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Reforms in the regulation of public bus service in Israel
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Reforms in the regulation of public bus service in Israel Yoram Idaa,b,c,* , Gal Talitb,c,d a
Department of Public Administration and Policy, Sapir College, Israel Tel Aviv University, Department of Public Policy, Israel c The Van Leer Jerusalem Institute, Hazan Center for Social Justice and Democracy, Israel d The Open University of Israel, Department of Sociology, Political Science and Communication, Israel b
A R T I C L E I N F O
Article history: Received 26 January 2016 Received in revised form 4 December 2016 Accepted 4 December 2016 Available online xxx Keywords: Regulatory structure Service quality index Self-regulation
A B S T R A C T
Regulation of public bus services in fixed routes is common worldwide. This article presents regulatory reforms instituted in Israel from 2000 to 2014, in which part of the public bus services are being provided through competitive tendering. The results generally indicate relative success in most of the variables examined: the average cost per vehicle kilometer, the level of service, fares and the number of passengers. However, the reform has also been accompanied by fairly frequent changes in the characteristics of the tenders. These changes may reflect difficulties in imposing regulation on the operators. The findings indicate that the existing regulation in Israel should be changed, both structurally and in terms of the organizations involved in the process. In addition, it is recommended that a new measure be developed to examine the quality of passenger service provided, which should also be included as a significant criterion in the selection of operators. © 2016 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
1. Introduction Public transportation in general and bus services in particular are considered an essential instrument for ensuring the physical mobility of residents. The ongoing and effective provision of these services, especially for those considered “transport-dependent” (disadvantaged, elderly, and physically disabled people, children, women, and different ethnic groups) is critical to people’s access to places of work, education, leisure activities, medical care, and other needs (Pucher and Renne, 2003). These services are also important because of the current rate of their replacement by private vehicles; this growing trend has led to increased traffic congestion and a rise in the related side effects, such as air pollution, noise, traffic accidents, land uses, and so forth (Sen et al., 2010; Wang et al., 2009). In light of the view that public transportation is a social service that ensures the mobility of every resident, and that the public sector should therefore provide or regulate provision of this service, in most countries, the public sector closely supervises its provision. In the majority of cases, the public sector performs the supervision directly or by means of fully or partially government-
* Corresponding author at: Dept. of Public Policy, Tel Aviv University, P.O.B. 69040, Tel Aviv 6997801, Israel. E-mail addresses: [email protected] (Y. Ida), [email protected] (G. Talit).
owned monopolies, and also ensures full subsidy of losses, if they occur, with public funds. The constant rise in the cost of providing the services and the subsidies required to operate them, has led many governments in the world to institute reforms in the bus service industry. In light of its socioeconomic importance, most states have preferred to provide the service by means of competitive tendering. The transportation authority offers a cluster of bus lines, generally defined geographically, for competitive bidding. The authority stipulates several types of service parameters, and selects a winner based on pre-specified selection criteria. The main advantage of this method is that the transport authority maintains regulatory control of the service. Results of reforms in bus services, mainly of competitive tenders, are comprehensively discussed in the literature. Examination of the outcome of reforms in different countries has shown that competitive tendering has generally resulted in considerable savings in the cost and subsidy level of this industry. This has proved particularly effective where services were previously provided by an inefficient monopoly operator. With respect to scope and quality of services, fares, and number of passengers, the results have varied among and within different places (Hensher and Wallis, 2005). However, once efficient cost levels have been established, the case for the continuing use of competitive tendering in subsequent contract rounds in preference to
http://dx.doi.org/10.1016/j.cstp.2016.12.002 2213-624X/© 2016 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
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negotiation with an incumbent operator may be less clear-cut (Boitani and Cambini, 2006; Hensher and Stanley, 2008). Influencing issues include prior conditions, the nature of the supplier market, features of contracts, negotiating and competitive tendering strategies and practice, accountability and transparency, and long-term market implications (Wallis et al., 2010). In recent years, the body of literature on the broad area of regulation has grown (Hood et al., 1998, 1999; Levi-Faur, 2005, 2011; Majone, 1994, 1997). Regulation of bus services is common in many countries, and the transportation authorities there have to handle diverse issues. In most locations, the reforms have been accompanied by changes in the structure of regulation, corresponding to the changes in the industry (Augustin and Walter, 2010; Estache and Gomez-Lobo, 2005; Hensher and Stanley, 2010; Hidson and Muller, 2003; Karlaftis, 2006; Walters, 2010; van de Velde and Wallis, 2013). However, the examination of regulation in the field of public transportation, in general, and bus service, in particular, is still underdeveloped. In this article, we examine the impact of the reforms instituted in Israel from 2000 to 2014 on the quality of regulation on public bus service provision. The article includes a review of successes and failures in implementing the reforms and a discussion of the planned changes in this area. Since many countries are facing issues related to regulation of bus operators, the issues discussed in this study, combined with the Israeli experience in this field are likely to be relevant to other countries in which similar reforms have been implemented, and may help them develop effective policies. The research was based on the analysis of official documents in order to understand the need for reform in the public transportation system in Israel, and to examine its achievements and problems. The documents reviewed included Israeli government decisions, tenders for operation of public bus services, periodic reports of the operators that won tenders, reviews of the operation of public transportation services, interviews with senior officials in the public and private sectors, and a specific State Comptroller report on the public transportation reform in Israel. We begin with a presentation of the reform results in Israel, followed by presentation of regulatory issues. We then discuss the effect of the regulation structure and characteristics on the regulation efficiency and, in summary, offer conclusions and recommendations for improvement of the activity and future research.
Until 2000 two cooperatives (Dan and Egged) provided most (96%) of the public bus services in Israel,1 under a weak and inefficient regulation of the public transportation division of the Israeli Ministry of Transport on service provided. The lack of competition in the industry rendered these two cooperatives extremely powerful, creating strong dependence of both the public and the state on these operators. In recent years the Israeli bus sector suffered from a decline in the number of passengers, accompanied by a constant rise in the cost of service provision and required subsidies, mainly due to high wages paid to employees, specifically bus drivers. In light of the situation described above, Israel introduced in 2000 a reform to increase competitiveness in the public bus services. In order to implement this reform the government established a Public Transportation Administration, to be operated by a private company selected by tender. The Administration’s role is to provide management consulting services to the Ministry of Transport. By 2012, there were 25 competitive tenders under which eight new operators join the market. 34% of the activity in the industry (in terms of bus kilometers) was transferred by 2012 to new private operators, the majority by means of competitive tendering (Public Transportation Administration, 2012). So far, the results of the reform in Israel generally indicate relatively good success in most of the variables examined. The average cost per vehicle kilometer decreased between 37% and 50%. Most of this cost reduction was due to lowering the wages, mainly of the drivers. This resulted in a decrease in the level of government subsidies required (Ida and Talit, 2015). In most cases the level (scope and quality) of service increased, and in some cases, these were accompanied by a reduction in fares. In most cases, the number of passengers also increased. It should be noted that this increase may also derive from a population growth, such as in Elad and Betar Illit, which are relatively new ultra orthodox cities, with population growth rate much higher than the national average and a relatively young population composition (Ida and Talit, 2015). Table 1 presents changes in level of service, number of passengers and tariffs in Israel. However, the reform has also been accompanied by fairly frequent changes in the characters of the tenders such as: type of contract, contract period, criteria of selection operator etc. and these may reflect difficulties in imposing regulation on the operators (Ida, 2009). 3. Regulation of public bus services
2. Reforms in Israel – results and findings Israel’s size is approximately 20,000 sq km and its population is about eight million inhabitants. In 2014 the average per capita income of Israel was approximately $35,000. The country is highly urbanized, with about 3.4 million people, over 40% of the population, in the Tel Aviv metropolitan area and another million each in Jerusalem, Haifa and Be’er-Sheva regions (CBS, 2014). The level of motorization has increased significantly between the years 2000–2014 from 225 to 296 private vehicles per 1000 people, which is relatively low in comparison with the developed countries. Public transportation services in Israel are relatively low compared with other OECD countries in terms of variety and scope (Ida and Talit, 2010). Bus services are the main form of public transportation, accounting for 75% of all passenger trips on public transportation in the country (Shiftan and Sharaby, 2006).
3.1. Common regulatory structures in the world: national versus metropolitan level There are two main methods of regulation in the field of public transportation. One is national-level, state regulation, the other, regulation by a regional or metropolitan transportation authority. In most countries, the regulator is a regional or metropolitan transportation authority. On the one hand, regulation at the national level centralizes the powers in the hand of a single organization, thus enabling a high level of control and regulatory
1 Dan was established in 1945, with the merger of two companies into one monopoly. Until 2002, Dan was a cooperative (an employee-owned firm); in that year it became a public company. The Egged Cooperative, the largest transportation operator in Israel, was established in 1933, when four local public transportation companies were merged into one. In 1951, with the encouragement of the Israeli minister of transportation, two other local cooperatives merged with Egged, creating one large cooperative. Until the reform, Egged operated almost all of the public transportation lines outside the Tel Aviv metropolitan area, which was operated by Dan.
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Table 1 Change in level of service, number of passengers and tariffs in Israel, 2000–2010 (%). Cluster of lines
% change in level of service (2010) in bus km
% change in number of passengers (2010)
% change in tariffs
Northern Israel Nahariya – Zefat Emeq Yizrael Tiberias Yoqneam – Tivon Hadera – Netanya
52 33 126 0 86
45 72 45 NA 105
24 25 52 1 19
Tel Aviv Metropolis Netanya – Tel Aviv Sharon Bikat Ono Petah Tikva Elad Shomron Modiin Lod – Tel Aviv Ramla – Matityahu Ashdod – Tel Aviv
1 NA 21 20 32 0 18 1 118 62
62 NA 3 8 63 2 21 25 99 86
26 0 10 2.5 20 0 0 20 20 56
Jerusalem District Jerusalem Corridor Betar Illit
3 18
63 225
21 0
Southern Israel Beer Sheva (municipal) North Negev Rahat Ashdod (municipal) Beer Sheva – Tel Aviv
17 35 7 3 104
17 34 40 28 67
5 24.5 30–40 4 45
Source: Public transportation Administration 2012.
freedom, because this organization does not have to coordinate and cooperate with local organizations. On the other hand, regulation at the regional level enables better adaptation of public transportation supply to demands. Integration and joint management of several forms of transportation within a regional or metropolitan framework could improve the combination of different means of transportation. Such a change could also increase the access of existing users and encourage new users of public transportation (Hensher, 2004). In Israel, the public transportation division of the transport ministry holds the regulatory authority on the national level. Until institution of the reform in 2000, the absence of competition in the industry gave the two former monopolistic operators (Egged and Dan) a great deal of power and created significant state dependence on these operators. Therefore, the degree of state control in the public bus transportation market was negligible, mainly because of the asymmetry of information between the operators and the state.2 In other words, the state was effectively in “regulatory capture” by the bus operators. This problematic situation is described in different reports of the professional committees that were established by the transport and finance ministries in 1991 and 1996, which also served as the basis for the 1997 government decision to open Israel’s market of public bus services to competition (Israeli Government Decision No. 1301, 1997; Ministry of Finance and Ministry of Transport, 1991; Ministry of Transport, 1996).
2 Asymmetry of information arises when one party possess more information than the other about the product or service, a situation that is liable to lead to malfunctioning in the provision of the product of service. In this case, the public transportation operators possessed more information than the state did.
3.2. Involvement of the private sector in the service regulation management Expansion of the New Public Management approach in recent decades, led to the adoption of management approaches that combine private consulting firms for the purpose of decisionmaking about policy design and its implementation (Boston, 1994; Hood, 1991). A similar process gained momentum in Israel, and consultants from the private sector were integrated, on a temporary basis, to increase the level of expertise of the public system. The role and status of consultants from the private sector in decision-making is not always defined (Howlett, 2010). Guttman (2003) argued that the government should make decisions and design the policies, while the private sector should only provide the services, and these activities should not be mixed. Increased use of private consultants might create a situation where the government is left without its own expertise. In order to keep the public interest, the government should retain the advisory capabilities in all public policy aspects (Boston, 1994). In 1997, the Israeli government introduced a comprehensive reform in the public bus services, including opening the market to limited competition by means of competitive tenders. The government decision also included the establishment of the Public Transportation Administration (which we will refer to as the Administration), a professional support unit, to help the transport and finance ministries to implement the required reforms, which began in 2000. Officially, the Administration, which is a private company, had no regulatory authority. Its activity is defined as providing management, centralization, coordination, and advisory services. In practice, the Administration is involved in numerous areas of activity, including regulatory aspects, as described further in the Discussion section of this article. From 1998 to 2003, a private company was appointed by competitive tender to serve as the first Administration. From 2003 to 2012, it was replaced by a different private company (that is
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Fig. 1. System of regulation of public bus services in Israel.
Public Transportation Administration # 1). In both these periods, a single company provided all the activities required. In 2012, the activities were split between two private firms: Public Transportation Administration # 1, which continued to act in only two areas – planning and finances – and, Public Transportation Administration # 2, which began taking over activities in two areas that were previously performed by Public Transportation Administration # 1 – information and control systems and implementation. These two companies also purchased services from other private suppliers. In addition to these two Administrations, a third private company was selected by another tender in 2003 to be responsible for operational supervision of the operators. All these private companies could contract out some of their activities to private sub-contractor by tender and under the approval of the public regulator (Ministry of Transport). The regulation structure after the reform is illustrated graphically in Fig. 1. Recently, a National Transport Authority was formed. It will operate in the format of a support unit of the ministry of transport, and its role will be to ensure the operation of a broad and effective public transportation system in Israel, according to government policy (Ministry of Transport, 2007). At a later date, four metropolitan transportation authorities will be founded, which will run discussion groups to foster cooperation with the local authorities and groups of people with special needs.
3.3. Division of regulatory authority between the transportation authority and the operators The responsibility to regulate public bus services is divided between the state and public organizations that act on its behalf and the operators. The regulatory responsibilities can be categorized according to the division of authority for planning and supervision: the strategic level (setting general policy on subject of transportation and social policy); the tactical level (determining fares, routes, schedules, and types of vehicles); and the operative level (managing the work schedule of all vehicles and bus drivers, personnel management, and vehicle maintenance). Using this categorization, it is possible to identify the organizations responsible for each function and their involvement in policy making in any market structure. In an analysis based on identification of the organizations responsible for the strategic, tactical, and operative functions, the authors of the ISOTOPE Database (European Commission, 1997) differentiated between four alternative models: a) The Scandinavian model: The regional transportation authority is responsible for the strategic and tactical levels, and the operators are responsible for the operative level. b) The French model: The regional transportation authority and the regional transportation company (managed by a private transportation administration or company) share responsibility for the
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Table 2 Alternative models of distribution for regulatory responsibilities between transportation authority and operators. Model Functions
Scandinavian
French
Adelaide (Australia)
British (outside of London)
Strategic Tactical Operative
Transportation authority Transportation authority operators
Transportation authority Shared responsibilities Shared responsibilities
Transportation authority Shared responsibilities operators
Shared responsibilities operators operators
tactical level, and the regional transportation company and the operators share the responsibility for the operative level. c) The Adelaide (Australia) model: Similar to the Scandinavian model in terms of most components, this model is unique in the involvement of the operators on the tactical level (determining routes, schedules, etc.), compared with the Scandinavian model, where the operators are involved only on the operative level. d) The British model: According to the competitive model adopted in Britain outside of London, the transportation authority and the operators share responsibility for the strategic level (this is the only model in which the operators have authority on this level), but the operators alone are responsible for the tactical and operative levels. On commercial routes and within the London area, the operators have some authority on the tactical level and all the authority on the operative level. Table 2 summarizes the alternative models. Research has shown that the inclusion of operators on the tactical level usually leads to improvement in service and an increased number of passengers (Hensher and Stanley, 2010), mainly because of their closer contact with the customer. In their study of tenders in Holland, van de Velde et al. (2008) argued that a decline in operator involvement on the tactical level over time could be attributed to the transportation authority’s inexperience and lack of knowledge regarding correct management of tenders. In Israel, the public transportation division of the transport ministry has always served as the regulator of the provision of public transportation services. Since the introduction of competitive tendering, the ministry of finance has also had regulatory authority over the government agreements with the operators. Until implementation of the reform, in 2000, Egged and Dan held relatively broad authority on the tactical level, mainly regarding planning. When the reform began, the operators that joined the system based on the competitive tenders were given some authority to set fares and plan services (Shiftan and Sharaby,
2006). In time, the division of authority between the Administration and the operators changed; the authority of the operators on the tactical level was reduced to a minimum, leaving them with operative authority only (Ida, 2009). 3.4. Regulation (supervision and control) of service quality As regulators, the main challenge that public transportation authorities face is the need to ensure that the terms of the contract with franchisees are met, in order to provide the agreed level of service. One means of achieving this is by offering operators bonuses for a high level of service, based on consumer satisfaction surveys. Such mechanisms are commonly employed where public transportation providers are chosen by means of competitive tenders. In other cases, service quality may be a criterion for contract extension or reselection of good operators (Hensher and Prioni, 2002). In Israel, a private firm has conducted operative control of the public bus services since 2003. For this purpose, they developed an index of service quality, based on the deviations of operators from the operative requirements specified in the contract; the operators are aware of its composition. As part of the control process, the operational supervision firm (see Fig. 1) monitors the infrastructure, starting points, and a balanced spread that accounts for 0.4% of the journeys of each operator, by open and concealed methods. A lower index score represents less deviation by the operator, and is likely to indicate a better quality of service. This subject is elaborated in the Discussion. 4. Discussion An examination of common themes between different countries in the provision of bus services is the increasing regulatory capacity of the transport authorities, relative to the pre-operation
Fig. 2. Planned regulation system in Israel.
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reforms, under which the market was usually dominated by monopolies. The achievements of reforms in bus services around the world can be attributed, among other things, to considerable improvement in the functioning of the governments as a regulator of bus service provision. In Israel, the asymmetry of information between the operators and the government narrowed significantly, enabling the creation of a benchmark for costs of operating the services and for demand in the industry. However, in order to obtain a true picture of the quality of the regulation, it is important to examine the components of the process and the type and quality of regulation in the industry, which together constitute an important measure of the success of the reforms. Another important issue is the concentration of the regulatory authorities. The concentration of authority on the national level, as is the case in Israel, may create inefficiency in adapting services to passenger needs, urban development, and supervision and control of service provision (Ministry of Transport, 2007). Recognizing this problematic situation, the government has decided to establish a new transport regulatory model. Under this model, four metropolitan transport authorities will be responsible to provide public transport services under the supervision of a national transport authority (see Fig. 2). Abandoning the national regulation model in favor of a regional and metropolitan model is likely to improve the regulation of public transportation in Israel, in general, and bus service, in particular. Involvement of the private sector in the service regulation management: this issue should be cautiously managed. A massive involvement of a private sector for a long period, like the Administration in Israel, is potentially problematic. On the one hand, the long term of activity enables the Administration to accumulate vast knowledge and high professional ability, which are important to the successful implementation of the reform. On the other hand, this creates dependence (regulatory capture) on a private firm, whose employees possesses the professional knowledge base, could result in the loss of professional knowledge and capabilities accumulated over many years particularly in light of the high rate of staff turnover in the ministries of finance and transport (State Comptroller, 2013). The ministry of transport employs private firms that help it manage and control public transportation: Company A is responsible for handling the competitive process, which includes, among other things, the preparation of tender specifications, conducting surveys, setting fares, and preparing plans for the industry structure; Company B supervises the level of public transportation service . . . these firms are given broad authority with regard to the government’s activity . . . and they accumulate vast knowledge and information. Accordingly, the ministries develop dependence on their services. . . . Similarly, the budget division of the Ministry of Finance is barely involved in the issue . . . (State Comptroller, Audit Report 64A 2013, p. 598). The question arises why the transport ministry chose a private nongovernmental organization rather than establishing a unit within the ministry, staffed by people from within the civil service. Apparently, this was due to limitations and cutbacks in public service jobs. First, the small available staff of the ministry of transport precluded implementation of the reform within a reasonable timeframe. Second, recruitment of people through the civil service commission using internal and external tenders in compliance with regulations is a slow and cumbersome process, and the transport ministry would not have control of it; this could lead to employment of personnel that do not have the appropriate professional expertise, making it difficult to implement this complex reform. Third, there was concern that the relatively low wages paid in the civil services would not attract employees of
sufficient quality. Fourth, there was a time-limited window of opportunity for the reform, which the transport ministry was concerned about missing. Most of these considerations are no longer relevant, particularly in light of the relatively long time that has passed since the introduction of the reform. Research has shown that inclusion of operators on the tactical level, subject to limitations and under tight supervision and control, can be advantageous in the effort to match the provision of services to demand (Hensher and Wallis, 2005). Throughout the reform in Israel there have been indications of a trend of centralization of authority on the tactical level by the Administration. This trend apparently reflects the desire to increase state control over this process. When the national and metropolitan public transportation authorities are formed, the optimal division of authority and the degree of inclusion of the operators on the tactical level should be reconsidered. Supervision and control of the quality of service is an important regulatory tool to maintain the quality of service supplied by the operators. The main drawback of the operational control criterion in Israel, compared with other countries, such as Denmark, Sweden, France and Australia, lies in its construction and application without use of surveys to identify the declared preferences of the passenger public (Hensher and Prioni, 2002). Thus, some of the variables included in the index may be unimportant to the passengers, or, alternatively, variables that are essential to the passengers may be missing or be ascribed lower weight within the general score. In such a situation, the operators are likely to strive to improve aspects that of secondary to passengers, rather than investing effort in those that are most important. Including the service quality as a criterion for contract extension or reselection of good operators can motivate operators to supply high level of service. In Israel, the importance of this mechanism has increased since 2005; starting in that year, the operational control score of the operator has been included as one of the criteria for awarding the tender. In time, its relative weight as a criterion for awarding the tender also increased from 5% to 17%. Expansion of the operational control and the fines charged for deviation from the required level of service, along with increased weight of the operational control score as a criterion for awarding the tender have led to the development of “self-regulation”. Most of the operators now exercise some level of self-monitoring of the quality of service they provide, by means of internal control systems. Another drawback is the relatively low portion of each operator’s journeys (0.4% of the trips) monitored; this may fail to deter operators from deviating from the required level of service. 5. Summary and conclusions Reforms in the public transport bus services have been implemented in many countries. In most cases, the implementation of these reforms required re-construction or adaptation of appropriate regulatory mechanisms. The Israeli experience provides the following relevant conclusions: 1. Regulatory structures in which the authorities are concentrated in the national level seem to be less effective relative to the metropolitan regional level. 2. Combining the private sector in the regulatory structure, as has happened in Israel, enable to enjoy the benefits of the private sector (flexibility, efficiency and removing some bureaucratic barriers). In the other hand, it increases the probability of the “regulatory capture” phenomenon, in which the official regulator, the state, control is limited. Thus, this combination should be done carefully, preserving information and knowledge by the official regulator.
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3. Incorporation of the bus operators in the tactical level of service provision seems to be an important tool for tailoring services to the needs of passengers. Limiting the operators involved only operational level creates a situation in which knowledge and information held by the operators, who are in close contact with the passengers, not reflected in setting policy. 4. Supervision and control of the quality of service. Development of service quality index with clear components, which reflect consumers’ preferences, is essential. Combining the operator performance as an important criterion in the tender or in the decision to renew the contract without tender may push operators to provide a high level of service. However, operation of an effective control system requires considerable costs, thus, encouraging operators to conduct self-regulation mechanisms, can achieve good results at relatively low costs. The regulatory reform that includes the establishment of transportation authorities in Israel is still in its infancy and it is too early to draw conclusions regarding its success. Therefore, it is recommended that the impact of the planned reform on the quality of regulation in public bus transportation be examined after a few years of operation. Yet, since Competitive tendering has become a common practice in many countries during the last decades, some of the recommendations mentioned above may help other countries to improve their regulatory regime, in order to supply better public bus services. Acknowledgement The authors would like to thank the Van Leer Jerusalem Institute – Hazan Center for Social Justice and Democracy for their financial support. References Augustin, K., Walter, M., 2010. Operator changes through competitive tendering: empirical evidence from German local bus transport. Res. Transp. Econ. 29, 36– 44. Boitani, A., Cambini, C., 2006. To bid or not to bid, this is the question: the Italian experience in competitive tendering for local bus services. Eur. Transp. 3, 41–53. Boston, J., 1994. Purchasing policy advice: the limits to contracting out. Gov.: Int. J. Policy Adm. 7 (1), 1–30. Central Bureau of Statistics, 2014. Reports (Hebrew). Estache, A., Gomez-Lobo, A., 2005. Limits to competition in urban bus services in developing countries. Transp. Rev. 25 (2), 139–158. European Commission,, 1997. Transport Research – Fourth Framework ProgramIsotope – Improved Structure and Organization for Urban Transport Operations of Passengers in Europe. Office for Official Publications of the European Communities, Luxembourg. Guttman, D., 2003. Privatization, public purpose and private service: the twentieth century culture of contracting out and the evolving law of diffused sovereignty. OECD J. Budg. 2 (4), 85–154. Hensher, D.A., Prioni, P., 2002. A service quality index for area-wide contract performance assessment. J. Transp. Econ. Policy 36 (1), 93–113. Hensher, D.A., Stanley, J., 2008. Transacting under a performance-based contract: the role of negotiation and competitive tendering. Transp. Res. Part A: Policy Pract. 42 (9), 1143–1151. Hensher, D.A., Stanley, J., 2010. Contracting regimes for bus services: what have we learnt after 20 years? Res. Transp. Econ. 29, 140–144.
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Hensher, D.A., Wallis, I.P., 2005. Competitive tendering as a contracting mechanism for subsidizing transport – the bus experience. J. Transp. Econ. Policy 39 (3), 295–321. Hensher, D.A., 2004. Performance Based Contracts (Working Paper 2004/01(ITSWP-04-03)). Institute of Transport Studies, University of Sydney, Sydney, New South Wales, Australia. Hidson, M., Muller, M., 2003. Better Public Transport for Europe Through Competitive Tendering. ICLEI – Local Governments for Sustainability, Germany. Hood, C., James, O., Jones, G., Scott, C., Travers, T., 1998. Regulation inside government: where new public management meets the audit explosion. Public Money Manage. 18 (2), 61–68. Hood, C., Scott, C., James, O., Jones, G., Travers, T., 1999. Regulation Inside Government: Waste-watchers, Quality Police and Sleaze-busters. Oxford University Press, Oxford. Hood, C., 1991. A public management for all seasons? Public Adm. 69, 3–19. Howlett, M., 2010. The Hidden Public Service. Social Sciences and Humanities Research Council of Canada, Detailed Description, Canada. Ida, Y., Talit, G., 2010. Transportation Mobility and Its Influence on Accessibility in Israel. Taub Center, Jerusalem. Ida, Y., Talit, G., 2015. Regulation of public bus services: the Israeli experience. Transp. Policy 42, 156–165. Ida, Y., 2009. Efficient Competitive Tendering for Public Transportation Services. Tel Aviv University, Tel Aviv (Ph.D dissertation) (Hebrew). Israeli Government Decision No. 1301, 1997. Opening the Public Transportation Sector to Competition. Jerusalem (Hebrew). Karlaftis, M.G., 2006. Privatization, Regulation and Competition: A Thirty Years Retrospective on Transit Efficiency, CEMT/OCDE/. [Last accessed 21 October 2014.] Available from URL: http://www.ibrarian.net/navon/paper/ Organisation_de_Coop_ration_et_de_D_veloppement_E.pdf? paperid=15042031.. Levi-Faur, D., 2005. The global diffusion of regulatory capitalism. Ann. Am. Acad. Political Soc. Sci. 598, 12–32. Levi-Faur, D., 2011. Regulation and regulatory governance. In: Levi-Faur, D. (Ed.), Handbook on the Politics of Regulation. Edward Elgar, Cheltenham, pp. 3–21. Majone, G., 1994. The rise of the regulatory state in Europe. West Eur. Politics 17 (3), 77–101. Majone, G., 1997. From the positive to the regulatory state: causes and consequences of changes in the model of governance. J. Public Policy 17 (2), 139–167. Ministry of Finance and Ministry of Transport (Israel), 1991. Report of the Interministerial Team to Examine the Public Transportation Sector in Israel. Jerusalem (Hebrew). Ministry of Transport (Israel), 1996. Committee for Examination and Recommendations on Opening the Public Transportation Sector to Competition. Jerusalem (Hebrew). Ministry of Transport (Israel), 2007. Committee to Examine Reform of Public Transport [Sadan Committee] – Conclusions and Recommendations. Jerusalem (Hebrew). Public Transportation Administration (Israel), 2012. Reports (Hebrew). Pucher, J., Renne, J.L., 2003. Socioeconomics of urban travel: evidence from the 2001 NHTS. Transp. Q. 57, 49–77. Sen, A.K., Tiwari, G., Upadhyay, V., 2010. Estimating marginal external costs of transport in Delhi. Transp. Policy 17, 27–37. Shiftan, Y., Sharaby, N., 2006. Competition in bus public transport in Israel. Transp. Res. Rec.: J. Transp. Res. Board 1986, 38–45. State Comptroller (Israel), 2013. Audit Report 64A (Hebrew. [Last accessed 24 August 2014] Available from URL: http://www.mevaker.gov.il/he/Reports/ Report_113/134c7743-9678-423b-b879-3c5e0f70ca3a/123-egged.pdf.. van de Velde, D., Wallis, I., 2013. ‘Regulated deregulation’ of local bus services – an appraisal of international developments. Res. Transp. Econ. 39, 21–33. van de Velde, D., Veeneman, W., Schipholt, L.L., 2008. Competitive tendering in the Netherlands: central planning vs. functional specifications. Transp. Res. Part A 42, 1152–1162. Wallis, I., Bray, D., Webster, H., 2010. To competitively tender or to negotiate – weighing up the choice in a mature market. Res. Transp. Econ. 29, 89–98. Walters, J., 2010. Is the bus transport contracting system in South Africa leading to trusting relationships between contracted parties? An analysis of funding Issues and the impact on relations between government and operators. Res. Transp. Econ. 29, 362–370. Wang, C., Quddus, M.A., Ison, S.G., 2009. Impact of traffic congestion on road accidents: a spatial analysis of the M25 motorway in England. Accid. Anal. Prev. 41 (4), 798–808.
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Reforms in the regulation of public bus service in Israel Yoram Idaa,b,c,* , Gal Talitb,c,d a
Department of Public Administration and Policy, Sapir College, Israel Tel Aviv University, Department of Public Policy, Israel c The Van Leer Jerusalem Institute, Hazan Center for Social Justice and Democracy, Israel d The Open University of Israel, Department of Sociology, Political Science and Communication, Israel b
A R T I C L E I N F O
Article history: Received 26 January 2016 Received in revised form 4 December 2016 Accepted 4 December 2016 Available online xxx Keywords: Regulatory structure Service quality index Self-regulation
A B S T R A C T
Regulation of public bus services in fixed routes is common worldwide. This article presents regulatory reforms instituted in Israel from 2000 to 2014, in which part of the public bus services are being provided through competitive tendering. The results generally indicate relative success in most of the variables examined: the average cost per vehicle kilometer, the level of service, fares and the number of passengers. However, the reform has also been accompanied by fairly frequent changes in the characteristics of the tenders. These changes may reflect difficulties in imposing regulation on the operators. The findings indicate that the existing regulation in Israel should be changed, both structurally and in terms of the organizations involved in the process. In addition, it is recommended that a new measure be developed to examine the quality of passenger service provided, which should also be included as a significant criterion in the selection of operators. © 2016 World Conference on Transport Research Society. Published by Elsevier Ltd. All rights reserved.
1. Introduction Public transportation in general and bus services in particular are considered an essential instrument for ensuring the physical mobility of residents. The ongoing and effective provision of these services, especially for those considered “transport-dependent” (disadvantaged, elderly, and physically disabled people, children, women, and different ethnic groups) is critical to people’s access to places of work, education, leisure activities, medical care, and other needs (Pucher and Renne, 2003). These services are also important because of the current rate of their replacement by private vehicles; this growing trend has led to increased traffic congestion and a rise in the related side effects, such as air pollution, noise, traffic accidents, land uses, and so forth (Sen et al., 2010; Wang et al., 2009). In light of the view that public transportation is a social service that ensures the mobility of every resident, and that the public sector should therefore provide or regulate provision of this service, in most countries, the public sector closely supervises its provision. In the majority of cases, the public sector performs the supervision directly or by means of fully or partially government-
* Corresponding author at: Dept. of Public Policy, Tel Aviv University, P.O.B. 69040, Tel Aviv 6997801, Israel. E-mail addresses: [email protected] (Y. Ida), [email protected] (G. Talit).
owned monopolies, and also ensures full subsidy of losses, if they occur, with public funds. The constant rise in the cost of providing the services and the subsidies required to operate them, has led many governments in the world to institute reforms in the bus service industry. In light of its socioeconomic importance, most states have preferred to provide the service by means of competitive tendering. The transportation authority offers a cluster of bus lines, generally defined geographically, for competitive bidding. The authority stipulates several types of service parameters, and selects a winner based on pre-specified selection criteria. The main advantage of this method is that the transport authority maintains regulatory control of the service. Results of reforms in bus services, mainly of competitive tenders, are comprehensively discussed in the literature. Examination of the outcome of reforms in different countries has shown that competitive tendering has generally resulted in considerable savings in the cost and subsidy level of this industry. This has proved particularly effective where services were previously provided by an inefficient monopoly operator. With respect to scope and quality of services, fares, and number of passengers, the results have varied among and within different places (Hensher and Wallis, 2005). However, once efficient cost levels have been established, the case for the continuing use of competitive tendering in subsequent contract rounds in preference to
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negotiation with an incumbent operator may be less clear-cut (Boitani and Cambini, 2006; Hensher and Stanley, 2008). Influencing issues include prior conditions, the nature of the supplier market, features of contracts, negotiating and competitive tendering strategies and practice, accountability and transparency, and long-term market implications (Wallis et al., 2010). In recent years, the body of literature on the broad area of regulation has grown (Hood et al., 1998, 1999; Levi-Faur, 2005, 2011; Majone, 1994, 1997). Regulation of bus services is common in many countries, and the transportation authorities there have to handle diverse issues. In most locations, the reforms have been accompanied by changes in the structure of regulation, corresponding to the changes in the industry (Augustin and Walter, 2010; Estache and Gomez-Lobo, 2005; Hensher and Stanley, 2010; Hidson and Muller, 2003; Karlaftis, 2006; Walters, 2010; van de Velde and Wallis, 2013). However, the examination of regulation in the field of public transportation, in general, and bus service, in particular, is still underdeveloped. In this article, we examine the impact of the reforms instituted in Israel from 2000 to 2014 on the quality of regulation on public bus service provision. The article includes a review of successes and failures in implementing the reforms and a discussion of the planned changes in this area. Since many countries are facing issues related to regulation of bus operators, the issues discussed in this study, combined with the Israeli experience in this field are likely to be relevant to other countries in which similar reforms have been implemented, and may help them develop effective policies. The research was based on the analysis of official documents in order to understand the need for reform in the public transportation system in Israel, and to examine its achievements and problems. The documents reviewed included Israeli government decisions, tenders for operation of public bus services, periodic reports of the operators that won tenders, reviews of the operation of public transportation services, interviews with senior officials in the public and private sectors, and a specific State Comptroller report on the public transportation reform in Israel. We begin with a presentation of the reform results in Israel, followed by presentation of regulatory issues. We then discuss the effect of the regulation structure and characteristics on the regulation efficiency and, in summary, offer conclusions and recommendations for improvement of the activity and future research.
Until 2000 two cooperatives (Dan and Egged) provided most (96%) of the public bus services in Israel,1 under a weak and inefficient regulation of the public transportation division of the Israeli Ministry of Transport on service provided. The lack of competition in the industry rendered these two cooperatives extremely powerful, creating strong dependence of both the public and the state on these operators. In recent years the Israeli bus sector suffered from a decline in the number of passengers, accompanied by a constant rise in the cost of service provision and required subsidies, mainly due to high wages paid to employees, specifically bus drivers. In light of the situation described above, Israel introduced in 2000 a reform to increase competitiveness in the public bus services. In order to implement this reform the government established a Public Transportation Administration, to be operated by a private company selected by tender. The Administration’s role is to provide management consulting services to the Ministry of Transport. By 2012, there were 25 competitive tenders under which eight new operators join the market. 34% of the activity in the industry (in terms of bus kilometers) was transferred by 2012 to new private operators, the majority by means of competitive tendering (Public Transportation Administration, 2012). So far, the results of the reform in Israel generally indicate relatively good success in most of the variables examined. The average cost per vehicle kilometer decreased between 37% and 50%. Most of this cost reduction was due to lowering the wages, mainly of the drivers. This resulted in a decrease in the level of government subsidies required (Ida and Talit, 2015). In most cases the level (scope and quality) of service increased, and in some cases, these were accompanied by a reduction in fares. In most cases, the number of passengers also increased. It should be noted that this increase may also derive from a population growth, such as in Elad and Betar Illit, which are relatively new ultra orthodox cities, with population growth rate much higher than the national average and a relatively young population composition (Ida and Talit, 2015). Table 1 presents changes in level of service, number of passengers and tariffs in Israel. However, the reform has also been accompanied by fairly frequent changes in the characters of the tenders such as: type of contract, contract period, criteria of selection operator etc. and these may reflect difficulties in imposing regulation on the operators (Ida, 2009). 3. Regulation of public bus services
2. Reforms in Israel – results and findings Israel’s size is approximately 20,000 sq km and its population is about eight million inhabitants. In 2014 the average per capita income of Israel was approximately $35,000. The country is highly urbanized, with about 3.4 million people, over 40% of the population, in the Tel Aviv metropolitan area and another million each in Jerusalem, Haifa and Be’er-Sheva regions (CBS, 2014). The level of motorization has increased significantly between the years 2000–2014 from 225 to 296 private vehicles per 1000 people, which is relatively low in comparison with the developed countries. Public transportation services in Israel are relatively low compared with other OECD countries in terms of variety and scope (Ida and Talit, 2010). Bus services are the main form of public transportation, accounting for 75% of all passenger trips on public transportation in the country (Shiftan and Sharaby, 2006).
3.1. Common regulatory structures in the world: national versus metropolitan level There are two main methods of regulation in the field of public transportation. One is national-level, state regulation, the other, regulation by a regional or metropolitan transportation authority. In most countries, the regulator is a regional or metropolitan transportation authority. On the one hand, regulation at the national level centralizes the powers in the hand of a single organization, thus enabling a high level of control and regulatory
1 Dan was established in 1945, with the merger of two companies into one monopoly. Until 2002, Dan was a cooperative (an employee-owned firm); in that year it became a public company. The Egged Cooperative, the largest transportation operator in Israel, was established in 1933, when four local public transportation companies were merged into one. In 1951, with the encouragement of the Israeli minister of transportation, two other local cooperatives merged with Egged, creating one large cooperative. Until the reform, Egged operated almost all of the public transportation lines outside the Tel Aviv metropolitan area, which was operated by Dan.
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Table 1 Change in level of service, number of passengers and tariffs in Israel, 2000–2010 (%). Cluster of lines
% change in level of service (2010) in bus km
% change in number of passengers (2010)
% change in tariffs
Northern Israel Nahariya – Zefat Emeq Yizrael Tiberias Yoqneam – Tivon Hadera – Netanya
52 33 126 0 86
45 72 45 NA 105
24 25 52 1 19
Tel Aviv Metropolis Netanya – Tel Aviv Sharon Bikat Ono Petah Tikva Elad Shomron Modiin Lod – Tel Aviv Ramla – Matityahu Ashdod – Tel Aviv
1 NA 21 20 32 0 18 1 118 62
62 NA 3 8 63 2 21 25 99 86
26 0 10 2.5 20 0 0 20 20 56
Jerusalem District Jerusalem Corridor Betar Illit
3 18
63 225
21 0
Southern Israel Beer Sheva (municipal) North Negev Rahat Ashdod (municipal) Beer Sheva – Tel Aviv
17 35 7 3 104
17 34 40 28 67
5 24.5 30–40 4 45
Source: Public transportation Administration 2012.
freedom, because this organization does not have to coordinate and cooperate with local organizations. On the other hand, regulation at the regional level enables better adaptation of public transportation supply to demands. Integration and joint management of several forms of transportation within a regional or metropolitan framework could improve the combination of different means of transportation. Such a change could also increase the access of existing users and encourage new users of public transportation (Hensher, 2004). In Israel, the public transportation division of the transport ministry holds the regulatory authority on the national level. Until institution of the reform in 2000, the absence of competition in the industry gave the two former monopolistic operators (Egged and Dan) a great deal of power and created significant state dependence on these operators. Therefore, the degree of state control in the public bus transportation market was negligible, mainly because of the asymmetry of information between the operators and the state.2 In other words, the state was effectively in “regulatory capture” by the bus operators. This problematic situation is described in different reports of the professional committees that were established by the transport and finance ministries in 1991 and 1996, which also served as the basis for the 1997 government decision to open Israel’s market of public bus services to competition (Israeli Government Decision No. 1301, 1997; Ministry of Finance and Ministry of Transport, 1991; Ministry of Transport, 1996).
2 Asymmetry of information arises when one party possess more information than the other about the product or service, a situation that is liable to lead to malfunctioning in the provision of the product of service. In this case, the public transportation operators possessed more information than the state did.
3.2. Involvement of the private sector in the service regulation management Expansion of the New Public Management approach in recent decades, led to the adoption of management approaches that combine private consulting firms for the purpose of decisionmaking about policy design and its implementation (Boston, 1994; Hood, 1991). A similar process gained momentum in Israel, and consultants from the private sector were integrated, on a temporary basis, to increase the level of expertise of the public system. The role and status of consultants from the private sector in decision-making is not always defined (Howlett, 2010). Guttman (2003) argued that the government should make decisions and design the policies, while the private sector should only provide the services, and these activities should not be mixed. Increased use of private consultants might create a situation where the government is left without its own expertise. In order to keep the public interest, the government should retain the advisory capabilities in all public policy aspects (Boston, 1994). In 1997, the Israeli government introduced a comprehensive reform in the public bus services, including opening the market to limited competition by means of competitive tenders. The government decision also included the establishment of the Public Transportation Administration (which we will refer to as the Administration), a professional support unit, to help the transport and finance ministries to implement the required reforms, which began in 2000. Officially, the Administration, which is a private company, had no regulatory authority. Its activity is defined as providing management, centralization, coordination, and advisory services. In practice, the Administration is involved in numerous areas of activity, including regulatory aspects, as described further in the Discussion section of this article. From 1998 to 2003, a private company was appointed by competitive tender to serve as the first Administration. From 2003 to 2012, it was replaced by a different private company (that is
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Fig. 1. System of regulation of public bus services in Israel.
Public Transportation Administration # 1). In both these periods, a single company provided all the activities required. In 2012, the activities were split between two private firms: Public Transportation Administration # 1, which continued to act in only two areas – planning and finances – and, Public Transportation Administration # 2, which began taking over activities in two areas that were previously performed by Public Transportation Administration # 1 – information and control systems and implementation. These two companies also purchased services from other private suppliers. In addition to these two Administrations, a third private company was selected by another tender in 2003 to be responsible for operational supervision of the operators. All these private companies could contract out some of their activities to private sub-contractor by tender and under the approval of the public regulator (Ministry of Transport). The regulation structure after the reform is illustrated graphically in Fig. 1. Recently, a National Transport Authority was formed. It will operate in the format of a support unit of the ministry of transport, and its role will be to ensure the operation of a broad and effective public transportation system in Israel, according to government policy (Ministry of Transport, 2007). At a later date, four metropolitan transportation authorities will be founded, which will run discussion groups to foster cooperation with the local authorities and groups of people with special needs.
3.3. Division of regulatory authority between the transportation authority and the operators The responsibility to regulate public bus services is divided between the state and public organizations that act on its behalf and the operators. The regulatory responsibilities can be categorized according to the division of authority for planning and supervision: the strategic level (setting general policy on subject of transportation and social policy); the tactical level (determining fares, routes, schedules, and types of vehicles); and the operative level (managing the work schedule of all vehicles and bus drivers, personnel management, and vehicle maintenance). Using this categorization, it is possible to identify the organizations responsible for each function and their involvement in policy making in any market structure. In an analysis based on identification of the organizations responsible for the strategic, tactical, and operative functions, the authors of the ISOTOPE Database (European Commission, 1997) differentiated between four alternative models: a) The Scandinavian model: The regional transportation authority is responsible for the strategic and tactical levels, and the operators are responsible for the operative level. b) The French model: The regional transportation authority and the regional transportation company (managed by a private transportation administration or company) share responsibility for the
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Table 2 Alternative models of distribution for regulatory responsibilities between transportation authority and operators. Model Functions
Scandinavian
French
Adelaide (Australia)
British (outside of London)
Strategic Tactical Operative
Transportation authority Transportation authority operators
Transportation authority Shared responsibilities Shared responsibilities
Transportation authority Shared responsibilities operators
Shared responsibilities operators operators
tactical level, and the regional transportation company and the operators share the responsibility for the operative level. c) The Adelaide (Australia) model: Similar to the Scandinavian model in terms of most components, this model is unique in the involvement of the operators on the tactical level (determining routes, schedules, etc.), compared with the Scandinavian model, where the operators are involved only on the operative level. d) The British model: According to the competitive model adopted in Britain outside of London, the transportation authority and the operators share responsibility for the strategic level (this is the only model in which the operators have authority on this level), but the operators alone are responsible for the tactical and operative levels. On commercial routes and within the London area, the operators have some authority on the tactical level and all the authority on the operative level. Table 2 summarizes the alternative models. Research has shown that the inclusion of operators on the tactical level usually leads to improvement in service and an increased number of passengers (Hensher and Stanley, 2010), mainly because of their closer contact with the customer. In their study of tenders in Holland, van de Velde et al. (2008) argued that a decline in operator involvement on the tactical level over time could be attributed to the transportation authority’s inexperience and lack of knowledge regarding correct management of tenders. In Israel, the public transportation division of the transport ministry has always served as the regulator of the provision of public transportation services. Since the introduction of competitive tendering, the ministry of finance has also had regulatory authority over the government agreements with the operators. Until implementation of the reform, in 2000, Egged and Dan held relatively broad authority on the tactical level, mainly regarding planning. When the reform began, the operators that joined the system based on the competitive tenders were given some authority to set fares and plan services (Shiftan and Sharaby,
2006). In time, the division of authority between the Administration and the operators changed; the authority of the operators on the tactical level was reduced to a minimum, leaving them with operative authority only (Ida, 2009). 3.4. Regulation (supervision and control) of service quality As regulators, the main challenge that public transportation authorities face is the need to ensure that the terms of the contract with franchisees are met, in order to provide the agreed level of service. One means of achieving this is by offering operators bonuses for a high level of service, based on consumer satisfaction surveys. Such mechanisms are commonly employed where public transportation providers are chosen by means of competitive tenders. In other cases, service quality may be a criterion for contract extension or reselection of good operators (Hensher and Prioni, 2002). In Israel, a private firm has conducted operative control of the public bus services since 2003. For this purpose, they developed an index of service quality, based on the deviations of operators from the operative requirements specified in the contract; the operators are aware of its composition. As part of the control process, the operational supervision firm (see Fig. 1) monitors the infrastructure, starting points, and a balanced spread that accounts for 0.4% of the journeys of each operator, by open and concealed methods. A lower index score represents less deviation by the operator, and is likely to indicate a better quality of service. This subject is elaborated in the Discussion. 4. Discussion An examination of common themes between different countries in the provision of bus services is the increasing regulatory capacity of the transport authorities, relative to the pre-operation
Fig. 2. Planned regulation system in Israel.
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reforms, under which the market was usually dominated by monopolies. The achievements of reforms in bus services around the world can be attributed, among other things, to considerable improvement in the functioning of the governments as a regulator of bus service provision. In Israel, the asymmetry of information between the operators and the government narrowed significantly, enabling the creation of a benchmark for costs of operating the services and for demand in the industry. However, in order to obtain a true picture of the quality of the regulation, it is important to examine the components of the process and the type and quality of regulation in the industry, which together constitute an important measure of the success of the reforms. Another important issue is the concentration of the regulatory authorities. The concentration of authority on the national level, as is the case in Israel, may create inefficiency in adapting services to passenger needs, urban development, and supervision and control of service provision (Ministry of Transport, 2007). Recognizing this problematic situation, the government has decided to establish a new transport regulatory model. Under this model, four metropolitan transport authorities will be responsible to provide public transport services under the supervision of a national transport authority (see Fig. 2). Abandoning the national regulation model in favor of a regional and metropolitan model is likely to improve the regulation of public transportation in Israel, in general, and bus service, in particular. Involvement of the private sector in the service regulation management: this issue should be cautiously managed. A massive involvement of a private sector for a long period, like the Administration in Israel, is potentially problematic. On the one hand, the long term of activity enables the Administration to accumulate vast knowledge and high professional ability, which are important to the successful implementation of the reform. On the other hand, this creates dependence (regulatory capture) on a private firm, whose employees possesses the professional knowledge base, could result in the loss of professional knowledge and capabilities accumulated over many years particularly in light of the high rate of staff turnover in the ministries of finance and transport (State Comptroller, 2013). The ministry of transport employs private firms that help it manage and control public transportation: Company A is responsible for handling the competitive process, which includes, among other things, the preparation of tender specifications, conducting surveys, setting fares, and preparing plans for the industry structure; Company B supervises the level of public transportation service . . . these firms are given broad authority with regard to the government’s activity . . . and they accumulate vast knowledge and information. Accordingly, the ministries develop dependence on their services. . . . Similarly, the budget division of the Ministry of Finance is barely involved in the issue . . . (State Comptroller, Audit Report 64A 2013, p. 598). The question arises why the transport ministry chose a private nongovernmental organization rather than establishing a unit within the ministry, staffed by people from within the civil service. Apparently, this was due to limitations and cutbacks in public service jobs. First, the small available staff of the ministry of transport precluded implementation of the reform within a reasonable timeframe. Second, recruitment of people through the civil service commission using internal and external tenders in compliance with regulations is a slow and cumbersome process, and the transport ministry would not have control of it; this could lead to employment of personnel that do not have the appropriate professional expertise, making it difficult to implement this complex reform. Third, there was concern that the relatively low wages paid in the civil services would not attract employees of
sufficient quality. Fourth, there was a time-limited window of opportunity for the reform, which the transport ministry was concerned about missing. Most of these considerations are no longer relevant, particularly in light of the relatively long time that has passed since the introduction of the reform. Research has shown that inclusion of operators on the tactical level, subject to limitations and under tight supervision and control, can be advantageous in the effort to match the provision of services to demand (Hensher and Wallis, 2005). Throughout the reform in Israel there have been indications of a trend of centralization of authority on the tactical level by the Administration. This trend apparently reflects the desire to increase state control over this process. When the national and metropolitan public transportation authorities are formed, the optimal division of authority and the degree of inclusion of the operators on the tactical level should be reconsidered. Supervision and control of the quality of service is an important regulatory tool to maintain the quality of service supplied by the operators. The main drawback of the operational control criterion in Israel, compared with other countries, such as Denmark, Sweden, France and Australia, lies in its construction and application without use of surveys to identify the declared preferences of the passenger public (Hensher and Prioni, 2002). Thus, some of the variables included in the index may be unimportant to the passengers, or, alternatively, variables that are essential to the passengers may be missing or be ascribed lower weight within the general score. In such a situation, the operators are likely to strive to improve aspects that of secondary to passengers, rather than investing effort in those that are most important. Including the service quality as a criterion for contract extension or reselection of good operators can motivate operators to supply high level of service. In Israel, the importance of this mechanism has increased since 2005; starting in that year, the operational control score of the operator has been included as one of the criteria for awarding the tender. In time, its relative weight as a criterion for awarding the tender also increased from 5% to 17%. Expansion of the operational control and the fines charged for deviation from the required level of service, along with increased weight of the operational control score as a criterion for awarding the tender have led to the development of “self-regulation”. Most of the operators now exercise some level of self-monitoring of the quality of service they provide, by means of internal control systems. Another drawback is the relatively low portion of each operator’s journeys (0.4% of the trips) monitored; this may fail to deter operators from deviating from the required level of service. 5. Summary and conclusions Reforms in the public transport bus services have been implemented in many countries. In most cases, the implementation of these reforms required re-construction or adaptation of appropriate regulatory mechanisms. The Israeli experience provides the following relevant conclusions: 1. Regulatory structures in which the authorities are concentrated in the national level seem to be less effective relative to the metropolitan regional level. 2. Combining the private sector in the regulatory structure, as has happened in Israel, enable to enjoy the benefits of the private sector (flexibility, efficiency and removing some bureaucratic barriers). In the other hand, it increases the probability of the “regulatory capture” phenomenon, in which the official regulator, the state, control is limited. Thus, this combination should be done carefully, preserving information and knowledge by the official regulator.
Please cite this article in press as: Y. Ida, G. Talit, Reforms in the regulation of public bus service in Israel, Case Stud. Transp. Policy (2016), http:// dx.doi.org/10.1016/j.cstp.2016.12.002
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3. Incorporation of the bus operators in the tactical level of service provision seems to be an important tool for tailoring services to the needs of passengers. Limiting the operators involved only operational level creates a situation in which knowledge and information held by the operators, who are in close contact with the passengers, not reflected in setting policy. 4. Supervision and control of the quality of service. Development of service quality index with clear components, which reflect consumers’ preferences, is essential. Combining the operator performance as an important criterion in the tender or in the decision to renew the contract without tender may push operators to provide a high level of service. However, operation of an effective control system requires considerable costs, thus, encouraging operators to conduct self-regulation mechanisms, can achieve good results at relatively low costs. The regulatory reform that includes the establishment of transportation authorities in Israel is still in its infancy and it is too early to draw conclusions regarding its success. Therefore, it is recommended that the impact of the planned reform on the quality of regulation in public bus transportation be examined after a few years of operation. Yet, since Competitive tendering has become a common practice in many countries during the last decades, some of the recommendations mentioned above may help other countries to improve their regulatory regime, in order to supply better public bus services. Acknowledgement The authors would like to thank the Van Leer Jerusalem Institute – Hazan Center for Social Justice and Democracy for their financial support. References Augustin, K., Walter, M., 2010. Operator changes through competitive tendering: empirical evidence from German local bus transport. Res. Transp. Econ. 29, 36– 44. Boitani, A., Cambini, C., 2006. To bid or not to bid, this is the question: the Italian experience in competitive tendering for local bus services. Eur. Transp. 3, 41–53. Boston, J., 1994. Purchasing policy advice: the limits to contracting out. Gov.: Int. J. Policy Adm. 7 (1), 1–30. Central Bureau of Statistics, 2014. Reports (Hebrew). Estache, A., Gomez-Lobo, A., 2005. Limits to competition in urban bus services in developing countries. Transp. Rev. 25 (2), 139–158. European Commission,, 1997. Transport Research – Fourth Framework ProgramIsotope – Improved Structure and Organization for Urban Transport Operations of Passengers in Europe. Office for Official Publications of the European Communities, Luxembourg. Guttman, D., 2003. Privatization, public purpose and private service: the twentieth century culture of contracting out and the evolving law of diffused sovereignty. OECD J. Budg. 2 (4), 85–154. Hensher, D.A., Prioni, P., 2002. A service quality index for area-wide contract performance assessment. J. Transp. Econ. Policy 36 (1), 93–113. Hensher, D.A., Stanley, J., 2008. Transacting under a performance-based contract: the role of negotiation and competitive tendering. Transp. Res. Part A: Policy Pract. 42 (9), 1143–1151. Hensher, D.A., Stanley, J., 2010. Contracting regimes for bus services: what have we learnt after 20 years? Res. Transp. Econ. 29, 140–144.
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Please cite this article in press as: Y. Ida, G. Talit, Reforms in the regulation of public bus service in Israel, Case Stud. Transp. Policy (2016), http:// dx.doi.org/10.1016/j.cstp.2016.12.002