I thank the Chairman and committee for the invitation to discuss my proposals for regulation of the bus market. A high quality and efficient public transport system is essential to sustaining the economic and social progress made in Ireland in recent years. The bus system is the backbone of our public transport system. Dublin Bus and Bus Éireann carried 190 million passengers in 2002. I acknowledge the great progress made by both companies, their management and staff, in responding to the challenges of recent years.
Historically high levels of capital investment, amounting to nearly €2 billion since 1999, have been made in public transport under the national development plan. This has been supplemented by significant increases in the annual subvention, which currently stands at nearly €250 million per annum, compared with less than €150 million as recently as 1999. Agreement has been reached with the Department of Finance to sustain current levels of investment on a multiannual basis. This investment has begun the transformation of public transport. We have seen, for example, a significant upgrade of the bus fleet in terms of quality and capacity. Over a third of the Dublin Bus fleet and all buses in the provincial cities are now low-floor, wheelchair accessible. The old, cramped, uncomfortable and unreliable buses, which was the common experience of bus travel in Dublin not too long ago, are largely a thing of the past. However, as in many areas of the public service, Exchequer investment alone is not sufficient to deliver the level and quality of public service which the current generation of Irish people expect and rightly demand.
Many may not realise that we have a regulatory framework for the bus market in Ireland that dates back over 70 years to the Road Transport Act of 1932. The organisational framework is over 50 years old, dating to the Transport Act 1950 and the only significant organisational innovation since then was the establishment of three CIE operating subsidiaries in 1987. The regulatory and organisational models for public transport served this country well in the past but our social circumstances and economic outlook have changed significantly in the intervening period. We must look for greater accountability and customer responsiveness in our public services. We need to examine new ways of delivering our public services, which are not rooted in the economic and social perspectives of a different era but reflect the changing nature of the society and economy for which these services are being provided.
The key ingredients in delivering public services should be quality, customer focus, accountability and value for money. It is no longer good enough to merely assert that these requirements are being met. We have to demonstrate that this is the case. There is always a concern, where there is monopoly provision, that the organisational imperative takes over from the service imperative; that the needs of the organisation get confused with the needs of the public or, worse, that the public interest becomes subordinate to that of the monopoly itself. We need to look at new ways of delivering public services. If the private sector can deliver a public service of satisfactory quality that is more cost-effective and responsive to customer needs, then why not let the private sector provide the public service?
It is not a question of assuming the private sector can deliver a better service than traditional public service organisations but more a case of using properly constructed competitive processes to decide that issue. In my view, contrary to some commentaries, it is not a question of public versus private but of deciding what mix of public and private will deliver the best result for both the taxpayer and public transport user. We need flexible systems, both public and private, to deliver public services of high quality which are responsive to need and cost effective.
I am firmly of the view that investment alone will not deliver the public transport system that is required for this country in future years. Improving the infrastructure will help, but will not, of itself, provide the public transport system required in the 21st century. We also need to focus on how the service itself is being delivered. It is in this context that we need to modernise the 70 year old regulatory framework and 50 year old organisational structure for delivering public transport. I emphasise once again that my aim is to provide a framework which ensures greater accountability and customer responsiveness, together with increased quality and value for money in the provision of public transport.
There is, currently, in real terms, effective monopoly provision of bus services in Dublin. There is a handful of private operators but Dublin Bus is the dominant network provider. International experience indicates that monopoly provision may not be the most efficient way to deliver public services. It can result in inefficient use of resources, arising from an absence of competitive pressures, lack of transparency and accountability regarding costs and lack of flexibility, innovation and customer responsiveness.
I am also of the view that deregulation of the bus market in Dublin, in that sense, would not meet the social and economic needs serviced by urban public transport. Deregulation involves public transport operators themselves deciding what level, quality and types of services to provide. Each operator acts independently so there is effectively no public transport network and no consistency of service, frequency levels or fares between operators. Deregulation, in the strict sense of the word, of urban bus services was introduced in the United Kingdom, outside London, in the 1980s and has not been successful. It has led to an unstable network, with services and timetables changing frequently and resulted in lower costs but higher fares. More bus miles have been operated, but fewer passengers carried. In the UK, local authorities spend almost €2 billion per year on buying bus services and must do this without a robust regulatory framework which ensures good accountability for this subvention.
No other country has fully deregulated urban public transport and I do not propose that we do so here. Rather, I am proposing a system of controlled competition for the bus market in Dublin. My proposals are based on a substantial body of research. Departmental research carried out as a precursor to the consultation paper, A New Institutional and Regulatory Framework for Public Transport, supported the introduction of franchising. Independent research conducted by the European Commission and published as the ISOTOPE report also supported tendering and led the Commission to introduce legislative proposals requiring competitive tendering for the allocation of transport subsidies. Independent consultants NERA and TIS, working for the public transport partnership forum, carried out a comparative international review of public transport provision and regulation and also recommended in favour of the introduction of competitive tendering in the greater Dublin area.
Competitive tendering, in the form known as franchising, has been successfully introduced in a number of countries. My Department examined its operation in London, Sweden and Denmark and will continue to review developments in these and other countries as it completes its policy development and legislative programme. The latter two Scandinavian countries have a significant tradition of public service provision, which is the envy of many European countries. This research informed my proposal for an independent regulator who will procure bus services using controlled competition. In other words, competition will be for the market not in the market.
The regulator will act as the planning body and define the required level of public transport provision. This will ensure non-commercial but essential services continue to be provided and network integrity will be maintained and enhanced. The regulator will tender services by route or area and operators will compete for the right to provide the services. This will bring competitive efficiencies to bear in the provision of public transport, while preserving the integration of the network and safeguarding the interests of passengers.
Franchising will introduce a sufficient level of competition in the bus market to stimulate better performance, improve efficiency and deliver better value for money. The proposed regulator will establish a direct link between State funding, which is now significant, and service performance and quality, which will make public transport operators more fully accountable for any revenue support payments they receive from taxpayers. Operators will compete for the subsidy they require, thereby ensuring transparency and value for money.
I plan to introduce franchising in the Dublin bus market on a phased basis once the necessary legislation establishing the independent regulator is in place. International experience and the research carried out by my Department indicate that a phased approach is the best way of opening the market. By phasing the introduction of franchising over a period the regulator can learn from its initial experience and adjust its procedures and practices so as to maintain and strengthen competitive tension in the bus market. I have proposed an initial phase of 25% of the market to ensure a smooth transition. This is large enough to attract sufficient competitive interest and provide a good comparator with direct service provision by the CIE companies.
A phased opening of the bus market will also allow us to compare the results of franchising with the direct provision of services by the CIE bus companies. This comparative evaluation will provide the regulator and my Department with valuable information on the process, which can inform its future direction.
Opening the CIE bus companies to competitive pressures will also provide the Department with direct market tested evidence of their comparative performance. The reality is that we do not know precisely how well they are doing or how much better they can do. The only really effective way of establishing this is to put them to a competitive test and fully evaluate the results.
I realise my proposals provide an opportunity and a challenge to Dublin Bus to demonstrate that it can continue to deliver. Dublin Bus will still have a major role to play in the delivery of bus services in the capital. When the market is opened I believe it will prove able to compete on equal terms with the best of the private sector operators. To ensure Dublin Bus and the other CIE companies have the commercial freedom to act in a competitive market, I am proceeding with a parallel programme to restructure CIE to give the three operating companies the necessary independence and commercial freedom they will need to perform effectively in a competitive transport environment.
I recognise that regulatory and structural reforms on their own are not enough. We also need to improve the operating environment for buses in urban areas. I recently set the traffic authorities in Dublin the target of doubling the number of quality bus corridors. My Department is also working with the authorities in the provincial cities on the introduction of effective bus priority measures. I am also committed to continuing a sustained programme of public transport investment, resulting in more and better services. This investment can only be sustained, however, by demonstrating that we have put in place improved delivery structures, including a reformed regulatory and structural framework.
I have concentrated so far on the bus market in the greater Dublin area but I also want to speak briefly about public transport regulation in the rest of the country. All public transport outside the greater Dublin area should also be subject to independent economic regulation. I recognise, however, that different regulatory models may be appropriate for the different markets. I am continuing to consider the recommendations made in the report, Regulation of Bus Services Outside the Greater Dublin Area, published last year and I am carefully considering the submissions received in response to the report.
CIE employees may be concerned that change will be delivered at the expense of their employment conditions. I acknowledge that these are legitimate concerns and that uncertainty can bring real fears to all those seeking to build careers and support their families. It is my hope that these genuine fears can be addressed through constructive dialogue with the trade unions. I remain open to addressing these concerns and examining mechanisms for providing the necessary reassurance in the context of a changing environment. I and my Department also remain open to a continuing dialogue on the wider dimensions of this issue in advance of my seeking definitive Government decisions on regulatory reform.
In this context, I want to speak directly to CIE staff and the wider trade union movement. I want to express my disappointment at the recent decision of the CIE trade unions to engage in a campaign of industrial action over the coming months. This decision was taken despite ongoing informal contacts between Government and union officials following the meeting the Taoiseach and I had with congress in mid-May.
I ask the CIE employees and their trade unions to fully consider the implications of their decision to oppose Government policy in this way, the disruption it will have on the lives of ordinary working people, many of whom are trade union members, the impact it will have on the economy, which already faces significant internal and external challenges, and on public attitudes to public transport. The recent improvements in the public's perceptions of public transport are in danger of being set at nought. The growth in public transport usage and the increase in market share achieved in recent times will be much more difficult to sustain if services are being disrupted every few weeks by industrial action.
I ask CIE employees to consider the impact on the CIE companies. The protest action on 18 July will result in a direct revenue loss of €1.1 million for the companies, to which must be added the cost of the six further days of industrial action already announced and the longer term cost of customers who permanently desert public transport. This will worsen the already unsatisfactory financial position of the CIE companies. The difficult Exchequer position means there will be no additional funding to CIE to help to recoup those losses. This, in turn, will worsen the position of the CIE companies in an increasingly competitive transport market and damage the viability of the very companies the trade unions and I seek to protect.