By Chan Huan Chiang.

The benefits of bus commuting are many, not least of which are economic ones. Opportunity cost analyses on investments in bus transport in Penang show that there is much to be gained socially and economically. A policy that comprehensively rewards investments in buses and bus commuting is needed.

IT IS NOT customary for Malaysians to see cost and benefit reports for public investments, even though fiscal spending on development projects has gone on for decades under Malaysia’s five-year plans. The issue of public investments is whether money should be diverted through taxes from the private sector to fund public projects or if it is better to leave the private sector to invest on its own.

The answer lies in what is referred to as the shadow price (the opportunity cost) of public investments. Each tax dollar diverted from the private sector is forever lost in terms of private sector returns. In total, this amounts to lost returns, adjusted to their present day values, summed to perpetuity. This works out to a ratio – one year of private sector returns divided by the social discount rate. If private sector returns on each dollar of investment are higher than the social discount rate, then public projects are expensive because its shadow price is more than one. Hence, public projects are best implemented where private sector returns are lower than the social discount rate, meaning its shadow price is less than one.

Public investment in the bus system is one example where opportunity costs in terms of lost private sector investment returns would be low. Private investment in the capital, maintenance and operating costs of cars becomes less and less cost effective with increasing traffic volumes. Driving speeds are significantly reduced from the optimum potential of cars such that at some point, a shift to a collective solution for going to work daily needs to be implemented. In Penang, this point is now!

Public bus transport in Penang
Back in the 1980s five bus companies served the island including one run by the MPPP. It was reported that in 1987, a total of 64 million riders were transported.2 This works out to 175,000 rides over some 4,000 trips made by 250 buses covering 37 routes on the island each day. Each bus carried an impressive 40 passengers per trip with an average fare of RM0.75 and thus an annual revenue estimate of RM48mil. The various bus companies have since ceased operations.

The previous state government attempted to initiate a combination service with big buses on trunk routes and mini buses on feeder routes which was supposed to come into effect on April 1, 2006 but “April Fools” aside no buses appeared even though bus stops and sign boards were installed. A year later, Rapid Penang was launched by our former Prime Minister in July 2007.

Today, Rapid Penang, which is owned by the Ministry of Finance, operates more than 300 buses. The fleet will grow to more than 500. Daily commuters total up to 75,000, which is well below bus commuting volumes from 30 years ago. Since Penang has a population of 1.6 million, this makes up no more than five per cent of the population, mostly because there are about as many private vehicles registered as there are people in Penang – in other words, Penangites are heavy users of private transportation.

The 10th Malaysia Plan (2010–2015) stated that Rapid Penang will expand in coverage and frequency. This is an implicit statement of policy, because improvements over bus routes and timing are but only a means to an end. A more explicit policy statement would be to off set the current serious imbalance, making public transport in Penang a viable transport option compared to the use of private vehicles. The aim is to reduce traffic congestion, reduce traffic accidents, reduce the use of petrol in an era of expensive petrol, subsequently becoming less dependent on government subsidies that currently amount to some RM16bil a year, reduce air pollution, improve pedestrian safety and encourage walking that improves health. Shifting from private to public transport is a timely policy option. Penang needs to leverage on its heritage city status and make the cityscape more liveable, safe and aesthetically pleasing.

Under the 10th Malaysia Plan, there is also the refocused strategy of emphasising economic growth through cities by creating economic density and agglomeration economies that foster links with the rural countryside. Striking a more sensible balance between private and public transport will be needed to achieve these goals.

Operating costs and revenues
There is no publicly available statistics on bus transport in Penang and therefore extrapolations are made based on the 1987 Japan International Cooperation Agency (JICA) study. Half the operating costs went into human resources. Annual income levels then were roughly RM9,000 a year per worker (inclusive of social benefits). Fuel and maintenance added a further quarter of the total costs, leaving the remaining quarter of the cost for capital related expenses. Gross operating expenses for the fleet of 250 buses meant a gross expenditure of RM18mil in 1987. Using GDP deflators to adjust for currency values between then and today, this amount would be about RM40mil today.

If today’s buses transport an average load of 25 passengers per trip and make 4,500 trips (18 trips a day per bus), then a passenger volume of 41 million is possible for the whole year (112,500 passengers per day). If a passenger takes an average of two rides a day, to go out and return, then the passenger volume works out to 56,000 individuals taking the bus everyday, that is only 3.5% of Penang’s population.

Taking route frequencies and trip distances into consideration, the average bus ride is 11.6km in length, which under the current fare costs RM2 per ride or an annual revenue of RM82mil, which is already twice the RM40mil required to operate 250 buses in today’s prices. Fares in 1987 used to be much cheaper. A 12km bus ride cost RM0.70, a third of today’s fare for the same distance, which when adjusted to current currency values would work out to about RM1.50. Annual revenues would be about RM60mil at this fare.
 
Financial feasibility
Rough calculations show that providing a bus transport service is indeed financially feasible. The estimates have been very conservative, using loads of only 25 passengers and each bus making one 11.6km trip every hour over an 18-hour period. They need only drive at 11.6 km/h to do this. However, Rapid Penang currently has only two-thirds the passenger load compared to our revenue estimates that will bring earnings down to RM55mil; and with 300 buses, the operating cost will go up to RM48mil and hence, profit margins in today’s dollars are more closely matched with those experienced in 1987.

Furthermore, buses today are air-conditioned while none were in 1987, adding to both capital and operating costs. Increased passenger loads per trip and making more trips by moving faster will potentially boost revenues.

Rapid Penang ferries fewer passengers with more buses than bus companies in 1987 did, but this is not necessarily a matter of efficiency. Despite the population having increased by another 50% since 1987, fewer than half the number of people takes the bus today compared to then.
It is apparent, looking at the number of vehicles that clog Penang’s roads, that higher income levels among Penangites have encouraged the driving of one’s own vehicle for the convenience it offers.

Social benefits
The low subscription to public transport rather than the capacity of public buses is therefore the issue that requires policy prescription in Penang. Left to the choice of individuals, daily commutes in Penang become seriously skewed towards private transport leaving only a small five per cent taking public transport. Unfortunately, a proportionate rise in the number of private vehicles with respect to increasing population and incomes cannot continue unchecked and therefore requires policy intervention to bring about a better balance between private and public modes of transport.

Thus the concern of cost-benefit analysis here is to compare between more people taking buses and the do-nothing scenario that favours private transport. Penang has 1.6 million people. Two-thirds of them fall within the working age group of between 17 and 64 years old and two thirds of the working age group are considered economically active; in other words, either employed or looking for a job in order to join Penang’s labour force, which is about 700,000 people. About 30% or 210,000 of them travel by factory buses.

A survey showed that only 60% of public bus rides are work or business related, i.e. 45,000 bus rides. The remaining labour force, one might guess, is split 56% and 44% between those going to work by motorcycles and cars based on the ratio of vehicle registration of these two modes. This gives us about 250,000 motorcycles and 200,000 cars participating in our daily rush-hour traffic. Still, these are only a fraction of about one million motorcycles and 826,000 cars that renewed their road taxes in Penang in 2009.

We should consider halving the daily usage of cars for work commutes by opting for the use of public bus instead. This policy is not meant to affect motorcycle or factory bus riders. This sets the target at 100,000 cars or 145,000 bus passengers, which is double the current bus ridership. The technique of cost-benefit analysis measures benefits to society using a concept called consumer surplus. Imagine that it will require at least RM10,000 to operate a car a year.

Richer people may be willing to spend much more and buy more expensive cars, so if we count the first 100,000 commuters in Figure 1, the demand curve is downward sloping as willingness to spend on commuting by car reduces down to the RM10,000 a year mark and the 100,000th car commuter. The area A is thus the total additional spending on car commuting above RM100,000 based on willingness to pay.

Commuting by bus will only cost RM1,500 a year. Now if all the 100,000 car commuters switch to riding the bus to work, they will each save an additional RM8,500 and together, this is RM850mil worth of extra cash that can be spent elsewhere every year. This amount is represented by the area B, which is the consumer surplus in terms of additional cash gained by car commuters who switch to riding buses. The area A has also now become a consumer surplus because previous additional spending on more expensive cars is also now saved and potentially spent elsewhere.

The area C is the existing consumer surplus that has nothing to do with the proposed policy. Among the 45,000 existing bus commuters, many may be willing to pay more than RM1,500 a year for daily travel to work but they did not switch to driving cars because none of them were willing to pay more than RM10,000 a year.

Suppose policy goes further by effectively reducing commuting time by bus. There is value in a person’s time and therefore additional consumer surplus can be gained in time savings: the area D for car commuters who switch to riding buses and area E for the existing bus commuters. The savings in time would also likely attract additional commuters (numbering X minus 145,000) who previously did not drive or take the bus and together they will enjoy the consumer surplus in area F as a result of the policy to reduce travel time.

Making bus transport work in Penang
A mere policy statement in the 10th Malaysia Plan saying that Rapid Penang will expand in coverage and frequency is not enough. Bus rides in Penang are sensitive to road conditions, especially to traffic volumes at different times of the day.

The surveyed data in 1987 showed that actual trips achieved by public buses could be as low as only 40%, though the average was 75% of the scheduled number of trips. The longest travel times could be more than twice, but averaged 1.7 times more than the shortest travel time on the same route. If buses cannot run according to schedule, they become an unreliable mode of transport especially for daily commuters who need to get to their place of work on time. This is most likely why less than seven per cent of Penang’s labour force use public buses to go to work.

The only way to guarantee that public buses run on time is to have dedicated bus lanes. Before one frowns on how invasive this might be to our existing liberty of using public roads, think of waiting for and sharing lift s in tall buildings. Buses must be seen as horizontal versions of mass transport that gets us to different points efficiently, pleasantly and safely.

** Republished with permission. This article first appeared in the September 2010 issue of the Penang Economic Monthly, a publication of the Socio-Economic and Environmental Research Institute (SERI) in Penang. To contact SERI, call 604 228 3306. Chan Huan Chiang is a senior research fellow at the Socio-Economic and Environmental Research Institute (SERI).

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