Public Transport Reform in Developing Countries: Lessons from Experience

This article describes the critical elements of public transport reform in developing countries. The article primarily uses the Latin American experience because of its rich reform history. Before the reforms, public transport was organized around competition in the market –the starting point of this article. This article then explains competition for the market to show why it improves public transport. Critical is protecting the reformed operators from predatory competition. The paper then explains critical elements identified in the reform efforts. The objective setting should be around improving the user experience in frequency, reliability, safety, and security. Engaging stakeholders, especially the existing operators, is not just important, but crucial, to frame the reform and gain support. Their insights and experiences are invaluable in this process. Knowing the user well will help structure future service requirements and overestimate demand. Separating the farebox from the remuneration improves incentives. The contracts used in competition for the market have key performance indicators and embed a risk allocation –commercial or demand risk is paramount– that is part of the remuneration structure. The financing equation also changes because moving toward competition for the market is about internalizing externalities, which increases costs. Institutional strengthening is needed because the contracts with the new operators will be complex, requiring interpretation and enforcement. Because reform takes a long time, the existing operators have a role to play. The paper also mentions failures because of underestimating how much users disliked transfers, which led to overestimating demand.