Rwanda to place loss-making public transporter under private managers

Onatracom, Rwanda's state-owned public transport company is to be placed under the care of private managers in the last attempt to rescue it from stubborn losses averaging Rwf35 million monthly. Terms of reference for the international tender to hire the company to manage the failing public transporter are almost ready and the tender is expected to be issued by end of July.

The Principal Senior Engineer for Transport in the Ministry of Infrastructure (Mininfra), Eng. Peterson Mutabazi confirmed to The Independent that the tender is underway and in October, the experts, who are expected to run the company for three years, should be in place.

"Around October we expect to have recruited that new management," Eng. Mutabazi said in a recent interview.

The decision to place Onatracom under private management was taken during a cabinet meeting on June 12 after assessing the performance of the company which started having financial constraints in 2009 and is currently operating in the red.

The same meeting approved over Rwf5billion to clear about Rwf3.7billion arrears Onatracom accumulated over time. The balance which is around Rwf2billion will be given to the new management to buy new buses, repair the grounded ones, pay staff salaries and other benefits and improve Onatracom's logistics for it to operate in favorable conditions.

The money, Eng. Mutabazi said, will come from the national budget and will be released as soon as the new private management is in place.

Mutabazi noted that the new management will be tasked to produce a competent business plan indicating how it will operate and is expected to have made profits within three years.

In the second half of 2011, the government sacked the former management of Onatracom amid financial constraints which threatened to bring down Rwanda's most popular transport company which was created over 30 years ago to provide subsidized transport services to the public.

The government immediately appointed a new ad-hoc management to devise a plan to revamp it.

Part of the recommendations was a new business plan.

Lt. Col. Denis Basabose, who was the Director of Transport in the ad-hoc management team and is the current Director General of Onatracom, said the team provided three options to the government.

The recommendations included continuing maintaining Onatracom as a fully state-owned enterprise which would mean that the government would continue investing in it to realise its social mission; selling some shares to the private sector, and selling all of it to the private operator. The government has chosen to maintain Onatracom and place it under private management.

Current status of Onatracom

Mutabazi says Onatracom's problems persist with losses Rwf35 million monthly. The company, which used be at the top of public transport services in Rwanda, plying over 100 routes in rural and urban areas and international routes currently covers around 43 routes, according to Lt. Col. Basabose.

The company used to have over 200 buses but they are currently below 50 with the rest grounded at its head offices in Kigali. The number of staff has also gone down to 156 from 194 caused by the reduction of the number of vehicles in business. The company is operating but is only able to pay net salaries to its staff leaving statutory deductions such as contributions to pension and medical insurance given to civil servants unpaid.

Also, it only waits for cash to buy spare parts which is one of its major causes of inefficiency as suppliers have abandoned it because of failure to pay on time.

The only valuable asset that Onatracom currently has is land and buildings at its head offices and upcountry offices which could be valued above Rwf4billion.

Onatracom troubles

Created in 1970s as state-owned public transport enterprise, Onatracom was given a social mission to operate in rural routes and other routes which the private operators cannot operate because they are not profitable.

The company is also used to transport people during celebrations of national days such as Independence Day and Liberation Day. It was also tasked to provide other services such as production of car number plates, vehicle technical inspection, repair and servicing of government vehicles and management of taxi parks across the country.

Because of its social mission, Onatracom was entitled to budgetary support from the government and this would supplement the revenues from the transport services and other services for the company to continue operating as a monopoly in transport services and other services.

However, most of these services have been stripped off of Onatracom and it is only left with transport services. Production of car number plates has been shifted to the Rwanda Revenue Authority (RRA), vehicle technical inspection has been moved to the Rwanda National Police (RNP), repair and servicing of government vehicles is now open for competition by the owners of private garages, and management of taxi parks has been decentralised to local administration such as districts. Since 2008, the government has also cut the budget support to the company. As a result, Onatracom started experiencing cash flow problems in 2009. By the time the government intervened in mid 2011, the company had accumulated over Rwf2 billion in arrears to staff, suppliers, and the revenue collector.

The weakening of Onatracom, however, can be attributed to reluctance of the government to reform it and lack of strong management.

In 2007-2008, government gave Onatracom new buses to help improve its cash flow. However, the government failed to follow up and change the law if it wanted to see Onatracom operating profitably. The new buses were also poorly managed and after two years, few were still operating. The management also failed to deal with competition from the private sector.

But the major problem, explains Lt. Col. Basabose, is the law governing Onatracom. He says it is not flexible and needs to be revised. The company, he says, is managed like a public entity yet it is being asked to make profits. He urges that with its social mission, which obliges it to operate in routes that are not profitable, making profits is not easy. He says that to buy a spare part for a bus that has broken down, the management cannot take an immediate decision without going through the public procurement procedures which can take a month before the spare part is procured.

At this stage, the bus is parked while the driver and conductor continue receiving salaries and other benefits because suspending them also requires another set of lengthy procedures.This situation, he notes, is completely different from the practice in the private sector.

Challenges to the new management

Turning Onatracom into a profitable company is possible but the law governing it needs to change to ensure it is managed as a private company.

By changing the legal status of Onatracom, the laws governing staff will have changed as well and the new management will be able to appraise the existing staff and retain those ones that are capable for the job as quick as possible. This will even be easy to suspend or sack staff members that have committed grave mistakes such as stealing company money.

In one case, a cashier received money from conductors and used it on to start his own bar business and when he was caught, he turned it into a loan which he would pay in installments. This behavior, according to experts, was deliberate squandering of the company money and the management was very weak to institute strong measures to control finances.

Lt. Col. Basabose says that the staff attitude towards public assets is very low at Onatracom and this is one of the major problems that contributed to the demise of Onatracom buses.

However, it is currently difficult to predetermine if the new management will be able to run Onatracom and make profits if the social mission will continue prevail since the government may not be willing to drop the rural routes and concentrate in urban areas and international routes.

Mutabazi says that the new private management is expected to turnaround Onatracom given the growth opportunities that the Rwandan transport sector offers.

Local companies shun Onatracom

Local companies in public transport have shown no appetite to compete for the management of Onatracom. Lt. Col. Basabose says that they were even requested to form a joint venture with the government to run Onatracom but they refused the offer.

However, they have reasons which include the arrears the company has accumulated and the law governing its operations which they say doesn't allow flexibility.

Currently, Onatracom cannot pull out of a route that is not profitable and join a profitable one because of its social mission. But the private sector can join a route that is profitable and leave the one that is making losses.

There is also lack of flexibility in terms of procuring spare parts and other goods and services which does not favor a profit oriented entity at the moment.

But the limited capacity of the local public transporters especially expertise and resources is another reason why they may not participate in the tender to manage Onatracom.

They can only participate once they form a joint venture with foreign a company which has expertise, according to Eng. Mutabazi.

Reform in public transport system

Last year, the government adopted a new public transport policy which introduced route bundling and franchising clearly putting emphasis on service delivery and efficiency.

The existing public transport service providers are currently operating in a disorganised manner due to several reasons such as concentration on one route thus causing unfavorable competition amongst themselves, lack of prior knowledge and expertise in transport business management, and limited financial muscle to invest in more transport carriers such as buses to exploit the ever increasing demand especially in the urban areas such as Kigali.

With the new policy whose implementation is underway, transport companies are required to compete publicly to win a tender to operate a route or many. The ones which present a better strategy on how they will service a certain route are given a five year contract and if the route is not profitable, they can apply for subsidies. They can also lose the tender once the public complains of poor services and high charges.

Only registered companies are allowed to take part in tendering process to provide public transport services. Others will register their vehicles with registered companies and they will operate under the franchise agreement. The new policy is aimed at attracting competent local and foreign investors into the public transport business.

Already in Kigali city, routes have been bundled and the private companies which offer public transport services have already submitted their bids to compete for some of the bundled routes. The opening of the bids was expected on July 15 but it was moved to July 29.