Our View: Flawed public transport based on reckless guarantees

SIX YEARS after the introduction of the public transport system, Communications minister Marios Demetriades acknowledged that the model used for setting it up was wrong. Citing the example of Malta, which has a successful public transport system, he said Cyprus should have invited tenders and given the contract to the lowest bidder. This would have been the economically sensible thing to do, as it would have created conditions of competition and lowered the cost to the taxpayer.

This was too much to expect from an AKEL government, which shuns market economics and believes the state should control everything. As would have been expected, it took the path of least resistance – the preference of all our populist parties – avoiding an open tenders’ procedure because it would have provoked the protest of some 200 bus operators. Instead, it got the bus operators to set up a monopoly company for each town and awarded contracts with guaranteed profit to them. The contract was based on the estimated cost plus profit formula, so loss-making was ruled out.

This led to company shareholders giving highly-paid jobs to members of their families, continual bickering among shareholders and allegations of mismanagement of funds, and of cheating the state. The differences of the shareholders of the Nicosia bus company, OSEL, are currently in the courts. Even the buses bought were unsuitable – they were too big for the narrow streets of the towns they serve, were never full and needed too much fuel. But nobody seemed bothered because the taxpayer would pick up the bill anyway.

There had been attempts by the previous government to review the payment levels, a few years later, after it finally realised the agreement was heavily weighted in favour of the companies at the expense of the taxpayer, but the business model remains the same. Demetriades, while claiming that the €52m paid by the state for public transport in 2015 was not excessive for the island’s size, admitted that “we are not getting a proper return.” And we will not get a proper return for another four years because the Christofias government had signed a 10-year agreement, offering certain profits to the bus companies.

At present, only 3.5 to 4 per cent of people use the buses as a means of transport. Even this is a result of the flawed business model adopted by the previous government. If a company with expertise in public transport or bus services was awarded the contract, it would have done much more in terms of advertising and marketing in order to increase the number of passengers in order to increase its profitability. The current companies have no incentive to do anything as profits and high wages for shareholders are guaranteed by the state.