S W R de A Samarasinghe

The web edition of today’s Daily Mirror (Tuesday May 12th, 2009) carries a news item captioned “Standardization for three-wheelers.”  The report says that the “Rates charged by three-wheeler drivers are to be standardized, streamlined, and made applicable countrywide.” by the Transport Ministry.  The National Transport Commission (NTC) is to be entrusted with the task, the report further states.

There are plenty of pressing issues in the transport sector that need the urgent attention of the Transport Ministry and the NTC. But trying to enforce standardized country-wide three wheeler fares is not one of them. Consider the ground reality.

There is free entry and exit from the industry. In other words anyone who can raise the relatively modest sum of capital can buy a three-wheeler and hire it as owner-driver or get a driver for a wage or, as mostly happens rent it to an operator.  There is no official regulation of three wheeler numbers permitted that we are aware of even in the major cities such as Colombo, Kandy and Galle. The only ‘regulation” that exists is the informal one on the part of those who already use a given location as a three-wheeler “park” who regulate entry of  newcomers to the park. When an existing park is “full” a new park is established in the next best spot available.

This laissez faire policy is strongly backed by politicians who see it a means of providing employment at a relatively low cost. Most important the three wheeler industry is also an important vote bank (very roughly about 3% to 4% of the voters in Sri Lanka depend directly or indirectly on three-wheelers for a living).

The Department of Census and Statistics on its website (Statistical Abstract) reports that 362,000 three wheelers were registered with the Registrar of Motor Vehicles as at the end of December 2007. Between 2003 and 2007 the total number of three wheelers registered annually has risen by a little over 40,000 except in 2006 when the number rose by 65,000. Thus it is reasonable to assume that today over 400,000 three wheelers would be on the RMV’s register. Even if we allow one quarter to one-third of them to be scrapped or unfit for use the total number in operation would be around 300,000. There is one three-wheeler for every 67 people, men, women and children, (or one for every 13 families) in the county.

What these figures tell us is that the three wheeler industry is highly competitive in most locations and at most times where the service is available. The exception may be late at night when only a few three wheelers are available. As we know from personal experience the average Sri Lankan who uses a three wheeler has a reasonable idea of the going rate. If an unreasonable rate is demanded typically one can walk away and get another three-wheeler.

Now consider what the proposal of the Ministry implies. First, it may require meters, each of which would cost tens of thousands of rupees. The passengers will have to pay for this with higher fares. Somebody will probably collect a fat commission selecting a particular brand. But more importantly, will the meters help standardize, let alone lower the rates? The answer is a definite no. Meters can be tampered with – recall the taxi meters we used to have in the 1950s and 1960s. Meters also break down adding to the cost of maintenance.

In any event who will enforce the rates? If government officials are appointed as “inspectors” they have to be paid with tax money or their salaries and overheads have to be added to the three-wheeler fare and recovered through a registration fee or an annual tax on the industry. No matter what the enforcement mechanism is, it will lead to additional expenses or bribery or both and higher fares.

Finally, does it really make sense to standardize fares, let alone throughout the country even in one town? The answer is an emphatic no. The nature of the journey and what can be considered a reasonable fare will vary depending on several factors. Short distances should cost more per KM than long distances for obvious reasons. The day and time also matter in determining the fare. Evenings, nights and weekends should cost more than regular work hours because the service provider sacrifices more in terms of alternative things he could do (sleeping, spending time with family, weekend off and so on) during that time. The terrain also matters because the cost of running on a flat paved road is not the same as running on a hilly byroad full of pot holes. Even the location from which one hires a three wheeler matters. It is legitimate for a three wheeler that operates from a location that has little business and more idling time to charge more for a trip because the “service” that is provided includes the ready availability of the vehicle in that location that has less business. It is a matter of covering the overhead. Moreover, the fare structure needs to be flexible to respond to frequent changes in cost, especially oil prices.

The misguided officials may think that a regulated fare structure would help the passengers. The above analysis suggests that it is likely to have the opposite effect. The cost is bound to rise for many reasons including the cost of meters, bribes to inspectors and so on. That will cause fares to increase harming the poorer users of three wheelers while also reducing the income of the operators.

The quality of the service will deteriorate if the fare structure is rigidly enforced. Private bus operators are not allowed to charge higher fares on more difficult routes and on off hour service to cover additional costs such as higher maintenance, overtime, greater turnaround time and lower passenger density. So they shun such routes. If the community concerned is lucky enough the state-owned buses may provide the service with a subsidy from the Treasury. There is no such parallel service in three wheelers. The result is predictable. Either three wheeler services will not be available or the operators will flout the law. The Sri Lanka government is very good at creating laws and regulations that nobody adheres to breeding disrespect for the rule of law. This will be another of those. Or perhaps the Ministry plans to start its own three wheeler service to serve the underserved areas that its own rule would create.

What all of the above means is that the Transport Ministry is well advised to leave the three wheeler industry alone when it comes to passenger fares. The current system is a good example of the market doing quite well in regulating fares taking into account all the complexities that underpin the determination of fares. Bureaucrats do not know everything and they cannot devise foolproof methods for everything. If they really want to do a service to the industry and to the community at large they should make a serious effort to regulate the total number of three wheelers that are allowed to be put on the road in each town and city. There is a gross over-supply in many places that obstructs the smooth flow of traffic and takes valuable parking space. A fewer number would raise the average income of three wheeler operators. It may even help lower the fares because the current excess supply possibly creates a floor price below which fares cannot fall because of the fixed overheads. The Ministry in collaboration with the local government authorities can also address the issue of parking space of three wheelers.   But please leave the fares alone.

PS: if the Ministry sincerely wants to keep three wheeler fares in check they should run a very efficient state bus (and rail) service that charges a reasonable fare. The three wheeler operators will get the message because being the good entrepreneurs that they are, they know who their competition is.