and equipment renewal programme.

The bus investment programme is to be supported by a range of other measures, including:

��the implementation of additional Quality Bus Corridors, the extension and enhancement of the existing and planned network of 12 QBCs and the introduction of other bus priority measures;

��the provision of additional park and ride facilities;

��the introduction of integrated ticketing;

��the development of public transport nodes and interchange facilities to cater for intra-modal (bus to bus) and inter-modal (bus to rail) transfers.

The strategy outlined in the National Development Plan drew heavily on the Dublin Transportation Blueprint 2000-2006, published by the Dublin Transportation Office in June 1999. The DTO Blueprint identified a need to increase further the capacity of the radial bus network due to the continuing dominance of the city centre as a travel attractor, and to review the existing bus network to reflect the changes in the pattern of demand identified in the DTO 1997 Origin Destination Survey. It also concluded that the network required to be expanded to reflect the spatial dimension of the growth strategy set out in the Strategic Planning Guidelines, which clearly identified the importance of transportation corridors. The majority of growth will be concentrated in the Metropolitan Area and the gaps in service in this area require to be filled. The DTO also recommended that there should be a review of the existing bus network to examine its effectiveness in meeting existing and forecast demand. CIÉ subsequently commissioned consultants, Scott Wilson Kirkpatrick and Brady Shipman Martin, to carry out this review. The strategic phase has been completed and is now being followed by a more detailed study. The results of this work will provide the template for the development of the bus network in the period to 2006 and beyond. The main recommendations of the strategic phase of the bus network review are as follows:

��A substantially expanded network of Quality Bus Corridors and other bus priority measures, including orbital QBCs and local bus priority measures in the Docklands and the western new towns;

��a number of additional bus services (including a new inner orbital QBC with new bus services between Connolly Station/Heuston Station/St. Stephens Green, new services around the St. Stephens Green Area, a new route along the quays (Heuston Station - Connolly Station - Spencer Dock - Ferry Port Service) and a new route along the Tallaght corridor via Kimmage);

��a number of enhancements of existing services, generally by increasing frequency (e.g. Blanchardstown to city centre, Lucan to city centre, Northern Port area to city centre, Greystones to Sandyford, Bray to Sandyford, Kilcock to city centre, Skerries to Santry and Balbriggan to Santry); and

��provision of local service networks in suburban locations within the Metropolitan Area – possible options include Dundrum/Churchtown/ Ballinteer/Nutgrove, Stillorgan, Crumlin Village, Omni Centre and Finglas;

��provision of services in the Hinterland Area, including a small range of outer orbital services such as Kilcock-Navan-Drogheda, Athboy-Navan-Balbriggan, Kilcock-Dunshaughlin-Swords, Kilcock-Naas-Blessington, Kilcock-Maynooth-Tallaght and Kildare-Carlow and services to Dublin Airport from Kilcock/Maynooth, Kildare, Wicklow and Navan.

��an extra 250 buses, additional to the 275 provided for in the National Plan.

The Dublin Transportation Office is at present working on an updated transportation strategy for the period 2000-2016. This work has identified the scale of the transportation challenge, as set out in the following table:



1991 1997 2016




Public Transport 62 69 173 312

Car 110 181 315 176

Total 172 250 488 488

Total peak hour trips have grown by 78,000 or 45% between 1991 and 1997. However, the bulk of that growth has been accounted for by private car commuting (+71,000). By 2016, total peak hour trips are forecast to be 488,000, a 95% increase on the 1997 level. If no new investment, other than that already committed, was to be undertaken during that period, total car trips would double. The result would be to reduce peak hour speeds on radial roads to 8kph, compared with 14kph in 1997 and 22kph in 1991. The DTO has set itself the objective of reducing congestion to 1991 levels while catering for additional trip demand. That in turn translates into a public transport trip target of 312,000 in the 2016 peak, or almost a five fold increase compared with 1997. Within that overall strategy, peak hour bus trips would increase from 47,000 in 1997 to 76,000 in 2016. In the longer term the greater proportion of the public transport growth is likely to be accounted for by extensive development of rail-based transport (light rail, conventional rail and metro). However, in the short to medium term, while new rail infrastructure is being planned and constructed, most of the growth in public transport provision will be based on improved and extended bus services. It is therefore likely that the total number of bus-based trips will be higher in the medium term. In the longer term the configuration of the bus network is likely to change from its current dominant radical pattern to an emphasis on orbital and local routes and on feeder services to rail modes. In light of the above considerations, it is possible to identify some of the principal features of the future Greater Dublin Area bus network which provide a policy and strategic context for this review: ��The bus will be one element of an integrated transportation strategy for the Greater Dublin Area. ��The bus will form part of an integrated network of public transport services, designed to provide for planned intra-modal (bus to bus) and inter-modal (bus to rail) interchange. The overall objective will be to enable most journeys to be completed with no more than one interchange. ��The bus network will comprise the following principal elements: Metropolitan Area ��A mesh of radial and orbital services with a facility for planned interchange between them and with rail/light rail/metro routes; ��Feeder services to rail/light rail/metro routes; ��Local services at appropriate locations; ��Dedicated services such as rail, port and airport links and late night services;

��Dedicated services to bus-based park and ride sites. Hinterland Area2 ��Services linking the Hinterland Area with the Metropolitan Area, the Airport and the city centre; ��local services in the Hinterland Area, especially within development centres identified in the Strategic Planning Guidelines. Fuller details of the bus network will be developed in the bus network review referred to earlier. ��The bus network will be expected to provide sufficient physical capacity to meet targets to be set by the Dublin Transportation Office’s transportation strategy 2000-2016. ��The bus mode will fully participate in a planned integrated ticketing system for the Greater Dublin Area and in any other appropriate integration measures (for example interchange facilities, integrated timetabling of public transport services, real time passenger information etc.). ��The operation of bus services will be supported by a range of complementary traffic management measures, principally improved on-street priority via Quality Bus Corridors, bus lanes and other measures. ��Bus services will be provided to high standards, particularly in relation to:

��the quality and physical accessibility of buses used;

��the frequency of service provided (which will be defined by reference to the capacity requirements referred to above);

��the standard of customer service provided by bus employees, especially drivers;

��the provision of appropriate interchange, shelter and passenger information facilities.

It is clear from all of the above, that the policy and strategy adopted by Government has the primary objective of encouraging people to make the move from the private car to public transport, thereby helping to alleviate gridlock.

4. Some International Benchmarking The Department undertook research trips to London, Stockholm and Helsinki, to examine models for the competitive provision of public bus transport services. The table in Appendix II compares the position in Dublin with the public transport network, the public transport share of the market and the level of subsidy provided in Stockholm and Helsinki, as these cities are closer in size to Dublin and provide a more realistic basis for comparison purposes. The most striking points arising from this comparison are:-

��similarities in size;

��The low level of operational subsidy available to public transport in Dublin (11%) when compared with the others (averaging 50%);

��The low level of public transport share of the peak travel market to the city-centre in Dublin (38%) when compared with the others (averaging 71%); and

��The low level of public transport share of the peak travel market in the overall GDA (27%) when compared with the others (averaging 50%).

A separate study of subsidy levels in a range of European cities has been commissioned by the Department of Public Enterprise, which it is hoped will provide a clearer picture of Dublin's comparative position. The limited comparison between Dublin and the two Scandinavian cities made here suggests a link between higher subsidy and better service quality and frequency. In Stockholm and Helsinki, this also translates into a much higher modal share for public transport. It should also be noted that one survey of 21 European cities conducted in 1994 showed the average subsidy rate in those cities to be 54%, a figure which is significantly higher than the subsidy rate of 11% available in Dublin. Furthermore, provisional results from the separate study on subsidy levels commissioned by the Department show that independent consultants are also likely to draw the conclusion that subsidy levels are significantly lower in Dublin than in most other European cities, apart from the particular exception of those in the United Kingdom. Finally, it is important to recognise that the level of operational subsidy for Dublin's public bus services is also low in absolute terms, as well as being low in terms of the subsidy rate. The table below shows the amount of State subvention of Bus Átha Cliath's operations between 1990 and 1999.

State Subvention for the Operations of Bus Átha Cliath




Passenger Numbers (millions)

Subvention per passenger

(IR pence)

1990 14.76 167.1 8.8 1991 14.22 172.6 8.2 1992 10.90 175.6 6.2 1993 8.00 171.1 4.7 1994 5.00 177.5 2.8 1995 3.80 185.0 2.1 1996 3.65 188.0 1.9 1997 7.00 190.0 3.7 1998 8.90 192.0 4.6 1999 13.24 194.0* 6.8

*Passenger numbers for 1999 are provisional. It is difficult to compare these figures directly with those available from the authorities in Helsinki and Stockholm, as those cities do not hold data on subsidy for bus as distinct from for public transport generally, including rail and metro. Nevertheless, the 6.8p subvention per passenger provided to Bus Átha Cliath in 1999 seems significantly lower than the 45.9p subsidy per public transport passenger provided in Stockholm and the 34.8p provided in Helsinki in 1998.

5. Approach to Public Transport Subsidy in Ireland Successive Governments have mandated CIÉ with providing a universal service but allowed it autonomy in deciding what level of public transport service is to be provided and where. Government controls fare levels with a view to ensuring that public transport is accessible to all. CIÉ uses its protected position on profitable routes to generate revenues with which to cross-subsidise non-commercial routes, which are socially desirable. The Exchequer also provides an annual top-up subsidy, securing that CIÉ operations are not loss-making to a significant degree. The CIÉ Board (not Government) decides on the amount of the overall Exchequer subsidy to be allocated to each of its operating subsidiaries. This means that very little attention need be paid to the real costs of running the individual services, as there is currently no transparent link between the level of subsidy and the level of service provided.

6. Need for Increased Operational Subsidy A key short-term Government objective is to move commuters onto buses in Dublin. This will not be achieved without significant improvements in quality and significant increases in the number of peak buses, the number of routes and the frequency of service on existing routes, particularly at peak hours. One of the written submissions to the review made the point that, to help alleviate congestion, buses need to have high peak frequencies. Additional peak buses bring with them considerable additional costs but they can only generate additional revenue for approximately 4 hours a day over a 5-day week. Therefore, adding to peak bus capacity necessarily "makes urban buses uneconomic, necessitating State subsidy." Dramatic increases in service of the kind that are needed in order to entice people out of the private car and onto public c transport are unlikely to prove economic (noting that Bus Átha Cliath is already returning poor financial results from its existing level of operations over the past number of years.) Therefore, it should be accepted that increasing the level of bus service in Dublin is highly likely to lead to a need for increased operational subsidy. However, this increase will be off-set to some extent by the introduction of competitive pressures, which can be expected to lead to greater efficiencies and better value-for-money across the sector generally.

7. Regulatory Models Considered If we assume that subsidy will rise in order to support increased levels of service and to encourage a greater move to public transport in Dublin, an immediate priority for policy-makers is to select a regulatory model which will ensure that best value-for-money is obtained for any subsidy spent. Therefore, the following paragraphs consider:-

� the status quo in Dublin (broadly monopolistic model);

� full deregulation as a model; and

� limited competition or route franchising as a model;

with particular reference to actual applications of the latter two models in the UK, in Sweden and in Finland. The paper then goes on to:-

� consider any lessons to be learnt from the models examined abroad;

� note the virtual consensus on the best way forward, as presented in written submissions made under this review; and

� discuss recent EU developments in this area.

In the context of all of the above, the paper then concludes which regulatory option is best suited for the Dublin bus market.

8. Current Position in Dublin This section will deal with the bus network in the Greater Dublin Area as two distinct markets, as this is the structure which currently applies. Separate markets have developed (i) inside the Bus Átha Cliath zone; and (ii) in areas of the GDA outside that zone. Bus Átha Cliath Zone Under the Transport (Re-organisation of Córas Iompair Éireann) Act, 1986, Bus Átha Cliath is charged with providing "a passenger service by road for the city and county of Dublin and contiguous areas." Generally speaking, the Bus átha Cliath zone co-relates to the metropolitan area as defined in the Strategic Planning Guidelines for the Greater Dublin Area (essentially the built-up area of the GDA). However, there are some exceptions where, for historical reasons, Bus Átha Cliath provides service outside that area e.g. the Bus Átha Cliath network extends to Newcastle and Blessington in Co. Wicklow and to Skerries in North Co. Dublin. Bus Átha Cliath does not require a licence under the 1932 Act to provide its services. The 1932 Road Transport Act empowers the Minister to licence private bus operators in cases where they apply to provide a bus service which "is required in the public interest having regard to the passenger road services and other forms of passenger transport available to the public on or in the neighbourhood of the route." In practice, however, in the consideration of applications under the 1932 Act, it has been assumed that BÁC provides an adequate service in the metropolitan area. Consequently, only 7 private operators currently hold valid licences for routes in the BÁC zone. There is also a certain level of unlicensed bus operations in this market. Outside the Bus Átha Cliath Zone Under the 1986 Act, Bus Éireann is charged with providing "a passenger service by road, except in so far as such a service is provided by the Dublin bus company." This means that Bus Éireann has essentially left the BÁC zone to be operated as a de facto monopoly by its sister company. Outside that zone but within the GDA, Bus Éireann (BÉ) provides services on a considerable number of commuter routes (e.g. Rathcoole to Dublin City Centre, Navan to Dublin City Centre etc.) There are also a few instances where Bus Éireann provides services on routes which would normally be considered to be part of the Bus Átha Cliath network (e.g. BÉ provides a service from Naas via Tallaght to Dublin City Centre ). Like BÁC, Bus Éireann does not require a licence under the 1932 Act to provide its services. While the application of the 1932 Act has been slightly more open in considering applications for route licences outside the BÁC zone generally, only 10 private operators have been licensed in this part of the GDA, which means that BÉ effectively enjoys a monopoly in that area. Again, there is a certain level of unlicensed bus operations in this market also.

9. Monopolistic Model The model currently applied in the GDA is that of a regulated monopoly, where a company (publicly owned) is charged with the effective operation of the entire system in each of the two market zones described. The only forms of competitive pressure are indirect i.e. each company can either compare its current performance with its past performance or it can benchmark itself with other bus operators. (No evidence has been presented to this review that either BÉ and BÁC has ever benchmarked its own operations vis-à-vis its sister company.) In any case, these forms of competitive pressures, being less direct, are less likely to incentivise optimum efficiency. As the overwhelming majority of public transport services in the GDA are provided by the three CIÉ operating subsidiaries, the status quo could have been expected to provide opportunities for greater integration. Nevertheless, apart from some level of integration in Dublin between Iarnród Éireann and BÁC (e.g. Dart feeder buses), there remains considerable scope for further integration. In summary, the position is as set out in the following table:-

Portion of GDA Network Market Structure

Bus Átha Cliath Zone ��De facto monopoly for Bus Átha Cliath

��only 7 private operators with licensed routes

��some unlicensed activity

GDA outside of BÁC Zone ��De facto monopoly for Bus Éireann

��only 10 private operators with licensed routes

��some unlicensed activity

10. Full Deregulation The UK Transport Act, 1985 led to full deregulation of the local bus market in the United Kingdom (Greater London and Northern Ireland were exempt from the provisions of that Act.) The new regime allowed free entry of operators into the industry. Anyone who met minimum professional requirements could supply a bus service 42 days after registering with the appropriate authorities. Operators were free to choose routes, timetables and fares and provided their bus services without subsidy. Where a bus service was not being provided commercially, the relevant local authority could opt to subsidise the route by putting it out to tender. In the developed world, this regulatory model has been applied only in the UK and in New Zealand. Key impacts of full deregulation in the UK bus market outside of London have been well-documented and are summarised below. Positive results from the introduction of de-regulation were as follows:-

� Competition among bus operators led to a reduction in operating costs (in the first 6 years after deregulation, cost per bus mile fell by 36%). This was mainly due to a sharp reduction in the wage-bill and to the expansion of mini-bus services (which are cheaper to run than conventional buses.)

� Competition also led to an increase in bus miles run (increased by 20% in the same 6 years). This arose mainly from the increase in mini-bus operations, as mini-buses generally operated at a higher frequency than conventional buses.

� Subsidies for bus services in the UK fell by 52% between 1985 and 1996.

However, the effects of deregulation on bus ridership and on fares were very disappointing:-

� Bus ridership fell by 22% in the first 6 years after 1985.

� Real fares increased by 13% in the same period.

Decline in Patronage Many different factors underpin the decline in patronage, which was particularly marked in the large metropolitan areas (apart from London) in the UK. One key factor was the uncertainty and instability generated during the process of transition from the regulated regime. Mistakes were made when local authorities faced the complicated task of adjusting fully-integrated networks into de-centralised networks over a very short period of time. Some authorities failed to publish operators' timetables prior to the start of their operations. In smaller conurbations, where it was relatively easy for the local population to keep themselves informed, this was not such an issue. However, in the larger metropolitan areas (e.g. Greater Manchester, Merseyside, Strathclyde and West Midlands), lack of reliable passenger information was a significant negative factor, leading to a general loss of confidence and a drop in demand for bus services. Another key feature of the deregulated regime was service unreliability. Bus companies were operating under tough, competitive conditions. The system allowed them to amend their service/route/timetable and/or to drop routes completely with only 42 days notice. This led to frequent changes in schedules, as operators struggled to find the routes and frequencies which gave the best commercial return (e.g. in Manchester, services were changed between 1,500 and 2,000 times annually in the first 6 years.) Again, this led to a considerable loss of credibility and to a lack of confidence in the system. The decline in patronage was also caused by the increase in fares, especially in areas where this increase could largely be explained by the removal of subsidies. For example, most of the decline in patronage took place in metropolitan areas where bus services were highly subsidised prior to deregulation. Even with a 40% cut in operating costs, these areas witnessed an increase of 39%

in fares and a 28% drop in ridership. While we cannot deduce from this that the inverse would also be true (i.e. it should not be assumed that lowering fares would lead to a dramatic increase in patronage), nevertheless it should be noted that the real fare level is a lever which cannot be ignored when considering different regulatory models and their impacts on bus passenger numbers. Consequently, a new regulatory model for Dublin should assume that fares will either remain steady or increase only in line with real price increases, thus avoiding the drop in ridership experienced in many of the UK cities, when fares rose dramatically following reductions in subsidy. Recent Developments in UK Policy on Local Bus Early in 1999, the UK Department of Transport, Environment and the Regions produced a consultation paper on local bus services. That paper identified:-

o lack of integration of local public transport services and schedules; o lack of stability in the market leading to customer uncertainty and a general perception

that the bus was an unreliable mode of transport; and o lack of passenger information;

as problems which had come to light under the free-for-all regime. Measures in the new UK Transport Bill , published in December 1999, are aimed to resolve these. Measures set out in the new Bill aimed to:-

� Improve stability and integration by imposing a duty on each local authority to develop clear policies and to publish a local transport plan, thereby providing a clear framework aimed at promoting "safe, integrated, efficient and economic transport".

� Improve stability and quality in the local bus market by giving statutory force to voluntary arrangements, whereby the local authority agrees to provide special facilities for bus operators on condition that any bus operator accessing those facilities agrees to meet certain quality standards. This is expected to lead to greater investment by bus operators in quality buses and to a greater commitment by them to providing a service for the long-term in local markets. This additional commitment would be made by operators in return for the investment in improved facilities made by local authorities.

� Improve stability in the local bus market by enabling local authorities, under certain circumstances, to set aside the de-regulated regime provided under the 1985 Act and instead to specify what local services should be provided and, following tender, to franchise out exclusive rights for those routes to the winning bus operator.

� Improve integration by empowering local authorities to set up integrated ticketing schemes and to require operators of local bus services to participate in such schemes. At present, local authorities have no powers in law to oblige operators to get involved in integrated ticketing schemes.

� Improve passenger information by placing an obligation on local authorities to secure that local bus information is made available in their areas.

Furthermore, it seems likely that new regulations may lengthen the 42-day period of notice required from a bus operator in the UK, before they may amend or cease a bus service currently in operation. This should also help to improve stability.

11. Franchising Model This is defined as "limited competition" where the public authorities define the public transport service to be delivered and invite tenders for its provision by operators tendering on an equal basis. Contracts or franchises grant exclusive rights for particular routes or geographic areas to the winning candidate and the contracts are de-limited by time (often for a 5-year period.) Particular divergences of opinion regarding appropriate subsidy levels existed between the Conservative Government and Labour-led local authorities in London during the 1980s. Consequently, the UK Government did not apply a deregulated regime under the 1985 Transport Act in the Greater London Area. Instead, they set up a public transport authority (London Transport) to oversee the development of the entire public transport system in London, within broad policy and strict budgetary parameters set down by the Department of Transport. London Transport was accountable to central Government, and had no formal reporting relationship with the pertinent local governance structures in London. It had been the UK Government's original intention that the bus market in London would also be fully deregulated in the long-run. However, instead, a different regulatory model developed in London, where a franchising regime was gradually introduced. Over the years, the model has been well regarded as being successful in maintaining the integration of the public transport network, in reducing cost and in achieving passenger growth. "Buses in London: A comparison with the rest of Great Britain", a report commissioned by London Transport, compares the bus market in London with that obtaining in the rest of the UK over the period 1985-1997. On a number of counts, it is clear that the franchising model applied in London has proven more successful than the fully-deregulated model applied elsewhere in the UK, particularly when the comparison is made between London and other metropolitan areas. Between 1985 and 1997:-

� 25% more bus miles were driven in London (21% increase in the other metropolitan areas).

� Bus passenger journeys grew by 8% in London, while they dropped by 40% in the other large metropolitan areas.

� Real bus fares rose by 37% in London, compared with a larger increase (57%) in the other metropolitan areas.

� Bus revenue support fell by 78% in London compared with only a 60% drop in the other metropolitan areas. When this is measured as "revenue support per passenger journey", London's advantage is considerably more marked. London showed a 79% drop in support per passenger journey, where the drop in the other large metropolitan areas was only 34%.

Furthermore, between 1985 and 1997 bus operating costs in London fell by 45%, very much on a par with the 49% drop in other English metropolitan areas, even though a more directly competitive market applied in those conurbations. As noted above, the UK Department of Transport, Environment and the Regions published a Transport Bill in December 1999, which includes measures to address each of the issues identified in their earlier consultation paper. The Bill has not changed the essential nature of the free-for-all model in local bus markets in the UK, outside of London. However, a significant change of heart is evident. The Bill includes enabling powers for local authorities to exempt their local areas from the free-for-all environment set out in the 1985 Act and to grant exclusive rights under tender for a de-limited period. This seems to be a tacit acceptance by the UK Government that franchising may be a more appropriate regulatory model under certain circumstances.

If a key objective for the Irish Government is to encourage people to move from private car to public transport, then the experience of ridership decline under free-for-all in the larger metropolitan areas in the UK is a salutary lesson. It seems clear that maintaining integration, ensuring stability of supply, ensuring availability of passenger information and providing subsidies to maintain fares at levels which continue to be attractive to passengers are crucial factors when considering regulatory models for large urban centres. The model for controlled competition in London produced a much better result in terms of each of these factors than did the free-for-all approach in other large metropolitan areas in the UK. 12. Merits/De-merits of Competitive Tendering in Sweden The benefits derived from the introduction of competitive tendering in London are clear. The Department also travelled to Sweden to consider the franchise model implemented there. In July 1989, Sweden opened up the bus market, by introducing competitive tendering in the purchase of public transport services. County public transport authorities were empowered to begin competitive tendering, but were not obliged to do so. In general, significant benefits ensued in terms both of cost saving and improved quality, particularly in counties which chose to apply competitive tendering. Some key points are set out below.

� Stockholm, as the county with the capital and largest conurbation, showed more dramatic reductions in cost than other counties.

� The subsidy paid by Stockholm Public Transport Authority (PTA) was reduced by 25% in the years immediately after the introduction of franchising, while services expanded by 18%. Cost savings have been achieved partially by ensuring that the entire peak fleet is now operational during the morning peak. This has led to a 15% reduction in the number of buses needed to deliver the same level of service.

� Quality has not been compromised. The standard and age of buses in the Stockholm fleet has improved, as tender competitions allow the PTA to specify quite precisely the type and quality of bus required.

� Moreover, close monitoring by the PTA under the new contractual arrangements has brought improved service (e.g. 90% of buses in 1997 departed within 3 minutes of timetable target, as compared with only 82% in 1995.)

� Cost-savings in counties apart from Stockholm varied considerably. One county had savings of over 33%, while others achieved savings only in the range of 2 to 10 %. The weighted national average (excluding Stockholm) was a saving of over 7%.

� It is possible to partially explain the range in cost savings achieved by studying to what extent competitive tendering had been applied in the different counties. Counties which did not introduce competitive tendering at all achieved a lower level of savings than those who did.

� As well as improvements which were evident in Stockholm, many of the competitive tenders throughout Sweden resulted in improvements in quality. In 31 tender competitions considered in one study, 24 resulted in improvements in the standard of buses, in environmental aspects of the buses or in a rejuvenation

of the fleet. No traceable changes in quality occurred in 6 cases, while only 1 resulted in a deterioration in quality.

Some of the disadvantages associated with the introduction of franchising in Sweden are described below.

� Some Loss of Competitiveness following Consolidation

The pattern in Sweden shows that the number of bus companies declined from 360 in 1989 to 240 five years after competitive tendering was introduced. This has led to increased concentration of bus service providers in many Swedish counties, which has in turn led to some loss of competitiveness.

� Employee Transfer following a Tender Competition

Employee-related issues have raised the most serious concerns in times of transition following a tender. In most cases, the end result has been that most of a losing company's employees have been re-hired by the winning company. Nevertheless, these transitions have been be difficult. It is important to note that the EU Transfer of Undertakings Directive had no application in Sweden when franchising was introduced there in 1989, as Sweden was not then a Member State of the EU.

Following Sweden's accession to the EU in January 1995, the protections available to employees under the EU Transfer of Undertakings Directive came to have legal effect there. The Directive specifies that, when taking over operations from a losing operator, the winning company is obliged to re-employ all affected personnel with unchanged terms of employment for a minimum of one year. This has provided clarity and much greater security for employees in the bus industry in Sweden. The Swedish Bus & Coach Federation indicated that wages and working conditions are no longer seen to be decisive in winning contracts from county public transport authorities. It is presumed that the application of the Transfer of Undertakings legislation is at least partially responsible for this development.

� Particular Difficulties for Municipally-Owned Companies

The municipally-owned companies have had difficulties related to the restrictions imposed upon them in terms of areas in which they are allowed to operate (usually restricted to the municipalities in which they were based.) This has inhibited them from expanding.

Despite the above-mentioned issues, however, the Swedish authorities were clear that the overall benefits in terms of reduced cost and improved quality derived from the franchise model outweighed any problems which had arisen. It is apparent from the Swedish experience, however, that the protections provided by the Transfer of Undertakings Directive may become key. Careful consideration should also be given to devising a regulatory framework for Dublin, which will aim to maintain competitiveness in the market into the longer-term.

13. Merits/De-merits of Competitive Tendering in Helsinki The Helsinki metropolitan area constitutes four distinct municipalities (Helsinki, Vantaa, Espoo and Kauniainen), each with its own independent local authority. YTV, or the Helsinki Metropolitan Area Council, is the joint municipal organisation responsible for co-ordination of certain regional services across the four cities, including the co-ordinated management of regional public transport (i.e. public transport services between the cities.) However, public transport services inside each of the city boundaries remain the responsibility of the relevant local authority in that city. YTV introduced its first round of competitive tendering for regional public bus transport services in the Helsinki Metropolitan Area between 1994 and 1996. Following that period, a report on the new procedure cited the benefits of the competitive tendering approach as follows:-

� regional public transport costs had been reduced by 29%, saving the Metropolitan Area Council FIM105m (approx. IR£78m) per annum;

� regional public transport ticket prices had been cut by 8% (YTV seems to have adopted a policy of transferring the benefits of reduced costs directly to the passenger);

� regional transport services had been improved by increasing supply (i.e. total bus mileage operated increased by 560,000 km in 1995 and by 944,000 km in 1996); and

� new high-quality buses had been introduced (e.g. new low-floored and semi-low-floored buses, buses with reduced exhaust emissions, average age of buses in fleet reduced by 1.7 years).

Disadvantages cited were:-

� Following the introduction of competitive tendering, there was a concentration of the number of operators active in the market. While 23 operators tendered for traffic in the first competitive round organised, the five largest companies held 93% of the market between them by 1998 and YTV's view is that the smaller companies are likely to disappear altogether in the long run. This has implications for the level of competitiveness in the market and is likely to lead to upward pressure on costs and subsidy levels.

� There was a certain amount of employee unrest in the initial years following the introduction of tendering. Worker concerns centred on loss of job security and on working conditions under the new regime. Initially, the public authorities did not provide any assurance that the Transfer of Undertaking Directive would apply when traffic was lost by an operator following a tender competition. After some unrest, agreement was reached between unions and management that, while the exact provisions of the Transfer of Undertaking Directive would not apply, rights very similar to those set out in that Directive would be guaranteed for workers. Had a commitment been made to apply the Transfer of Undertaking provisions from the outset, it seems that a large element of unrest may have been avoided.

� In general, the administrative structures in Helsinki seem to have led to a certain lack of coherence e.g. when Helsinki City introduced competitive tendering for bus services, its specification for bus vehicles was different to that

set down by YTV in its regional competitions. For the operators, this meant a loss of flexibility, as they then were obliged to invest in a fleet with at least two different types of buses to suit two different tender requirements. This lead to increased costs for operators, and consequently also for the public transport authorities.

Once again, the Department's discussions with the authorities and industry representatives in Finland revealed a general acceptance that the benefits derived from the franchising regime had outweighed any disadvantages which had arisen. Relevant lessons are similar to those noted in the Swedish case, in particular the need to provide adequate employee protection and the challenge of maintaining competitiveness. These issues are dealt with further below. 14. Countries to which Research Trips were made It should be noted that the Government decision specified that this review should consider alternative competitive models for the bus market in Dublin. Essentially only two forms of competition have been applied in public transport markets to date i.e. the fully deregulated model (e.g. as demonstrated in the UK outside of London) and the limited competition model (e.g. as demonstrated in London, Stockholm and Helsinki). Consequently, this Department felt it appropriate that the two competitive models present in the UK bus market should be considered in some depth. The only other country in the developed world which had opted for the fully deregulated model was New Zealand. For practical reasons, it was deemed prudent to focus research on European models. Following some comparative analysis of the two market models operational in the UK, it seemed clear that the competitive model most likely to prove beneficial in the Dublin context was the franchising or limited competition model. Consequently, further research trips undertaken as part of this review focused on other European markets, where franchising had been introduced some time ago (i.e. Sweden and Finland). Given the relatively tight time-frame for completion of the review, the total number of research trips which could be undertaken was necessarily limited. Consequently, research visits were made only to the three EU Member States already cited.

15. Lessons Learnt While noting the considerable benefits which can be derived from the franchise model, the Department's research abroad also highlighted some of the difficulties which had been encountered. Some lessons which can be learnt from experiences abroad are set out below.

��Difficulties arise where one division in an organisation manages the tender competitions for routes while another division in the same organisation is competing for those tenders. Establishing so-called "Chinese walls" will never convince prospective tenderers that a conflict of interest is not influencing decision-making to their disadvantage. One operator has complained to the European Court of Justice regarding a case of this kind in Finland.

An institutional model which combines operational and regulatory functions within a single organisation has inherent laws, is readily open to challenge and should not be emulated in Dublin.


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��Public transport authorities have witnessed State-owned companies (traditionally less disciplined in cost-allocation) using cross-subsidies to underpin exceptionally cheap tenders. Private operators cannot match such tenders, but may live with losses for a while in a bid to place competitive tenders and retain market share. The market as a whole suffers in the long-run, as this approach is not sustainable for any operator.

In Dublin, State-owned companies who have no clear incentive at present to alloca e costs accura ely must be given an adequate trans tion period to adapt their systems to a more competitive environment, where accurate costings become critical to surviva and success. Hidden cross-subsidy should not be allowed.

��It has been shown that significant benefits can be gained from introducing competitive tendering, as operators compete against each other to produce the best possible deal for the public transport authority. In the long run, however, consolidation seems typical in these markets (e.g. 93% of the Helsinki bus market was held by only 5 operators in 1998, while in London 6 operators held over 91% of a much larger market.)

When the number of operators is concentrated in this way, it becomes more difficult to maintain a healthy level of competitiveness. Bus companies who have been operating successfully in a given area for some years have a distinct advantage when presenting their next tender to the public transport authority. It has been argued that cartel-like practices can easily develop, as operators appear to "agree" to stay out of each other’s patches. Prices tendered by incumbent operators can become less competitive over time and the negotiating powers of the public transport authority can be significantly decreased.

The choice in rela ion to Dublin is c ear enough At present, Dublin has a de facto bus monopoly. It may be that Bus Átha Cliath is indeed providing the best possible service in exchange for the level of subsidy available. However, as the current model permits little or no competitive pressure to apply it is very dif icult or policy-makers to feel confident that this is indeed the case.

In line with experience abroad, introducing franchising here is likely to bring considerable competitive pressures to bear in the initial stages. The challenge is to design a model which will maintain the initial competitive benefits gained into the longer term. This may be achieved by ensuring that a certain element of each contract won must be placed on sub contract. This would ensure thatsmaller operators (who are often happy to operate with relatively low margins) could continue to participate actively in the market. It would also reduce the bargaining power of the larger operators.






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� The experience in Finland and Sweden shows that a loss of job security can lead to industrial unrest following the introduction of competitive tendering. However, it now seems clear that the protections available under the Transfer of Undertakings Directive will apply in cases where traffic is lost by an operator following a tender competition.

A certain level of industrial unrest can be expec ed whenever job securitybecomes an issue. However experience elsewhere seems to have shown that a statement clarifying that the protections af orded by the Transfer of Undertakings Directive will apply any time one operator loses traff c to another following a tender, should help to minimise employee unrest

��Experience abroad shows that operators with no knowledge of a particular market feel more comfortable, in the initial stages at least, competing under gross cost contracts, as they do not have to produce solid estimates of ridership/revenues in order to underpin their tenders. Public transport authorities also often opt for the gross cost approach, as it is the easiest to administer in conjunction with integrated ticketing (if smart card technology is not available). However under gross cost contracts, the operator’s main focus is to contain costs, an approach which may not be compatible with best quality service and passenger growth. Net cost contracting has the advantage that it provides a direct incentive to the operator to provide a better service to the customer and to grow traffic.

It seems tha net cost contracting is the best approach, if we want to incentivise operators in Dublin to prioritise customer care and to grow passenger numbers. However, gross cost contracting is usually applied in the initial stages when route tendering is introduced. If the inten ion is to seek net cost con rac s f om the start in Dublin, then the contrac ing authoritymust develop in-depth knowledge of the market (route ridership, revenues etc ), in order to be in a position to provide adequate in ormation for applicants in the initial tender competitions.

��It has already been noted that municipally-owned companies in Sweden had difficulties related to the restrictions imposed upon them in terms of areas in which they are allowed to operate (usually restricted to the municipalities in which they were based.) This inhibited them from expanding their business under the new competitive regime.

It will be important to ensure tha any statutory restrictions which unnecessarily inhibit the area o operation of the State-owned companies are removed, once all operators compete for tenders on an equal basis.

16. Submissions received during Consultation The vast majority of written submissions received under the consultation phase of this review (i.e. 34 out of 39 submissions) favoured the introduction of competition. An overview of common themes emerging from the submissions favouring competition is set out below.

� The overriding objective for policy-makers should be to ensure that a reliable quality bus service is provided, in order to encourage the move from the private car onto public transport and thus ease traffic congestion.

� Maintaining the integration of public transport networks was key in facilitating growth in the use of public transport services. Any new regulatory model should maintain and enhance the level of integration in the network.

� There was a recognition that, while this particular review was only addressing the bus market, there was a need for a more strategic and integrated approach to transport planning for Dublin. There was a specific recognition that land use and transport planning should be co-ordinated. There was also a recognition that a more co-ordinated approach should be adopted in relation to wider planning for transport in Dublin i.e. plans for public transport, for park-and-ride, for roads, for bus roadside facilities, for traffic management and for car parking regulations should be co-ordinated.

� In the short-term, it was recognised that bus was the mode which could be brought on-stream quickly with comparative ease (many alluded to the success of the Stillorgan QBC).

� A clear majority wanted to see an end to the monopolies currently enjoyed by Bus Átha Cliath and Bus Éireann.

� However very few submissions advocated a fully deregulated market in Dublin. Most of those in favour of competition called for the introduction of franchising, where exclusive contracts would be granted to individual companies following competitive tender, allowing them to operate a route or group of routes for a specified period. The transition to a franchised regime should be introduced gradually with, say, 20% of the Bus Átha Cliath network being franchised in any one year, and the full network being subject to competition within 5 years.

� Many expressed concerns about the conflict of interest which exists at present, in that the Minister for Public Enterprise is shareholder of CIÉ and is also charged simultaneously with the consideration of route licence applications from private bus operators under the 1932 Road Transport Act. The widespread perception was that this had affected the manner in which the 1932 Act was interpreted by the Department of Public Enterprise. The belief was that the Act had been administered in a manner calculated to protect the Bus Átha Cliath and Bus Éireann monopolies.

� This line of argument led, in many submissions, to a proposal for the establishment of a public transport authority or regulator to operate at arm’s length from the Department. This would represent an important first step in establishing a level playing field as between the private and the State-owned operators.

� Some of those who recommended the franchising approach proposed that the public transport authority for Dublin would:

- plan the network;

- provide passenger information;

- run tender competitions before granting contracts for specific routes;

- provide subsidy, as agreed following tender, when granting contracts for uneconomic routes;

- monitor quality of service on the bus network; and

- enforce service level agreements in conformity with contracts signed with the bus operators.

� Many submissions raised concerns that, apart from the protection of its monopoly, CIÉ also enjoyed preferential treatment in many other respects. On that basis, it was submitted that the public transport authority should ensure equal treatment for all operators, regardless of ownership, when considering:-

- capital funding for the bus industry (especially ERDF support);

- access to bus stations, QBCs, park-and-ride sites, bus stops, and other roadside facilities;

- access to fuel duty rebate;

- access to subsidy in respect of non-economic routes;

- access to school transport contracts (certain private operators felt that Bus Éireann had an unfair advantage in that Bus Éireann itself provided certain services under the scheme, but also acted as intermediary between private operators and the Department of Education); and

- access to provide service/gain income from the Free Travel Scheme provided by the Department of Social, Community and Family Affairs for Old Age Pensioners.

� There was also some recognition that subsidy levels in Dublin were low when compared with those available in other European cities and that subsidy may need to be increased for certain services in the capital.

An overview of common themes emerging from submissions which were essentially opposed to the introduction of competition is set out below.

� There was an immediate challenge in tackling gridlock in Dublin. Bus-based solutions were the key to resolving this, and neither policy-makers nor CIÉ should be distracted from that task by a rapid programme of regulatory reform.

� Current defects in public transport services did not arise from State ownership or from lack of competition, but rather related to the fact that CIÉ had been seriously underfunded in the past. Bus Átha Cliath and Bus Éireann services were underfunded at present and improved passenger services would need to be linked to an enhanced and more targeted approach to operational subsidy.

� CIÉ was the only company which could deliver an integrated public transport system and it should retain its responsibility for public transport services.

� While the concept of a review of public bus transport was welcomed, it was argued that the review should be broader, more gradual, more inclusive and informed by developments elsewhere. The process warranted a Green Paper and a White Paper with intervening discussions within a partnership framework, involving representatives of workers and passengers.

� Some doubt was cast on the suggestion that the EU would impose a new regulatory framework for public transport in Ireland.

� All EU countries (except the UK outside London) had regulated markets for public transport and the current Irish model followed the norm in this regard, except that CIÉ had not been designated as Public Transport Authority(PTA).

� If an independent regulatory mechanism were to be established, this should have the primary objective of ensuring a safe, accessible and quality public transport service. This objective should be achieved by means of licensing and public service contracts rather than by regulating for competition.

� CIÉ should be designated as PTA, as it was the only body with network design expertise. Furthermore, "Chinese walls" between CIÉ's new regulatory function and CIÉ's direct production companies would ensure that no conflict of interest would arise.

� There was opposition to any hasty proposals for deregulation or increased competition, given the bad experience in the UK (outside London), where a fully deregulated market was introduced in the 1980s. In particular, the adverse effects for bus workers, for bus passengers and for society as a whole were emphasised. It was noted that timetabling had become confused, fares had increased and passenger numbers had declined significantly.

� It was argued that bus services, particularly in urban areas, constituted a natural monopoly and that the net effect of UK deregulation had been to replace a regulated public monopoly with a semi-regulated private monopoly. It was noted that public transport conglomerates had emerged in the UK as well as oligopolies within individual local markets.

Essentially, this group of submissions argue for more time for debate before a change in policy is introduced. They are also clearly opposed to the introduction of a fully deregulated market (in

line with the parties favouring competition, who argued instead for the introduction of controlled competition under a franchise regime.) Finally, there is a clear sense from the submissions opposing competition that CIÉ should be given an opportunity to prove itself as an organisation which, if properly funded, would be well-qualified to provide an integrated, safe, quality public transport service. A clear majority of submissions were agreed that (i) there is a need to introduce competition; (ii) competitive tendering is the best regulatory model to apply; and (iii) a new institution should be established and given key responsibilities for the regulation of the new franchising model in Dublin.

17. Relevant Developments at EU level In its Green Paper "The Citizens' Network", published in 1995, the European Commission first set out its intention to consider how to update the regulatory framework for public passenger transport and how market forces, possibly in the form of competitive tendering, could best be introduced. There was widespread support in principle for the introduction of competition, with a recognition that certain protections would have to be put in place to ensure the continued provision of essential services, to safeguard quality standards, to respect employee rights, environmental aspects and the views of all key stakeholders. Subsequently, the Commission sponsored two research reports (the ISOTOPE report and the NEA report) in order to provide a solid foundation for updating the EU regulatory framework. The NEA report published in 1998 recommended that:-

� The granting of exclusive rights or subsidy for the operation of public transport services should be subject to transparent public service contracts. All public service contracts should be subject to competition.

� In general, if exclusive rights were to be granted, these should not last more than five years.

� Where subsidy was to be awarded under a public service contract, competition should be in the form of competitive tendering.

� Where an exclusive right (but no subsidy) was to be awarded under a public service contract, competitive tendering would not be necessary, but a simpler 'authorisation procedure' should be used. This approach would ensure that operators interested in acquiring an exclusive right would have an opportunity to express their interest. Their position would then be considered before the granting of the exclusive right.

� The new legal framework proposed should apply, after a transition period, to all operators regardless of ownership. During the transition period, operators could be protected from competition in their home markets, but such operators would not be allowed to compete in other markets during that time.

The NEA conclusions were broadly in line with the ISOTOPE report (published in 1997) which had recommended that, given political commitment and appropriate technical competence, the competitive tendering model was the best regulatory regime for a fresh start. The Commission also canvassed the views of a wide range of experts and interested parties. The written comments received by the Commission on this matter supported the broad thrust of NEA's report conclusions. Following this research and consultation phase, the Commission is expected later this year to formally propose a draft European Parliament & Council Regulation concerning public service requirements in passenger transport by rail, road and inland waterway. Informal contacts with the Commission have revealed that the draft Regulation is expected to be broadly in line with the NEA recommendations set out above.

In particular, the draft Regulation is expected to require open competitive tendering, whenever subsidy is to be granted for the provision of public transport services (although certain exemptions may apply in the case of metro/rail or in the context of very small subsidies.) Furthermore, subsidy arrangements that exist prior to the entry into force of the Regulation, but which do not comply with it, must be terminated within 3 years of its entry into force. This new draft Regulation will be a significant legislative measure and it can be expected that discussions at Council and Parliament will take some time. However, it would be prudent for the Irish Government to assume that existing arrangements (mainly the de facto monopolies currently enjoyed by Bus Átha Cliath and Bus Éireann) are quite likely to have to be terminated before the end of 2005. It is important to be aware of these developments at EU level, as we consider an appropriate regulatory model for Dublin, in order to ensure that any new policy directions adopted here will not clash with any proposals likely to emanate from the Commission within the next few months. The model proposed in this paper conforms with the approach set out in an unofficial copy of the Commission's draft proposed Regulation, received informally in this Department earlier this year.

18. Recommended Regulatory Model for Dublin The examination of models in Stockholm, Helsinki and London revealed that the authorities were well satisfied that the move to franchising had brought considerable benefits and that the right policy choice had been made. Particular benefits cited by the various authorities in the three cities visited included -

��an improved level of service;

� improved quality; and

� reduced cost.

In particular in London, it is apparent that the franchise model had further clear advantages in that it provided stability, ensured adequate and reliable passenger information, maintained the integration of the network and managed to achieve a level of growth in ridership which was far from evident under a different regulatory model elsewhere in the UK. On this basis, it is recommended that the competitive tendering model is the regulatory option best suited for the Dublin bus market.

Furthermore, it has already been noted that -

��a virtual consensus exists among parties who have made submissions to this review that competitive tendering is the best model for Dublin; and that

��the EU Commission is expected to propose a draft Regulation shortly which will require competitive tendering, whenever subsidy is to be granted for the provision of public transport services.

This serves to provide further support for the proposal that the competitive tendering model should be implemented in Dublin as soon as is practically possible.

19. Recommended Institutional Model to Underpin a Franchise Regime in Dublin This section describes the institutional model recommended to underpin a new franchise regime for the bus market in Dublin. It is recognised that it may take some time to move towards full implementation of this new model. Issues related to the transition period are dealt with separately below.

This model has defined roles for Government, for a Public Transport Regulatory Authority for Dublin (PTA) and for operators in the sector. Each is dealt with in turn.

Government Government would continue to have a role in -

��defining policy for the sector;

��setting overall targets for the sector in terms of modal split and public transport passenger numbers; and

��setting the overall budget for Exchequer support (capital and current) for the sector.

Government objectives for any new regulatory model for the bus market in Dublin would be to -

��ensure the provision of a defined level and quality of bus services, including ensuring physical accessibility for mobility impaired and disabled people;

��ensure integration of the public transport network;

��increase ridership and facilitate improved modal split, particularly at peak-times;

��maintain expenditure within limits defined by Government and obtain best value-for-money for any subvention provided; and

��ensure a level playing field for all operators and maintain contestability and competitiveness in the marketplace.

More specific targets could be defined against which the new model could be measured over time. Public Transport Regulatory Authority (PTA) A PTA would be established for the Greater Dublin Area. This would have the following functions in relation to the bus market -

��Design an integrated bus network to respond to Dublin’s current and projected public transport needs, which would be part of a wider integrated

public transport network as defined by the overall transportation strategy recommended by the Dublin Transportation Office;

��Organise tender competitions to procure services on the network from bus operators, allocating subsidy where required;

��Monitor customer satisfaction levels and quality of service provided by bus operators active in the network and enforce compliance with minimum quality standards and with contract;

��Establish an integrated fare structure for the entire Greater Dublin Area;

��Take overall responsibility for the management of the integrated ticketing system and act as clearing house for that system;

��Manage the provision of co-ordinated bus passenger information in the Greater Dublin Area;

��Share responsibility with bus operators for the marketing of their services in the Greater Dublin Area;

��Ensure that State-owned land and facilities reserved for buses in the Greater Dublin Area, including transport interchanges, bus depots, park-and-ride sites, bus roadside infrastructure etc. are managed in a manner which facilitates equitable access by all operators to these facilities, either by managing these facilities directly or by monitoring their management by another body;

��Ensure a level playing field between all bus operators in the market;

��Promote competitiveness in the bus market;

��Ensure equity of access for all operators in relation to the procurement of all school bus services subvented by the Department of Education and Science in the Greater Dublin Area, possibly taking over responsibility for this procurement, if necessary;

� Monitor/enforce minimum quality standards on all school bus services (whether subvented or not);

��Ensure equity of access for all operators in relation to the ability to provide service and earn income from the Free Travel Scheme provided by the Department of Social, Community and Family Affairs for Old Age Pensioners, possibly taking over responsibility for the management of this Scheme in the Greater Dublin Area, if necessary; and

��Monitor usage of the public transport network (e.g. bus passenger numbers).

It should be noted at this point that the bus market in the GDA is not a homogenous one. While it is clear that the franchising option is the optimal regulatory solution to manage the development of the core urban bus network, other regulatory approaches may be more appropriate when considering the bus market, say, in smaller towns on the periphery of the GDA or key radial commuter routes from the hinterland into the city-centre. The PTA should be allowed appropriate flexibility to develop different regulatory approaches for these very different markets. Further work will be required to define the exact level and quality of bus service which will be required (e.g. minima for peak and off-peak frequencies, standard bus type to be used, average age of buses in fleet, level of cleanliness, punctuality targets etc.) and to identify any regulatory mechanisms which could be used by the PTA to help prevent a situation where a dominant operator in an area gains a stronger bargaining position than the PTA because, say, that operator ends up as the only person submitting tenders for routes in that area. Analysis would also be required to estimate the likely impact any such regulatory mechanisms would have on the market. Consequently, it will be necessary to commission expert economic advice to assist in clarifying the full detail of the new regulatory regime to be put in place. The Bus Operators Bus Éireann (BÉ) and Bus Átha Cliath (BÁC) are the dominant bus operators in the Irish marketplace. BÁC's experience is focused on the large urban network which it operates in Dublin; BÉ's range of expertise is wider, in that it has experience of long-distance routes and rural stage carriage as well as urban bus services in Galway, Cork, Limerick, Waterford, Athlone and Dundalk. Ireland also has a large number of small private operators. However, these private operators do not generally have the kind of expertise in urban service provision which has been developed within BÁC and BÉ. Furthermore, most private operators have a very limited number of buses, when compared with the substantial fleets managed by the two dominant State-owned operators. In this context, it seems that BÁC and BÉ would be the operators most likely to compete successfully under any new franchising regime for the Greater Dublin Area. Consequently, allowing BÁC and BÉ to compete with each other under the new franchising regime could prove to be a very effective way of developing real competition in the Dublin bus market. However, two obstacles prevent this at present: statutory mandates and common ownership. The Transport (Re-organisation of CIÉ) Act, 1986, set down a mandate for BÁC which restricted its operations to the Dublin area, while stipulating that BÉ operate only outside that area. Amending legislation should remove these artificial restrictions on the operations of both. CIÉ acts as holding company for both of these companies at present. As CIÉ itself is fully owned by the State, the State is currently an indirect owner of both BÁC and BÉ. Establishing BÁC and BÉ as separate independent companies would be a first step in removing the potential for conflict of interest, in order to allow the two companies freedom to compete with each other. The two companies would need to be financially restructured before being given their independence. However, even if both BÁC and BÉ were established as separate companies, continued ownership by the State in both of them would remain an issue, if the intention was that the two companies should compete head to head for the same business. In a normal marketplace, where independent companies compete for the same business, below-cost bidding in order to gain market share is often observed. The strategy is to take a little pain or suffer some losses in the short-term in order to win market share and gain profits in the longer term. Both companies competing for business may adopt this kind of strategy in order to gain share. At the end of the day, one of the companies (Company A) may underbid in a tender competition and win market share at the expense of the other (Company B). If the State owns both Company A and Company B, the State loses out. Company A is now suffering short-term losses in order to gain business, eating into the profits expected by its shareholder. Furthermore, the business which Company A has gained is the same business which has been lost to Company B. At best, this represents a zero-sum gain for the common owner of

Company A and Company B (the State); at worst, the losses suffered by Company A in order to win business from Company B could be considerable. In any case, it is probable that a prudent shareholder owning both companies would actively discourage both from competing too aggressively with each other, for the very reason that there is no reward for the common shareholder, if either of the two companies gains business at the expense of the other. If we accept the above logic, then allowing both BÁC and BÉ to be established as separate companies is not sufficient in order to ensure real competition. In order to ensure that conflicts of interest arising out of common ownership are set aside, it would be crucial for the State to divest itself of its shareholding in one of them at least. BÁC's core business is Dublin-based and the development of its market share in Dublin would constitute the kernel of any business plan to be used in preparation for a change of ownership. The future regulatory environment for the Dublin bus market is being defined, while the regulatory structures which will govern BÉ's main sphere of operations in the future remain to be decided in a later phase of the overall regulatory review. Consequently, it seems clear that BÁC should be the first choice. It may be argued that precedents exist showing State-owned companies competing with each other in Ireland. It should be pointed out, however, that no precedent exists where two State-owned companies compete head-to-head to provide exactly the same kind of service to the same market, as would be the case if BÁC and BÉ were to tender in competition with each other to win contracts to serve routes in the Dublin bus market. Many have suggested, for instance, that Bord Gáis and ESB operate in competition with each other. However, a closer examination shows that these companies compete in two markets only i.e. they compete to be the energy source of choice (i) for cooking and (ii) for home heating. While strong competition may exist in the market for cooking, this represents a very minor part of both their businesses; and even though home heating represents a very significant part of Bord Gáis Éireann's business, it plays a very minor role in ESB's corporate strategy. Consequently, it does not seem reasonable to use this as an instance of direct aggressive competition between two State-owned companies. Similar suggestions in relation to the existence of combative competition between Bord na Mona and other of the State-owned energy companies would not stand up to close scrutiny either. Given all of the above, in order to facilitate the development of real competition between BÁC and BÉ in the Dublin bus market, it is recommended that the Government -

� amend the 1986 Transport Act in order to remove any artificial restrictions on the operations of BÉ and BÁC;

� establish BÁC and BÉ as two separate, fully independent companies; and

� divest itself of the State's shareholding in at least one of these two companies, BÁC being the most obvious choice for an early sale, as the regulatory framework for its core market is much clearer.

In the context of selling BÁC or BÉ, it would be essential to ensure that key public transport facilities (e.g. bus terminals, bus depots etc.) continued to be available as public transport facilities. As indicated above, the new PTA for Dublin would be mandated to ensure that State-owned land and facilities reserved for public transport use in the Greater Dublin Area would be managed in a manner which facilitated equitable access by all operators.

20. Wider Institutional Remit It is recommended that, when the Cabinet Committee for Infrastructural Development and Public Private Partnerships is reviewing the institutional arrangements for transport in Dublin, it should give particular consideration to combining the following functions in a single entity -

� the performance of regulatory functions in respect of all public transport systems in the GDA, instead of only those in respect of the bus network; and

� overall transport planning in the GDA.

Each of these recommendations is dealt with in turn below. Regulatory Functions for All Public Transport Systems It is now generally accepted that the integration of a city's public transport services is crucial in attracting new customers to make the move to public transport. The ISOTOPE report commissioned by the European Commission in 1997 pointed out that the main objective of integration is to offer a more attractive and easier transport service for the public to use. A properly integrated service provides maximum convenience for its customers, ensuring that they can easily find information about an entire journey, can pay one fare covering that entire journey and can transfer with ease between modes at convenient transport interchanges. The ISOTOPE report states that integration should lead to a higher level of use of public transport systems, and consequently to a rise in public transport market share and to a relief of traffic congestion. In this context, it would seem to make little or no sense to establish a PTA and to give it specific regulatory functions in relation to the bus market only. By giving the PTA responsibility for designing the bus network only, Government could be significantly limiting the level of integration which would be possible, if bus and rail networks were designed in tandem. Consequently, it is recommended that further consideration should be given to the widening of the remit for the new regulatory body, so that it would have a mandate to perform regulatory functions in respect of all public transport systems in the GDA, thereby maximising the opportunities for improved integration of those systems. The wider regulatory functions would be broadly similar to those set out at paragraph 19 above, but would not be restricted to the bus market. As well as the kind of functions already cited, the new regulatory body would share responsibility with all transport operators for the marketing of public transport services in the Greater Dublin Area. Consideration should also be given to conferring responsibility on the new regulatory body for the overall management of any PPP and the disbursal, following tender, of any capital grants available for the construction of public transport infrastructure in the GDA. Planning and Regulatory Functions Consideration should also be given to combining both regulatory and overall transport planning functions in the same body. It would plan for all of Dublin’s current and future transport needs (traffic management, cycleways, public transport network, transport interchanges, park-and-ride, QBCs, etc. etc.) and would oversee the implementation of those plans. Combining both the planning and regulation of the public transport network under one roof would allow useful synergies. Up-to-date information about activity levels on the network derived from the Regulatory side would feed into work on the Planning side, while the long term planning view would help to inform network design work undertaken by the Regulatory side. Establish PTA immediately but allow for extension of its role later It is evident that further work is needed to define the future institutional arrangements for transport in Dublin. However, as the regulatory functions in relation to the bus market in Dublin are clear enough at this point, the establishment of a PTA with responsibilities for the bus market should not be delayed unnecessarily. However, it is absolutely essential that any regulatory body which is established in the short-term to respond to the immediate needs of Dublin's bus market must be constituted in a way which

will allow for the future incorporation of its functions into a wider body or the extension of its role and remit to include broader responsibilities.

21. Need for Transition At present, Bus Átha Cliath enjoys a de facto monopoly in the Metropolitan Area in Dublin and a similar monopoly position is enjoyed by Bus Éireann in the Hinterland Area. The recommended model for the Dublin bus market in the longer term proposes that the bus network in the GDA be franchised, with competitive tendering for the right to operate on bus routes being organised by a new PTA. It is recognised that many of the organisations involved will have challenges to face in making this transition and that it may take some time to move towards full implementation of the new model. The following paragraphs consider the immediate plans for expansion of bus services in Dublin, list other issues which must be considered in devising a transition model, discuss options for change in the short-term, recommend priority legislation to allow for the early establishment of a shadow PTA for Dublin and conclude by describing a model which will facilitate an orderly transition from the status quo to a new competitive environment for Dublin in the longer term. 22. Immediate Plans for Expansion of Bus Services There are immediate plans for a dramatic expansion of bus services in Dublin. The strategic phase of the bus network review, described in paragraph 3 above, provides the template for this expanded network. It should be noted that the Department of Public Enterprise is currently in receipt of applications for route licences from private operators for certain of the routes recommended in that review. In the past, it was understood that all additional bus services proposed for Dublin should be provided by BÁC or BÉ and that any Government funding for additional buses would be given to them. However, decisions as to how the increase in bus services recommended by the bus network review should be provided and by whom, and as to who should operate any additional buses to be used on the bus network become much more complex, once the Government has taken a decision in principle to move from a de facto monopoly to a fully franchised regime. It is important that the State demonstrate that all future decisions of this kind would not favour the State-owned operators, without appropriate justification. However, it is also clear that there is an urgent need to expand the level of bus service in Dublin. This underpinned the decision by Government last year to fund the acquisition of 150 additional buses by Bus Átha Cliath and the decision also to provide funding support for the purchase of a further 225 buses by BÁC this year, of which 125 will be additions to be fleet. The bus network review has recommended that a further 250 buses be acquired for use in GDA (these 250 buses would be additional to the 275 buses already provided for in the National Development Plan 2000-2006.) Given the level of traffic congestion in Dublin, the need for urgent action still applies. Once a franchise regime has been established, the consideration of tenders must take into account whether or not capital funding was provided by the Exchequer to support the acquisition of buses. Any operator who has received such funding in the recent past would have to state this clearly in any tender bid and this would be taken into consideration by the PTA when comparing a tender from such an operator with a tender from an operator, who has not had the benefit of such funding. During the transitional phase leading to a fully franchised market, it is recommended that the shadow PTA be empowered by law to organise tender competitions for the provision of additional bus services recommended in the bus network review and which do not from part of the existing core network of BÁC or BÉ. These tender competitions would specify the number and type of buses which would be required to operate on the additional routes and would oblige tenderers to specify in their bids the costs associated with the provision of the necessary buses. Consequently, the capital cost of providing additional buses would be borne up-front by the franchise winners and the costs would appear as depreciation charges in the business plans they would submit to underpin their tenders. The form of Government subvention for the industry would thus be transformed. Capital costs would no longer be borne by the Exchequer up-front; instead, the real cost of operating bus services (including allocations to reflect the capital costs of initial

acquisition) would be subvented, as necessary, on an on-going basis over the life of the contract with the franchise winner. This approach would ensure the provision of the additional buses recommended by the bus network review, and it would have the added benefit of being equitable as between all operators. Pending the commencement of these tender competitions, Exchequer capital support should continue to be provided for necessary bus acquisitions. There should be no further capital support from that point in respect of franchised services. However, the PTA should retain the option of providing capital support as an alternative to a franchise competition, if it deemed it appropriate. 23. Other Issues to be Considered in Devising a Transition Model The following issues must also be considered in devising a model for transition to a competitive regime in the bus market in Dublin - � Government objectives for public transport are to increase passenger numbers and improve modal split. This will be achieved in the short-term by introducing additional bus routes, providing increased service on existing bus routes and by ensuring that the number of buses operating at peak times in Dublin is increased significantly. Maintaining integration, ensuring quality and stability of supply, ensuring availability of passenger information and providing subsidies to maintain fares at levels which continue to be attractive to passengers will also be crucial factors. Any strategy devised for the transition phase must be consisten with these overall Governmenobjectives.

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� It is well-known that change is usually least welcome to those who benefit most from the status quo. The following parties may have particular concerns about the changes proposed:-

- Operating as de facto monopolies, BÁC and BÉ may perceive that they have most to lose from the changes proposed (although incumbent dominant operators, who can operate competitively, are in fact likely to gain considerably under the new regime.)

- BÁC and BÉ employees will feel at most risk from changes proposed, in particular as the security which they associate with their employment in a State body is perceived to be under threat. Transition arrangements should ensure that these concerns are addressed, particularly by emphasising that protections under the Transfer of Undertakings Regulations are likely to apply, each time a contract for bus services is won or lost.

- Small private operators in Ireland fear that large operators from abroad will swamp the Irish marketplace as soon as the Government opens up the market in Dublin. These operators would prefer the Government to open the market very gradually, allowing companies of their size to gain experience incrementally before the entire market is franchised in the longer-term.

- Private sector bus operators have also expressed concerns that whatever regime is put in place should ensure a level playing-field in all respects as between all operators, whether State or privately owned.

The model for transition should be developed with a view to satisfying as many as possible of the concerns of the interest groups described above, while fulfilling Government's own strategic objectives for the sector.

� It should be possible to establish a shadow regulatory authority with a small set of statutory powers, prior to the establishment of the new PTA with full powers in the longer term. This would allow that shadow authority time to set up administrative structures, to recruit necessary staff and to prepare itself to perform the full set of functions which would be accorded it in time. It would be very important that the new authority would be given adequate time to familiarise itself with the market which it will regulate, so that it will have enough knowledge to allow it to run route tender competitions effectively, once the new regime commences. If the initial tender competitions were run poorly by an ineffective PTA, this could prove detrimental to the long-term competitiveness of the bus market in Dublin, as operators would lose interest and not bother to compete for routes. It is imperative that the new PTA is allowed an adequate preparation phase before the final introduction of the new franchise regime. � It has already been noted that the current approach to Government subvention of public transport has not encouraged CIÉ's operating subsidiaries to focus on the real costs of providing service. In a competitive environment, hidden cross subsidies will not be allowed and Bus Átha Cliath and Bus Éireann will be required to make bids for groups of routes, based on the real costs of providing service on those routes. If either of these two companies, having poorly calculated their real cost-base, makes a very low bid in a tender competition, it may well win the contract. However, if the costings on which it bases its bids are inaccurate, it will not be able to sustain operations on the routes and may end up pulling out of the contract. This will be a poor result both for the bus operator in question and for the PTA, which has the overall objective of maintaining stability of service. Furthermore, private operators, who may be more aware of their own costs, will be discouraged from entering tender competitions, if they believe they are being forced to compete against below-cost bids from incumbent operators. If the private operators were to lose interest in this way, this would have very serious consequences for the competitiveness of the market. It is very important that the two State-owned bus operators be allowed adequate time to establish appropriate cost-allocation systems and to hone their costs in preparation for a competitive environment. Without this time for transition, the scenario described above could become a reality and the market as a whole would su er.ff

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� It has been noted that a concentration of the number of operators seems typical in markets where competitive tendering has been introduced. This impacts on the level of competitiveness, cartel-like practices can develop as larger operators seem to "agree" to stay out of each other’s patches and fewer operators enter each of the tender competitions. One way of counteracting this is to ensure that a role exists for smaller operators, perhaps by setting down that a certain element of each contract won must be placed on sub-contract. This would ensure that smaller operators (who are often happy to operate with relatively low margins) could continue to participate actively in the market. The transition phase should be regarded as an opportunity for the PTA to favou smaller operators as a jus ifiable mechanism designed to maintain a large number of operators active inthe Dublin market and to protect the competitiveness of that market in the longer term.� Competitive tendering was introduced gradually in the 3 cities visited by the Department's review team and this approach was strongly recommended by the authorities there. Franchising all of the core network in one year would be too large and cumbersome a job for any new PTA. It would also give a significant advantage to larger operators, as only these would have the resources available to prepare a large number of tenders over a short space of time. This would lead to a faster concentration in the market, than might otherwise occur. When franchising of the core network in Dublin begins, it should be introduced on a rolling basis i.e. the new PTA could franchise 25% of the network each year, leading to the franchising of the entire network before the end of the fourth year. While this approach will somewhat delay the inal opening up of the market, it is deemed to be worthwhile in order to protect the level ofcompetitiveness in that market in the long run.

� It has been recommended that the Government divest itself of the State's shareholding in at least one of the two State-owned bus operators, BÁC being the most obvious choice for an early sale. Experience has shown that the transition to the privatisation of a State body can be slow, requiring some considerable time to establish consensus on the way forward and to agree arrangements for employee-shareholdings7. Consequently, it would be prudent to anticipate up to 3 years in preparatory work, legislation and negotiations leading to a transfer of ownership to the private sector. The actual process of sale could also take up to 12 months and that time-scale may vary depending on market conditions at the time of sale. If the Government accepts that the State should no longer be shareholder in both BÁC and BÉ when f anchising is introduced in the GDA, then it wou d be important to allow time in the transition phase for the transfer of BÁC to private ownership before the new franchising of BÁC’s core network begins.

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� The existing legislative framework for the bus market in Dublin is set down in the 1932 Road Transport Act and in various Transport Acts relating to CIÉ. These Acts do not provide powers to organise tender competitions for the franchising of bus routes in the GDA. A very substantial piece of legislation will be required to provide for the establishment of a PTA for Dublin, the grant of powers to that PTA to perform regulatory functions in respect of the bus market (and possibly also in respect of wider public transport system) in Dublin and to provide for legislative amendments to ensure a level playing field as between all operators. It seems realistic to allow a time-frame of at least 18 months for preparation of the scheme osuch a Bill, for formal drafting, approval by Government and passage through the Oireachtas before final enactmen . These are the challenges which face the Government in making the transition to a new competitive model for Dublin. Many of the issues which must be addressed will not be resolved overnight. This leads us to consider what actions can be taken in the short-term, which could lead to a more immediate introduction of competition in the Dublin bus market.

24. Options for Immediate Change The summary table in Appendix III describes a number of options which would allow for greater private sector participation in the Dublin bus market in the short-term, indicating the advantages and disadvantages and making a recommendation in respect of each option. It is recommended that two options should be adopted in the short-term to encourage increased participation by private sector operators in the Dublin bus market. The first recommended option would be to encourage Bus Átha Cliath to subcontract more of its services to private operators. This approach could be adopted immediately, with trade union agreement. This would have the clear advantage of allowing private sector operators to gain some limited operational experience in Dublin in the immediate short-term. The second option recommended is to amend the guidelines setting out how applications for routes in the GDA are to be considered under the 1932 Road Transport Act. This change could be implemented relatively speedily, as it would not require any new legislation. Under the new approach, if an application is made for a route in the GDA which is in line with the network recommended in the bus network review and which is not presently being serviced by BÁC, BÉ or a licensed operator, the route licence would be granted. Documentation accompanying all new licences issued would make it clear that the licence was being granted as part of a transitional phase leading to full franchising of the bus market and that, accordingly, no rights would accrue in the longer term to persons holding such licences under the 1932 Act. This approach would represent a significant change from practice to date, where it has generally been assumed that BÁC provides an adequate service in the metropolitan Dublin area. The change in policy would be likely to lead to a considerable increase in the number of private operators providing service on the streets of Dublin in the short-term. However, the Department for Public Enterprise would continue to ensure that only one operator would provide service on each route, and would issue licences only for routes which were in line with the strategy proposed in the bus network review, thereby continuing to respect the need for integration of the network. It should be noted that a change of policy of this kind is likely to lead to a considerable increase in the number of applications received by the Department for route licences in the GDA. This would impact significantly on the work-load of the existing staff resource in the bus licensing area and would lead to a need for increased resources in that area. 25. Options for Short-Term Change requiring New Legislation One of the options set down in the table in Appendix III proposed that legislation be enacted to establish a shadow PTA for Dublin in the short-term and to give it certain regulatory powers in respect of the Dublin bus market. The option was not recommended for the immediate short-term, as it was estimated that necessary legislation would take around 12 months to enact. Nevertheless, it was recognised that implementing this option would be an important first step in the transition towards the full franchise model for Dublin. The broad provisions of a new piece of legislation for the shadow PTA would:-

� establish a new institution (the shadow PTA for Dublin) and ensure that that institution was adequately funded and resourced;

� transfer the Minister's powers to grant licences in the GDA under the 1932 Road Transport Act to the shadow PTA;

� amend licensing provisions under the 1932 Act to give the shadow PTA powers to refuse licences (e.g. where the route applied for is not in line with an integrated public transport strategy for a given area); to specify that a licence

may be terminated by the shadow PTA (e.g. when a new regulatory regime is introduced); and to attach conditions to a licence (e.g. to require participation by licensed operators in integrated ticketing arrangements or to require licensed operators to share bus roadside infrastructure such as bus stops or interchange facilities);

� give the shadow PTA powers to take the initiative in calling for applications for licences for particular routes or groups of routes in the GDA, and the powers and budget to allocate subsidy where appropriate;

� give the shadow PTA powers to organise tender competitions in order to decide who should be granted a route licence;

� give the shadow PTA powers and budget to sign public service contracts with Bus Átha Cliath and Bus Éireann8 for an interim period, and to allocate subsidy where appropriate;

� prohibit Bus Átha Cliath and Bus Éireann from initiating any new service or altering any existing service in the GDA without the prior written consent of the PTA;

� give the shadow PTA powers to monitor activities of bus operators in the GDA and to enforce the conditions of a licence granted under the 1932 Act or of a public service contract signed with Bus Átha Cliath or Bus Éireann; and

� give the shadow PTA powers to investigate any allegation that abuse of dominant position is occurring in the Dublin bus market, as well as giving it powers to give directions to a bus operator to desist from any action which is deemed to represent abuse of this kind9.

It has already been established that the full transition to the franchised model in Dublin may take some years. In this context, it would be very important for the Government to take decisive action quickly in order to underline its intention to move to a more competitive market model. The establishment within a year of a shadow authority with new, though embryonic, regulatory powers in the Dublin bus market would send a very clear signal in this regard. Consequently, it is recommended that the Government give immediate priority to the drafting, publication and enactment of new legislation as described above. 26. Transition to Final Model It is estimated that the formal PTA with a full set of statutory functions may be in place in the final months of 2002 and that franchising of the core network may begin in 2003. The following steps are proposed in order to facilitate an orderly transition from the status quo to the new competitive environment:

� As described in paragraph 24 above, immediately increase participation by private sector operators in the Dublin bus market by encouraging Bus Átha Cliath to sub-contract a proportion of its services and by adopting a new approach to applications for routes in the GDA under the 1932 Road Transport Act. In general, licences will be granted in respect of any application made for a

route in the GDA which is in line with the overall strategy recommended in the bus network review and which is not already being serviced.

� Give immediate priority to the drafting, publication and enactment of new legislation to allow for the establishment of and the granting of initial regulatory powers to a shadow PTA for Dublin, as described at paragraph 25 above. It is estimated that this Bill may be enacted by April 2001.

� In anticipation of the enactment of that legislation, immediately commence the process of recruiting personnel10 to head up the shadow PTA, establishing an office and market intelligence gathering.

� Immediately following enactment of the first Bill (estimated to be in April 2001), the shadow PTA could begin the negotiation of public service contracts with BÁC and BÉ covering the services they provide on their existing core networks in the GDA. The intention is that these networks will be effectively "frozen" for 3 years i.e. access to these routes will not be opened up through tender competition during that period. This will allow BÉ and BÁC time to implement necessary internal changes prior to competing directly for business under the new regime. The importance of allowing the two State-owned bus operators adequate time to establish appropriate cost-allocation systems and to hone their costs in preparation for a competitive environment in terms of long-term consequences for the wider market has already been illustrated.

� During the "frozen" period, which is estimated to last until April 2004, the shadow PTA will have to balance two partially conflicting objectives (i) the need to encourage new entrants and to increase the overall number of operators with operational experience on routes in the GDA; and (ii) the need to ensure that the increased demand for bus services in the GDA is met in a timely and effective manner.

� In this context, the shadow PTA will have discretion to decide whether or not demand exists for additional bus routes over and above the "frozen" level and how that demand should be met. Where possible, the shadow PTA will organise tender competitions (which will favour operators with market share below a certain level) and will allocate route licences and, in certain cases, subsidy to the winners of those competitions. The shadow PTA will also have discretion to decide that, in certain instances, the optimal approach is to allow BÁC or BÉ to expand its network of services above the "frozen" level.

� During the "frozen" period, the shadow PTA will monitor the performance of all bus operators in the GDA, enforcing licence and contract conditions as appropriate. The 3 years will allow the new authority an adequate preparation phase to gain more in-depth knowledge of costs and revenues typical on routes in the GDA and to obtain experience in running tender competitions, before the final introduction of the new franchise regime.

� Following enactment of the first Bill, work will commence immediately on draft legislation to set down the final regulatory framework for Dublin. The Department will be able to work with the "shadow" PTA in defining the appropriate legislative framework for the operation of a fully franchised bus market.

� The 3 year transition period will also allow time for negotiations to take place regarding the transfer to private ownership of one of the two State-owned bus operators. As these discussions progress, the Department will need to prepare legislation to establish BÁC and BÉ as two separate, fully independent companies and to allow for privatisation. This may be incorporated into the second Bill, or may constitute a Bill in its own right. Once agreement has been reached with stakeholders and appropriate legislation has been passed, the actual sale of one or other of the two State-owned bus companies may take a further 12 months. If negotiations commence immediately, it is estimated that the sale of one of the two State-owned bus companies may be completed by April 2003.

� Following enactment of the second Bill (estimated to be in late 2002), the shadow PTA will be formally established as the new PTA for Dublin with a full set of functions set down in statute. If the transfer to private ownership of one of the two bus companies has been finalised at that point, franchising of the core network will then begin.

� However, it is more likely that the new PTA will commence franchising of the core network in 2003 or 2004, assuming that the transfer to private ownership of one of the two State-owned bus companies has taken place at that point. 25% of the network will then be franchised each year, probably leading to the franchising of the entire network by 2006 or 2007.

M. Nic Lochlainn, Bealtaine 2000 Public Transport (Regulatory Affairs) Division