Highway robbery by state transport companies

Financial Express, September 12, 2011

By Pradeep S Mehta

While there is a general acceptance that anticompetitive practices should not be tolerated, a look at the situation across many countries would reveal that there is a general tolerance of anticompetitive practices in the bus transport sector, particularly the long-distance market. These anticompetitive practices exist mostly in the form of cartelisation and abuse of dominance. This is also worsened by the fact that some of these anticompetitive practices flourish due to legal protection offered by regulations governing the road transport sector, which thwarts the process of competition.

It is for this purpose that following recommendations of the National Development Council, the Ministry of Corporate Affairs has launched public consultations on a draft National Competition Policy (http://www.mca.gov.in/Ministry/Draft_Policy.html). The policy inter alia proposes to identify competition distortions or impediments which arise due to policies and regulations prevailing in various sectors, such as road transport, and also due to cross-cutting issues like industrial policy etc. The policy will seek to promote the least restrictive policies so as to enhance competition in the sector through the application of various competition principles.

One such area of distortion arises in the road transport sector due to the granting of monopoly rights to state transport undertakings to ply buses on inter-city routes. One case study done by CUTS in Rajasthan can explain the situation well.

The Rajasthan State Road Transport Corporation (RSRTC) issued a notification in 1985 under Section 68-C of the Motor Vehicles Act, 1939, to the effect that various routes in the state would be serviced by RSRTC buses to the exclusion of private players. Among the routes included in the notification was the Nathdwara-Choti Sadri, although later on RSRTC failed to ply it, citing shortage of buses. However, when a private player applied for a license to operate the route in 2000, the application was turned down, on the grounds that it is reserved for RSRTC. This saw the area going without an active operator, resulting in the mushrooming of illegal transportation, characterised by poorly-serviced trucks and vehicles where commuters are bundled in discomfort, in complete disregard to safety, resulting in accidents.

The Nathdwara case is just one of the numerous examples where transport operators abuse their dominant position, which, in this case, is policy-sanctioned dominance. The abuse of dominance became evident when RSRTC temporarily started plying the route when the private player complained, only to stop when the temperature had cooled after getting a favourable judgement. In addition, RSRTC was also seen plying buses only on a part of the route that it considered economically viable rather than the whole route, despite jealously protecting it using its policy protection. This is clearly an abuse of a dominant position, where CCI has every right to try and correct.

In disposing a writ petition filed by Mithilesh Garg etc against the Union of India, challenging the liberalisation for private sector operators in the road transport field, the Supreme Court in November, 1991, held that: “Restricted licencing under the old Motor Vehicles Act led to concentration of business in the hands of few persons thereby giving rise to a kind of monopoly, adversely affecting the public interest… More operators mean healthy competition and efficient transport system.” This judgement captures the spirit of the National Competition Policy, which seeks to promote healthy competition in the economy by addressing policy-induced distortions.

This situation is also not without international comparison, as cases where publicly-run bus companies end up being abusive have been reported elsewhere. In early June, 2011, Sweden’s Competition Authority was reported to have launched proceedings against government-owned bus company Skelleftebuss, which is alleged to be abusing its dominance in the transport market by trying to push small and medium-sized enterprises out of business.

In 2008, it was reported that private bus operators in Ireland, Circleline and Mortons Coaches had lodged a multi-million euro law suit against a state-owned bus company, Dublin Bus, alleging anti-competitive practices on bus routes from Lucan and Celbridge to Dublin city centre. Dublin Bus was accused of engaging in predatory practices on the route, using its dominant position arising from advantages of being government-owned, by engaging in practices that had effectively forced private companies to cease operations on two lucrative routes.

In Portland in the US, a regulatory body, the Private for Hire Transportation Review Board, was at one time being accused of being influenced by private players to ensure not only that a price-fixing regime is maintained, but also that the number of players in the market is restricted. The Board enforced regulations prohibiting new entrants in the industry by refusing new permits which could have increased competition.

The public sector is not the only abuser of competition in the bus services market, as the market has fallen prey to cartelisation by private players over several years. Normally, the trend among most bus operators is to charge uniform prices, a pattern which is usually attributed to competition, given that there are usually many operators, when in many instances this would be a reflection of cartelisation. This has also seen the number of bus operators being brought to book by competition authorities increasing over the years.

In early June, 2011, media reports indicated that Chile’s National Economic Prosecutor had launched two proceedings at the country’s Competition Tribunal against five bus companies, which had colluded to fix prices, allocate markets, and block new entrants across the country. The first case resulted in fines being recommended against four companies—Pullman Bus, Tur Bus, Romani and Cometa—for colluding to engage in behaviour designed to block rival Buses Línea Azul from entering the market.

In 2010, press reports also indicated that the competition authority of Serbia had taken action against five bus operators fixing ticket prices on the regular routes between Serbia and Germany. The Competition Commission of Singapore had also taken a decision in November 2009, against 16 coach operators and their trade association for fixing the price of bus services from Singapore to Malaysia and Southern Thailand. The Danish competition authority is also reported to have fined the Danish coach drivers association and its management for encouraging an unjustified price increase.

These examples, including the Nathdwara-Choti Sadri case, demonstrate the extent to which the transport market can be distorted due to boorish behaviour by some operators, particularly the state-owned ones, resulting in myriad problems for the commuting public. However, the Nathdwara-Choti Sadri case can prove difficult as the abusive monopoly is being protected by law, which can be turned to for countering CCI’s action. It is high time the reality is accepted that while at face value there is a general appreciation that competition is very beneficial to the economy and to consumers in general, policymakers appear reluctant to ensure that all regulations are free of competition distortions, and are transparent and fair. This case testifies to the extent to which the general public can suffer while a potential saviour, the private sector, is blocked due to unnecessary provisions. This calls for a speedy process towards a National Competition Policy for India and better vigilance by CCI.

Pradeep S Mehta Secretary General, CUTS International and Cornelius Dube of CUTS contributed to this article

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