16.2Developing an Industry Transition Strategy

16.2.1Objectives of Industry Transition Process

BRT projects in lower-income cities will have a profound impact on the owners and employees of affected existing public transport services. Where the transition process is handled successfully, the following goal can be achieved:

• The BRT operating companies are formed primarily out of the old informal owners and their staff, but in partnership with other vehicle operating companies that have the investment and skills needed. They are able to win a competitive tender and create internationally competitive, well-managed new companies that provide a high quality of service for many years. They procure and hire locally, developing into strong new local businesses with significant economic development and community revitalization benefits both upstream and downstream.

There are two worst-case scenarios to be avoided:

• A single monopoly private company with little bus operating experience is brought in from the outside. This firm does nothing to involve the existing affected industry, antagonizing local vested interests. The local affected industry resorts to violence to stop the project. The project is delayed for years, finally implemented with the help of massive police power, and the service is poor, with few upstream or downstream economic benefits to the city.
• The affected industry takes control of the new BRT services. They never form a real company, and remain an informal collective without integrated fleet ownership and management. Despite the government paying this incompletely formed company significantly more than the service costs to operate, in a few years, vehicles procured for them by the government fall apart for lack of maintenance, and the quality of service is so bad that finally services are suspended.

Both of these scenarios are not in anybody’s interest. Ideally, the transition process should achieve all of the following objectives (ITDP, 2009) listed below.

• Avoid violence: In some countries, the threat of violence is remote; in others, it is very real. In some countries, elements of existing informal regulatory structures involve the threat and use of violence. These industry actors may be neither owners nor drivers. While every effort needs to be made to include as many affected industry actors in the new system as possible, it may not be desirable to include rogue or criminal elements in the new system. Avoiding violence from destroying a project requires a clear strategy to involve key affected actors, but also to be prepared to use police powers when necessary.
• Maximize quality of service: The success of the system is determined by the quality of the service provided to public transport customers. Defending and protecting the quality of service is the highest priority after avoiding violence.
• Minimize service costs: For BRT operating companies, profits are most often realized through a set fee per kilometer, which must be paid by the government, and is often reflected in the fare. A successful transition will allow operating companies to be profitable but through minimal costs to the government over the long term.
• Maximize investment: In order to minimize the burden on the government of providing BRT services, investment from BRT operating companies, normally into the vehicle procurement, should be maximized over the long term.
• Create robust companies: The transition process should result in well-managed, well-governed, sufficiently capitalized, internationally competitive, and profitable companies.
• Involve impacted operators: In order to ensure that the existing industry is involved and is being provided with improved opportunities, every effort should be made to involve as many as possible of the impacted former paratransit operators in the new companies, both as shareholders and as employees.
• Improve working conditions: As BRT provides an opportunity to create jobs and formalize working environments, one objective of a transition should be to expand employment and improve the conditions of the labor force.

16.2.2The Industry Transition Process and Public Policy

Since there are many sometimes conflicting public policy objectives at stake when a new BRT system is implemented, it is a significant help to the project team if the government can provide clear policy guidance, particularly with respect to the industry transition. There have been many BRT projects where a policy vacuum has left public administrators unsure of which course to pursue. Ideally, the priorities of the transition should be written down by the government body responsible for implementing the BRT project so that project administrators have clear policy guidance to follow.

As a first step, the policy or strategy adopted will need to be aligned with the prevailing public transport strategies and policies that have already been determined at various spheres of government. Many BRT system implementations and the associated system reorganization or reregulation have required new laws or regulations to be introduced. It is therefore prudent to begin the creation of a transition strategy with a review of all relevant existing government policies.

There is likely to be extensive existing policy regarding the extent and manner that public transport operations can be or must be competitively tendered and contracted out to private operators. For instance, a new law at the end of 1990 in Chile allowed the new government to franchise public transport services through a tender process. South Africa’s National Land Transport Act of 2009 included a section enabling contracts to be negotiated under a much wider set of circumstances than allowed in the previous act, specifically to advance the new BRT projects launched in the country starting in late 2006. Also in South Africa, a new Public Transport Strategy approved by the national cabinet in 2007 and an accompanying Action Plan, proposed far-reaching reform of the public transport systems in major cities, featuring gross cost contracts rather than the previous net-based contracts. It also proposed the incorporation of informal minibus-taxi operators into contracts through negotiation, to operate rapid transit system contracts.

If the project is funded by a donor agency or a development bank, then the policies, goals, and procurement rules of that donor agency may also apply and need to be taken into consideration. Most likely to have an impact on the project are procurement rules, environmental review, and resettlement rules and procedures. Development banks have become very sensitive to resettlement issues, and generally require greater compensation and community outreach than is required under national legislation.

There are many other areas where policy guidance is generally absent, but where clearer policy guidance from the political leadership will be helpful in forming the transition strategy. Most important is to first determine the following:

• Which routes and license holders are “impacted” by the planned BRT services, and to what degree?
• Are impacted owners of licenses and vehicles legally due any compensation, and if so, what?
• If not, will impacted owners of licenses and/or vehicles be given any form of redress because they are impacted anyway?
• Will any other public transport industry employees impacted by the BRT system be given any sort of redress? Drivers only, or also others in the industry?
• How will the impacted owners be positively identified?
• How will the legal representatives of positively identified owners be identified?
• What sort of redress will be given to impacted owners?
• What does the impacted owner need to do to be eligible for these benefits?
• How will this be communicated?

16.2.3Determining Which Routes Are Impacted

The service plan for the new BRT system should specify the degree to which any existing public transport operators are affected by a new BRT project. In other words, it should make clear what existing routes have been incorporated into the BRT service, and hence the old route should be cancelled; which have been rerouted; and which have been left unaffected. The terms of reference for the BRT system designer should require that this be specified, as it will greatly simplify the transition process. If this has been included in the BRT service plan, the official service plan should be the document that determines which existing transit service providers are directly and indirectly impacted.

If this has not been done, then the first step is for the BRT system design team to decide which existing routes will be cancelled, which will be rerouted, and which will continue to operate as is. This should be specified in a document called an “official service plan.” It can be a living document—in other words, subject to modification—but it should reflect the most up to date thinking of the BRT system planning team.

Services to be cancelled and fully replaced with BRT are often labelled “impacted.” If the service is to be rerouted, or if it will keep the same route but lose customers, the route or zone is considered “partially impacted.” If the service will remain on its current route or be given a roughly equivalent route, it will be considered “not impacted.” It is important that this determination be made very clear, as being labelled “impacted” will carry certain benefits, to be determined.

Generally, a BRT project will restructure or replace the services currently operating in the corridor or on the network it will serve. Most of the best-known BRT systems cancelled numerous bus or minibus routes and their licenses and replaced these services with the new BRT services. There are two reasons for this. First, allowing buses to continue to operate in mixed traffic when a lane has already been provided for buses tends to aggravate congestion in the mixed traffic lanes. Secondly, services in parallel to the BRT tend to be services that should have been integrated into the BRT system service plan so that these customers could also benefit from the BRT infrastructure investments.

TransMilenio relocated all vehicle operators that were not BRT operators under contract to TransMilenio off of the BRT corridors. While this successfully minimized direct competition on the BRT corridors, it did not end competition entirely. Many affected operators simply moved over to parallel corridors, which initially were badly congested with an oversupply of old poorly maintained vehicles. Some of these old routes provided more direct services than TransMilenio’s trunk and feeder service, and remained competitive for some trips. Quito also removed most competing routes from their BRT corridors.

In other cities, existing operators were allowed to continue operating in mixed traffic alongside the busway or on parallel routes, in competition with the BRT. One of the reasons for the low demand on the Jakarta BRT system is that TransJakarta allowed all but ten minor bus routes to continue in the new BRT corridor in the mixed traffic lanes. In Perreira, Colombia, the reorganization of the remaning bus routes was poor, traditional services were not integrated, and the system faces competion (Hidalgo and Carrigan, 2010). In China, many of the BRT systems (other than Guangzhou, Lanzhou, and Yichang) allow the majority of bus routes to continue to operate in mixed traffic lanes in parallel to the BRT service on the same corridor. In Ahmedabad, Janmarg was initially built on a road with no bus services, so there were no impacted operators.

Whatever decision about services is finally made, the affect that the BRT system has on specific route license holders should be identified and spelled out in the official service plan, and this should become the basis of determining which routes and which license holders are “directly impacted” or “indirectly impacted.”

16.2.4Determining the Legal Claims of Impacted Owners

Typically, there are two possible scenarios. Either informal or semiformal operators have legal claims if their route or zone is taken away, or they do not. If impacted operators are not holding a route or area license, or they are holding route or area licenses that will expire before the implementation of the BRT, then the BRT project sponsor is not legally liable for any compensation claims. From the perspective of the BRT project team, this situation is generally favorable as it reduces the cost of the project and strengthens the hand of the government during negotiations. However, in some countries, even if the operators do not have legal licenses, or the licenses have historically been renewed every year, the courts may recognize a “customary” right to operate their business, and they may still accept that impacted operators have a legal compensation claim.

On the other hand, if there are already individual owner operators or companies holding valid route or area licenses with service areas that overlap with the planned BRT services, hence are “directly affected,” then they are likely to have a legal claim for compensation if their license is revoked. This also applies if the license is either open ended or of a duration likely to last beyond when the BRT system is supposed to open. Clarifying this situation is the first priority.

Normally, the government agency responsible for issuing the route or area licenses, if they exist, will keep records of these licenses, with varying degrees of transparency. It is important that the BRT project team review the status of these records, and make a determination as to the likelihood that they are exposed to risk of litigation. It is a good idea to get a determination from a lawyer of the degree of exposure to legal claims of this type. If the records are poorly kept, as is quite common, the government may not have a clear handle on how many licenses are held by private individuals that the courts may recognize as valid. If, however, all licenses are only valid for one or two years, as is sometimes the case, the holders of these licenses are unlikely to have much of a legal claim.

One of the reasons for including the impacted operators in the ownership structure of the new BRT authority is that by taking on shares in the new BRT operating company and willingly turning over their existing route or zone license, the BRT project can insulate the BRT agency from the risk of litigation or compensation claims.

16.2.5Determining Whether to Recognize the Customary Claims of Impacted Owners

For most BRT projects in lower-income economies, governments decide to give the owners of impacted zone or route licenses some form of compensation that goes above and beyond whatever legal claim they may have. They do this partially in recognition of a customary claim. Whether or not an impacted operator has a legal route license, if they have been operating the route for a long time, then their license has been renewed without question from year to year, and custom recognizes their right to operate on a corridor or in a zone, governments sometimes recognize the implicit legitimacy of their claim. Because this is sometimes recognized by courts out of concern for social equity and as a way of minimizing the level of political opposition to the project—in some cases to comply with the policies of development banks or aid agencies—some sort of redress for impacted transit owners is generally considered.

If the government decides that the existing owners of route licenses have no legal claims for compensation, and they do not want to give them any form of compensation or role in the new BRT operators, then the government needs to carefully assess the risk of stiff political opposition to the project and possible social unrest. In many countries, large numbers of the emerging middle class hold their savings in the form of a minibus and an operating license, and many of these owners are also government employees who can obstruct the BRT project in a variety of explicit and implicit ways. The BRT project team should make an assessment of the political strength of the existing operators and their representatives. It is possible that these operators are poorly organized and politically weak, and with the minimal application of police powers trouble can be avoided. However, it is also possible that violence will result and the project will fail as a result. This decision, therefore, should not be taken lightly.

When Quito implemented its first BRT corridor, for instance, the city decided to create a new government trolleybus operator to run it, and to revoke the operating licenses of the current operators. This was legally within the city’s power to do, but it provoked public transport operators to strike, sometimes violently, which immobilized the city for more than a week, and required the intervention of the National Guard.

For this reason, most BRT projects have decided to give some sort of redress to any operator deemed “impacted” by a new BRT system. This redress is generally only extended to the owners of the impacted route licenses or zone licenses, and only secondarily to the owners of the vehicle, as the vehicle can be relocated, and it is the route license more than the vehicle that the BRT authority normally needs to remove.

In some cases, these licenses are attributed to a specific vehicle, and only given to the owners of the vehicles. In other cases, the route licenses are not tied to a specific vehicle, in which case the owner of the route license may not be the owner of the vehicle. In this case, consideration has to be given as to whether and how the owners of impacted vehicles who are not the owners of licenses should be compensated, if at all. This was the case for TransMilenio in Bogotá. As the route licenses were held by legal bus enterprises that then rented the licenses to informal bus owners, a mechanism had to be found to ensure that bus owners as well as bus route license holders were given special consideration. Special treatment has generally been limited to only the owners of the licenses, and secondarily to the owners of the vehicles.

16.2.6Deciding Whether to Redress Other Industry Participants: Drivers and Touts

The owners of vehicle route licenses will not be the only economic interests in the existing public transport industry that may be adversely affected by the transition to BRT services. Drivers and touts may also lose their jobs. Upstream and downstream industries such as repair shops, vehicle and parts suppliers, and others are all likely to face a new business environment.

One of the most positive impacts of the BRT can be the creation of formal and better paid working conditions for drivers and other BRT service providers like station managers, fare system sales personnel, and so forth. As part of the BRT service plan, the whole system needs to be staffed—not only the vehicle operating company (VOC), but also those who manage and maintain the stations, the control center, and the BRT entity. The number of positions created will therefore be roughly known. The number of jobs that are likely to be impacted can also be estimated from the service plan.

In most BRT projects, the BRT project service planning team decides that it is enough to ensure that the total project roughly creates about as many jobs as it destroys, and is therefore employment neutral. Most projects do not go further to affect the project’s social outcomes. Generally, the power in the industry rests with the owners of licenses and secondarily the owners of vehicles. It is generally assumed that if the owners are taken care of, that they are likely to redeploy similar staff with whom they have had a relationship in the past, without further government intervention.

The government should not automatically promise to reemploy all of the affected drivers in the informal public transport industry. Part of creating a new corporate culture is to offer labor a new deal: a better, more stable formal sector job with benefits, but in exchange for this employees are expected to meet a higher level of qualification and need to show up to work on time, well dressed, washed, and not inebriated, and they need to possess a driver’s license, and so forth. Not everyone in the existing industry will be able or want to conform to this new labor environment.

However, in some cases governments have gone a bit farther to reassure affected industry employees that they will still be able to find work. In Johannesburg, an “employment framework agreement” signed in the negotiations on Rea Vaya Phase 1A provided that each shareholder could nominate one employee per vehicle surrendered, to benefit from Rea Vaya employment opportunities, to the extent that they were qualified and suitable for the positions. A database was established with CVs of all the nominees. The agreement bound the VOC to recruit drivers from this nominated employee database for a further two years as vacancies arose. It also required the VOC to employ 80 percent of its unskilled staff from that source and 20 percent from others, with particular preference being given to residents in the communities in which Phase 1A operated. The city committed in the agreement to try to fill 40 percent of the positions for station managers, marshals, and cashiers from the database. It also undertook to specify in the station security and cleaning contracts a target of employing 60 percent of the staff from the database. The city agreed to maintain the database of those who were unsuccessful for a further two years, or until everyone had been employed, if that came earlier.

In the context of South Africa, where the political context was extremely challenging, and the informal public transport industry was highly organized but also highly divided, the government decided that this degree of intervention was the safer course. The BRT project team and the policy makers in the government in each city need to carefully consider the degree to which they can or should socially engineer the employment outcomes of the project.

16.2.7Positive Identification of Impacted Owners

Once the government has decided to offer some sort of special treatment to impacted route or zone license owners, and or impacted bus owners or drivers, it then becomes imperative that these impacted owners or employees are clearly identified. If the precise identity of impacted license owners and bus owners is not clarified, the government may end up offering compensation of some type to those who are not in fact eligible, increasing project costs, while ignoring people who are in fact eligible.

Ideally, the license holders, their contact information, the license number, the expiration date, and the routes and vehicles associated with these route or area licenses have all been clearly recorded. Unfortunately, in most cases, they have not. Frequently much of this information is missing. Often licenses may run for many years, and yet the expiration date is not recorded. Sometimes there are zone licenses and route licenses covering the same territory. Sometimes, a license holder will operate several vehicles with the same license. Sometimes the license holder has falsified the identity of the owner in order to hide the fact that the owner is a government employee.

For all these reasons, once the government makes a decision that an impacted owner or operator is due some sort of special treatment, a clear identification of this person becomes necessary. Normally this is done by a separate reregistration process.

Generally, all of the affected routes are published in the newspaper, and impacted operators are given a fixed period of time to visit the government office and register as an “impacted” operator. In order to be certified as either a fully impacted or partially impacted owner, the owner will need to present the following:

• Copy of the current route operating license or area license;
• Copy of the owner’s vehicle registration indicating that the person is indeed the owner of the vehicle;
• Proof of vehicle insurance;
• Copy of the leasing agreement or certificate issued by the leasing company identifying the legal owner, if the vehicle has been acquired under leasing operation;
• Proof of identification, current address, and contact information.

This reregistration process is itself frequently quite difficult and time consuming. The project team has to decide how to handle situations where one or more of these items are not in place.

Some cities have no licensing process at all. In this case, the BRT project team has little recourse but to ask the assistance of existing unions or associations in the registration process.

In other cities, it is quite typical that some operators may have a valid license, but are not currently using it as their vehicle may have broken down some time ago and they never replaced it. They may be operating a vehicle that does not pass basic roadworthiness requirements that are specified in the license. The authority may also not want to recognize license holders who have outstanding criminal warrants, unpaid moving violations, or otherwise been engaged in illegal activity. The operator may not have insurance for the vehicle, even if they are supposed to. They may not be able to produce a vehicle registration with their name on it, and so on. However, the BRT project team decides it wants to treat these cases, the BRT project becomes an opportunity to clean up the regulatory structure for at least a part of the city being affected by the BRT project, if not more of the city.

16.2.8Identifying the Legal Representatives of Impacted Owners

Whatever way in which the government decides to give special treatment to impacted owners and operators, it is likely to become cumbersome for the government to communicate with all of the individual owner operators. Certainly, there will be times when all owner operators will need to be given access to information, but ultimately a contract or contracts will need to be negotiated, or compensation paid, and this will involve some form of negotiation, for which it will be necessary to identify a smaller group of the legal representatives of the impacted owners.

Typically, the impacted transit owners will already have been organized into some form of association. These associations will range from democratic, transparent cooperatives with clear governance structures to protection rackets controlled by armed criminals. Sometimes the transit owners have a very tense relationship with these self-appointed representatives. Given the choice, in some instances impacted owners would choose to be represented by the heads of their association, and in other cases they would never agree to be represented by the heads of their association.

For this reason, once impacted owners have been identified, these owners then need to further certify who they would like to act as their legal representative in any negotiations with the government. In this way, the BRT project can serve to improve the quality of the representation of informal labor. Most affected owners lack the business and legal training to effectively represent their interests in such negotiations.

The legal representatives of the impacted owners may end up playing a key role in representing the affected owners in several critical forums. They might be allowed to review and comment on the tendering process, and they are likely to ultimately become voting members on the board of directors of one of the two BRT operating companies.

In general, the impacted owner will be asked to sign an affidavit formally recognizing a specific individual or association as their legal representative. If they recognize an association rather than an individual, this association should have clear bylaws, a clear governance structure, and the legal representative of this association needs to be formally recognized by the affected owner members of the association in signed affidavits. The bylaws of the association must stipulate that the affected operators can decide to convene at any time and replace their leadership on a majority vote.

If the legal representatives are not clearly identified by the owners, it is quite possible that self-appointed representatives who do not in fact represent impacted owners will take over negotiations. Additionally, they will not have the ability to follow through on agreements as the actual impacted owners do not recognize their legitimacy. Examples of where these problems emerged follow.

16.2.9Determining the Type and Amount of Compensation

Whether the city has found that it is legally necessary to pay compensation to the affected operators for giving up their existing business, or the city has decided to do so for political or social reasons, the nature and level of this compensation needs to be determined. Typically, this takes three forms:

• Compensation in the form of the opportunity to become a shareholder in one of the new BRT VOCs;
• Cash compensation to turn over the route license (and possibly the vehicle for scrap) and exit the business;
• Compensation in the form of a new route license somewhere else deemed to be of roughly equivalent value.

It is most common in BRT projects for the primary compensation given to the impacted license and bus owners to be shares in the new BRT VOCs. This can be done in several ways. Either, the BRT VOC is simply turned over, through negotiation, to a consortium of the impacted transit license owners and/or bus owners, or the impacted owners are given special advantage in a competitive bid due to their “experience.” In either case, when the contract with the new BRT VOC is signed, the old licenses and vehicles have to be turned over to the government, thereby insulating the government from any further compensation claims.

One big advantage of handling compensation in the form of special advantage in a competitive tender is that there is no need for the BRT project team to figure out the value of the compensation due: the value of the compensation is determined by the bidders. Normally, the bidder must turn in a certain number of valid route licenses and a certain number of vehicles for scrap to qualify or to receive extra points in the bid. The head of the bidding company or consortium then has to buy up the licenses and the vehicles for scrap from the impacted operators, and negotiate their value with the owner of the licenses and the vehicles. This process is more likely to lead to a reasonable market value being paid.

Where the government decides to turn over the BRT VOC to a consortium of impacted operators through a negotiated contract, it is more likely that the BRT project team will need to get involved in the valuation of the compensation due. The BRT project team may also decide that it is impossible to accept all of the existing impacted license owners into the ownership of the new BRT company. If there is a glut of people employed in the public transport industry, and none of them make a reasonable living, the BRT project team may decide it is better to agree to provide compensation to impacted owners if they turn over their license and vehicle and exit the industry, rather than having too many shareholders in the new VOC. Alternatively, the project team may decide there are a lot of under-served routes in newly developing areas, and may want to encourage some impacted industry to relocate to these areas by giving them a new route license in a new area.

16.2.9.1Compensation through Competitive Advantages in a Tendered VOC Contract: Example of TransMilenio, Bogotá

In the competitive tender for the BRT VOC, TransMilenio established eligibility criteria that mandated a certain minimum working capital and vehicle operating companies to be legally incorporated as formal businesses. These requirements prompted small operators to seek out partners and to professionalize their business. Bid categories such as the equity contribution of previous operators and the experience level on a particular corridor gave value to the inclusion of the existing operators. However, the participation of the existing operators was not assured. This uncertainty created political risk so that the impacted industry would not accept this approach, which had to be mitigated with the threatened use of police powers. However, it provided the necessary risk of losing the market to the impacted owners that they were compelled to meet the necessary bidding requirements in a timely way, and the competition drove down the ultimate fee for the service.

Nonetheless, in the Phase 1 bidding of TransMilenio, 96 percent of all the local transport companies (62 out of 66 companies) acquired stock in the four consortia that were awarded trunk line concessions (Hidalgo, 2003). Thus, even within a competitive bidding process, the existing operators were able to compete extremely well.

The bidding process was based both on qualifications and price and vehicle operating companies with “experience” in public transport provision. “Experience in operation” refers to the bidding firm’s direct experience in providing public transport services. The experience can be in Bogotá, the greater metropolitan area, or in another Colombian city where vehicles of more than ten customers are utilized. Experience in the affected corridors was considered to be more qualified and given more points in the scoring, but this did not exclude other operators from bidding.

Companies were also awarded for partnering with international transport providers. For example, the principal transport operator in Paris, RATP (Régie Autonome des Transports Parisiens), is a partner with one of the TransMilenio vehicle operating companies. The idea is to encourage a sharing of knowledge that will improve the performance of the local operators.

In the case of Bogotá, there was a glut of old vehicles operating on the TransMilenio corridors. In order to help eliminate the more polluting older vehicles from the city, while ensuring that informal operators were not going to compete on the TransMilenio routes, the private vehicle operating companies also bid on the number of old vehicles that they are willing to destroy. The older vehicles are to be physically scrapped so that these vehicles do not simply move to another municipality. In some instances, the private operators will be able to scrap their own vehicles. In other cases, it will be more economical to “buy” older vehicles from others. The idea is to find the lowest cost vehicles to destroy. Since the lowest-cost vehicles also tend to be the oldest and most polluting, the incentive works well in achieving its goal of reducing the oversupply of outdated vehicles. The vehicle scrapping process is quite formal. The older vehicles must be taken to a designated scrapping facility where a legal certification is awarded once the vehicle is destroyed. The process is designed to avoid any corruption or any “leakage” of vehicles to other cities.

The bidding firm receives more points for the higher number of shares owned by small bus operators. The bidding firm’s “equity share” held by small operators is a key incentive to encourage the participation of existing operators. This bid category essentially gives value to these small operators and their existing resources.

The tendering process did not predetermine the value of a route license, a bus needed for scrap, or the value of a share in the new company. This is a big advantage because some routes are more profitable than others and some vehicles are worth more than others. During the negotiations between the bidding firms and the small operators, the existing assets of vehicles, drivers, and capital that the owner is willing to invest in the new company, all played a role in the determination of the number of their shares.