Revisiting Zupco’s tricky urban transportation model

Source: Revisiting Zupco’s tricky urban transportation model – The Zimbabwe Independent March 15, 2019


THE re-introduction of Zimbabwe United Passenger Company (Zupco) buses to ply urban routes in the aftermath of January fuel protests was a welcome move for most urban commuters. This is largely because commuter omnibus operators had taken advantage of the fuel price hikes and inflation to charge commuters between $5 to $8 for urban trips of less than 30km.

Victor Bhoroma,analyst

Government intervened swiftly by hiring over 247 buses at a flat rate of RTGS$700 per day with subsidised fuel provisions via Petrotrade and Central Mechanical Equipment Department. The buses charged RTGS$1 to $1,50 per trip and managed to force commuter operators into lowering their charges to the same amount immediately after introduction. However, the scheme seems to be dying a slow death within two months of introduction amid claims of fuel pilferage, political mudslinging and failure to pay for hired buses.

A closer look at the Zupco intervention scheme in January points to prevalent flaws that are evident across most government policies and points to lack of due diligence before policy pronouncements. The 247 buses hired at an average cost of RTGS$1 000 per day (diesel at 100 litres per day @ $3,10/litre plus hiring charge) mean that the government shelled out no less than RTGS$6 million in a month before ticket returns are factored in. These have not yet been stated.

The scheme had been structured with the view that the buses would run nine roundtrips (18 trips in total) without taking into consideration that smaller omnibuses average less than nine roundtrips per day because of congestion, low demand during off peak hours and the state of urban roads. The planning did not factor into the equation the refueling time and the fuel shortages.

It was inevitable that commuter omnibus operators were going to lower their prices to match Zupco or charge below $1 per trip to lure customers in a competitive retaliation move. Urban commuters naturally prefer faster and convenient modes of transport despite the high accident risk that commuter omnibuses pose. This is why pirate taxis have become a hit in most urban roads and on the highway.

Revelations by the Ministry of Local Government that government was spending RTGS$3 million net per month to hire the buses confirms the flaws of the scheme at face value before other project control and revenue assurance loopholes are weighed in. The scheme was unsustainable from the onset and needs to be rejigged if Zupco is to venture into urban transportation in the short term.

Buoyed by the positive response from urban commuters, the government recently announced that it had procured 700 buses from Belarus and South Africa to expand the urban transportation model. It is not clear whether the partial privatisation plan will see the light or it has been temporarily shelved.

The privatisation route itself could have raised the ire of ZimRe Holdings Limited which bought 49% shareholding in Zupco from United Transport Group in 1995. The shareholding structure is not clear as government claims to have acquired 100% of the company in 2006. If the ZimRe position is correct, then Zupco is already partially privatised and ZimRe should be involved in any recapitalisation strategies.
However, it is critical to evaluate why Zupco is in a perennial loss-making position despite receiving more than 350 buses between 2011 and 2015. The company has debts of more than $16,1 million as of December 2018 and operates less than 56 buses with a staff complement of 351.

At the core of the company’s woes is political interference, management and corporate governance deficiencies where Zupco rendered services but never got paid for those services or offered subsidised services at the behest of politicians. This may be a recurring phenomenon that will not die away because a new fleet has hit the road; it may actually worsen if control measures are not put in place to instill corporate governance ethos. The partial privatisation route definitely got a lot of investors interested with 22 investors expressing interest to invest in the company. The debt issue or the unclear shareholding structure could have soiled any serious investment.

One of the key aspects that government needs to seriously consider is the model of buses it procures in terms of mechanical quality. Adaptability to Zimbabwean temperatures and roads is of utmost importance, considering the rural routes Zupco plies which remain very important to urban-rural travelling.

Procuring poor quality buses from abroad after shunning local suppliers such as Quest Motors, Deven Engineering and AVM is a slap in the face by the government considering the fact that these suppliers desperately need that coveted foreign currency to buy raw materials. These suppliers are also struggling to stay afloat due to the harsh economy, maintain their employment levels and pay taxes to the same government. Long-term supply contracts with these local firms would go a long way to improve their quality and production capacity. After all AVM’s Transliner Buses fare better than FAW buses procured by Zupco in recent years in terms of durability, interior and exterior design.

Even though the recent Zupco intervention was well received by commuters, the government should not be blinded by populist policies that pile more debt on the loss-making entity and miss the investment opportunities that beckon through partial privatisation.

Funding a loss-making entity or bringing in more buses does not translate to profitability. Even the company is still very relevant to the proposed urban transportation system and long-distance routes, it needs to be operated efficiently. Transport is a game of economies of scale and optimum efficiency. Only through sound corporate governance practices, astute management and a profit oriented model can Zupco be turned around.

The corporate governance issues at Zupco mirror the challenges with most state entities and parastatals and these may continue to bleed the taxpayer as long as key reforms are not executed prior to any recapitalisation deal. Recapitalising Zupco in its current state is similar to taking three steps backwards after making one bold step in announcing a well-received partial privatization policy under the Transitional Stabilisation Programme (TSP).

Bhoroma is a business and economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). — or Twitter @VictorBhoroma1.