6.2 International lesson for dealing with incumbent operators

usually lacks information on a system’s costs. Therefore, the design of a good incentive system becomes critical. Another drawback is the nature of traditional operators, which in some systems suffer from a lack of experience in corporate culture and inadequate access to financing. Meanwhile, the benefits of taking incumbent operators’ interests into account is that doing so is socially inclusive, fosters local corporate culture, and encourages entrepreneurship. The design of the system is also likely to benefit from the operational knowledge that incumbent operators have gained from years of operating in the city. Communicating appropriately with operators and including them in the design process help to minimize opposition during the preparation phase (and thus the risk of delays or the project not being finalized) and the risk of informal competition during operations.

Planners must carefully consider the best use and placement of incumbent operators’ strategic assets. In many cases, such assets (fleets, workshops, depots) would put incumbent operators at an advantage—for example, during a bidding process. The project’s structure can use mechanisms to integrate these assets into the project—without limiting competition and while safeguarding the rights of incumbent operators. For instance, the authority may consider incorporating incumbent operators’ workshops and depots into the system or may compel operators to lease them at a fair price to any potential bidder. Other strategies may involve granting incumbent operators a role in the new system as, for example, the providers of particular assets. box 6.2 presents lessons learned for dealing with incumbent operators. For more guidance, see AMPG (2018); Flores-Dewey and Zegras (2012); lopez et al. (2018); and PPP Knowledge lab (n.d.).

In any case, once the project is in its operations phase, controlling competition from incumbent operators or illegal transportation service providers is a must. In some cases, incumbent operators may not participate in the public-private partnership (PPP) deal, but may come back to attack profit margins by formal and informal means. The project might fall apart if investments do not pay off and buses fall into disrepair and out of schedule. Operators without updated licenses might take advantage of the situation by serving informal routes at lower costs. This situation can easily have a tremendous impact on the revenues of a project. Even when incumbent operators are part of the system, they must be well rewarded for their role; otherwise, they might have an incentive to neglect their responsibilities and leverage informal ways to capture profits.

When it comes to risk allocation, the public sector often is in the best position to assume incumbents’ risk. Meanwhile, the private sector is often the most exposed to this risk. The public sector can BOX 6.2 play the role of intermediary between incumbent operators and new investors. It may also plan a project structure that International lesson for dealing minimizes this risk without greatly affecting competition. with incumbent operators Governments are responsible for granting exclusive rights and licenses to operators and for managing project stake• The government should incorporate incumholders. In markets where informal operators provide the bent operators in the planning and operabulk of transportation services, incumbents’ risk is likely to tions of new systems and may benefit from be quite high. If incumbent operators take issue with a projincluding them as partners in the project ect, they can disrupt the system and reduce demand; if the through a special-purpose vehicle (Acabús, private operator assumes the demand risk, it can introduce Ecovía, Metrobús, Metrocali, Metropolitano, repayment risks. The Metrocali project in Colombia illusTransantiago, TransMilenio). trates the impact of incumbent risk.