Editorial | Let OUR regulate fares

It is hardly surprising that many public transport operators are angry over the deferment of a 16-per-cent fare hike that should have come into effect on April 1.

Their leaders – including Egerton Newman, the president of the Transport Operators Development Sustainable Services (TODSS), who has admitted to blundering in agreeing to the delay without consulting his members – cannot but have anticipated the reaction, which essentially means that private bus and taxi owners have been called upon to continue subsidising commuters.

The action may help to ease political pressure on the government if, as expected, it helps to contain inflation. But its more significant effect will be to underpin the disorder, indiscipline and ramshackle in Jamaica’s public transport system, especially in the Kingston Metropolitan Area and other urban centres.

A more profound lesson, however, is the need to remove this important element of the regulation of the public transport sector – the setting of fare – from the hands of politicians and return it to an impartial technical agency, such as the Office of Utilities Regulation. That way, public transport operators can be assured of a clear, data-driven and predictable approach to rate-setting, rather than the whim and political imperatives of ministers.

CUT CORNERS

For eight years, up to 2021, bus and taxi operators were not granted a fare increase, which, especially with respect to route taxis/minibuses, exacerbated the Wild West-style chaos that framed their business model. They cut corners.

Vehicles were badly maintained, which itself posed dangers on the roads. Additionally, drivers raced to beat their competitors to the next fare, with little adherence to traffic laws and public transport regulations.

In August 2021, they operators were granted a 15 per cent fare increase, apparently with the understanding that another 10 per cent would follow early the following year. The second bit was not implemented.

Last October, the Government announced a 35 per cent hike in fares (compounded 38 per cent) to be introduced in two tranches – 19 per cent at the time of the announcement and 16 per cent in April, coinciding with the start of a new fiscal year. The first bit was implemented.

However, the central bank argued that the fare hikes would derail its target of corralling inflation (then running at over 10 per cent) to between four and six per cent.

The upshot: the finance minister, Nigel Clarke, announced fare reductions of up to 50 per cent for the government-owned Jamaica Urban Transit Company (JUTC), which would mean adding another J$2 billion to the J$11 billion that taxpayers effectively provide in subsidies to the bus company.

However, in February the central bank conceded that it had badly miscalculated the cooling effect of the JUTC fare reductions on inflation, which in February was at over seven per cent.

NUDGED LEADERS

It is in that context that the Government nudged the leaders of the transport organisations to freeze the hikes that should have been implemented a fortnight ago.

A transport ministry statement said: “In asking the sector for a deferral of the expected 16 per cent rate increase, Minister Clarke acknowledged that the Government recognised the hardships faced by the sector and what a fare increase would mean for their operations, but cited the need to maintain inflation in single digits in order to keep the economy on course…”

This newspaper appreciates Dr Clarke’s motivation in the circumstance of substituting his hand for that of the market. In it may be the formative embryo of the merits of an industrial policy.

But the imposition of price restraint was only on the transport sector. And while private, mostly small, operators froze their fares, the JUTC was assured of additional compensatory subsidies to cover its losses.

Part of the problem faced by the Government in not having a structured system of fare increases for public transportation is that decision-making becomes enmeshed in the politics of economics. Transportation rates are visible, with a deep pass-through impact. So, ministers are inclined to delay and delay.

Inevitably, when they are forced to act, the new economic rates are daunting to implement, leading to the wavering and procrastination observed in 2021 – and in the current case.

The solution is to go back to what existed up to 2011, when responsibility for setting fares was removed from the OUR. Fare determinations by the regulator would be set on the basis of provable and rational costs, with a mechanism for annual adjustments until the next round of determinations. The process would be fair and predictable.

Ministers would lose the ability to intervene, as Dr Clarke has done. But in the long run, it would be better for the economy.