Secrecy frustrates transport scrutiny

19:57, Apr 09 2013

There's a common suspicion that it is difficult to be both virtuous and rich.

Jesus probably started it with his remark about camels passing through the eye of a needle more easily than a rich man into the kingdom of God.

This is obviously an enormous consolation for the non-rich, who can at least flavour their plates of cold-boiled envy with slivers of schadenfreude. Meanwhile, those with overflowing coffers may notice a sensation of guilt while refuelling the Maserati.

You may scoff, but this is what one highly successful entrepreneur with substantial New Zealand business interests had to say on the matter a few years ago: "If we were to apply the values of the Sermon on the Mount to our business, we would be rooked within six months. Ethics are not irrelevant but some are incompatible with what we have to do, because capitalism is based on greed."

Chalkie looked up the Sermon on the Mount - it's the one about the meek inheriting the earth and the merciful being blessed. The entrepreneur, Brian Souter, didn't have to look it up because he's a staunch member of the Church of the Nazarene.

Souter is not well-known in this country but he has been making waves in his native Scotland since the 1980s. An unconventional character, Souter made his fortune in the bus business and became notorious for ruthlessly grinding competitors into the dust.


In one memorable clash with regulators in the 1990s, the Monopolies & Mergers Commission in Britain described his company's behaviour as "predatory, deplorable and against the public interest".

That was, of course, a long time ago now and Chalkie does not suggest Souter's companies behave deplorably today, but his comments on corporate morality have the ring of inconvenient truth.

The lesson should be paid particular attention by local authorities in this country who hand out huge sums in subsidies to a handful of transport operators including Souter, who still owns bus and ferry companies in New Zealand after selling his main bus company to Infratil in 2005.

Lest this appear an academic issue, here's an interesting statistic: between 2005 and 2012 Auckland's bus patronage grew 30 per cent, while subsidies to bus companies grew 61 per cent.

On the ferries, patronage grew 24 per cent from 2006 to 2012, while subsidies grew 71 per cent.

Chalkie has been unable to source similar numbers for Auckland's trains because they have a different operating model in which the council's transport division, Auckland Transport, contracts a subsidiary of French-owned Veolia Transdev to run rail services.

Sticking to buses and ferries then, it looks like the public sector was not spending its money wisely when it came to public transport - and we are talking about a lot of money. The combined subsidy for Auckland's buses provided by Auckland Council and central government was $116.36 million in 2011-12, of which the local/central government split was 50/50.

Ten years earlier it was $52.6m.

The figures were alarming even in November 2010, with the total subsidy at $101m, when then transport minister Steven Joyce was moved to say "these trends make me concerned that the Government is not receiving value for money from its spending on public transport".

What's more, "patronage growth was slowest when government subsidies were increasing the most rapidly".

So who is getting all the money? According to Auckland Transport that information is secret because publishing it would "be likely to prejudice Auckland Transport's commercial activities".

Chalkie is surprised the council still thinks secrecy is desirable, given that it was obviously so helpful in previous years - and yes, that was sarcasm. However, it is possible to figure out a bit of who gets what because some companies publish the information anyway.

Souter-owned Howick & Eastern, for example, received $14m in subsidies in 2012, representing 55 per cent of its total revenue.

After totting some numbers, Chalkie reckons the biggest Auckland operator, NZ Bus, got about $60m last year, although it's not possible to say for sure what proportion of its Auckland revenue that represents. If it was consistent with its overall numbers, the figure would be about 40 per cent.

Thus the other bus companies - basically Ritchies, Birkenhead Transport and Urban Express - shared about $43m in subsidies last year.

Unfortunately, that's as far as we can get. We also can't track subsidies over time because ownership changes mean available data are incompatible.

The situation with Auckland's ferries is a little clearer, mainly because it looks like virtually all the subsidy goes to one company - Souter Holdings Fullers. In 2012 the company got $7.3m in subsidies, accounting for about 17 per cent of its total revenue. But again we can't track the subsidies more than three years back.

Incidentally, the relatively low proportion of Fullers' subsidy income is probably because its two main services - to Devonport and Waiheke Island - are busy commercial monopolies.

But back to the buses. It seems one of the issues was the ability of bus companies to define a commercial service as small as a single journey in a day, at rush hour, say. Thus when the council tendered for someone to provide the rest of the timetable there was little competition for the subsidised service because the incumbent had a built-in advantage.

Bus companies would argue that's a natural consequence of how transport services work, but even with the best of intentions it has probably led to higher costs for taxpayers. Hence the Government is introducing a new way of working called the Public Transport Operating Model.

Legislation helping give effect to PTOM was reported back from the transport and industrial relations select committee last month. Among the provisions it is intended to encourage is a requirement that nothing short of a full timetable can be designated commercial, which should help solve the above problem.

Regrettably though, secrecy will remain the norm.

Bidders for subsidised services will be required to disclose information on revenue and patronage to the likes of Auckland Transport, which will be allowed to disclose it to other bidders. However, the information won't be made available to ratepayers even under the Official Information Act, except with the permission of the transport operator.

Now, Chalkie generally understands commercial sensitivity as something you wouldn't want your competitors to know. It therefore follows that if the information is revealed to your competitors by Auckland Transport, its commercial sensitivity is moot. Yet such is the Government's addiction to secrecy there will be no opportunity for third parties to rummage through the data.

Generally, local authorities and transport companies appear to support PTOM and Chalkie hopes it improves public transport in future. But the trouble here is that the parties involved are as compatible as Mars and Venus. On one hand we have a public sector whose track record implies poor commercial nous, and on the other we have transport operators fundamentally driven, as Souter has said, by greed.

It seems highly optimistic to expect this combination to produce optimal results for bus and ferry travellers, Chalkie included.

Souter's overseas-owned companies are already required to disclose their accounts under the Financial Reporting Act, even if their compliance is poor - it took a threat from the Companies Office last month to elicit their latest filings.

Since secrecy supports the twin evils of inefficiency and arse-covering, Chalkie favours all companies receiving government subsidies being subject to the same requirement.

Chalkie is written by Fairfax Business Bureau deputy editor Tim Hunter.