12 Urban TransportPolicy: Colombia Alvaro Pach6n

O

ur knowledge of urban transport in Colombia ccomes in great part from transport and urban finance studies madeduringthe pastthirteen yearsin the big cities and especiallyin Bogota. Discussionshave centered on two main themes: public versus private transport, and choices in public transport.

explainedby the high percentageof trips madeon public transport and the low rate of private motorization (see Pach6n1981c;Westin1980).Themain elementsofwhat is known about collectivetransport in Colombiaare summarizedbelow. State Intervention in CollectiveTransport The state has recognized collectivetransport as a public service and a basic need. Inabilityto charge directly for road use leads to excessiveuse of private vehiclesand inefficientuse of road space,and additional inefficienciesare createdin a systemof freecompetition whendriversdo not considerthe negativeeffectsoftheir behavioron other vehicleson a congestedroad. Collective transport can reduce someof these problems.Asfor transport as a basic need, under free competition, lowincomeconsumers may not be servedwhen the cost of providingserviceis abovewhat theycan afford,and state intervention may be warranted. Intervention may be direct, through production or pricingof the basicneed, or indirect, through income transfers. As high-income classesseldomuse buses, direct interventionis likelyto use less resources to meet the basic need objectiveand hence is preferableto indirect intervention.

Operations The less efficient use that private vehiclesmake of road spaceand fuel per passengerhas been identifiedas one of the causes of the transport problem (see World Bank 1975, pp. 84-85; Urrutia 1981, pp. 12-13). To improveresourceallocation,two kindsofmeasureshave been suggested:taxes and subsidiesto shape the transport market, and quantitativerestrictionsto limituse of the roads. A proposalthat relies on market mechanismsis the use ofa fuel tax to control urban congestion(Republicof Colombia1973,pp. 99-111). McClure(1974)has proposed a parking tax. Although the government has not acceptedeither proposal,it has adoptedsome measures that clearlyfavorpublic over private transport, including sales and import tax exemptionsfor publictransport vehicles,bus fares that are set belowaveragecost, and lower fuel prices for commercialvehicles. The main restriction designedto favor collectivetransport is the prohibition of private vehicles on Carrera 10, one of Bogota'sprincipalstreets. (In contrast, the local transport authority in Cali has set restrictions on bus access to the traditional center.) The considerable amount of investigationthat has been devoted to the subject of collectivetransport is

Organizationof CollectiveTransport There are two types of ownershipof collectivetransport firms: ownershipof the vehiclesby the municipal government-the predominant arrangement in the UnitedStates-and ownershipbyprivateorganizations, as in Argentina,Brazil, Chile, and Colombia.Colombia has a basic systemof affiliatingcompanieswhich coexist 145

146

Alvaro Pachon

with state transport companies and cooperatives. In Bogota's system of affiliating companies the state assigns the routes and givessome rights to the private company.In some casesthe companyownssome of the buses, but generallybus ownersaffiliatewith a company which distributesthe routes and charges its associatesa rolling charge foruse of its routes. The managersof this type of organization are the strongest group in the transport systembecausethey maintain a close relation with the officialsector,through whichtheyobtain operating licensesand route authorizations. In the state companies, the state administers and owns the transport equipment, as in the case of the Empresa Distrital de Buses de Bogota (District Bus Companyof Bogota).This company's importance has decreased;in 1980it accountedfor lessthan 1 percent of public transport buses and busetas (minibuses).Cooperatives, which own their transport equipment, with the associated drivers having shares, predominate in some cities, such as Cali,and occupya second place in others, including Bogota. In 1980Bogotahad thirty-eightpublictransport companies,ofwhichtwelvewerecooperatives,onewasstateowned,and twenty-fivewere limitedliabilitycompanies (affiliatingcompanies).In Caliin 1979there were 1,426 buses distributedamongsixteenprivatecompanieswith forty-two routes and 181 busetas distributed among three companieswith seven assignedroutes. There has been considerabledebateabout the organizationof public transport. Defendersof a public collectivetransport system have pointed out the inefficienciesin resource allocation associatedwith the existing system in Colombia, while the defendersof the present system emphasize the low costs of private companies.In Leibenstein's terminology (1966), the defenders of a statal system focuson efficientresourceallocation,while the defenders of the present system focuson the inherent X-efficiencyof private property. Interconsult Ltda. (1970)and Urrutia(1981)havedocumentedthe existing system's low operating costs, the good maintenance levelof the vehicles,and the system'sabilityto adapt to changes in the demand for transport. A 1980study by the Administrative Department of District Planning showsthe high levelsof X-inefficiency of Bogota'spublic company.Walters and Feibel(1980)and Urrutia(1981) also show that in other parts of the world private companies have lower cost levels and are more X-efficient than public companies.As an exception,Nelson(1972) shows that in the UnitedStates in 1960and 1968public companies had costs 10 percent lower than those of private companies. The inefficiencyof resource allocation, especiallyas concerns congestion,has been documentedby, among others, Interconsult Ltda. (1970) and Departamento

Nacionalde Planeaci6n-Instituto Nacionalde Transporte (INTRA)(1974). By means of a route simulation model,these studies bring out the savings,in operating costs, of a centralizedcollectivetransport system. Economicevaluationof the twotypes of organization requires a simultaneous analysis of the two types of efficiencythat takes into account the variations state ownershipintroducesin the operatingcosts and considers the benefitsand costs associatedwith trip duration and waiting and transfer times. In addition, political considerationsare relevant.Whichtype of organization better promotes the satisfactionof basic needs?Which type is more reliable and less affected by strikes? (Althoughstrikesare prohibitedin governmentservices, slowdownsare often used for the same purposes.)

TheRouteSystem The route systems in Colombia and especiallyin Bogota have been frequently studied. Cifuentes(1978) notes that authorityto assign routes has been delegated byINTRAto the mayoralofficesin the principalcities.The resulting separationoffunctionshas madecontrolof the public transport system more difficult. To assignnew routes, or to extendexistingroutes, the AdministrativeDepartment of Transit and Transportation (DATT) studies the potential demand and opens a tender to assign the new route. The tender specifiesthe number ofvehiclesrequired and the frequencyofservice during peak and nonpeak hours. The assignment process has been much criticized.It has been arguedthat the system does not respond to the real needs of the populationbecausethe decisionsrespondto pressureby the Juntas de Acci6n Comunal (community action boards) of the districts and do not take into consideration the needsof the wholepopulation.It has alsobeen argued that the prevailing system of routes and route assignmentsproduces high levels of congestion in the central area because all the companiesprefer to serve areas where demand levels are high. The existenceof parallel routes and the informationproblem causedby the great number of routes havealso been criticized.To remedy some of these problems the Interconsult Ltda. and INTRAstudies proposed the consolidationof routes on the basis of the results of a simulation model. It has, however,alsobeenestablishedthat the existing route assignment system in Colombiaproducesa network with wide coveragethat has adaptedto changesin trip demandpatterns. The efficiencywith whichowners, drivers, and users process the existing informationto obtain a satisfactoryallocation has been noted. Discussion of the route system in Bogota leads to some importantconclusions.First,a seriesof incentives is bringing about a satisfactorysolution. The urban

UrbanTransportPolicy:Colombia transport market is processinga great deal of information at a low cost. If there were no externalities, the result produced by the market would be the same as would be obtained in a model for the whole transport system. Second,giventhe existenceof such externalities as congestionand buses' stoppingon demand,the present system of decentralized decisionmakingmay be faulty.Third, since there is no chargefor road use in the central area, the incomefrom scarceroad spaceis transferred to the private sector, probablyto the affiliating companies.Fourth, although the existingdata allowthe use of simulation models developedfor Colombia,it is probablethat more effort is neededto collectand anaJyze data and to refine the models if their results are needed to assign a route system. Fifth, to ensure good serviceto areaswith difficulttopographicconditionsand high operating costs, it is necessaryto specifydifferential fares or subsidiesfor routes that serve those areas. Sixth,ifthe state establisheda feeforthe right to operate routes that serve the central areas, resource allocation could be improved and funds could be generated to provide subsidized service to the low-incomedistricts that have unfavorablecost conditions. Public Service Vehicles The initial investigationsby Interconsult Ltda. and mNTRA consideredit desirableto definethe technicalcharacteristicsthat wouldassure more efficientand comfortable service.It was thought that metropolitanbuseslike those in the United States should be used and that the school-bustypeofvehicleshouldbe takenout ofcirculation. The success that microbuses and busetas were having at the end of the 1960s was acknowledged, however, and was attributed to their greater speed, privacy,and comfort. In Colombiaas in other developingcountries it was soonrecognizedthat althoughthe metropolitanbus had favorable technical attributes, the system of school buses, minibuses, microbuses, and collective taxis offeredmany more advantages(seeOwen1973;Walters 1979).First, a smallvehicleallowsmore intensiveuse of the most abundantfactor in developingcountries,labor, and because the level of investment is lower,vehicles are easier to obtain, more drivers can own their own vehicles,and there are greater incentives to maintain vehicles in good condition. Second, conditionson the demand side make the use of low-capacityvehicles attractive:becausethe waitingandtraveltimes are shorter and there are fewerstops, this typeofserviceis more like that of a privatevehicleand is more attractiveto middleand high-incomegroups.Allthese argumentshave contributed to legitimizethe persistenceof diversevehicle sizes.

147

To balance supply and demandfor urban transport, the state has enunciated policieswhich are sometimes contradictory.For example,it has establisheda financial intermediary,the FinancialTransportationCorporation (cF-r),with credit lines for financing body work and chassisfor busesand busetas.This credit has been subsidized to stimulate investmentin public servicevehicles and to facilitatethe purchase of vehiclesby the drivers. The subsidy, which amounts to nearly a fifth of the vehicle's value, has undoubtedlymade investment in public vehiclesmore attractive. The state alsowants to maintain an adequatetransport supplyand assure an adequateincomeyieldfornew vehicles.Differentialfares were establishedduring the late 1960s according to the age of the vehicle, with higher fares fornewervehicles.Sincethis systemdid not work,a differentialsubsidybyagewas tried.The existing subsidy system does not fulfill the initial objectiveof favoring investment in new buses. Moreover,the governmenthas establisheda licenseknown in Bogota as a nota opci6n-for new public service vehicles. This entry restriction has artificially limitedthe sizeofthe vehiclestockand has createdsome income for those who already own public servicevehicles. Also, because in some cities the procedure for granting licensesis stricter forsmallvehicles,the mix of vehicles in the stock is artificiallydistorted. Remuneration of Drivers The public companiespaydriversa monthlysalaryfor a normal eight-hour day; the private companiespay a commission according to the number of passengers transported. The private companies' system has been criticizedbecauseit maylead driversto competeto pick up passengerswithout regard to trafficlaws.It has also been pointed out that the driver is being exploitedand has long working days and unfavorableworking conditions. The public companieshave also been criticized: the fixed salary, which does not take into account the number of trips or passengers,destroysthe incentiveto pick up passengersand to maintain the vehiclein optimum condition. The private system appears to decreasethe information costs required for efficientoperation.That is, since the driver has an incentiveto pick up as many passengers as possible,less planning and monitoring are required to ensure that bus schedulesand operationsare meeting passengers' needs. This does not mean that a fixed salary scheme cannot establish information and control systemsfor efficient operation. The incidenceof the subsidy is often misunderstood. The user obtains an economicbenefit from the lower fare or better serviceeventhough the subsidyis givento

148

AlvaroPachon

the bus owners.The short-term effectis alsosometimes confusedwith the long-term effect.In a systemwith no restrictions on the entry of new buses, an excessive subsidycan lead to large temporaryprofitsfor the vehicleowners.Free entry ensures,however,that in the long term automotive stock will increase, the service level will improve, and profits will become normal. Finally, transfers are often confused with economic costs. A transport subsidy is a transfer. Even though a subsidy decreases consumer surplus-because resources are being used at a higher value than what consumersare willing to pay-a public transport subsidytends to correct the inefficientresource allocation caused by the absence of a price system for use of road space. The absence of empirical research on the economic effectsof governmentintervention in the transport sector is beginning to be remedied. Pach6n (1981b)has found that the effectof a transport subsidyis essentially redistributional; the benefits reach mainly lowerincome households.The maintenanceof lowfuel prices has also contributed to a better income distributionby decreasing the buses' operating costs. A preferential subsidy for bus users has fewerleakagesthan a general subsidy for all public transport users. Further research is needed to quantify the effectsof transport subsidies. Faresand Subsidies

dispersionis the flat fare,not the subsidy,anddispersion can be reduced by making the fare vary according to distance traveled. New versus Old Buses Preferential treatment for more recent modelswas initially provided through differentialfares by age of vehicle and, more recently, through differentialsubsidiesby model.In October1980monthlysubsidieswere 42,812pesosfor 1974-and-latermodels,30,443pesosfor 1970-73 models, 26,687 pesos for 1965-69 models, 25,811 pesos for 1960-64 models,and 24,917pesos for 1959-and-earliermodels.The cFr alsofavorsthe financing of new vehicles in granting credit. TheRationalefor DifferentialTreatment Differentialfares and subsidiesby age are defendedas a means of stimulating the demand for new domestically producedvehicles. Furthermore, if it is desirable to augment the capitalstock rapidly,preferentialtreatment for new vehiclesis helpful.The operatingcosts of vehicles of different ages can also be relevant: to the extent that the operating cost of a new vehicle is less than that of an oldvehicle,the formerwillbe used more intensively.

While the managers press the government for increasesin fareswhenevertheyconsiderthat their investment yieldhas reached unsustainablylow levels,workers and studentsprotest whenbus faresare increased.In an effort to lower costs to the public, the govemment establishes a fare below the cost of service, maintains low prices for gasoline and diesel fuel, controls the prices of such inputs as tires, and establishessubsidized credit lines through the crr. To guarantee an adequate profit, it specifies a subsidy for bus owners and sets unsubsidizedfares for means of public transport other than buses. Some operational parametershavebeen defined,and an index of input costs is maintained that allowsthe government and the bus owners to recognize when periodic adjustments to public transport fares are needed to reflect increases in costs. Thus, adjustments were made in responseto increasesin world fuelprices. There is great confusion, however,regarding the economic effectsof such measures.Transportsubsidiesare sometimesblamedfor an exaggeratedurban dispersion, but in a flat fare system,as in Bogota,the marginalcost of a kilometer traveled is zero no matter what the fare, and since decisions on residential location depend on the marginal cost of transport, a transit subsidyhas no effect on housing location. Thus, the cause of urban

There are also reasons for giving equal or similar treatment to old and newvehicles.Only 7.5 percent of the stock ofvehiclesin Bogotais less than two yearsold. The high proportion of old vehicleswith lowercapital costs offersdriversthe possibilityof owningvehiclesand thus broadens the base of ownership.A balancedtreatment for used buses could be defended,since it promotes capital formation,widensto some degreeownership of the means of production, and allows people whose opportunity cost of time is lower to maintain older vehicles. OperationalCosts, by Age of Vehicle The Interconsult Ltda.study found no statistical differencein operatingcostsbetweennewand oldvehicles, but since such variables as routes served, distance traveled,and driverswere not isolated,more analysisis needed. Merewitz(1977) cites two studies which show that the operatingcosts ofa companyare independentof the averageage of the fleet.As in the Interconsult Ltda. study, the estimationprocedureand the data used have limitations. A regressionanalysisof costs and revenuein relation to age has been carried out with the use of assumptions for the estimation of operating costs by ranges of bus

Urban TransportPolicy: Colombia

models and data on the monthly operating costs for differentbus modelsas estimatedfor October1980.'The following relations were calculated with the use of ordinary least squares. (12-1) In Y, = In Y0 + Ba where Yis the variablewhosebehavioris to be analyzed, a is the vehicle'sage, and In Y0andB are the function's parameters. The number of trips made,whichvariesinverselywith age, influences the number of kilometerstraveled and the monthlycost. To isolatethe effectof trips made, the variablecost per kilometer (VCK)was calculatedand a regressionwas run, with the followingresults.2 (12-2) In VCK, = 27.925 + 0.0024+ a . (4.807) R2 = 0.9001 Although the VCK changes very little (it decreases 1 percent for everyfouryearsofage),the hypothesisthat it is independentof age cannot be accepted becausethe t-statistic value is greater than the critical value. The results of monthly cost and revenueregressions were as follows,where VC is variable cost, FC is fixed cost, and ING is operating revenue. (Thesubsidyis not counted as revenue.) (12-3)

In VCa=11.3088- 0.01806+a (8.37) R = 0.9589

(12-4)

In FCa= 8.8097+ 0.02771+ a (14.13)

(12-5)

Prices and Profitability For usedvehiclesthe presentvalueoffuture incomeis basic to the price determinationand in turn to evaluation of the effectsof fare and subsidypolicies.Theprice pattern of buses by age is satisfactorilyapproximatedby an exponential functional form for cars in Colombia (Pach6n 1981a).Data on the value of the vehicleshave recently been assembledby the Center for Economic DevelopmentStudies (Centro de Estudiospara Desarrollo Econ6mico,CEDE) in Colombia,and these data are used to estimate the followingform. (12-6)

0.9852

In Pa,= In PO- b *a

wherePa is the price of a vehicleof agea. The resultsof the regression are In Pa = 14.3961- 0.06887a (141.1) (8.28) R2 = 0.7742 20 degrees of freedom

Thet-valuesare in parentheses.

In INGa = 11.2157- 0.02167+ a (6.65)

clusions. First, variations in the operating costs per kilometerof buses of differentages are relativelysmall. Second,becausethe monthly operating revenueby age decreasesfaster than the monthlyvariablecosts by age, older buses tend to be less competitive.Third, the number of monthly trips decreaseswith age-new buses seem to be used more intensively.Fourth, additional research is neededon the cost and incomestructure by age of the vehicle,with the effectof such other variables as route conditions,drivercharacteristics,and the make of the vehicle isolated.

(12-7) =

149

0.9365 The interpretation of the age variablecoefficientin a R = 0.9365regression of the price logarithmagainst the age of the The resultsshowthat both monthlycostand revenueare vehicleis the yearlydepreciationrate. Accordingto the negativelyaffectedbyage and that the coefficientof the results given here, for each year of use the price of age variable is statisticallydifferentfrom zero.Accordthe bus decreasesby slightly less than 7 percent. The ing to these results, monthly income decreasesmore valueobtainedin equation12-7is less than that used in rapidlythan monthlyvariablecosts,and the intercept of the cost studies made by the transit companies,which the variable cost function is slightly greater than the show a usefullife ofsevenyearsand a salvagevalueof 30 correspondingvalue of the income functions. Thus, percent.3 Thusthe depreciationrates chosenin the studoperational revenue does not cover the variablecosts, ies on definingthe farestend to producereal profitrates and the gap between revenue and costs increases in higher than those agreed on between the government percentage terms as the vehiclegets older becauseinand the bus owners. come decreasesfaster than costs. The economicprofitabilityof usedvehiclesis affected Table 12-1 presents results for each model between by three sourcesofeconomicrent: depreciation(the loss 1959 and 1980. The adjusted values were calculated in value owingto age), the opportunitycost (the moneusing equations 12-3, 12-4,and 12-5.To obtain capital tary interest rate multiplied by the price of the good), return, the estimated income and the subsidyreceived and the appreciationof the goodbecauseof inflationand were added and total costs were subtracted. changes in relative prices. Givenestimates,by age, of The evidenceon operating costssuggestsseveralcondepreciationand the price ofvehicles,a nominalprofit=

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AlvaroPach6n

Table 12-1. Buses: Adjusted Costs, Estimated Incorne, and CapitalReturn, October1980 (pesos)

Model

Age

Estimated variable costsa

1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

55.800 56.817 57,852 58.907 59.980 61.074 62.187 63.320 64.474 65.649 66.846 68.064 69.305 70.568 71.855 73.164 74.498 75.856 77.238 78.646 80.079 81.539

a. VCa= 81,539 [exp(- 0.0180a)] b. Fir, = 6,698 [exp(- 0.0216a)l c. INGa= 74.285lexp(- 0.0216a)]

Adjusted variable costsb

Total costs

Estimated income'

Subsidies

Capital return

3.743 3.848 3.957 4.068 4.182 4.300 4.420 4.545 4.672 4.804 4.939 5.077 5.220 5.367 5.517 5.672 5.832 5.996 6.164 6.337 6.515 6.698

59.543 60.665 61.809 62.975 64.163 65.374 66.008 67.855 69.147 70.454 71.785 73.142 74.525 75.935 77.372 78.837 80.330 81.852 83.403 84.984 86.595 88.238

47.126 48.158 49.213 50.292 51.393 52.519 53.670 54.845 56.047 57.275 58.530 59.812 61.122 62.461 63.829 65.228 66.657 68.117 69.609 71.134 72.693 74.285

24.917 25.811 25.811 25.811 25.811 25.811 26.687 26.687 26.687 26.687 26.687 30.443 30.443 30.443 30.443 42.812 42.812 42.812 42.812 42.812 42.812 42.812

12.400 13.303 13.215 13.127 13.041 12.956 13.749 13.667 13.586 13.508 13.431 17.112 17.039 16.968 16.900 29.202 29.138 29.077 29.018 28.962 28.909 28.859

R2 = 0.9589 R2 = 0.9852 R2 = 0.9365

abilityrate can be establishedoncethe rate of increasein bus prices is known. Estimated prices, capital return (current revenueminus current cost), and profitability yieldedby the calculation are presented in table 12-2. The estimatedvalues are basedon regressionsin which the only explanatoryvariable is the vehicle's age and which thereforemay differ from real values. The estimatedprofitability(ia) shownin table 12-2is inversely related to age. This finding is quite unexpected. Under competitive conditions, profitability might be consideredto be independentof age.A casual observer,however,might expecthigher profitabilityfor the new buses, since larger ownerstend to own newer buses. Twopossibleexplanationsmay be offeredfor the results in table 12-2. First, the differencecould be a result ofan underestimationofthe operatingcostsof old models. The maintenance costs of old vehiclesexclude the value of the time of the driver,who often owns and repairs the bus. Second, the differencecould be a consequence of an underestimation of the price of older vehicles.Becausethe estimatedprices are calculatedon the basis ofa regressionwhoseonly explanatoryvariable is the vehicle's age, these prices cannot capture the distortions caused by the subsidy and thereby tend to underestimate cases in which the subsidy is unneces-

sarily high. As this occurs for the older buses, the adjusted prices underestimatethe pricesof the older vehicles and consequentlyoverstate their profitability. To show that many of the distortions in prices and profitabilityare a result of the subsidies,data for busetas, which are not subsidized,were used.Withthe use of the buseta price data from the CEDEsurvey,an exponential function was estimated: In Pa = 14.0933- 0.06943*a (12-8) (8.63) (141.1) ( R2 - 0.8515 ( 14 degrees of freedom In table 12-3the buseta's profitabilityis nearly the same for 1970-and-latermodels;for previousmodels profitability decreases with age. Thus, in the absence of a subsidy the estimated profitabilityis more in line with an expectationthat profitabilityis independentof age. Buses or Busetas? Govemmentpolicyappearsto havefavoredbusetas,as is reflected in their rapid growth. Between 1971 and 1976the number of buses is estimatedto havegrownby

Urban Transport Policy: Colombia

151

Table 12-2. Buses:Prices,CapitalReturn, andProfitability (pesos)

a.

Model

Age

Price in 1980

Estimated

Capital

pricea

retumb

Profitability'

1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

200,000 540,000 640,000 656,000 666,000 600,000 635,000 109,000 650,000 719,000 650,000 894,000 893,000 733,000 1,100,000 1,400,000 1,342,000 1,382,000 1,480,000 1,475,000 1,617,000 1,933,000

420,759 450,758 482,896 517,325 554,209 593,723 636,053 681,402 729,985 782,031 837,788 897,520 961,511 1,030,064 1,103,505 1,182,182 1,266,469 1,356,765 1,453,499 1,557,130 1,668,149 1,787,084

12,499 13,303 13,215 13,127 13,041 12,956 13,749 13,667 13,586 13,508 13,431 17,112 17,039 16,968 16,900 29,202 29,138 29,077 29,018 28,962 28,909 28,859

44.15 43.92 41.34 38.96 36.74 34.69 34.44 32.57 30.84 29.23 27.74 31.38 29.77 28.27 26.88 38.15 36.11 34.22 33.33 30.82 29.30 27.88

PO = 1,787,084[exp(0.0688a)1

InP, = In P0 14.391- 0.06887a

(141.10) (8.28) R2 = 0.7742 where depreciation(a) = 6.9 percent. b. Capitalreturn (RK) = income - costs. c. AssumingthatRKa= (a + i±- ar)Pa, thenia = (RRKaPa) - a + Tr,wherei 4 isprofitability,a = 6.9 percent(seeequation12-8),and r = 15.41 percent. Source: 1980 prices:Jaramillo (1981).

2.6 percent annually;forbusetas in urbanareas the rate was 30 percent. Between 1971 and 1980 the average growth rates were 6.2 percent for the bus stock in Bogota and 25 percent for the buseta stock; in Cali the growth rates were 2.4 percent for buses and 21.93 percent for busetas. Walters(1979)has indicatedthat in developingcountries minibuses are more efficient than buses with respect to costs,waitingtime, and trip frequency.Pach6n (1981c)concludesthat the demandfor busetasincreases with income. Furthermore the income elasticities of demand forbusetas basedon time seriesare higher than those obtainedfrom cross-sections(seePach6n 1981b). During the period considered, the number of microbuses, which are smaller than busetas, decreased.

Profitabilityof BusesandBusetas For 1967-and-latermodels, the busetas' profitability is higher than that of busesof the sameage.4 This implies that policies regarding public transport fares and subsidies favor intermediate-sizevehicles. This, together

with the preferencefor these vehicleson the demand side, explainstheir rapid growth in Colombia. The difference in the profitability of each type of vehicle not only is consistent with the rapid growth of the buseta stock but also reflects restrictions on the additionof busetasto the stock. If there were no restrictions, the profitabilityof both typesof vehiclescould be expectedto be equalized.Asmentionedabove,a license, or nota opci6n, is required before a vehicle can be affiliatedto a transport company. To the extent that obtaining this license is more difficultfor busetas than for buses, a higher profitabilityfor busetas is ensured. Data on the prices of used vehiclesconfirm the existence of greater restrictions on the entry of busetas. Automotivevehiclesshowrapid depreciationin the first year and a constant rate of depreciationfor the remaining useful years (see Wykoff1970, pp. 171-72). With such a pattern the adjusted value based on the regression would be less than the value chargedbythe distributor, since the owner of the vehiclehas to pay a penalty to take the vehicle from the distributor. When, on the contrary, there are supplyrestrictionsit is to be expected

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Table 12-3. Busetas: CapitalReturn and Profitability (pesos) Estimated pricea

Capital retumb

Profitability'

n.a.

307,202

3,588

23.65

n.a. n.a.

329,289 352,965

4,326 5,098

25.40 26.97

18 17 16

n.a. n.a. n.a.

378,343 405,545 434,703

5.906 6,752 7,636

28.37 29.61 30.72

15 14 13 12 11 10 9 8 7 6 5 4

566,000 624,000 475,000 550,000 495,000 678,000 605,000 789,000 650,000 900,000 965,000 994,000

465,958 499,459 535,370 573,862 615,122 659,349 706,755 757,570 812,038 870,423 933,005 1,000,087

8,560 9,526 10,535 11,580 12,688 13,836 15,034 16,283 17,585 18,944 20,359 21,834

31.68 32.52 33.25 33.87 34.39 34.82 35.16 35.43 35.62 35.75 35.82 35.83

1,071,992

23,370

35.80

1,149,067 1,231,684 1,320,240

24,971 26,637 28,372

35.71 35.59 35.42

Model

Age

1959

21

1960 1961

20 19

1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976

Price in 1980

1977

3

n.a.

1978 1979 1980

2 1 0

1,375,000 1,321,000 1,270,000

n.a. Not available. a. Pa= 1,320,240lexp(-0.0694a)] In Pa= 14.0933- 0.06943a R2 = 0.8515 (141.10) (8.63) where depreciation(a) = 6.9 percent. b. Capitalreturn (RK) = income - costs. - a + 7r, wherei4is profitability,a 6.9 percent (seeequation12-8),and iT = 16.54 c. AssumingthatRK, = (a + ia - ir)P0, then ia= (RKa/Pa) percent. Source: 1980prices:Jaramillo (1981).

that the owner willobtain a bonus for taking the vehicle from the distributor. In the first casethe adjusted price (using the regression)will be less than the list price; in the second case the adjusted price will be greater than the list price. Ifthe relation betweenthe estimatedprice and the list price is defined as a premium factor, the degree of restriction in the market can be inferredbecause the bigger is the premiumfactor,the higher is the degree of restriction in the market. For Bogota in 1980 the bus premium factor, Bb, is 1.02; the premium factor for the buseta, Bbt, is 1.28. Bothvehiclesreceivea bonus for leavingthe distributor. This factor, for both buses and busetas,tells us that the government,through INTRA,still imposessevererestrictions, in relation to the demandfor publictransport, on the entry of these vehiclesto the stock. In the case of busetas the restriction is even clearer, which is in accordancewith their high profitability,and the supply of this mode should be even higher to obtain equilibrium between supply and demand.

If the rapid growth of the buseta stock is seen in perspective, it can be inferred that in the beginning there were more restrictionson the entry of busetasand that the gap between the profit rates for buses and busetas was larger. Kozel(1981)has shown that supply restrictions decreased during 1972-78. Essentially, busetas havebeen allowedto operateon the same routes as buses, and a greater adjustment of the buseta supply has been facilitated. The Load Factor From the point of viewof economicefficiency,where there are differenttypes of transport vehiclesthe equipment should be assignedin order of efficiency,with the most efficientassignedfirst. The most efficientvehicles would be expectedto work all dayand the least efficient only during peak hours. Where there are two types of equipment with different fares, assignment would generallybe in order of increasingbreak-evenloadfac-

Urban TransportPolicy: Colombia

tors: the equipment with the lowest break-evenload factor would be assignedfirstand that with the highest break-even load factor last. Such an operating rule causesthe vehiclewith the lowestbreak-evenloadfactor also to have the lowest observedload factor. In Colombia,since the bus owner receivesa monthly subsidy and the buseta owner receivesno subsidy,the 5 In buseta's break-even load factor should be lower. consequencethe buseta would tend to be used during both peak and nonpeakhours and to havea lowerload factor. With the use of assumptionsfor calculatingthe bus and buseta loadfactorsin Bogota,and cost datafor some periods when fares were changed, the effectof these changes on the break-evenloadfactorscan be seen. For example,the bus break-evenloadfactor increasedfrom April 1978 to May 1980, which reflected the slower increase in fares than in variable costs. Afterthe most recent fare increasestudied, in October1980,the breakeven load factor decreased, since fares had increased more than costs. It can be inferredthat the use of buses had been decreasing between April 1978and October 1980, perhaps because the use of busetas increased. The resultsshow the dilemmabetweenefficiencyand equitywhich the governmentconfrontsin fixingfares.If the government wants to decrease the impact of the growthof operating costsby moderatingthe increasein fares and increasing the subsidy, the result may be stimulationof the use ofvehiclesthat occupymore road space and that consume more fuel per passengertransported. It can alsobe seenthat although the loadfactor forthe buseta increasedbetween Mayand October1980,there is a great differencebetweenbus and busetaloadfactors. Whereas a bus must fill 78.5 percent of its capacity to cover its operatingcosts,the buseta needsto fillonly 43.2 percent of its capacity.This great differencein load factorsexplainswhya bus ownerprefersto waitfor peak hours to operate his bus. Only during those hours is there enough demandto guaranteethat operatingcosts will be coveredand a profit made. The buseta, in contrast, can operateon routeswith lowdemandand during nonpeakhours becauseit needsto use only43.2 percent of its capacityto coverits costs.This lowfactor suggests that the buseta's trip frequencywill be greater than that of the bus becauseit doesnot haveto wait forpeakhours to operate profitably. If we compare the observedload factor with the required load factor as in the table below,we findthat the load factorfor the bus is too lowto coveroperatingcosts, while that of the buseta is distinctlyabove the breakeven load factor. This result tells us that the buses are incurring losses or that their operatingcosts have been overestimated.

Vehicle

153

ObservedloadfactorBreak-even loadfactor (percent) (percent)

Bus 69 78.5 Buseta 66 43.2 The resultsobtainedin this section showthat the fare and subsidypoliciesencouragea more intensiveuse of busetas,whichfavorsthe busetasupplyin both the short and the long run. Summary and Conclusions In Colombiathe state has tried to favor public over private transport. Giventhe absenceof policies-other than the subsidyfor buses-to remedythe externalities of private transport through the price system,it maybe necessaryto increasethe use ofquantitativerestrictions. For example,some lanes may be dedicatedto the exclusive use of public transport. Simultaneouslywith these quantitative restrictions, other policies that use the price system to discourage the use of private vehicles shouldbe investigated.The proposalsfora fueltax and a parking tax to reduce congestion should be studied further. In addition, the possibilityof establishing a license for accessto the central zones, as in Singapore, should be examined. The combinedeffectof the bus subsidy,the implicit fuel subsidy,and the vehicletax has been to favor the lower-incomeclasses.But since the private companies havemuch lower operatingcosts than doesthe district government company, it is probable that increases in allocationalefficiencyattained from a system with all government vehicles would increase operating costs. The route assignment process is flexibleand has been able to adapt itself to changes in the location of activities. Such problemsof public transport as slowoperating speed can be eliminated by such measures as establishing posted bus stops on all lines, reserving some roads for exclusiveuse by public transport, and charging, by tender, for the use of roadsdedicatedexclusively to public transport. The credit establishedbythe cFr has madeinvestment in public service vehicles easier. The availability of credit, together with the fare and subsidyscheme,has assured an adequate profit rate for investmentin different typesof vehicles.The driver's remuneration system creates incentivesfor the efficientoperationof the vehicles but can also contribute to trafficcontrol problems. As has been proved in Cali, the authorities can make substantial improvementsthrough campaignsdirected at users. The elaborate system for setting fares and subsidies has been describedabove.The adoption of a methodol-

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AlvaroPach6n

ogy to calculatea transport cost index and the periodic collectionof the required data havepermitted relatively frequent adjustments that have maintained adequate profits for the investment in public transport vehicles despite inflationand changesin fuel prices.Theflat fare scheme was identifiedas a possiblecause of excessive urban dispersion.It was shownthat the subsidypolicies unnecessarilyincreasethe priceof old vehiclesand artificiallyraise the prices of modelsat the lowerend of the range to which the subsidyapplies.It was further shown that fare and subsidypoliciesfavorinvestment in busetas and a more intensive use of these vehicles. The restrictions on the entry of busetas into the stock in 1980were greater than wasthe casefor buses,and it was noted that this fact is compatiblewith a decrease in restrictions for buseta entry during 1972-78. The results of the research on the economiceffectsof the fare and subsidypolicieslead to the conclusionthat the present scheme is causing distortions in the supply of transport vehicles. Somesimple reforms of the subsidy scheme could eliminate the distortions and at the same time solve other problems.A first proposal is to change the basis for the subsidyfrom model to age, to avoid the model effect and the price distortion of old vehicles.Thesameprofit rate wouldbe adoptedforbuses and busetas.As in the present system,only buseswould be subsidized. In this analysisthe valuesfor buses and busetaswere calculated.In both casesa 40 percent annual profit rate in monetary terms was fixed.The bus fare coversoperating costs, and the subsidycoverscapitaland fixedcosts. Givena 40 percent profit rate, a uniform farefora bus of any age is 3.50 pesos. The present subsidy is unnecessarilyhigh for olderbuses. It is possibleto fixa flat fareof 7.80 pesos for busetas, a little higher than the present fare (7.50 pesos),to ensure a nominal profit rate of 40 percent, equal to that of buses. A second reform would allow additional benefits. There is a desire in Colombiato maintain the price of fuel used by public transport belowthat of fuel used by privatetransport.Theauthorities havewantedto change all the public stock to diesel andto maintain low prices forthat fuel,but this policyhas not had much success.A possible measure is a subsidy that is related to the averagefuel consumptionfor each type of vehicleused in public transport. If the proposalto adopt a subsidy scheme that would eliminate some of the distortions created by the present scheme is accepted,additional research on the vehicle'scosts,income,and pricebyage will be needed.A better level of informationwould permit subsidiesto be basedon the costsof differentagesof vehicleswithout incurring serious distortions. Along with improvements in the definitionof fares and subsidies, market forces should be permitted to

reduce the distortions from information problems or methodologicallimitations. For example,by eliminatingrestrictions on the entry of publictransport vehicles, the same profitabilitywould be ensured for all typesof vehicles,and transport would be as profitableas other sectors of the economy.Similarly,some fares, such as night service charges, could be freed from controls. Considerable knowledge exists concerning urban transport in Colombia,and the use ofmodelsto simulate routes is fairlywell established.Governmenttransport policies have been, in general, in the right direction. Policieshavesought to givepriority to publictransport and have, by and large, favoredlower-incomeclasses.

Notes 1. Theinformationon costsmaybe overestimated because of the nature of the data and their relationto fares.The FEDESARROLLO (Urrutia1981)studyusedthe operatingcostsof its busesandobtainedloweroperatingcosts. 2. Thet-valuesarein parentheses, thereare threedegreesof freedom,andthe criticalt-valueforthreedegreesoffreedomis 3.182. 3. Thet-valueto provethehypothesis b = 0.1is 2.846.Itis greaterthan the criticalvalue2.086with a 95percentconfidenceleveland20 degreesof freedom. 4. Theprofitability ofbusescanbelessthanthatobserved to the extentthattherearedelaysinthe paymentofthesubsidyby the cFT, the entityin chargeof the payment. 5. The busetaownermust coverboth variableand fixed costsfromfares,whilethebusownercovershiscostsoutofthe subsidyand the fares.The busetaownerthereforeneedsa lowerloadfactorto coverhisvariablecosts.

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