Aaron McKenna: Public service obligation routes should be put out to competitive tender
The government should put public service obligation and school routes out to competitive tender – doing so would save 20 to 30 per cent on simply handing over such cash to public sector monopolies, writes Aaron McKenna.
By Aaron McKenna Saturday 29 Jun 2013, 8:00 AM
Jun 29th 2013, 8:00 AM 37 Views 41 Comments
Aaron McKenna
DURING THE RECENT Bus Eireann strikes, one of the conditions sought by unions when they were looking for a deal to return to work was that the government should shelve plans to put public service obligation and school routes out to competitive tender. This is quite a tasty chunk of cash, €417 million a year from the exchequer at last count, flowing mainly into the bottomless black hole of money that is CIE.
A World Bank study into the topic found that having tenders saves governments 20 to 30 per cent on simply handing over such cash to public sector monopolies. That's between €83m and €125m per year in potential savings that these intransigent public sector unions don't want the taxpayer to see the benefit of. That's atop the constant fare increases that all commuters have had to contend with as passenger numbers have fallen but costs have remained high and losses deepened at our ever unbowed semi-state company.
So much for solidarity with the common worker, who can suck up fare increases atop the extra taxes that have to help cover off that cool €100m we might save, or go without the services it might pay for.
Wouldn't the private sector just abandon loss making routes?
Those vested in this cushy system of handing over nearly half a billion no-questions-asked tend to give the standard reply to the suggestion of competitive tendering: Sure, wouldn't the private sector cowboys just go after the tastiest routes and leave the loss makers to us?
Well, hardly; considering that PSO routes are supposed to be loss making and that's why they get a subsidy. The fact is that the CIE group of companies use the subsidy to cover their overburdened cost base wherever they drive. Every single Dublin Bus journey since 2008 has been subsidised by the taxpayer by €0.60 or more cents atop the fare paid by the passenger. Even during the good times the subsidy was €0.40 or more per journey. That level of a subsidy isn't there to cover off a few really unprofitable routes frequented by little old ladies. Dublin Bus has refused to publish profitability figures per route for precisely this reason. They don't, or hardly, run any profitable routes at all.
The companies that make up CIE are in a battle with their unions over pay and conditions. Folks are entitled to fight their corner for what they have been given, but lets face it: if CIE wasn't public sector, this wouldn't be a debate. It is only because the company is backed by the bottomless pit of money that is the taxpayer that these arguments drag on.
Dublin Bus drivers are the third highest paid in any major European city
According to UBS' annual Prices and Earnings report from September 2012, Dublin Bus drivers are the third highest paid in any major European city even when adjusting for the cost of living. They earn 34 per cent more than their counterparts in Helsinki, up in the Scandinavian socialist paradise where a beer sets you back the price of a meal. It is difficult to justify arguing over special allowances for travelling to work and getting double time-and-a-half versus simply double time.
The CIE group made losses of €281 million in 2012, shaving an impressive €4 million off the loss they made the year before. The company also has the small matter of a defined benefit pension scheme deficit of €492 million to work through, a problem also highlighted by ESB workers during the week in their whopping €1.6 billion pension fund deficit.
You'd almost think there was a reason every sane private sector company in the world has run a million miles from these unsustainable ponzi scheme pension arrangements. (The government as a whole doesn't have a deficit despite operating a defined benefit pension system, cleverly sidestepping the political time bomb by simply not having a pension fund. It's all paid out of day-to-day spending, which is why as payroll has reduced over the past few years from people retiring, pension spending has shot up and eaten much of the savings.)
Why do companies like CIE remain in public ownership?
Things work differently when it's a public sector company. Politicians are too easily bent to give away the gravy (as the ESB union head famously called it) in return for votes rather than to consider shareholder – taxpayer – value.
Sadly, it's difficult to get past this sort of perverse situation while companies like CIE remain in public ownership. Then the question arises as to why we bother to give ourselves the headache?
What we want is a functioning transport infrastructure. We want buses that run on routes that need to be served, including some that are unprofitable but socially important to us. We don't need to run the bus company to achieve that. We simply farm out the PSO and the school bus routes to private sector companies, including a CIE spun out like its erstwhile crown jewel sister Aer Lingus (and most every other publicly owned airline around the world).
If CIEs shareholders want to continue to rack up €200+ million in losses every year, fair game to them. If the company were to go to the wall next week because it cannot reform itself, then we'll simply hand the contract to the next available operator. They run the route to the standard we agree at a fair price, and compete with others every few years to see who can do it cheapest and best.
Given the size of the market one might have reservations about sending Irish Rail to such a fate, but certainly for the buses I don't see a reason why government feels the need to be so intimately involved in the process as opposed to simply creating a market for the outcome to be achieved. And in the case of rail, there are successes as well as failures to consider in eventually looking to offload our state owned wagons. Freight moved by rail has arrested a long slide under public ownership since being privatised in the 1990s in the UK, and is booming even through recession.
Intransigent unions with an easy sway over politicians
Companies that are no longer entirely owned by the state do not have the same intransigent unions with an easy sway over politicians to prevent any real reform. Aer Lingus' hard headed CEO Christoph Mueller showed this well, when he negotiated a new sustainable pay deal with pilots some years ago. Cabin crew unions, used to fighting on public ownership terms, held out for more. He eventually just fired them all, gave statutory redundancy and rehired on the new terms required to keep the business going. (He has since been made chairman of the board of AnPost by the government).
It may not be nice, but then again neither is forking over hundreds of millions unnecessarily to loss making public sector companies when we're short of cash to run our hospitals. Decisions, decisions. I know which one I'd make.
Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.
Read: Bus Éireann workers vote to accept LRC plan and abandon strike
Read: Bus Éireann proposals cut executive pay, restore driver premiums
Read: IBEC wants the law changed so strikes won't disrupt key services
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