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Artykuły :: Transport :: Conference papers

Price policy of public transport in the Czech Republic
Marcela BOLKOVÁ, Alexander CHLAŇ
2007-06-01 14:23:59

The public transport is of great importance to the society, but it is necessary to subsidize it. There is a common condition that volume and quality of public transport cannot be arranged without these subsidies. While the growth in individual automobile transport increases some tax revenues directly (e.g. excise duty from fuels), the public transport decreases them.

Price and quality uncompetitiveness of public transport without subsidies in comparison with individual automobile transport could be explained in two ways:
a) External costs of individual automobile transport are so high that in case of their inclusion the transportation expenses of individual automobile transport increase to that extent that the proportion between price and quality will be comparable with the public transport. External costs are defined as valuable goods, which are merchantable out of market, e.g. traffic accidents consequences elimination, traffic pollution and losses from congestions also. Costs accruing therefrom these externalities could be paid from common taxes at the same time, could be paid in the future or they are never paid and decrease the life quality only. If the choice of mode of transport is not directly dependent on the external costs accruing there from, then it has influence neither on pricing nor on decision about mode of transport. The external costs internalization is very difficult, although these implicit costs objectively exist, because of problematic valuation and fears of consequently rising transportation costs.
b) The amount of compensatory payments shows the system wastefulness, which could lie in different subjects, ergo not necessary in transporters only. Then the price of public transport is comparable in the view of price and quality proportion with individual automobile transport and redundant amount of public compensation is wastefulness typical of system. For example suburban units cannot park in the centre whole day as cars, so they come back unused to full capacity. It is also inefficiency of participating enterprises in many cases. If the use of public transport is a common priority, it is necessary to try to make the system internal functioning more effective, that means to optimise public transport services in dedicated area and adapt subsidies eventually ensure better service together.

There is a need to take into account a non-standard economic environment of public transport. It could be mentioned that a different rate of external costs of different modes of transport covering is the principal reason for public transport support. That brings arguments for utilization of public funds obtained from transport to public transport support, e.g. building and maintenance of infrastructure, modernization of fleet and other investments to operation area.

The public transport environment is very inaccessible. Market mechanisms as the optimal pricing could be applied to a small degree only. Contracts are often placed internally in the area of big municipal public transport systems. In the case of railway transport they are commonly placed directly, there are only a few companies; out of them only the so-called national operator is able to offer all kinds of transport services. In the field of regional bus transport there is a small competition in some regions as well. There are regional market leaders and tenders are not common, although the change of transporters is relatively simple.

Contrary in the long-distance bus transport and theoretically in the railway transport among agglomerations of international interest there is free competition. In addition there could not be denied access to the market in the railway transport in case that it makes the economic results of services of public interest worse.

Table 1. Comparison of passenger transport performance
1) Expert estimation Source: [ transport statistics of Ministry of Transport]

However transport potential grow, the public transport in the Czech Republic does not take advantage of it and transport market share of public transport permanently slightly decreases, which leads to growth of individual automobile transport in consequence. The only possible solution is in quality improvement of public transport, which could be ensured by external intervention or by system functioning improvement.

During increase of population mobility the individual transport output grows much the faster, the share of public transport (except of municipal public transport) decreases.

The public transport funding could be divided into four parts:
a) operational subsidies for public transport area,
b) investments to public transport fleet renewal,
c) public transport infrastructure funding,
d) investments for building and upgrading of infrastructure for public transport.

First two points are worked out in the next section.
Ad a) Regional authorities mostly have power to decide in the field of subsidies for transporters. The Czech Republic is in this field significantly onward in reforms than neighbouring countries, where the decision-making about subsidies is more centralized, whilst order is regionalized. Czech laws not always sufficiently specify responsibility of individual levels of public administration for arrangement of transport services and so there is necessary to more explicitly specify responsibilities of public administration subjects to not allow unclearness in the problem of responsibilities of individual subjects.

The state through agreements about public utility service obligation ensures transport services in long-distance services in the railway transport in fast regional and interregional transport, usually in fast train and express category. The Czech rule of law then do not allow the state to ensure this services by bus transport in case of absence of competitive railway infrastructure. These cases are left on agreements of particular regions without necessary interconnection with long-distance railway traffic system.

Regional transport services are ordered by regions or municipalities. Regions ensure basic transport services of their territory and municipalities ensure another.

Table 2. Subsidies to scheduled public passenger transport (mill. CZK)
Source: [ transport statistics of Ministry of Transport]

Actually there are not defined sources for funding of public transport, because they are part of tax yields of individual levels of public administration without special-purpose liability of these funds to the public transport system. The amount of finance for public transport is the responsibility of autonomous subjects. At the same time there is passed current in Europe that the resources originated from individual automobile transport are used for public transport funding.

Ad 2) A lot of vehicles for public transport are amortized and resources were not accumulated for different reasons. A dynamic trend of prices of vehicles in relation with requested quality also caused that amortization is not sufficient for financial backing of new vehicles purchase. There exists so-called adequate profit, which could be used for investments to vehicles. In the railway transport there is provided from case to case a state guarantee for loans that substitutes formally low stability of contractual relations for individual transport services and allows transporters to buy vehicles and pay them subsequently back from subsidies. There was prepared a programme for promotion of renewal and modernization of regional railway vehicles firstly for the year 2006, which is analogical to programmes for supporting programmes for bus and municipal transport.

The overall level of underinvestment is significant, so it is suitable to think about use of private capital.

The process of solving of these points is different in individual modes of public transport. There are extremely old vehicles in operation especially in the railway transport. For example the investments to railway vehicles in last five years were only 78% of depreciations in the same period - all that with very high average age of vehicles in comparison with other countries. Big differences in interannual comparison of investments to railway vehicles indicate difficulties of continual investments to railway vehicles area.

This problem is partly solved in the field of regional bus public transport, even though not globally, the standard is different in particular regions and market segments. The standard is usually higher in municipal transport. Current programmes for fleet renewal could get into difficulties with inadmissible public promotion and they do not solve particularly the problems of railway transport systematically, on the contrary they could be significant factor causing the market rigidity. The support in other areas of public transport is not also systematic enough and covers only some subjects. These programmes are assessed positively, because they have started a fleet renewal, but a slow rate of this renewal is criticised at the same time. The important factor for fleet renewal is the state interest in making the public transport more ecological and more accessible for disabled citizens.

Table 3. Subsidies to public transport fleet renewal
Source: [ transport statistics of Ministry of Transport]

The price of public transport is generated very artificially. All subjects suffer with apparent or real lack of funds and the needs of subsidies are increasing. The set price has to encourage transporters to provide public transport services and also to be in accord with EU rules for public support. Common possibilities of transport pricing are in case of subsidized services following:

1. Confrontation of offer and demand in competitive tendering. The precondition is competition on market.
2. The price calculation, which could make transporter, organizer or order party (authority). The condition is the ability of one subject to calculate price and ability of another subject to evaluate this price and check economic justifiability of costs for specific demanded transport service.

This problem is significantly lesser in the case of economically active services, because there is end costumer on the site of demand, who notice price fluctuations sensitively.

In some cases there is used a principle, where the price is set on base of costs and revenues of previous periods. However it is applicable just temporarily and it cannot be used universally. It is temporary instrument, which could be applied for a short period, e.g. in period of foundation of integrated transport system.

The pricing in contractual relation between authority and transporter in case of subsidized services could originate from following alternatives.
• The full price of transport services. The tariff is set by authority, because it is not important for transport company in this case.
• The price of public contract the transporter competes for. The price for passengers could be theoretically set both by authority and transporter. In the case that authority sets the price, e.g. as maximum price, the transporters optimises the number of passengers only on base of qualitative parameters. In the case that price is set by transport company the transporter is looking for maximal profit at optimal price and number of passengers. However it brings a very difficult integration.

Regulation of price for passengers is modified every year by assessment of Ministry of Finance, which sets the list of goods with regulated prices. It adjusts price calculation and also the problems of reductions in public transport. The necessity to apply to concept of administratively regulated price to economically passive services leads to inclusion of subventions into calculation. The calculation of administratively regulated price is impossible without including subventions and so the calculation of subvention was indirectly codetermined by revenues that were affected by price set for passengers. The use of this method of regulation in the future has to be considered.

The next is the problem of reductions for passengers, which transporter has to provide. It should be commonly valid that reductions are imposed by subject, who pays it, or there must be explicit reference to the subject that makes it in relation to transporter. Incompliance of this rule could be used only in necessary measure in interest of tariffs linkage or specific groups of passengers. Applying of reductions is a common condition for entry of the subject to the public transport market and also the condition for negotiation between authority and transporter. An excessive regulation could make entry of subjects to the market more difficult. For that reason it has to be optimised range of imposed conditions for entry to the public transport market in order to preserve providing of important reductions on the one side and not to over-regulate contracts on the other side.

The profit is a business reward. Its use cannot be bound and checked. Its amount should be connected with usual price of actively used capital increased by motivational bonus. An apparent price reduction of public transport could have unfavourable impact to motivation of transporters to entry the market and provide services and so it could lead to decreasing of quality of services. Practical knowledge of amount of no normalized costs is irrelevant, because the directive cannot assume its denial itself in advance. However the transporters profit cannot be inappropriately high. The combination of inappropriately high profit and direct ordering of public contracts is often an indication of forbidden public support.

Pricing has to be ever based on demand or on calculation for definite volume of transport services. Restraints of bus kilometres or train kilometres, which are not on the base of good analysis, many times does not bring any savings on line or relation. It is necessary to access complexly to individual line and group of lines.

• In the sphere of price creation of transport output unit in relation between transporters and order party should be all possibilities, which were introduced, allowed. It does not exist definite preference of one of these variants. It consists in choice of order party. Transport policy obliges public administration to prefer the integrated transport systems and this fact complicates some variants of price creation.
• Regulation in the field of price for passengers brings two problems:
- problem of administrative regulation of price of deficit transport services,
- problem of discount regulation.

It is necessary to assure, that intervention to the area of administratively regulated price was not connected with significant disruption in relation with basic conditions on transport market and possibility of substitution of public passenger transport with individual automobile transport.

The target is existence of price regulation only in the field of transport, which is guaranteed by authorities. It is necessary that order party could set maximal tariff. There is a fundamental problem of tariff integration of various order parties. Regulations of discounts have to be unified for public transport, which is operated in accordance with contract about public transport service and guaranteed by authority, in all regions of the Czech Republic. In case of public transport, which is not operated on a basis of this contract, but is very important for region, it has to be solved by individual contract. It is very important to solve problem of discounts provided on a base of other laws than the Tariff Law.

Motivation of transporters for business should be achieved with possibility of profit. Usage of reasonable profit should not be bound; it has to come from price of capital and eventual motivation bonus.

The public transport in the Czech Republic stands up to many problems. Authorities often solve them insufficiently or incorrectly. As the result the system of public transport solves only its own problems and it has no energy to compete with individual automobile transport, which is not restricted in the Czech Republic and so its share on the transport market is still rising.

[1] Strategie podpory dopravnĂ­ obsluhy ĂşzemĂ­ [online]. http://www.mdcr.cz/cs/Verejna-doprava/Vnitrostatniosobni-doprava/Strategie+podpory+dopravni+obsluhy.htm, (in Czech)
[2] Program podpory obnovy vozidel městské hromadné dopravy a veřejné linkové dopravy [online]. http://www.mdcr.cz/cs/Programy+a+projekty/Program+podpory+obnovy+vozidel, (in Czech)
[3] MELICHAR, V., JEŽEK, J.: Ekonomika podniku, Univerzita Pardubice, 2003, (in Czech)


Marcela BOLKOVÁ, Alexander CHLAŇ
Jan Perner Transport Faculty, University of Pardubice

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