Buses mean Business

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                        KENYA BUS SERVICE HISTORY

In 1934, the Overseas Transport Company of London introduced the first local bus in Kenya using a fleet of 13 buses on 12 routes. In 1966 the City Council of Nairobi (CCN) gave United Transport Overseas Services (UTOS) the then owners of Kenya Bus Services Ltd (KBS) a monopoly franchise to operate a bus service in return for a 25% shareholding stake in KBS.

This was and still remains the first form of Private Public Partnership (PPP) in Public Road Passenger Transport (PRPT). KBS remained the sole operator of bus transit till the 1970's when Kenyanization and serious lobbying by the local informal sector (Matatu Vehicles Owner's Association and Country Bus Owner's Association) sort to cover the gap left due to high rural – urban immigration.

1986 saw the state introduce Nyayo Bus Service Ltd (and shortly thereafter, the Nyayo - London look - Taxis) in contravention of the then existing Franchise Agreement with CCN but in 7 years, the heavily subsidized but inefficient bus company folded up leaving the unsubsidized but efficient KBS in serious competition with a deregulated and un-taxed informal sector (Para-transit). Failure to regulate and tax Matatus then, was tantamount to subsidizing the sub sector and in effect allowing it to operate without paying its externalities' true cost. The Para-transit mode which thrived and continues to thrive on illegalities was and continues to be allowed to operate outside labour legislation while KBS was heavily unionized, stuck to the rule of law and therefore bore all the costs of labour as per statutes.

UTOS being a multinational had strategically diversified into OTC an Inter-City operation, Kenya Bus Services (Mombasa) Ltd - a commuter operation who also operated the Kenya Ferry Services, UTC Hertz - a tour operation and Block Hotels - a management service. Since then, PRPT in Kenya has remained a private sector affair with no government support (no subsidy), no policy framework, no legal framework and no institutional framework. The industry also continued to operate with no rules of entry and no capacity building in human capital.
Law enforcement started to be compromised by corruption and illegalities - perpetuated by Para-transit operators who brought in second-hand low capacity vehicles - started to upstage formal operators leading to the collapse of many bus companies. This liberalization stage bought in challenges to many industries and KBS was not spared.

In 1991, Stagecoach International of Britain bought a 75% UTOS stake in KBS and changed its name to Stagecoach - Kenya Bus. By 1998 after 7 years of operations, where Stagecoach experienced heavy losses as a result of unfair and wasteful competition from the Para-transit Sector - a charged political climate where several buses were burned with no compensation from the government, a corrupt government regime, high accident rates, high inflation and interest rates, devaluation of the Kenya Shilling; coupled with effects of the Elnino rains - it sold 95% of its shares to a group of Local Investors who renamed it Kenya Bus Services Ltd. CCN had lost its 20% shares to Stagecoach through an equity rights issue and therefore eroding public sector participation in PRPT. The non renewal of the franchise by CCN spelt doom for Stagecoach and indeed PRPT. In effect government threw in the towel. Remember government had also failed it trucking engagement through KENATCO.

The introductions of the commuter train in Nairobi that carried passengers from KBS strong holds with predatory fare structures (since the operator Kenya Railways was then being subsidized by the government) also dealt KBS a serious blow.

With over 70 years' of successful operations in a deregulated Para – transit dominated contestable market, KBS was subjected to Legal Notice No. 161 of 2003 which among other things prohibited the carrying of standing passengers, introduced seat belts, speed governors and a new colour uniform for road crew on commuter buses. These requirements put heavy strains on the company cash flow leading to creditor's debt built-up. It will be noted that prior to the introduction of these rules KBS serviced its operations through the fare box with some degree of success though it could not fund new rolling stock for commuter services due to an unhealthy rolling stock financing regime and an unpredictable investment climate. Note that KBS never ever received government subsidy.

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Liberalization of trade in 1991 saw the entry of the second hand 14 seater (Nissan) mini buses into the PSV market. Its cheapness assisted those being retrenched by government to venture into Matatu business. Its maneuverability in a demand responsive passenger "free" market left no chance to the scheduled KBS operation. Its flexible fare policy made it difficult for KBS to compete. The Nissan became the cancer that started to kill the bus mode of operation slowly but surely. It is strange that the same government that condoned and even subsidized the Nissan is now condemning it.

The collapse of Kenya National Assurance, and now many other PSV insurers, meant that KBS had to shoulder all claims the insurer could have paid. As at 1998 when stagecoach sold KBS to locals, the Insurance Claims Portfolio stood at Kshs. 350,000. The speedy processing of unstructured insurance claims cases by courts from 2002, for a company that had unfortunately perpetuated a Stagecoach type high deductible insurance regime (self-insurance), meant that the settlement rate could not march the dwindling fare box revenues. This led to court actions that resulted in the auctioneering activities where KBS vehicles were attached and sold hence bring to an end an era of organized mass public transport; but leaving behind a nostalgic local strong brand name – KBS - that was for decades synonymous with organized PRPT in Nairobi.

An indigenous private sector investment went down the drain with no government intervention. The collapsing trend of PSV Underwriters, under the weight of corruption, persists to date as the government continues to looks helpless. The insured continues to be the victim of unregulated auctioneering activities as the government look aside.

To date KBS remains the nostalgic mainstay of formal, professional and organized PRPT in Nairobi. It was the single largest mass public transit operator in East and Central Africa with 424 buses by 2004, employing 3400 employees, a capital outlay of Kshs. 2.5 billion (US$30 million), and a potential annual turnover of Kshs. 3.3 billion (US$ 38 million) and carrying 120 million passengers in a year. The expected loss in the 14 seater matatu debate needs to be gauged against the KBS loss that was dealt a last blow by another regulation regime christened 'Michuki Rules' even as Michuki's Integrated National Transport Policy that has the solutions, lies on government selves unimplemented.

Since the collapse of KBS the externalities bred by many years of government under investment in a proper transport system have caught up with us. PSV Operators strikes, Congestion, Pollution, Accidents, Corruption, Cartels and Insecurity issues have to be addressed now!

In all these confusion, the commuter is the sufferer as the government watches and falters with no policy, legal and institutional framework to offer a word class public transport solution.

Remember: - a good Transport System costs a lot of money but a bad Transport System costs even more.

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MUKABANAH, EDWINS MASSIMBA - Managing Consultant, Kenya Bus Service Management Ltd