-This article was originally published by Abyaya Neopane in The Himlayan Times on 14 August, 2016.
HIGHER PRICES AND ANTI- COMPETITIVE PRACTICES ACT AS A BARRIER
It has been half a decade since the Supreme Court issued a mandamus order to the government to end the syndicate system and void any kind of provision and agreement made earlier that promotes anti- competitive behaviour. Yet, the transport syndicate continues to be a puissant force in the transportation industry.
This syndicate fixes routes, lobbies for higher prices and anti- competitive practices, and acts as a barrier to entry for prospective transport entrepreneurs. Such a collusive practice translates to higher prices, overcrowded buses and longer waiting time for consumers. Although, many of us have made this arduous travel a quotidian commute, we might have questioned ourselves how then has it still been able to maintain its dominance? What breeds this syndicate?
POLITICAL INSTABILITY LENDS INCENTIVE
‘Instability’ has often been a one word description of Nepal’s politics. As an investor, it is always discouraging to operate a business in an uncertain political environment. One of the reasons for syndicate formation might lie in this very factor. By coming together, transport entrepreneurs could easily fight against a foreign factor, and reduce its uncertainties.
THE TRANSPORT MANAGEMENT COMMITTEE
The Motor Vehicle and Transport Management Act ( MVTM) that governs the transport sector in Nepal, calls for the formation of a Transport Management Committee ( TMC). This committee is comprised of CDO, one representative from transport entrepreneurs and one from the transport labour union, Chief of District Police Office, and the Chief of Transport Management Office. The TMC has the power to reject route permits.
But, when a person who is operating a transport business has the power to restrict others from entering the market, the person in power has a huge tendency to erect a barrier to avoid potential competition. This conflict of interest faced by the transport representative could be a loophole the association has been exploiting to restrict entry to the market.
The Act also authorises the Department of Transport Management ( DoTM) to regulate the transport sector of the country. Among other functions and responsibilities, DoTM also designates ‘ routes’ for public vehicles. But this policy has brought an unintended consequence of restricting potential competition. Since different ‘ routes’ are ‘ owned’ by respective syndicates, issuing a new route permit requires approval from the syndicate that owns that specific route. If a public transport plies on that route without permission, the vehicles are often vandalised.
Also, since a prospective transport entrepreneur cannot ply on an ‘ undesignated route’ it is the consumers that are at a loss. DoTM also determines fares, or in this case the ‘ price’ of using the bus- service. Since an external factor is determining the profitability of a business, there is often a tendency to influence the decisionmaking body. Since collectively lobbying for higher prices would be more successful than lobbying individually, entrepreneurs tend to come together to influence prices.
THE WAY FORWARD
Public transportation in Nepal is far from free and competitive. Despite the order by the Supreme Court, the transportation market is under the stronghold of syndicates. Political instability, strong bargaining position, and regulatory opportunism, are the reasons behind proliferation of the syndicate.
Consumers would benefit when prices fall, overcrowding in buses reduced, and the waiting time decreased. All of these benefits could be reaped when the public transport industry embraces competition.
There are several ways to encourage competition in the transport sector. First, the restriction on issuing route permits could be removed. Since demand exceeds supply, bringing in more vehicles would benefit the consumers. Although, the rationale behind restricting route permits as narrated by the TMC are pollution and congestion control, when a buss is more convenient, people will switch from private vehicles to commuting by public transport and this, in turn, will itself manage the pollution in the city.
Also, once the market gets saturated, new entrants would automatically stop entering the market, or would find a niche market instead. Additionally, conflict of interest faced by representatives of the transport entrepreneurs and labour association should also be addressed. The representative could be allowed to act as a nexus between the government and the private sector for better coordination between the two but should not be in a decision making position.
Secondly, since a government backing can give some security to obtain route permit and operate public transportation, despite the syndicates’ opposition a ‘ Sajha- Yatayat’ model — public private partnership could also be an option. Also, as we have seen some examples in the recent months, a strong rule of law and protection of private property could also reduce syndicate’s dominance.
Thirdly, deregulating the transport industry in terms of entrepreneurs being able to choose a route is another viable way. When new entrepreneurs do not require the syndicate’s approval to do business, the syndicate ceases to be a dominant force. These entrepreneurs would then compete with one another by offering better services at cheaper prices.
The author is a Research Assistant at Samriddhi Foundation, and can be reached at abyaya@ samriddhi. org.
It has been half a decade since the Supreme Court issued a mandamus order to the government to end the syndicate system.