The structure of an organisation has a huge bearing on its ability to optimise resources, increase profitability and control expenses. In the past six articles, we explored various means to improve performance of BrihanMumbai Electric Supply & Transport (BEST). In this concluding article, we will explore a strategic question about organisation structure that is best suited for BEST to operate as a profitable entity and serve the needs of society.
BEST as independent company
BEST being a government body does not carry loans on its balance sheet. This is also a problem for the company. The lack of proper framework of asset and liabilities does not create a depreciation pool for future investments. Therefore, we need to create BEST transportation into a separate company with its own balance sheet.
Better asset sharing
A separate balance sheet should improve the sharing of assets between BEST and Municipal Corp of Greater Mumbai (MCGM) as well as between the power distribution and transportation arms within BEST. At present assets being used by BEST and those belonging to BEST but used by other arms of Corporation are not paid for properly. With a separate balance sheet and legal entity, BEST will be able to pool and deploy its assets for maximum benefit. The bus stands, chowkies, buildings and real estate can be deployed better at higher remunerations than currently possible. If, through this exercise, the burden on MCGM is reduced then it will be all the more advantageous.
Asset formation
BEST claims its average age of fleet is 4.5 years. However, a look at the buses itself, the broken bus stops, dirty depots, imply rotting infrastructure. It is a result of lack of investment because of neglect by MCGM and BEST Undertaking. As a separate entity, BEST will be able to borrow on the strength of its own balance sheet. At least whatever support from government is required, will be clear because of transparent financials. Further, clearly owned assets will help create a depreciation pool for reinvestment in buses.
Improving return on existing assets
The impact of lack of clear asset and liabilities is felt in the inability of BEST to leverage its Real Estate assets. Globally, these depots, and bus stops contribute to earning capacity. There is clear case for developing consumer-centric infrastructure such as convenience stores, medical stores, groceries and such which occupy footpaths at the present. Some of the depots can be developed into a proper shopping complex or commercial complex, for example, the Mahim depot. These ideas are not new, BEST Andheri West depot already houses a commercial building from which BEST earns revenues.
Cleaner operations
Currently, BEST functions as a dark pit for government largesse. One reason the bureaucracy does not want to incorporate BEST is that transparency will make it difficult for corruption. The opacity of BEST allows lot of the corrupt practices to thrive unchecked.
Alternative ownership structures
Alternatively, Municipal Corporation can take up ownership of bus stops and depots and monetise those. Even in this scenario these assets and their related expenses will be out of BEST's financials giving us clearer picture of the operating realities. Then BEST will be judged only as a bus-service provider and no more.
Regional Transport Operations
BEST is only one operator within the Mumbai Metropolitan Region. Therefore, a MMR Transport Company can be created as apex multi-modal transport company with all transport operators including local trains, metros, Navi Mumbai Municipal Transport (NMMT), Thane Municipal Transport (TMT) and Kalyan Dombivli Municipal Transport (KDMTC), operating as subsidiaries. MMRT could include the future sea transportation options as well. A separate entity for MMR will resolve some of inter-transporter coordination problems. It will also help coordination with different stakeholders. Yet, there is also a risk of MMRT becoming unwieldy corporation given the large population we are talking about.
In conclusion
The suggestions in this series of articles fall into three buckets. First are inter-agency related suggestions (coordination), second are BEST operational suggestions (fleet configuration, and manpower issues) and third are customer facing suggestions (route planning, and advertising). The suggestions made in this series are not exhaustive but definitely a starting point. If more data is available, then we can make more granular suggestions.
The suggestions take a competitive approach - BEST competing with trains, taxis and cars to meet transportation demand. The underlying principle is that when there is a viable public transportation solution car usage, taxi and private taxi usage will automatically decline. When we have won that war we can think of BRTs and dedicated lanes or congestion pricing. BEST or any bus operation will remain viable piece for last mile connectivity. The question is, with these issues then can BEST turn around? It can! A dogged pursuit of these objectives is necessary for BEST to turn profitable. Then it definitely can become a global leader in bus transportation services.
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Rahul Prakash Deodhar is a lawyer, investor and author with experience spanning manufacturing, consulting, investment banking firms. He has advised a wide range of clients including Fortune 500 companies, public and private sector banks, hedge funds and private equity funds among others. He has developed econometric models for demand forecasting in real estate, metals, airlines, and shipping. He designed MIS and planning and budgeting systems, sales networks, and operations for large corporates. He has worked with Aditya Birla Group, CRISIL and Morgan Stanley. He is author of two books – Subverting Capitalism and Democracy and Understanding Firms. He can be reached at [email protected] or at his website www.rahuldeodhar.com.)
