Let's not make hazy bus fare adjustment formula even hazier

PUBLISHED : Thursday, 15 May, 2008, 12:00am
UPDATED : Thursday, 15 May, 2008, 12:00am

'[Transport Advisory] Committee chairwoman Teresa Cheng Yeuk-wah said after the meeting that each [fare increase] application had been assessed individually according to the bus fare adjustment formula, which takes into account the magnitude of change in household income, public acceptability and affordability and the companies' financial performance.'

SCMP, May 14

Icannot tell you that this is exactly how Ms Cheng phrased it. I can, however, tell you that she is a senior counsel, chartered engineer, chartered arbitrator and quite a number of other things that have nothing to do with public transport. She is, in short, a classic government committeewoman.

I mention this because there has been a recent tendency in government to distort the arrangements by which bus fares are determined. These arrangements are already rather woolly ones and making them even woollier allows bureaucrats to take pride in their warm feelings of social consciousness, which they like to do.

Until eight years ago bus fares were set on the basis that bus operators should be allowed a stipulated percentage return on average net fixed assets. This formula was considered too rigorous (read 'binding') and thus we instead got something called the Modified Basket of Factors Approach (read 'vague'). The basket consisted of:

Changes in operating costs and revenue since the last fare adjustment.

Forecasts of future costs, revenue and return.

The need to provide the operator with a reasonable rate of return.

Public acceptability and affordability.

Quality and quantity of service provided.

This was obviously so hazy, and gave emotive judgment so much latitude, that two years ago the bureaucrats were forced to stiffen their approach with some elements of a mechanism. The major refinements were:

Effectively substituting the first two factors with a formula based on local inflation and transport workers' wages - a very narrowly based prescription that ignores fuel and equipment costs, interest rates and road usage tolls, all of them big determinants of bus operating costs.

Granting 50 per cent fare rebates to passengers if return on average net fixed assets exceeds 9.7 per cent, previously 13 per cent (and both as far as the other side of the moon relative to present operating conditions).

Making reference to the magnitude of change in median household income when considering public acceptability and affordability.

Now just turn your eye back to the excerpted quote at the beginning of this column and tell me that the remarks we attributed to Ms Cheng fairly summarise the entire revised modified basket of factors approach with each element of that basket given a proper weighting.

Bit of a disconnect there, wouldn't you say? And we also had it in remarks by a 'source familiar with the situation' (read rat that bites in public but won't be seen there) - 'Some companies are operating profitable services between the airport and towns and yet they still want to raise fares. I think the public is not likely to accept that.'

I see. Evidence of any profitability is sufficient reason to refuse a fare increase. Bus companies can only raise fares when they lose money if we go by what Mr or Ms Source thinks the public thinks. Could someone please steer me to the relevant provision in the Modified Basket of Factors Approach?

Transport Secretary Eva Cheng is just as bad. Speaking about bus fares on Saturday, she said: 'In considering the application, we shall consider changes in the revenue and cost and, very importantly, the affordability of the community, as well as all the relevant factors listed in the mechanism.'

Do I take it then, Madam, that public affordability is formally defined as the overriding factor in the basket? Give me the appropriate reference, please.

The fact is that bus companies must commit themselves for the long term when they undertake to provide franchised passenger services and buy the buses they need. It is at this point that public officials must decide whether the proposed fare structure is acceptable to the public. Once they agree, they are also committed for the long term.

But if they then decide that such commitments are binding only on businessmen and not on themselves, they put the standard of bus services at risk.

For instance, the bus companies may decide it no longer makes commercial sense to renew their fleets with new bus purchases. I now refer you to the chart.