Expanding Transportation Planning Capacity in 
Cities of the Global South: Public-Private 
Collaboration and Conflict in Chile and Mexico 
by 
MASSACHUSETTS I 
Onesimo A. Flores Dewey 
Master in Public Policy 
Harvard University, 2007 
OF TECHNOLOGY 
SEP 2 0 2013 
LIBRARIES 
Submitted to the Department of Urban Studies and Planning 
in partial fulfillment of the requirements for the degree of 
Doctor of Philosophy in Urban and Regional Planning 
at the 
MASSACHUSETTS INSTITUTE OF TECHNOLOGY 
September 2013 
© 2013 Onesimo Flores Dewey. All Rights Reserved 
The author here by grants to MIT the permission to reproduce and to distribute 
publicly paper and electronic copies of the ~~ument in whole or in part in 
any medium now known r herrarer ~edn 
Signature redacted 
Department of Urban Studies and Planning 
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I "' Professor JoAnn Carmin Chair, PhD Committee Department of Urban Studies and Planning 
Expanding Transportation Planning Capacity in Cities of the Global
South: Public-Private Collaboration and Conflict in Chile and Mexico
by
Onesimo A. Flores Dewey
Submitted to the Department of Urban Studies and Planning
on August 28, 2013 in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Urban and
Regional Planning
Abstract
What makes it possible for the governments of cities limited by scarce fiscal resources
and weak institutions to enhance their transportation planning and regulatory capacities so as to
provide the public with cleaner, safer, efficient, and reliable public transit alternatives? Such aims
are particularly challenging for cities of the developing world, not just because of resource
scarcities, but also because in these contexts a quasi-informal network of privately owned
transport operators has been historically responsible for satisfying most of the public's mobility
needs with minimal intervention from the state. As such, these are the cities where a
comprehensive approach to transport planning and regulation may be most urgently needed.
Congestion, air pollution, traffic accident fatalities, petty crime, and mobility deprivation of the
handicapped and the elderly already define what it means to live and move in most cities of the
developing world. Yet many local governments in these locales seem ill-equipped to tackle such
"second order" transport-related challenges effectively, even as they continue to get worse.
This dissertation uses the cases of Mexico City and Santiago, Chile to explore this
question. Both cities followed similar strategies of forcing and fostering industry compliance,
and introducing bus rapid transit (BRT) as the basis for introducing state monitoring and
management of private bus provision. Metrobnds in Mexico City and Transantiago in Santiago
unsettled the pre-existing private bus industry, composed of thousands of smallscale
entrepreneurs organized around powerful associations, which were initially resistant to
participate. In the course of implementation, this industry transitioned toward financially
stronger, professional private players, and the capacity of authorities to pursue second order
transport policy objectives increased. Urban transportation planning capacities emerged much
more advanced, however, in Santiago. The question is why? Drawing on a historical analysis of
the evolving relationship between public and private stakeholders as well as from 64 interviews
with government authorities and transport operators, this thesis analyzes the factors that account
for the different outcomes and suggests that expanding planning capacity in the context of scarce
resources and weak institutions depends on the ability to nurture and sustain accountable public-
private collaboration.
Thesis Supervisor: Diane Davis
Title: Professor of Urbanism and Development, Graduate School of Design, Harvard University
Table of contents
L ist offig ures ...................................................................................................... . 7
L ist of tables ....................................................................................................... . . 9
A cknow ledgm ents............................................................................................. 10
Chapter 1: Introduction.................................................................................. 13
Understanding the challenge of transportation planning and regulation in cities of the
g lob al sou th ................................................................................................................................... 16
The road to under-funded and under-regulated public transit service ......................... 19
Breaking out of the money and rules dilemma in cities of the global south: From a
successful case to a replicable model? ................................................................................. 24
Case Study Selection and Research Method ....................................................................... 32
Chapter 2: Governing public transport in Mexico City............................37
Part I. From the trolley to the bus: A history of conflict and compromise .... 38
From a foreign-owned monopoly to a locally controlled cartel.......................................41
The emergence of the organization leader as negotiating counterpart...........................48
The useful partner becomes a powerful and hard to control opponent ......................... 50
From forcing competition to (again) fostering a cadre of political allies ............ 53
From a political alliance to consolidate power to a partnership to advance an urban
v isio n .............................................................................................................................................. 56
The Metro: Nice but expensive ............................................................................................. 63
Private bus operators in government.................................................................................. 69
Unlimited money, unlimited regulatory strength? ........................................................... 74
The (short lived) "Golden Epoch" of public transportation............................................ 78
The SUTAUR-100: From negotiating with private bus operators to negotiating with
public w orker unions. ........................................................................................................... 84
The rise of the "colectivos" ..................................................................................................... 90
The 1989 strike of AUP-R100 workers, and a first failed attempt to privatize the public
b u s com p an y ................................................................................................................................. 97
Decreasing capacity to tackle the second-order goals of public transport policy..... 104
A new presidential administration, and a commitment to "force" change.......................108
The 1995 bankruptcy of AUP-R100: A second attempt to privatize bus services ............. 112
3
Planning a regulatory regime transition amidst a politically stressed system..................115
A pyrrhic victory? ...................................................................................................................... 120
Part II. State Capacity: Carving a niche for transport planning....................123
A democratically-elected mayor and the new constraints to public transport planning in
M exico C ity ................................................................................................................................. 123
Bus Rapid Transit: A trojan horse for industry transition.....................................................130
Crafting an offer private operators couldn't refuse .............................................................. 136
Avenida de los Insurgentes: The right corridor with the right private partners .............. 138
Original sins and the price of BRT Inclusion..........................................................................144
Expanding an inclusionary BRT system.................................................................................149
Metrobd's Line 1 expansion: Same corridor, different deal .................................................. 152
Metrobds Line 2: Many operators, many firms, lower profits.............................................155
Metrobd's Line 3: From Fostering to Forcing Change............................................................162
A ssessing M etrobdis ................................................................................................................... 173
C ase conclu sion .......................................................................................................................... 175
Chapter 3: Governing public transport in Santiago, Chile........................179
Part I. The era of laissez-faire (1973-1989)........... .............. 181
The Chilean path to deregulation ............................................................................................ 181
Trade associations and federations: A free market that wasn't so free...............................188
Unanticipated outcomes of laissez faire..................................................................................192
Strong enough to challenge Pinochet?....................................................................................195
The return of dem ocracy ........................................................................................................... 197
Part II. The reinsertion of state regulation (1990-2000).............. .............. 200
Forcing the tiger into the cage .................................................................................................. 200
Working under a new set of rules............................................................................................203
An attractive bus retirement program.....................................................................................204
Designing the framework for a negotiated tender ................................................................ 206
The first tender attempt and the first city-wide service strike: Action and reaction........208
The second tender attempt and the collusion of bus operators. ......................................... 211
"Legalizing the C artel" .............................................................................................................. 213
Three unanticipated outcomes of the reforms of the 1990s ................................................. 216
Twisting the arm of the government ....................................................................................... 219
4
A busing regulations...................................................................................................................225
The case of the automatic fare collectors: From good concept to side business.
Blocking norms that threatened the atomized structure of the industry...........................227
The case of the failed efforts to corporatize: One step forward and two back.
Changing of the presidential guard.........................................................................................230
Part III. A bold vision for public transportation in Santiago (2000-2006) ...233
PTUS: An ambitious urban transport agenda........................................................................233
From vision to reality ................................................................................................................. 237
Beta-testing market responsiveness: Finding operators for Metrobuis services................241
Escalating conflict: The road to the Santiago bus blockade of 2002....................................245
A city hostage: Turning a crisis into an opportunity.............................................................248
From forcing to fostering state capacity: Inventing a transition..........................................252
Creating Transantiago, a system where (almost) everybody would fit ............ 256
New buses immediately in, old buses gradually out............................................................258
A transparent (and perhaps desirable) case of picking winners ......................................... 261
Promoting Transantiago abroad, defending it at home........................................................263
Rethinking the business model to appease risk-averse private investors ......................... 266
Industry transition within the transport trade associations ................................................ 268
Trade association leaders: From gremialistas to empresarios..................272
Regulatory reform in political context: Government as juggling................276
52 bids: A competitive tender process?...................................................................................279
Choosing private partners to improve bus services in Santiago.........................................281
Fighting over old buses, waiting for new buses .................................................................... 286
H elping "new entrants" survive..............................................................................................290
Keeping micreros happy: A mitigation plan (not implemented)........................................294
"Todo Cambia": The Transition Period begins ...................................................................... 297
Part IV. Transantiago's teething pains................................................................303
Bachelet hops onto a m oving bus ............................................................................................ 303
From finger-pointing in public to privately acknowledging blame..............307
Ready, set, contract renegotiation, go!.....................................................................................312
10-F ............................................................................................................................................... 3 16
Boycott or incom petence?.........................................................................................................322
5
Completing the transition from gremialista to empresario: Why some trade associations
unions thrived as firms and not others ................................................................................... 327
Part V. State capacity: Reestablishing discipline under constraints ............ 330
A system in crisis........................................................................................................................330
A subsidy law that paid bills and empowered regulators ................................................... 333
Inducing cooperation from private counterparts..............................................................336
Undeniable, albeit still insufficient progress..........................................................................342
Transantiago, standing at a cliff ............................................................................................... 345
The end of the gremio................................................................................................................352
A calamitous blessing: The 'Constitutional 2%'.....................................................................356
Using public subsidies to force regulatory compliance........................................................358
Institutionalizing state capacity for leaner times .................................................................. 365
Re-tendering Trunk 3: An exercise of leveraging your assets..............................................367
A permanent subsidy for Transantiago, and the future of the system................................373
Case conclusion .......................................................................................................................... 376
Chapter 4: Conclusion.......................................................................................379
Transportation planning capacity as a function of public-private collaboration..............379
Contrasting planning capacity in Mexico City and Santiago .............................................. 384
In concluding...............................................................................................................................397
Appendices..............................................................................................................399
Appendix A. Public Subsidy to Transantiago under the Concertaci6n................399
Appendix B. Public officials involved in the implementation of Transantiago ....400
Appendix C. List of interviews in M exico City....................................................401
Appendix D. List of interviews in Santiago.........................................................402
Appendix E. Abbreviations...................................................................................403
References................................................................................................................405
6
List of figures
Figure 1.1 Evolution of the Integrated Transit Network of Curitiba, 1974-1995
Figure 2.1 Mexico City residents celebrate the triumph of the revolution on an electri
trolley
Figure 2.2 Improvised "fotingo," circa 1920
Figure 2.3 Privately operated "julia", from the Judrez - Loreto line (circa 1930)
Figure 2.4 Privately operated buses, in front of Mexico's Palacio Nacional (circa 1945
Figure 2.5 Mexico City Subway, one day after inauguration day (September 5, 1969)
Figure 2.6 Privately operated bus, 1973
Figure 2.7 "Delfin" pictured in Mexico City's downtown, circa 1970s
Figure 2.8 AUP-R100 bus, circa 1983
Figure 2.9 AUP-R100 bus, 1983
Figure 2.10 Multimodal transit pass, 1985
Figure 2.11 Collective taxis (combis) at the Observatorio Metro Terminal, 1983
Figure 2.12 Passengers waiting for AUP-R100 buses, 1983.
Figure 2.13 Microbus, Mexico City (1990s)
Figure 2.14 Combi, Mexico City (1990s)
Figure 2.15 "For our users: First rate service, with third rate fares"
Figure 2.16 Conceptual design of a Metrobdls corridor
Figure 2.17 Corridors suited for BRT implementation (Mexico City)
Figure 2.18 Metrobdis vehicle and station, Insurgentes Corridor
Figure 2.19 Avenida de los Insurgentes, before and after Metrobtis
Figure 3.1 Privately operated bus in Santiago, October 1992
Figure 3.2 The 1992 bus network reorganization in Santiago, as advertised in the pri
media
Figure 3.3 Price of fares and number of buses in Santiago (1979-2001)
Figure 3.4 Former headquarter building of the AGMTP in downtown Santiago (now
occupied by a university)
Figure 3.5 Network of bus-exclusive infrastructure considered in the PTUS
Figure 3.6 A typical view of Santiago's thoroughfares in 2005
)
nted
7
ic
Figure 3.7 Bids received and winners of the tendering process to select Transantiago trunk
unit operators
Figure 3.8 Bids received and winners of the tendering process to select Transantiago feeder
unit operators
Figure 3.9 Summary of participants and winners of the tendering process to select
Transantiago trunk unit operators
Figure 3.10 Summary of participants and winners of the tendering process to select
Transantiago feeder unit operators
Figure 3.11 Anti-Transantiago campaign
Figure 3.12 Imported Transantiago buses cross the Andes
FIgure 3.13 Owners and drivers of "yellow buses" protest against Transantiago
Figure 3.14 Material distributed by the MTT in anticipation of Transantiago's launch
Figure 3.15 New route map, with the warning: "Plan your trip"
Figure 3.16 Ivin Zamorano promoting the new payment system
Figure 3.17 Santiago, on the Sunday after the launch of the new system
Figure 3.18 Transantiago, on the Monday after launch
Figure 3.19 Tracking poll question: Regardless of your party affiliation, do you approve or
disapprove of President Bachelet?
Figure 3.20 Number of Transantiago buses circulating in the streets (2007)
Figure 3.21 Evolution of the average ICPH registered by Transantiago bus operators
Figure 3.22 Tracking poll: Do you approve or disapprove of the way Michelle Bachelet and
her team are handling Transantiago?
Figure 3.23 Monthly operational deficit of Transantiago ($US, millions)
Figure 3.24 Base case projections submitted by the Ministry of Transportation the to the
IADB ($US, million)
Figure 3.25 Evolution of the average frequency(ICF) and regularity (ICR) indices in peak
periods of weekdays
Figure 3.26 Evolution of general perception of Transantiago
8
List of tables
Table 2.1 Bus service supply on Avenida de los Insurgentes Sur, before and after
Table 2.2 Bus service supply on Avenida de los Insurgentes Sur, before and after
south)
Table 2.3 Bus service supply on Eje 4 Oriente, before and after BRT (Line 2)
Table 2.4 Bus service supply on Eje 1 Oriente, before and after BRT (Line 3)
Table 3.1 Bus substitution schedule, as contemplated by MTT authorities in Aug
Table 3.2 New and used buses in Transantiago's registered fleets (Oct 2005-Sep 2
Table 3.3 Number of buses added to Transantiago's fleet as a result of contract r
August 2007
Table 3.4 Per-service penalty schedule applied on the basis of frequency(ICF) an
(ICR) indices
Table 3.5 Penalties applied to Transantiago bus operators in the last two weeks
2008 based on their performance on frequency and regularity indices (US $)
Table 3.6 Bids received at the MTT to operate Transantiago trunk unit 3 (2009)
Table 3.7 Transantiago 2009 contract renegotiation Dates of contract signatures a
events
Table 3.8 Public subsidy authorized for Transantiago, 2009-2014 (Ch $, millions)
BRT (Line 1)
BRT (Line 1-
ust 2005
007)
megotiation,
d regularity
)f October
nd contextual
9
Acknowledgments
This was a long road. In fact, if it had not had been for the amazing network of support
that encouraged me during these years, the whole enterprise would never have been possible. I
want to thank, first and foremost, my wife Malusa, for having not only the patience but the
energy and good spirits to accompany throughout this journey. Graduate school, after all, proved
to be a much longer journey than she signed up for. All of these years, first during my Masters at
the Kennedy School and then during this PhD at MIT, she listened to my theories, read my
drafts, and kept me linked to reality -kept me sane-, all while creating a wonderful home for our
family amidst the tribulations of an apparently never-ending student life. I love you.
My dissertation committee was a privilege -and an honor- to work with. I met Diane
Davis before enrolling at MIT, after cross-registering from Harvard to take her urban sociology
course. She has been a great teacher, friend, and mentor. I thank her for pushing me to ask not
only "how?" but "why?" Alan Altshuler was also my teacher before joining my committee. I
never expected that such a towering figure in the field would also be such a caring, committed
and engaged advisor. He read several iterations of my very long case studies -even amidst his
retirement celebrations-, and always provided timely suggestions and detailed advice. Alan has
an amazing ability to make his students feel good even when letting them know that the work
can significantly improve. I do not exaggerate when I say that I learn something useful and
important every time I interact with Alan. Chris Zegras was perhaps the person most committed
to my Phd at MIT, especially after Diane moved to Harvard. Chris not only suggested that I
include Santiago as a point of comparison to Mexico City, helped me frame my research and
made invaluable contributions along the way, but he was always there to offer a lifeboat when
trouble approached. He hired me as his teaching and research assistant, suggested where I may
be able to find funding to support my studies, and linked me to the Volvo Research and
Education Foundations (VREF), precisely when they were launching a new Bus Rapid Transit
Center of Excellence.
Based in Chile's Catholic University, the Across Latitudes and Cultures BRT Center of
Excellence funded a substantial portion of my Phd, and incorporated my dissertation as part of
one of their research projects. I want to especially thank Juan Carlos Mufloz, head of this Center,
for all of his support. He acted as an enthusiastic advisor, hosted me at the Cat6lica and greatly
facilitated my field research in Chile. Juan Carlos is one of the most brilliant Latin American
transport planners that I have encountered. I feel honored for the opportunity of getting to know
him. Manuel Tironi and Matias Fernandez took on the task of researching another aspect of
Metrob's and Transantiago, and our conversations certainly contributed to my thinking and
facilitated my understanding of Chile. Rosario Macario, Dario Hidalgo, Maria Spandou, Jose
Viegas, Laurel Paget-Seekins, Felipe Delgado and Ignacia Torres, as well as many other
members of the network brought together by the ALC-BRT Center, helped me with their ideas
and suggestions along the way. I also want to thank Mans Lonnroth, member of the VREF
Board, for taking an interest in my project. My conversations with him about the role of politics -
and of political leaders- in transportation planning were a source of inspiration, and will certainly
frame my future work.
10
Other institutions and individuals helped me fund my research, and pay for my studies.
The Inter American Development Bank and the Fulbright program awarded my with the
scholarships that paid for most of my Masters program. CONACYT funded my tuition during
my initial years at MIT. The Lincoln Land Institute financed my "first year paper" -and put me in
contact with a wonderful network of latin american researchers, such as Ciro Biderman and Anna
Sant'Anna, who offered valuable insight. I am especially indebted to Jose Miguel Bejos and
Florencia Serrania, at Grupo Prodi and Urban Travel Logistics, for all their support during the
final years of my studies. Not only did they offered a "base" for my research in Mexico -and
kindly offered me a consulting job that often felt like a scholarship- but their extensive network
in Mexico City opened many doors to critical sources. I also thank MIT's International Science
and Technology Initiative (MISTI), and particularly Griselda G6mez, for supporting my field
trips to both Mexico and Chile. Karen Yegian and Sandy Wellford at the Department of Urban
Studies and Planning and Maria Brennan at the International Student Office always went out of
their way to make my life as a student easier. Finally, I also thank Enrique Martinez -my former
boss in the Government of the State of Coahuila-, Javier Guerrero, and Luis Videgaray for their
advice and support throughout these years.
It would be impossible to list the individuals that contributed to my thinking during my
intellectual journey. Some of them are already mentioned above. In addition, I want to highlight
Jamil Mahuad, former mayor of Quito -and for several years our neighbor in Cambridge- for our
fascinating conversations about micrero organizations, and about life. Larry Susskind led a
public policy reading group that I attended for two semesters in preparation for my field exams.
We would read a book each week, and come prepared to discuss it. The discussions around that
table -attended at various points by Shomon Shamsuddin, Na Yoon Shin, Alexis Schulman,
Kathy Araujo, Yuan Xiao and Tijs Van Maasakkers deeply influenced my thinking. MIT's
Department of Civil Engineering has a Transit Research Group (TRG), led by Professor Nigel
Wilson. I became aware of this group after taking Nigel's transit management course, and used it
to present my preliminary findings on several occasions. I am thankful for the comments and
suggestions that emerged from these talks, such as those offered by Fred Salvucci, John
Attanucci, Kenneth Kruckemeyer, David Block-Schachter and Carlos Gutierrez. I also cherish
my conversations with Eduardo Vasconcellos, Dario Hidalgo, and Arturo Ardila, all of whom
have done important work in the field of transportation planning in Latin America. I also want to
thank Bish Sanyal, who not only invited my to serve as his teaching assistant in the planning
theory course offered to Master in City Planning students, but also participated in my general
exam committee. People all over the world come to MIT to learn from the best minds. Bish
Sanyal is certainly one of these sage thinkers, and I greatly profited from interacting with him.
Andres Lajous, Francisco Humeres, and Rodrigo Diaz are former classmates that share my
passion for public transport and my interest in either Mexico City or Santiago. Abel L6pez
Dodero completed his phd at Waterloo University roughly at the same time than me. We met in
several academic conferences, and I greatly benefited from the discussions that followed from
our shared interest in transport operator associations. My compadre Deepak Lamba Nieves -with
whom I shared an office at MIT-, Mia White, Atul Pokharel and Graham Willis contributed to a
collegial support network, and provided a valuable sounding board, as we navigated together the
multiple hoops of the Phd program.
11
I was blessed with stupendous sources for my research in Mexico City and Santiago.
Many of the individuals that shared their experience had never given such a reflective, candid
account of the process, and I am greatly indebted to them for opening up to me. From former
Ministers of Transport to former bus drivers, these informants helped me put a very complex
story together. They are all listed in an appendix. I want to especially thank Rodrigo Puchet, for
helping me open the doors of Metrobus' archives; as well as Javier Hernandez, Angel Molinero,
Jorge Monteguiaga and Juan Claudio Pinto for putting me in contact with the elusive key
micrero leaders in both Mexico City and Santiago. Making sense of the larger picture that
emerges from the accounts of my sources was a fascinating challenge, and the sheer quantity of
details they agreed to share with me explains the length this document. Mexico of course felt like
home, but I deeply enjoyed my field research in Chile. Part of the reason is that my friends Ana
Paola Pdrez and Humberto Montoya kindly shared their home with me, and made sure that I
drank a lot of wine. I hope to be back soon.
Finally, I want to thank my father and my mother for all they have given me, and
apologize for all that I have failed to give back. I'm sure they never hoped for an absent son (nor
for absent grandchildren). My dad always pushed me to read, to learn, to aim for the stars. My
mom always kept my feet on the ground, and taught me to hear and not just talk. That curious
combination is what brought me to where I am now. If there is any pride associated with
finishing a phd, it is for them to enjoy it the most.
This work is dedicated to my partner, best friend and media naranja Malusa, to my sons
Pablo and Diego -who every night asked me how many pages were left to write- and to the
loving memory of my grandparents Ana Maria and Onesimo, who are forever in my mind.
August 21, 2013
12
Chapter 1: Introduction
What makes it possible for the governments of cities limited by scarce fiscal resources,
weak institutions and a vast low-income, transit-dependent population to enhance their
transportation planning and regulatory capacities so as to provide the public with cleaner, safer,
affordable, efficient, and reliable public transit alternatives? Such aims are particularly
challenging for cities of the developing world, not just because of resource scarcities, but also
because in these contexts a quasi-informal, loosely regulated network of privately owned
transport operators has been historically responsible for satisfying most of the public's mobility
needs, often with minimal guidance or control from the state. As such, these are the cities where
a comprehensive approach to transport planning and regulation may be most urgently needed.
Congestion, air pollution, traffic accident fatalities, petty crime, and mobility deprivation of the
handicapped and the elderly already define what it means to live and move in most cities of the
developing world. Yet many local governments in these locales seem ill-equipped to tackle such
"second order" transport-related challenges effectively, even as they continue to get worse.
These concerns raise questions about the conditions under which governing authorities
will effectively expand their actions beyond merely tolerating a "traditional" private industry that
delivers minimally acceptable mobility standards, to implementing a range of more systemic
improvements in the city-wide supply of public transport services so as to eventually achieve
broader transportation planning goals. Can governments accomplish such aims without
destroying the delicate relationships forged with existing transport suppliers, particularly when
such relationships are mediated by transport providers' desires for fares hikes and/or increasing
public subsidies to cover the costs of such expanded service? And to what extent will the
"traditional" urban transportation industry resist or adapt to both the government's regulatory
demands and its concerted efforts to expand its transportation planning capacity?
Using the cases of Mexico City and Santiago, this thesis examines the protracted and
conflictual negotiations between public authorities and "traditional" private operators over a
series of state-imposed urban transportation reforms, seeking to understand how these
negotiations and conflicts affected the government's transportation planning and regulatory
capacities. Both of these major Latin American cities recently undertook significant
13
Introduction
transportation reforms intended to introduce bus rapid transit (BRT),1 inspired by the early
success of Curitiba, Brazil in using such policies to modernize their transport system and
increase government-planning capacity. In both cases, an automated payment system was
implemented; newer, cleaner and larger vehicles were introduced; and the pre-existing route grid
was adapted to a trunk a feeder model, with bus priority measures established in high demand
corridors and better coordination with the existing subway. In both cities, the price of fares paid
by the public and the subsidy requirements from the state increased as a result of implementation
of these reforms. And in both cities, these projects unsettled the pre-existing "traditional" private
bus industry, comprised in both places of thousands of small-scale entrepreneurs organized
around powerful trade associations, and initially resistant to participation. As part of these
reforms, the bus industry "modernized," transitioning vehicle owner associations into financially
stronger, more professional, and corporatized private transport companies. Nonetheless, reforms
in Mexico City only affected the areas immediately surrounding the selected corridors, while
reforms in Santiago were applied citywide, thus enabling a more integrated and sustainable
transport network. Moreover, despite a significantly rocky start, Santiago's new bus network
enabled physical and fare integration with the existing subway, putting this city is in a much
better position to tackle second order functions of transport policy: the number of traffic
accidents featuring public transport vehicles, the number of criminal events taking place onboard
buses, and the contribution of public transport to air pollution in Santiago have all sharply
decreased, and authorities are able to enforce increasingly stringent standards on the private
operators of the service. In contrast, Mexico City's success in using BRT as a basis for achieving
the government's larger transport-planning aims remains limited. The government has been
unable to extend the BRT model beyond a few corridors, and even within the new system the
capacity of the government to pursue increasingly stringent service standards is limited. In other
words, while both technological improvements and industry "modernization" have begun to take
place in Mexico City, it is not clear that its government's planning and regulatory capacities have
expanded to its full potential in the ways evidenced by the Chilean case. Such outcomes suggest
1 There are multiple definitions of what constitutes BRT. One that distinguishes this technology relative to the "traditional"
bus operations commonly offered in cities of the global south is authored by Dario Hidalgo: "BRT refers to the systematic
combination of infrastructure (e.g. busways, stations, terminals) and vehicles, with well-organized operations and 'intelligent
transportation' technologies. By combining these various elements, BRT is able to provide better service and greater
efficiency than is possible with traditional bus operations" (Hidalgo 2008).
14
that, despite having similar goals and sources of inspiration, including embrace of BRT,
transportation-planning capacity seems to have been more territorially expansive and industry-
transforming in Santiago than in Mexico City, thus signaling greater effectiveness - or greater
transportation planning capacity - in Chile than in Mexico. The question is: why?
In this thesis I seek to identify the forces and conditions that account for the different
outcomes in the two cities. I not only focus on a range of factors that affected the willingness
and capacity of governing authorities to impose broader reforms of the transportation industry,
BRT-related and otherwise. I also examine the willingness and capacity of the private transport
industry to push back against government efforts to discipline them as well as to institutionalize
larger systemic reforms in transportation services. In assessing the capacity of the Santiago and
Mexico City authorities to impose their will on uncooperative transport providers, I explore 1)
the larger political and institutional context of governance - both local and national; 2) the
historical relationship of transport providers to governing authorities; 3) the nature of the bus
industry structure and the role of labor unions within them; and 4) the social, spatial, and
economic variables that both inspired authorities to reform the transport system and that, in turn,
molded transport provider's eventual support or rejection of these efforts. Through this analysis,
my aim is to understand the constellation of factors that allowed Santiago authorities to move
beyond the first-order task of merely monitoring or disciplining individual transport providers so
as to achieve a second-order regulatory capacity capable of sustaining larger transportation
planning goals at the level of the city as a whole.
In what follows, I briefly outline the challenge of planning and regulating public
transportation in the context of weak institutional and fiscal capacity, establish the rationale for
selecting these particular cases, and summarize the research method employed. Subsequent
chapters lay out in vast detail the phenomenology of government efforts to expand transport
planning and regulatory capacities in each city, starting with Mexico City and then turning to
Santiago. A final chapter draws out similarities and differences in the cases, and concludes with
some planning-theoretic principles that will help local authorities in the developing world better
expand their transportation-planning capacity.
15
Introduction
Understanding the challenge of transportation planning and regulation in
cities of the global south
High fares,2 substantial public subsidies 3 and strong regulatory capacity have enabled the
governments of cities in Europe - and to a lesser degree in the USA and Canada - to achieve
second-order goals of transport policy, even in the face of ridership decline due to mass
motorization. The tight regulatory framework and the sheer amount of public money invested in
these regions of the world are historically such that it comes as no surprise that their transit
systems are overwhelmingly under public ownership or under closely scrutinized private
provision.4 Control over rules and availability of money have provided these governments with
leverage over operators, manifest in the high degree of integration between modes, routes and
fares and in the widespread adoption of common tariffs and ticketing systems, which together
suggest an ability to rationalize service supply and allocate resources in accordance with public
priorities. This leverage also has enabled governments to mandate costly service standards (such
as vehicles with lower pollutant emissions and infrastructure fully accessible to users with
disabilities), and in the case of Europe also to influence the design of the network to fit land use
and economic development plans. In other words, and notwithstanding many challenges, the
governments of the more developed regions of the world seem to have retained a great deal of
planning and regulatory capacity to direct transport policy toward non-mobility goals.
To be sure, the extent to which authorities from wealthy cities can financially sustain high
quality, integrated and continuously improving public transit services is not without limits, as
demonstrated in many cities of the USA. With large portions of the population independent of
public transport services, local authorities have only partial power to attract the private sector
into public service provision, except through the use of politically unacceptable levels of subsidy.
However, what is distinct from what occurs in many of the cities in the global south is that, even
2 As mere reference, a recent report compared the price of public transportation fares in Latin American and European cities.
The average price of fares in the 15 Latin American cities surveyed was US $0.63/trip. In contrast, the average price of fares
in the nine European cities surveyed was US $1.53/trip (Corporaci6n Andina de Fomento 2010, 85).
3 Fare-box revenue in European cities covers only a fraction of the total operational cost of their public transit systems: for
example, Brussels (31%), Amsterdam (38%), Paris (40%), and Barcelona (56%). In contrast, there are few cities in Latin
America that subsidize public transit operation, and subsidies are mostly restricted to subways (although more recently bus
rapid transit and integrated bus systems are increasingly subsidized) (Corporaci6n Andina de Fomento 2010, 88).
4 See Pucher and Lefevre, 1996; Jones, 2008. For a discussion on how European cities in the UK, France, Norway and the
Netherlands are promoting tightly regulated private provision of transport services see Gwilliam, 2008.
16
after exhausting their ability to increase fares and subsidies, public authorities from cities in
relatively richer and institutionally more robust nations seem to have been able to make the
tradeoffs necessary to retain their capacity to pursue non-mobility goals, even when these choices
constrain their capacity to meet their basic mobility obligation to users. Cities in the USA and
Europe often respond to budgetary crises by reducing the quantity of public transport services
(e.g., limiting service frequencies or shortening bus routes) and not by relaxing norms and
standards that govern the services still in operation (e.g., lowering vehicle emission or
handicapped accessibility standards). 5 That is, on occasion, their governments are able to
privilege second-order policy objectives, a key indicator of planning and regulatory capacity. In
contrast, the governments in many cities of the global south face severe constraints to make even
minor tradeoffs to pursue second order objectives, much less to establish a functioning public
transit system that simultaneously and effectively pursues both mobility and non-mobility
transport policy goals. In other words, the prioritization of first-order over second-order
transportation policy goals in the cities of the global south does not necessarily reflect only a
sensible hierarchy emerging from state-crafted plans and regulations, but the incapacity of public
authorities to influence the behavior of the private sector and to hold it accountable.
Even so, despite increasing recognition among political leaders of the potential of
transportation policy to pursue environmental sustainability, equity and economic development,
authorities in many cities of the global south face three interrelated and apparently
insurmountable obstacles, which do not haunt their counterparts in the global north with equal
force:6 first, public concern in poorer nations is much more focused around poverty reduction
than on "second-order" issues such as protecting the environment. There is a hierarchy of human
needs and limited resources to satisfy them, and thus attempts to use public funds to cover more
than the most basic operational public transit deficits will be politically contentious and likely
dismissed as an unaffordable luxury. In addition to overburdened budgets, governments face
competing (and more pressing) expenditure priorities that make spending on public transit seem
5 Partially guiding this choice are the high motorization rates, which lead government authorities to conclude that public
transit can only compete against the private auto with superior quality service - even when coverage is limited to core
districts. Another explanation is that national legislation imposes this choice on local authorities. However, I still consider
them "choices," at least in a broad sense. Developing world cities face similar legal mandates, but, lacking funds or
regulatory capacity to comply, these laws are often ignored.
6 For a longer discussion on why the challenge of implementing transport policy is different in the global south, see
Gwilliam, 1997.
17
Introduction
superfluous.7 Second, the weakness of the fiscal system implies that a significant share of the
money necessary to sustain an ambitious transport agenda would probably need to come from
fare increases. However, raising fares to the point required to sustain high quality service and to
pursue socially-oriented goals is socially and politically unfeasible due to the predominance of a
poverty-stricken, transit-dependent population, who would find themselves priced out of the
system, and who would therefore mobilize against reform efforts.8 And third, inadequate
administrative capacity limits the effectiveness of regulation. As many scholars have noted,
establishing strict norms and superior quality transport standards makes little difference amidst
"ineffective governance systems characterized by low efficiency, corruption, poor
management" (Chen 2013, 9) and "lack of sophistication in the regulatory framework and the
low capability of institutions" (Meakin 2002, 19).9 In sum, public authorities of many of the
cities in the developing world lack control over money and rules, the critical levers to negotiate
the inclusion of second-order concerns into the standards of service supplied by private
operators. It is perhaps for this reason that authorities can't easily take advantage of the windows
of opportunity that periodically emerge such as the election of new governments, to put more
ambitious goals on the table. 10
Wilkinson (2010, 387), studying bus transportation reform in the context of South
African cities, describes a "regulatory cycle stalled." He identifies institutional failure, private
operator opposition, and the lack of "an appropriately mandated and resourced agency to drive
forward the transformation project" as the causes progress on "wide-ranging and ambitious
proposals for the comprehensive implementation of public transport systems.. .has been, at best,
much delayed." His framing suggests immobility - a disempowered authority doomed to
disappear as a relevant actor - and is perhaps appropriate when taking the standpoint of an
7 For an extended discussion on how public transport subsidies are not necessarily "pro-poor" see Gomez Lobo, 2009.
8 See Torres-Montoya, 2008 for an example of public authorities postponing fare increases to benefit low income riders.
9 For two examples of the impact of administrative capacity on the likelihood of success of transport planning in BogotA,
Colombia, see Ardila, 2002.
10 This does not mean that government authorities and transport operators cease to negotiate with transport operators, but
only that negotiation is constrained to maintaining the operation of the existing system, rather than to exploring ways to
transform it into a tool for sustainable urban planning. In fact, savvy authorities working under these conditions often prefer
to postpone negotiations rather than embracing them. They realize that recurring value-claiming conflict with private
transport operators regarding money and rules can in fact diminish the government's regulatory capacity, reducing rather
than enhancing their ability to tackle the vexing problems confronting their cities.
18
external observer. However, if we analyze the challenge from the perspective of a public official,
much is actually happening. Transport operators threaten to strike and demand a fare increase,
which authorities cannot approve without alienating much of the public, and thus what ensues is
a protracted period of negotiation in which both sides come to terms: A smaller fare increase, or
better yet a small public subsidy, in exchange for the relaxation of some of the rules, such as the
maximum vehicle age allowable for buses. Put succinctly, "the problem in developing countries
is thus much less that of how to maintain a public transport service as an alternative to the car
through the deployment of subsidies and much more that of how to best serve the needs of the
poor without subsidy."" Of course, the needs of the poor are framed narrowly, only as
maintaining a minimally acceptable mobility alternative, while the second order functions of
public transportation policy, such as protecting air quality, are jettisoned.
Lacking financial and regulatory "muscle" to negotiate more ambitious policies, the
public transport systems in many developing world cities are pulled into what Bayliss referred to
as "the para-transit domain,"' 2 an apparently inescapable combination of low public funding and
weak regulation. The state essentially retreats, reducing public transport services to a private
transaction between consumers and suppliers. It is in this domain where the government's
planning and regulatory capacity to guarantee good quality, integrated, and continuously
improving transit service is most constrained and where pursuing anything beyond mobility
goals has often seemed nearly impossible.
The road to under-funded and under-regulated public transit service.
The public transport systems of the larger cities of the global south, such as Mexico City,
Santiago, Bogoti, Lima, Sao Paulo and Buenos Aires, have a similar origin to systems in cities in
the developed world. During the later years of the 19th century and the early years of the 20th,
private businessmen identified market demand for this service, and began offering it to the public
with little initial intervention from the state. Their horse-drawn streetcars were soon replaced by
electric powered trolleys, typically run by privately-owned utility companies, often awarded
concession contracts in exchange for public investment commitments. '3A as competition from
11 See Gwilliam, 1997, 173.
12 See Bayliss, 2000.
13 For example, in the case of Mexico City, the British owned Compahia de Tranvias committed to pave the streets on
which its trolleys operated.
19
Introduction
the private automobile increased, however, and as the development patterns of cities decoupled
from trolley tracks, these companies started to lose ridership. Some of them attempted to migrate
from trolleys to buses, but this move proved insufficient to curb accelerating decline. Soon, many
of these private companies were bankrupt and the quality of their services floundering.14 While
in the US this process was usually accelerated by the reluctance of public authorities to grant fare
increases, in turn attributable to expected voter resistance, in the case of Latin America
contentious labor relations with trolley-worker unions also played an important role. It is in this
period of crisis that the public sector emerged as a more active participant in public
transportation, negotiating over money and rules with transport operators with the objective of
preventing service disruptions and maintaining a properly-functioning system. Governments
demanded better services, and in turn private operators pleaded for financial bailouts in the form
of tax breaks, subsidies, or higher fares. The typical outcome in cities across the world, including
the larger cities of the global south, was a period of intense conflict, after which governments
took over these private transit companies, either by purchasing or expropriating them. 15
To be sure, publicly owned public transport companies faced significant problems, even
when formally enjoying a monopoly over transit service. During much of the 20 century, cities
in the global south grew at an accelerated pace, both spatially and demographically, and their
transit companies proved increasingly unable to keep up with demand. We must of course situate
this discussion historically within the broader context of industrialization, economic
development, rapid urbanization (social and spatial), and the consequent debt crisis which
brought inequality and reduced incomes for the poor in many cities of the global south. At least
in Latin America, modernization brought further displacement of the poor to the periphery of the
cities, significantly complicating transport-service delivery needs. This combined with poorly
incentivized administrators, bureaucratic decision-making, complicated labor relations and
spiraling financial deficits due to the difficulties to raise fares or increase subsidies, resulted in
inadequate levels of service. In developed countries, auto ownership provided citizens with an
alternative to escape from underperforming transit companies. In many of the rapidly-growing
cities of the global south (where private cars remained scarce and unaffordable to the majority),
14 For a historic look at the linkage between dominant transportation technologies and urban land use, see Muller, 2004.
15 For detailed examples, see the case of New York City in Schrag (Schrag 2000) or of Mexico City in Davis (Davis 1994)
and (Ribera Carbo 2012).
20
informal private operators covered the slack, offering a viable option to cover the public's
mobility needs.
Transportation authorities in many of the larger cities of the global south certainly sought
to retain their planning and regulatory capacities but only partly succeeded. Many concentrated
their resources on replicating the experiences of cities such as London and New York, whose
governments operated high quality, albeit costly and geographically circumscribed subway
services. 16 To be sure, several subway systems emerged in Latin America in the sixties and
seventies: Mexico City, Sao Paulo, Santiago and Rio de Janeiro inaugurated theirs in this period.
This focus on the subway, however, had the unintended consequence of reinforcing the
fragmentation of the bus industry. As public authorities invested scarce resources to build and
operate incipient subway networks, the need to tolerate an informal (but unsubsidized) private
surface transport industry grew. In many cities, this industry was essentially deregulated and
privatized. Existing public subsidies were redirected to the subway, and the incipient integration
between modes, routes and fares abandoned. Either as a deliberate government policy or as the
inevitable consequence of the decline and collapse of public bus companies, public transport in
many cities in the developing world became segregated in two coexisting service regimes: one
publicly owned, heavily subsidized and highly standardized, usually the subway, and the other
privately run, under-financed and unregulated, usually the buses. Both systems competed rather
than complemented each other. In many cities, a large number of private entrepreneurs owning as
few as one or two minibuses served unmet passenger demand, offering a minimally acceptable
transportation alternative to the public without initially demanding higher fares from users or
requiring public subsidies from the government. Even if initially inclined to promote the bus
market for formal private sector investment, public authorities could not ignore the ubiquitous
presence of informal operators. Not only was there a paucity of experienced, professional and
well-capitalized private sector operators willing to participate, but now both the public policy
makers and the prospective entrants that existed were deterred by the likely competition from
hundreds, sometimes thousands, of informal bus operators, ready to challenge regulatory
oversight and predisposed to accept low fares in exchange for their services. Given this context,
16 This was partly a consequence of pressure from landowners, who thought that the subway would be much more effective
than the buses in triggering rapid land valorization in the periphery, especially if the government picked up the bill (Davis
1994).
21
Introduction
authorities often ended up "tolerating" informally supplied services, and gradually extending the
required authorizations to them.
These private bus operators gradually coalesced as organizations to demand bureaucratic
recognition and fare hikes, coordinate services, pool resources, limit competition and protect
their informal property rights over transit routes.17 Meakin (2002, 19) notes how, amidst the
existing "regulatory vacuum," increasingly powerful operator associations "assume rights, which
then become entrenched, and which they defend". The leaders of these organizations soon
claimed their seat at the table, becoming a critical private sector counterpart in any governmental
attempt to reform transport policy. As this scholar put it, pragmatic authorities in many of these
cities recognized that a viable alternative was simply to license service to these informal
operators and to defer regulatory authority "to the route organizations, using them as
intermediaries". Essentially, they became a powerful cartel, "demonstrably more powerful than
transit users in their ability to prevent regulation and to obtain government decisions that
benefit[ed] them" (Chauvin, 2007, 14).18
Partially to prevent fare increases or demands for public subsidies, and partially to
acknowledge a reality already on the ground, the number of licenses was typically not strictly
limited, and the vehicle standards and norms governing service remained lax. Many leaders of
bus operator organization embraced these lax rules and promoted the entry of more vehicles into
the market, affiliated to their organizations of course. Such strategy certainly made the business
less profitable for individual vehicle owners, but their organizations thrived. Not only did their
revenues increase since these organizations collect dues and commissions from each additional
member, but the added on-street competition dissuaded competing organizations and large
capitalists from entering "their" territories. The combination of low labor costs and low capital
investment required to participate in this market ensured that the resulting system served a large
share of passenger demand despite low fares and limited public subsidy. In many cases, the low
barriers to entry resulted in a significant surge in the number of buses in the streets and in the
development of a dense route network that reached the farthest corners of the cities. The
17 For discussions on this topic, see de Soto, 1989, chapter 4; G6mez-Ibafiez, 1992, 35; Cervero, 1998, 394.
18 This decision was of course often embedded in a culture of political clientelism and taken in a context when these
countries had other pressing problems to attend to. However, the result actually amounts to a new negotiation with private
operators over money and rules: low, unsubsidized fares in exchange for soft rules and little oversight.
22
resulting regime of low public investment and low regulation, the "para-transit domain," is
characterized by competition in the market, where many vehicle owner-operators engage in cut-
throat, curbside competition for passengers, as opposed to competition for the market, where
larger-scale private operators compete for area-based or route-based contracts. 19
Even after being licensed, small-scale operators often retain many of their "informal"
traits. In fact, part of their capacity to offer a low fare is based on their ability to avoid costs
usually internalized by "formal" public or private competitors. They avoid taxes, skimp on
worker's benefits, under-maintain their units, fail to comply with vehicle emission standards, etc.
As noted by several scholars, 20 the laxity of enforcement of labor, fiscal and other codes enables
urban micro-enterprises to choose their degree of participation in formal institutions.
Government authorities are usually aware of all of this but have little incentive to enforce or
tighten existing regulation, since strict observance would likely put pressure on the price of fares
or trigger demands for subsidies. Further, these private operator associations can soon exert a
powerful influence over the system. They may shape the rules by capturing regulators, by
threatening authorities with service lockouts and street blockades, or by negotiating "street-level"
service standards among themselves. Further, they control the fare-box, which makes it very
difficult to financially reward or punish good or bad performance, placing the government at a
significant regulatory disadvantage. In fact, authorities often lack basic information regarding the
current supply of services, i.e., who drives what vehicle in which route under what permit, and
about the profitability of their operations.21 In such conditions, it is the associations of private
operators and not the government that is best placed to determine transport policy.
19 For discussions about competition in the market vs competition for the market see Estache and Gomez-Lobo, 2005;
Ardila, 2008.
20 See for example Maloney, 2004; de Soto, 1989.
21 See Vasconcellos, 2001.
23
Introduction
Breaking out of the money and rules dilemma in cities of the global south:
From a successful case to a replicable model?
Despite the dire scenario described above and inspired by a few high profile cases,
authorities in cities across Latin America,22 Africa2 3 and Southeast Asia24 have recently pursued
ambitious public transport reforms to address the problems of balancing money and rules.25
Central to their efforts is the combination of "low-cost, high impact and rapid deployment,
sustainable transport actions" (Hidalgo and Huizenga, 2013, 76) usually including the
implementation of bus rapid transit corridors, with the pursuit of new, reenergized partnerships
with private bus operators. Academics and practitioners alike have embraced these experiences
as examples that "much-improved transit systems can be implemented around the
world" (Schipper and Fulton, 2002, 49), pointing to them as powerful evidence that despite weak
institutions and limited budgets, governments "attempt to break out of the 'savage cycle' of
public transit" (Corporaci6n Andina de Fomento, 2010, 24) and can "establish effective
regulatory control over largely privatized transit systems" (Hook, 2005, 184). A long-absent
hopeful tone returned to the field, leading some to predict a "public transport renaissance." 26 The
turn of the tide can be traced back to reforms first implemented in Curitiba, the mid-sized capital
city of the State of Parani, in southern Brazil, where progressive administrators "gradually
institutionalized" "a style of urban development based on a preference for public transportation
over the private automobile, working with the environment instead of against it" (Rabinovitch
and Leitman 1996, 47).
Between 1971 and 1995, a long succession of governments in Curitiba reestablished and
enhanced their ability to plan, regulate and finance public transit services, transforming a
fragmented system featuring informal business practices and limited state capacity into a city-
wide, integrated transit system, operated by a small number of corporatized transport
22 See Hidalgo and Graftieaux, 2008; Hidalgo and Carrigan, 2010.
23 See for example the cases of Johannesburg (McCaul and Ntuli 2012; Venter 2013), and Lagos, Nigeria (Gauthier and
Weinstock 2010).
24 See Ernst and Sutomo, 2010; Ernst, 2005; Matsumoto, 2006.
25 See Hidalgo and Carrigan, 2010.
26 See Wright, 2010.
24
companies 27 that respond not only to the mobility needs of the population, but also to second-
order goals of public transport determined by city authorities. To be sure, Curitiba initially
developed its program under mayors appointed by a military dictatorship, which lasted from
1964 to 1985. However, as the country and the city progressed towards democratization, this
ambitious vision remained in place, and was embraced by the incumbent private industry.
Through protracted conflict and negotiation, the governments of Curitiba succeeded in crafting
increasingly cooperative partnerships with an incumbent public transport operator industry that
transitioned from "traditional" to "modem" organizational structures.28 Developing this
partnership included granting exclusive contracts non-competitively to the associations of
incumbent operators, subsidizing and underwriting new vehicle purchases, and authorizing fare
increases, while periodically threatening to take these benefits away (or offering to extend them)
to ensure cooperation. With traditional private operators eventually enlisted as allies, many of the
financial and political barriers for reform were significantly lowered. Soon, negotiations between
authorities and operators were no longer restricted to claiming larger shares of the fare box and
subsidy pies but about how to make the pie larger for all to benefit. Conflict persisted of course,
but the relationship took an observable positive turn: Curitiba became a living laboratory that
welcomed experimentation and spawned innovations that truly unsettled the industry.
The outcome of several decades of public-private collaboration in this city was not only a
well functioning mobility alternative for its population, but measurable successes in terms of the
second-order goals of transport policy. At least when compared to other cities in the continent,
Curitiba remains the undeniable leader in confronting the negative externalities associated with
individual transport decisions. Comparing 17 Latin American cities surveyed by CAF, Hidalgo
and Huizenga (2013, 70) find Curitiba to be "the city with the smallest aggregated externalities
per person" based on accidents, pollution and travel times. 29 The Economist Intelligence Unit
refers to this city as "the longstanding pioneer in the region", ranking it as "the clear leader" in
its Green City Index (Economist Intelligence Unit 2010). In addition, Curitiba is "arguably the
purest example of integrating transit and land use anywhere in the world" (Cervero 1998, 274),
27 For details on the history of bus reform in Curitiba, please refer to Ardila, 2004; Hensher, 2007; Lindau, Hidalgo, and
Facchini, 2010; de Oliveira, 2000.
28 Direct references to this transition are found in Arturo Ardila's excellent dissertation (2004, Part 2), as well as in Hook,
2005, 187; de Oliveira, 2000, 143.
29 The cities surveyed by CAF (2010) were Belo Horizonte, Bogota, Buenos Aires, Caracas, Mdxico City, Curitiba,
Guadalajara, Le6n, Lima, Montevideo, Porto Alegre, Rio de Janeiro, San Jose, Santiago and Sao Paulo.
25
Introduction
with a proactive government demonstrably able to use public transit as a tool to shape how and
Fig. 1.1 Evolution of the Integrated Transit Network of Curitiba, 1974-1995
P f
It! I
where the city grows.
Efforts to replicate the
Curitiban success story
emerged in Quito, Ecuador
in 1995 and in Bogoti,
Colombia in 1999. In both
of these cities,
entrepreneurial mayors
implemented a few bus
rapid transit corridors,
drawing from the most
conspicuous (but certainly
not the only) innovation
developed in Curitiba. The
principle underpinning
BRT is simple: Improving
the appeal and performance
of bus-based public
transport by enhancing it with features typically associated with more expensive rail-based
transit modes -such as larger vehicles with multiple doors, dedicated rights of way, electronic
ticketing, dignified stations and institutional branding. As former Mayor of Curitiba Jaime Lemer
explained during a TED Conference in March 2007, the purpose of BRT is to "metro-nize the
bus." This technological innovation significantly reduced the financial investment required to
26
" O~
1-1 ot. .
Source: URBS, retrieved from Ardila, 2004, 144.
deliver high quality mass transit, 30 increased the appeal of the bus among the public, 31 and
perhaps more importantly, redefined the ability of authorities to regulate the system. At least in
the critical corridors selected for BRT, the governments of Quito 32 and BogotA invested heavily
in infrastructure (e.g., building stations, busways, etc), concentrated subsidies (e.g., underwriting
loans to purchase appropriate vehicles or complementing fare-box revenue) and revamped the
rules governing service (awarding new concession contracts to manage a new ticketing system
and/or to operate new buses). The often tense process of negotiation to determine who would pay
for what, who would be entitled to operate in the selected corridors, how the transition would be
managed and what rules would govern the new services, worked as a sort of Trojan horse to
reinvent the terms of the relationship linking public authorities and private transport operators. It
30 While estimates vary, the literature suggests that BRT systems cost significantly less to build than rail-based alternatives
and generate significantly lower negative externalities than deregulated, artisanal bus services. For example, Zhang (2009)
found that on average BRT costs $10.24 million (in 1990 dollars) per mile to build, less than half of light rail ($26.4 million)
and less than one-tenth of mass rapid transit ($128.2 million). In the same vein, Wright and Hook compared the capital cost
of building different transit modes in Bangkok. They found that for the same level of investment, that city could build 7
kilometers of subway, 14 kilometers of elevated rail, 40 kilometers of light rail or 426 kilometers of BRT (2007, 55-56). For
a review of the literature comparing costs and benefits across different transit modes also see Hensher, 2007; and Sorg, 2011.
31 One way to prove this is to assess if properties surrounding BRT stations appreciate as a result of implementation. This
evidence is starting to emerge, for example Rodriguez and Targa, 2004; Rodriguez and Mojica, 2009; Cervero and Kang,
2011.
32 In the case of Quito, municipal authorities, who had only recently gained responsibility over public transport regulation,
decided to use BRT to send a forceful message to both the public and the incumbent transport industry. In the words of Cesar
Arias, chief planner of this project, "we needed a project capable of breaking with all past inertias, and conspicuous enough
for people and operators to realize the municipality was in charge" (Personal interview, October 2010). The original plan was
to yield operation of the new system to a consolidated firm formed by the historic operators serving this corridor, but this
option was quickly dismissed. First, operators were not open to the project and quite openly banked on its failure (which was
particularly likely as elections were near and both the national government and opposition parties offered only lukewarm
support). And second, the weak managerial capacity and unwillingness of operator organizations to corporatize posed serious
questions about their ability to manage the route efficiently and hampered their credit worthiness and thus their ability to
purchase the vehicles directly. Opposition was such that operators paralyzed the city with a two-day strike and did not stand
down until the army threatened to intervene. Facing significant time constraints to deliver visible results, Mayor Jamil
Mahuad decided to proceed with the construction of the first 17-kilometer corridor on the center-most avenue of the city,
purchase the vehicles directly, and operate the new service through a publicly-owned company. However, once the
municipality asserted its authority, the cooperation of incumbent private operators gradually reestablished: operations in the
second and third corridors, built in 2001 and 2005, were in fact awarded to private consortia of incumbent bus operator
organizations. According to Chauvin's detailed case study, "the faction of operators that clinged to the previous situation was
ousted. However, in order to consolidate a new status quo, a second moment had to emerge, in which the strategy ceased to
be contentious... a new public institutionality gradually gained ground -personified in the municipality- that not only
accepted the interests of the users, but also of the transport operators that decided to participate." In addition to Chauvin,
readers may consult former Mayor Mahuad's own testimony, in a text he coauthored (Chrustie et al., 2010); or read Dario
Hidalgo's (2006) case study.
27
Introduction
was through this step-by-step process of conflict and accommodation, establishing stricter
standards, but at the same time giving incumbent operator associations a chance to "modernize"
and participate, that "a broader institutional, organizational and managerial change" was
introduced, "with the aim that in the future it may embrace most of the urban area."33 The
Institute for Transportation and Development Policy's BRT Planning Guide soon highlighted
such transformative potential, noting the "unique political opportunity to implement a regulatory
reform agenda that otherwise has tended to prove difficult to implement."34
Soon the world was paying attention. The former mayors leading these reforms,
particularly Curitiba's Jaime Lerner and Bogot's 35 Enrique Pefialosa, attained celebrity-like
status in urban circles. They traveled around the globe sharing their experiences, and many of
their former aides became successful international consultants.3 6  Non-governmental
organizations and consultancy groups, such as the World Resource Institute's Embarq and the
Institute for Transportation and Development Policy (ITDP), as well as bilateral aid agencies,
such as the German Society for International Cooperation (GIZ), prepared and circulated bus
reform toolkits. "Missions" of public officials and transport operators from around the world
33 See Orrico Filho, Gilherme de Aragao, and Medeiros do Santo, 2007.
34 See Wright and Hook, 2007, p. 560.
35 In the case of Bogotd, authorities were initially unsure of how to proceed with regard to "traditional" bus operators. In
fact, Ignacio de Guzmin, chief planner of this project, acknowledged the importance of incumbent operator participation, but
compared the challenge of incorporating them as BRT operators as "recruiting candy-vendors at a streetlight and inviting
them to establish a supermarket" (G6mez 2004, 39). According to Mayor Enrique Pefialosa, "the main challenge facing the
project and the main achievement of Ignacio de Guzman was maintaining a working relationship with traditional transport
operators, and particularly, getting them to transition into contractors-stockholders of the companies that would operate
Transmilenio" (G6mez 2004, 90). Rather than forcefully evicting them, government authorities set up a tendering process
that gave preference to bids that demonstrated experience operating transit in the city. This preference to incumbent
operators was nonetheless coupled with a simultaneous requirement for international experience in bus operations, and with
a non-trivial minimum capital requirement. This structure had several outcomes. First, it led incumbent operators to compete
against each other, significantly dividing opposition to the plan. Second, it led incumbent groups to seek partners able to
supply international experience and capital. The result was the emergence of new players in the industry that featured
partnerships between incumbent operators and better-capitalized partners from other industries. In fact, in the first
implementation phase, one of the companies awarded a BRT contract included over 500 individual bus owners (SI-99), while
a second incorporated a couple of hundred (Express del Futuro) (Ardila 2004, 364-365; Gilbert 2008, 449; G6mez 2004, 55).
To be sure, participation of incumbent operators in Transmilenio operating companies was only recommended, and many
individual bus owners were displaced amidst protests. Nonetheless, since public transport in the rest of the city continued to
operate without change, displaced bus owners probably found opportunities to accommodate their vehicles elsewhere. Such
alternative diminished as the city expanded the system in a much more contentious second phase, implemented in 2004.
Facing emboldened protests, bogotano, authorities changed the bidding rules, now requiring that at least 10% of the stock of
bidding companies be controlled by transport operators owning at least two buses from the prior system.
36 See Matsumoto, 2006 for examples of the influence of Lerner and Peiialosa in Asian cities.
28
visited these "model" cities. Bus manufacturers and technology suppliers developed new product
lines to serve the increasing numbers of cities interested in bus reform. And probably not
coincidentally, international development agencies (such as the World Bank, the IADB and the
ADB) shifted their financial and technical assistance portfolios to support these efforts,
Particularly BRT projects, recognizing bus reform as "an instrument of great potential to reach
modal split, environmental and poverty-related objectives, and the establishment of institutions
to regulate urban public transport" (Mitric, 2013, 32) In other words, the expansion of
government planning and regulatory capacity, not only to improve the transportation choices
available, but to effectively address second order goals of transport policy, suddenly became a
viable endeavor.
Unsurprisingly, well-packaged transportation innovations like BRT rose quickly in the
decision agendas of cities throughout the global south. On the one hand, they helped transform
the very complex challenge of public transportation reform into a set of manageable projects that
could be tackled effectively despite limited technical support, competing priorities and
constrained budgets (all while also satisfying the need of government administrators to leave a
lasting and conspicuous legacy).37 On the other, the apparent success of Curitiba, Quito and
Bogoti provided a focal point38 that suggested to potential investors, incumbent private operators
and to the broader public that government authorities had an available alternative for everyone to
seriously consider. To be sure, BRT met Kingdon's (2003, 142) criteria as "a solution ready to
go, already softened up, already worked out," which probably explains its rapid adoption. The
positive reaction was certainly understandable. In contrast to decades of conflictive negotiations
with transport operators that often resulted in barely noticeable, marginal improvements to the
existing service, the relatively simple and affordable transport innovations used in Curitiba,
Quito and Bogota promised radical transformations in a relatively short time.39 Elements of the
new business model adopted in these cities (such as electronic and centrally controlled fare
collection), and the physical characteristics of the required infrastructure, such as left-door buses
and exclusive corridors, helped achieve cost-efficiencies while also facilitated regulation,
37 This is not a minor issue, as organization theorists like March and Olsen, 1989 would attest.
38 "Focal points" facilitate concerted action by aligning the expectations of stakeholders and signaling inevitability. For
more on the strategic role of "focal points," see Schelling, 1960, 57-59.
39 In this regard, Wright and Fjellstrom, 2002, 20 argue that one of the benefits of these low-cost innovations to city mayors
is that they "can oversee a BRT project from start to finish", claiming credit before the end of their terms in office.
29
Introduction
reducing the financial viability and practical appeal of informal and fragmented "traditional"
transport operations and minimizing many of the risks previously associated with investing in
this sector. Finally, structuring transition processes that rewarded cooperation, not only with
promises of permanence, but also of higher profits, contained the expected resistance of
potentially displaced private operators. The menu of options was so wide that public authorities
could practically defme the alternatives, since now "the gains of the business could be
distributed among many hands."41
Tempted by the magic bullet implied by BRT, authorities in hundreds of cities
aggressively launched modernization efforts, implementing bus rapid transit corridors, electronic
ticketing, integrated systems, etc. At the time of this writing, 156 cities around the world (most of
them located in Latin America, but also increasingly in Africa and Asia) have already
implemented some version of BRT.4 Despite initial achievements, none of these cities, not even
Bogota, has to this day truly replicated the broad achievements of Curitiba, particularly when
measured in terms of second-order transport policy functions. In fact, very few Latin American
cities (one can count Sao Paulo, Santiago, Cali, Medellin and Le6n) have a truly integrated
transit system that transcends a few BRT corridors and that has served as a backbone of the
government expanded role as transport planner and service regulator. Quito long abandoned such
larger aims, in fact, the contract with the private operator of its second BRT corridor fully failed
after two years of conflictive negotiations, and Bogoti only recently began to integrate the still
overwhelmingly dominant informal bus industry into its celebrated Transmilenio system, which
10 years after its successful launch only accounted for 26% of transit trips in the city. But even
worse, only in Curitiba did the government emerge sufficiently empowered to consistently and
for a sustained period of time offer high-quality public transport while also using it as a tool for
urban planning, guiding the way the city grows, containing negative externalities associated
transport decisions and deliberately harnessing positive spillovers associated with public transit.
This could of course simply suggest that Curitiba is "exceptional." The relatively small size of
40 Seminal scholars like Schattschneider long identified this ability as the "supreme instrument of power" (1960, 66).
41 Claudia Scheinbaum, former Minister of the Environment (SMA) in Mexico City, cited in CTS-Mexico, 2009, 100.
42 ALC-BRT, 2012. The full database is available at http://www.brtdata.org. Definitions of BRT vary widely.
43 Hidalgo, 2006.
44 10 years after the implementation of Transmilenio -Bogotd's BRT 74% of public transit trips in this city were still served
by hundreds of fragmented, weakly regulated and highly informal bus operators (Transmilenio 2010).
30
this city and its initially authoritarian governing regime are certainly factors that support this
hypothesis. Perhaps these characteristics combined to establish the required public-private
synergy at a sufficiently early point of the urban development process, setting the stage for later
path-dependent successes.
In any case, it appears that the adoption of disruptive technological innovations and of the
BRT in particular is not sufficient to expand the state's planning and regulatory capacity. That is,
the low-cost and profit-making promises of projects like BRT certainly open a window for
projects to be built, but something else must account for the ability to transform the adoption of a
few demonstrative projects into a deeper and sustainable public-private collaboration that
enables the government to pursue an ambitious transportation agenda. While relevant
achievements when analyzed on their own, much celebrated BRT projects often remain isolated
islands amidst a larger sea of informal, deregulated, "traditional" private operation, and most
local governments continue to be limited in their ability to implement more ambitious public
transport policies. Inevitably, after the dust settles, governments are still faced with expanding
demands for money and renewed pressures to relax regulation that often corner authorities into
compromises that reduce their ability to expand the scope of the reform or to maintain now-
expected standards of service. Perhaps implementers have failed to grasp the true complexities of
the money and rules dilemma, focusing too much on the "hardware," building infrastructure, and
not enough on the "software," reinventing their relationship with private operators of service,
and have been therefore unable to move beyond the adversarial dynamic that so often
characterizes their relationship with the deregulated private transport industry. If what interests
us is indeed the expansion of the state's planning and regulatory capacity to pursue a much more
ambitious transportation-planning agenda, we need to look beyond the introduction of disruptive
innovations like BRT, and explore a larger array of decisions, policy actions, and urban
conditions under which these or other transportation policy interventions facilitate the
establishment of a more accountable partnership with the private providers of service.
In sum, the implementation of BRT and other innovations in Curitiba may have shown
that it is indeed possible to manage the rules and money dilemma, but the limited expansion and
adoption of the full model in other cities of the world suggests that this is not enough to expand
the government's planning and regulatory capacities. Thus, the question remains of how do urban
authorities that must rely on private operators to offer essential urban transportation services
ensure that the services offered to satisfy the mobility needs of the public also complement or are
31
Introduction
consistent with larger transportation goals? Under what conditions can governments working in a
context of weak institutional and fiscal capacity pursue second-order transportation planning
goals? Does the answer have to do with the socio-spatial structure of the city, its size, mode
share, population demographics, etc? Is it the nature of the bus industry, the way it is organized?
Is it the successful alignment of the interests of private actors with the interests of the broader
public? Is it the relative autonomy and legitimacy of decision-makers, perhaps enhanced by
democratization, or by the context of rising public concern about social and environmental
challenges? Is it the technical capacity of planners working within the government or the
entrepreneurial zeal of forward-looking private actors?
In the remainder of this thesis, I seek to answer these questions with a focus on Mexico
City and Santiago, Chile, two large cities where public authorities recently used the
implementation of BRT and other transport innovations to discipline and to "modernize" the
incumbent private transport industry so as to expand planning and regulatory capacities.
Case Study Selection and Research Method
This thesis uses a case study of Santiago and Mexico City, because, despite following
similar strategies of forcing and fostering industry compliance, and despite introducing BRT as
the basis for introducing state monitoring and management of private bus provision in both
cases, urban transportation planning capacities seem to have been much more advanced in
Santiago. Such outcomes require a more focused analysis of other factors that explain why
Santiago was more successful than Mexico City in expanding the state's regulatory reach and
overall planning-effectiveness. The two cases selected here allow a more systematic examination
of several mediating factors, including transport industry structure, city size, and relations
between local and national levels of government, and the timing of democratization.
In terms of industry structure, the decline and collapse of Mexico City's public bus
company, and the economic liberalization policies implemented by the Pinochet Regime in
Chile, resulted in the emergence of two essentially deregulated and fragmented private bus
industries in both settings. Ownership of public transport vehicles in both Mexico City and
Santiago was deeply atomized (most operators owned only one or two), with owners often
driving and maintaining their own vehicles. As a result, a dense public transit network developed
organically, reaching every corner of these cities and providing users with an affordable mobility
alternative, without requiring significant public subsidy from the government. Users could hail a
32
public transport vehicle after waiting only a few minutes, and reach most destinations with
minimal transfers, although the negative consequences of these systems were soon evident.
Aging vehicle fleets, undertrained drivers, reckless driving, congestion on the most profitable
routes, rising air pollution, and unreliable services in the periphery became the staple features of
public transportation in both Santiago and Mexico City.
Likewise, a democratic transition experienced by both cities, heralded by the elections of
President Patricio Aylwin in Chile in 1990 and of Mayor Cuauhtemoc Cardenas in Mexico City
in 1997, set the stage for a sustained effort to reestablish the state as planner, regulator and
financier of public transportation, and to "modernize" the incumbent private bus-operator
industry, abandoning artisanal operation of buses and transitioning bus operator associations into
corporatized transport companies capable of larger investments and professional management.
Because of this, in neither case was radical change initially a possibility, as the autonomy of
public authorities was bound by fiscal constraints, by a long deteriorated state capacity to
establish and enforce rules, and by calculations about the electoral impact of the reforms.
Finally, in both cases BRT was a main tool deployed by the government to restructure
transport provision and assert the state's regulatory capacity. Mexico City launched its new BRT
system in 2005 (Metrobn's), while Santiago inaugurated its integrated transport system, called
Transantiago, in 2007. Both of these projects soon garnered international attention. However,
despite the fact that both cities adopted the same transport modality, progress seems to have
stalled, or at least remains encapsulated, in the Mexico City case. In contrast to Chile, in Mexico
plans to integrate the BRT with the subway have not moved forward, the expansion of the BRT
network is increasingly slow and complex, and tens of thousands of quasi-informal, loosely-
regulated and under-financed buses continue to offer most public transport services in the city. In
Santiago, a difficult implementation process initially made way for a constant flow of negative
headlines, but considerably more transportation-planning goals were readily achieved. Today,
specialists looking closely at the Chilean reforms suggest that a major positive transformation is
underway. In lieu of over 3,000 individual bus owners, the government now negotiates with a
handful of professional, well capitalized firms-and is able to enforce increasingly stringent rules.
The buses and the subway are now organized to complement rather than undercut each other, and
there is a political consensus about the importance of maintaining public transport subsidies.
33
Introduction
Because the Chilean government seems to have been better-able to articulate and
implement its transportation policies in ways that have reduced traffic fatalities, pollutant
emissions and congestion associated with buses, with services having become more reliable and
total travel times on the decrease, an examination of the Chilean and Mexican cases allows us to
theorize what it takes to move from merely monitory transport providers to achieving more
fundamental transportation planning capacity to effectiveness, particularly as represented by the
introduction of a fully integrated, city-wide transport system that both accommodates private
transport sector needs while also serving the public's mobility demands.
To be sure, the varying outcomes were shaped by the distinct historical legacies and
resulting governance ideologies in Chile and Mexico, which in many ways predetermined the
strategies chosen by public and private stakeholders involved in negotiating these reforms.
Scholars like Jorge Castafieda (2011, chapter 3) refer to a "Mexican aversion to conflict"
developed since the revolution, noting the existence of a widespread preconception that conflict
necessarily breeds violence, a cultural inclination to feel sympathy for potential victims and an
entrenched belief that a good settlement is always better than a bad fight. Similarly, the Chilean
national psyche has long highlighted respect for authority, as suggested by the motto engraved in
the national seal: "by reason or by force." The years of military rule surely deepened such
belief,46 and peppered it with a commitment to free-market principles. These cases allow us,
however, to look for something more than a confirmation that Mexicans are different than
Chileans. They also share enough similarities to allow a more systematic investigation into why
the implementation of similar transport innovations (BRT and other similar transport supplier
regulations) promoted under the common rubric of public efforts to "modernize" the incumbent
private-transport industry more successfully enhanced the government's planning and regulatory
capacity in Santiago than they in Mexico City. That BRT seems to have brought greater state
oversight of private-transport provision but that cannot necessarily be considered the magic
bullet or most effective tool for enhancing state transportation planning capacity and further
45 None other than Enrique Pefialosa, the former Mayor of Bogot6 who implemented the famous Transmilenio BRT system,
declared in a 2010 interview published in Plataforma Urbana that Transantiago "will be the best bus system in Latin
America in 4 or 5 years." (Vergara Petrescu, November 10, 2010). Transantiago is also beginning to receive international
accolades. For example, the transport system in Santiago already ranks "well above average" in the Green City Index
(Economist Intelligence Unit 2010).
46 As one Chilean friend explained, "every citizen of this country has a Pinochet within."
34
sustains the value of the Mexico-Santiago comparison. After all, many cities across the global
south are actively attempting to tackle a multifaceted urban-transport problem and increasingly
look at cases such as Metrobn's and Transantiago for models to craft their reform strategy. With
the contrasting outcomes seen in Mexico and Chile, despite the common adoption of BRT, those
interested in understanding what it takes to expand transportation planning and regulatory
capacity in cities of the global south can find in this case-study comparison a set of principles
and guidelines for understanding whether and why certain patterns of forcing or fostering
private-transport industry compliance will eventually lead to greater and more comprehensive
transport-planning capacity.
In researching and analyzing the Mexico City and Santiago cases, I adopted the research
methods advanced by Alexander George, a leading theorist of case-based research: "process
tracing" and "structured, focused comparison."47 The former emphasizes prior investigation of
the links (or lack thereof) between plausible causes and observed outcomes. It specifically
recognizes that some plausible links may be false or weak, so that fieldwork has an orientation
toward hypothesis-assessment, even though one cannot compellingly "test" hypotheses in
qualitative research. Thus, part of the preparatory work implied assembling and analyzing an
extensive archive of articles published in major Mexico City and Santiago newspapers in the
periods before, during and after the implementation of Metrobn's and Transantiago. The second
part of the preparatory work consisted on assembling and analyzing official documentation, such
as feasibility studies, financial statements, corporate bylaws and concession contracts. Many of
these documents were not publicly available, and several "access to information" requests had to
be formally submitted and, in the case of Mexico, litigated to obtain them. This work resulted in
a tentative "reconstruction" of the sequence of conflict and collaboration that linked government
authorities with the leaders of vehicle-owner associations in anticipation to the plans and
regulatory reforms that culminated in the implementation of Metrobins and Transantiago. This
process generated a preliminary sense of the key debates, concerns and obstacles as probably
perceived by the public- and the private-sector perspective, with particular focus on how the
protagonists reacted to a) the potential displacement of individual vehicle owners, b) the
potential entry of new competitors to the market, c) the financing alternatives discussed, and d)
non-transport related political events, such as elections.
47 See George and Bennett, 2005, 6-7 and 205-232. For more on the case study method see Trachtenberg, 2006; and
Flyvbjerg, 2006.
35
Introduction
In conducting case-study research aimed at "structured, focused comparison,"
considerable effort was made to organize data collection around a consistent set of questions, to
ensure that the cases as finally written will be comparable for purposes of analysis. Building on
the acknowledgement that no case history can portray every aspect of what happened, it is
essential for each of the cases to focus on roughly the same aspects. In the present case, a main
concern will be the protracted conflicts and evolving negotiations between government
authorities and transport-operators over the state's expanding regulatory reach. With this aim in
mind, I interviewed the same kinds of actors in both cases: government officials and their
advisors, leaders and members of bus-operator associations, consultants to both sides, and local
experts in the field of transportation. Questions centered on the reform processes, as experienced
from the perspective of both the private and the public actors that participated. I especially
sought to understand how each actor behaved strategically, not only with respect to the other
"side," but also in relation to his/her peers.
Most of the interviews for the Mexico City case took place January-March 2011, with a
few others during shorter trips during 2012. I completed most of the Santiago interviews during a
trip to this city June-August 2012. A few additional interviews were conducted remotely, using
Skype. In total 64 individuals were interviewed, with each lasting an average of 1 hour 30
minutes, and the longest lasting 4 hours 30 minutes. The list is included as an appendix.
Questionnaires were semi structured, as a deliberate strategy to allow informants to expand their
answers and highlight what they think is critical, and a checklist of key topics maintained to
ensure everything was covered. Information obtained while "process tracing" was used to nudge
respondents into expanding their answers and to clarify controversial or obscure events.
Interviews were recorded with permission of informants, transcribed and analyzed using Nvivo,
a qualitative research software that facilitates the identification of common themes and topics.
Based on this information, a first draft of the cases was written and shared with a few individuals
whose comments greatly improved on the original.49
48 See George and Bennett, 2005, 67-72.
49 Part H of the case of Mexico City was read by Paulo Custodio, and presented in a synthesized form at the Conference for
Advanced Systems for Public Transport (CASPT12, held in Santiago in July 2012). The case of Santiago was read by Juan
Carlos Muftoz, Professor at the Engineering Department of the Catholic University of Chile, and Director of the VREF BRT
Center of Excellence.
36
Chapter 2: Governing public transport in Mexico City
The democratically-elected authorities of Mexico City anticipated that the incumbent
private industry represented the most likely source of opposition to Metrobns. They would go out
of their way to minimize potential conflict. In fact, public authorities shepherded the transition of
vehicle-owner associations into transportation companies, and then awarded them with the
contracts to operate the BRT system without subjecting them to competitive pressure. Further,
the government would guarantee substantial profits to every affected vehicle-owners, who would
emerge from this process as stockholders of the new companies. Going into the field, I
hypothesized that this "fostering" strategy could explain why Metrobiis was originally
implemented amidst little noticeable political conflict, why the expansion of the system has been
slow and gradual, and why the vast majority of the informal bus industry remains unchanged
until now. This strategic approach appeared to offer a clear contrast from the more "forceful"
strategies chosen by authorities in Santiago, where authorities intensely promoted the entry of
national and international competitors to the public transport market, and where incumbent
operators were explicitly threatened with eviction from the market. I hypothesized that the
Chilean "forceful" strategy could explain why after a significant period of conflict -that included
a two day blockade of more than forty major intersections in Santiago, and the incarceration of
the protest leaders- authorities gained the ability to freely determine who should operate public
transport services and how. As we will see, however, the distinction between "fostering" and
"forcing" proved much more muddled than anticipated, and an indicator of more important
explanatory factors rather than the key to understanding the differing outcomes in both cities. In
fact the selection of strategies in both cities was shaped by past interactions, that both enhanced
and constrained the ability of authorities to modify the terms of their relationship with the private
bus industry, and that predetermined whether or not private stakeholders found it worthwhile (or
feasible) to cooperate. To clearly unveil and detail this, we must situate both Metrobn's and
Transantiago in a historical context, which is why we begin the case study of Mexico City by
outlining how the relationship between public and private stakeholders evolved over time.
37
Part I. From the trolley to the bus: A history of conflict and
compromise
On August 3, 1981, the president of Mexico established Autotransportes Urbanos de
Pasajeros, Ruta 100 (AUP-R100)-, a public agency charged with directly operating public bus
services in the Mexico City Metropolitan Area (MCMA). A few weeks later the regent of Mexico
City 50 revoked the approximately 7,500 individual bus operating permits and concessions held
by the members of a private bus operator organization known as the Alianza de Camioneros,5 1
clearing the way for full government control over this critical service. Such forceful move was
certainly reminiscent of similar decisions taken several decades before, first to intervene
(between 1914 and 1919), and later to take over (in 1946) the Compania de Tranvias, the foreign
owned electric trolley company operating in Mexico City since the turn of the century. At the
time of these presidential decisions the relationship of both the Alianza de Camioneros and of the
Compailia de Tranvias with their mexican government counterparts had hit a wall, completing a
deteriorating transformation from a once thriving (and politically instrumental) partnership into
an adversarial relationship damaged by disputes over money and rules. Evicting the private
sector from public transportation, and consolidating services under one tightly regulated agency
seemed like a rational alternative to reorient the system toward serving the public interest.
However the most important lessons to be uncovered from studying the complex history
of public transportation in Mexico City are not primarily centered in these contentious
interstices, but in the varied ways the relationship between public and emergent private actors
evolved in the interim periods. The reason is that the cancellation of the concessions held by the
Compaffia de Tranvias and later by the Alianza de Camioneros -decisions supposedly taken to
increase the government's planning and regulatory capacity to use public transportation as a tool
to pursue broader urban planning goals- were both preceded and followed with policies that
negated much of the intended effect. Public companies like the intervened trolleys or the AUP-
R100 proved unable to meet or sustain the high standards of service at the low costs sought by
authorities, not only as a consequence of problems typically associated with government-run
services, but also because the needs of the city expanded rapidly. Constrained by institutional
50 The Mexico City Metropolitan Area is composed of the Federal District (DF) and the neighboring municipalities of the
State of Mexico that were gradually engulfed by the city over the 20th century. Between 1928 and 1997 the DF was an
administrative department of the Federal Government, and governed by a regent directly appointed by the president.
51 Translated as the "Bus Operator Alliance".
38
Mexico City, Part I
weaknesses and fiscal constraints, Mexican authorities soon felt they had little choice but to
complement direct service provision with the toleration of informal operators; to temper their
aims of a tightly regulated and carefully planned system by coming to terms with a competing
system that grew organically; and to square efforts designed to consolidate services in few or
even one accountable actor, with an increasingly fragmented industry-structure. In other words,
Mexican government authorities felt compelled to complement the limited reach of their
publicly-run services with an informal, weakly regulated and fragmented private industry, and in
doing so opened the door for a new set of private players that needed to come to the table if
public authorities truly desired to influence service delivery.
This process was of course embedded in a political context, in which political elites
strived throughout history to use emerging private bus operator associations as a base of political
support. As we will see, the Alianza de Camioneros had its own roots in the improvised service
providers that spontaneously entered the market to offer an alternative to the foreign-owned
electric trolley company. These entrepreneurs adapted their vehicles for passenger use and
created their own routes, soon coalescing as organizations that demanded formal authorization
from the state. These incipient organizations then became a powerful tool for the state to demand
better performance from the private electric trolley company and to weaken its radical and
politically active worker union. Later these improvised operators continued to serve a useful
purpose, expanding the limited reach of the Servicio de Transportes Eldctricos (STE), the public
agency that finally took over the Compaiiia de Tranvias, at no cost to the state. Similarly, the
associations of "collective taxi" operators that emerged dominant after the 1995 bankruptcy of
AUP-R100 are party the legacy of government toleration of their services, again undertaken to
weaken a radicalized and increasingly powerful AUP-RlOO worker union, and to maintain an
affordable transportation option available amidst deteriorating services of the government-run
company.
While this process of simultaneous and perhaps competing approaches to planning and
regulation resulted in a minimally acceptable transportation alternative that demanded little
public investment from the state and secured the political allegiance of the private operators of
service, it gradually constrained the ability of the same state to pursue second-order goals
requiring more planing, more regulation and more investment, even after the development
process expanded Mexico's fiscal capacity and strengthened its institutions. In fact, when
39
Cuauhtemoc Cirdenas was elected mayor of Mexico City in 1997 -becoming the first
democratically elected mayor since 1928-, he found his capacity to implement policy in the
transportation sector constrained by the historical legacies of a gradually consolidated
relationship between bus operators and post-revolutionary governments, "where political and
social support offered by the former was directly compensated through subsidies to fuel, spare
parts and tires, as well as with licenses, concessions, loans and other forms of
gratification." (Navarro Benitez 2005, 179) While estimates vary, the MCMA had at the time
approximately 130,000 public transport vehicles, most owned by individuals, organized
informally around roughly 100 associations with varied types of of government authorizations.
How could the government address major, second-order challenges like air pollution, congestion
and high accident rates in the city without challenging this deeply fragmented, weakly regulated
and privatized industry-structure?
The constraining effect of this industry-structure had in fact become evident prior to the
democratic transition of the city. In fact, the immediate predecessor of Cirdenas, -Oscar
Espinosa- failed in his explicit plan to draw on the formal private sector to reduce the cost and
improve the performance of the bus system after the demise of AUP-Rl 00. As we will see, his
plans to consolidate service and attract investment to the sector by awarding 10 area-based
contracts to the same number of operators floundered in the mid nineties due to the failure of the
state to guarantee the property rights of the incoming private investors vis a vis the incumbents
nurtured by the state in the past. Lacking the ability to select its private counterpart, and lacking
the funds required to expand the reach of public/regulated services (now practically constrained
to the subway network), Cardenas and his democratically elected successors realized that they
had little choice but to resort to an incremental, non-threatening, fostering strategy, that sought to
gradually expand the state's planning and regulatory capacity without alienating the incumbent
private operator organizations. In short, they would conclude that incumbent operators could not
be ousted from the system, and that their collaboration was required to succeed in any effort to
transform the sector.
Nonetheless the historical legacies that led Mexico City authorities to prefer "fostering"
rather than "forcing" strategies are critical to understand the choices made by Cuauhtemoc
Cirdenas (1997-2000) and later by his successors Andres Manuel L6pez Obrador (2000-2006)
and Marcelo Ebrard (2006-2012), particularly as the latter two attempted to expand the incipient
network of BRT corridors, partly inspired by the successes of Curitiba and Bogota. Thus, before
40
Mexico City, Part I
looking at the strategy chosen by Mexico City authorities to gradually foster a transition from
operator associations based on individual vehicle-ownership into corporatized firms -the subject
of the second part of this case study-, we begin by outlining how the relationship between public
and private stakeholders evolved throughout the history of public transportation in Mexico City,
from the demise of the privately-owned electric trolley company, to the collapse of the publicly
owned AUP-R100.
From a foreign-owned monopoly to a locally controlled cartel
The revolutionary moment that ousted President Porfirio Diaz in 1911, was preceded by
short period of technological innovation and sustained investment that placed Mexico City's
public transport network among the best in the world. In 1896 the Diaz regime awarded a British
finance investment company -Wernher and Bait- with a concession to electrify and expand the
existing rail network, and to operate it with the electric trolleys that would replace the steam and
animal powered vehicles previously offering service.52 This concession resulted in the creation
of the Compafia de Tranvias de Mexico, which by 1906 ran an integrated and organized,
"modem" service, featuring 343 kilometers of rail tracks -176 of these electrified-, stops roughly
every 300 meters, and a fare payment system that allowed free transfers between the 14 lines that
crisscrossed the city in all directions.
Nonetheless, the market power and undeniable political clout 54 of this company was not
without its negatives. In exchange for continuous private investment in infrastructure -which
included, for example, a commitment to electrify and pave the streets running along the rail
tracks- the government turned a blind eye to increasing fares and exploitative labor policies. This
resulted in a system deeply segregated by class (with the better-off enjoying novel electric
trolleys and the poor majority either priced out or restricted to animal-powered cars) and in an
increasingly dissatisfied labor force. The Diaz regime contained -often violently- the incipient
52 Wernher and Bait had a global presence, with interests in the mining, real estate and transportation industries. It owned
and operated electric tramways in several countries, including Chile, South Africa and Portugal (Fraser 1987). In 1909, the
British investors sold 75% of the stock in the Compafiia de Tranvias to a group of Canadian and American businessmen -led
by Fred Stark Pearson- who also owned the Mexican Light and Power Company, achieving vertical integration (Ribera
Carbo 2012).
53 See Ramos Garcia 2010; Gonzilez and Vidrio 2011.
54 Among the board members of the Compaflia de Tranvias figured Julio Limantour, brother of the Finance Minister;
Coronel Porfirio Diaz, son of the president and Pablo Macedo, president of the Congress (Ribera Carbo 2012).
41
Mexican labor movement emerging across the country, but the performance of the Compahia de
Tranvias increasingly suffered due to contentious relations with its workers. Not only did trolley
workers lack formal representation, but they resented the low wages, the inhumane working
hours, and the multiplicity of internal regulations that affected their income (such as fines
imposed for damage to the vehicles or requirements to purchase expensive uniforms)." Trolley
workers certainly expected the ousting of President Diaz in May 1911 to result in a radically
different government policy toward the foreign owned private monopoly. Perhaps for this reason
only two months after Porfirio Diaz fled the country, trolley workers organized the first major
public transit strike in
the history of Mexico Figure 2.1 Mexico City residents celebrate the triumph of the revolution on an electric
City -suspending trolley (June 7, 1911) (Photo credit: Manuel Ramos)
service for almost a
week.
However, the
interim revolutionary
government urgently
needed to restore the
urban economy, and
had no resources to
resort to nationalizing
this company. For this
reason, it sided with
the company's
management to
forcefully end the
strike, resulting in
"more than 50 people
detained... close to a
hundred injured and a large, undetermined number of workers fired" (Robles Gomez 1981, 45).56
The new authorities were in no rush to change previous agreements with the trolley company.
55 See Lara, 2007.
56 See also Lara, 2007.
42
Mexico City, Part I
Not only did they want to avoid a standoff with foreign investors, but perhaps more importantly,
they urgently needed to maintain economic activity in the nation's capital, swiftly mobilize
supplies in case another revolutionary faction invaded the city, and bolster the new government's
popularity among residents. Restoring critical services and rebuilding damaged transport
infrastructure was indispensable for these tasks. "With pressing needs and limited fiscal
resources, governing officials and local administrators had to seek other strategies to redress the
problem, including the imposition of strict work regulations on those providing urban services...
to ensure that Mexico City workers would work long hours at low wages" (Davis 1994, 30).
In other words, during the early years of the revolutionary war the mexican government
protected the profitability of the Compaflia de Tranvias by deliberately maintaining lax (or non-
existent) regulations established under the dictatorship of Porfirio Diaz. 7 In exchange, the
company not only kept the trolleys running, but in fact continued to expand the system. President
Madero himself inaugurated some of the company's new lines in 1912.58 However, this president
was assassinated soon after, and the renewed dispute for power among different revolutionary
factions rapidly collapsed the mexican economy. Inflation spiraled and the exchange rate
plummeted. Amidst the revolutionary turmoil, the Compafila de Tranvias faced tax increases,
threats of concession cancellation and frequent imposition of "voluntary" loans.5 9 Furthermore,
the faction that finally secured control of the city -the "constitucionalistas"- faced pressure to
adopt more progressive policies than its predecessor. Partly to appease supporters, the new
government led by Venustiano Carranza decreed a maximum working day of nine hours (a
revolutionary measure given the standards of the time). The Compaifa de Tranvias expressed its
discontent with this regulatory change by postponing fleet maintenance, cutting salaries by 30%
and firing employees. 60 Trolley workers could not remain passive. On October 8, 1914, they
formally constituted a union - the Federaci6n de Empleados y Obreros de la Compafia de
Tranvias de Mexico- and struck, once again paralyzing Mexico City.
57 In fact the Compafiia de Tranvias thrived economically during the early years of revolutionary turmoil. Profits reported by
the company in 1914 were 44.2% higher than those reported in 1910. See Ramos Garcia, 2010.
58 See Ribera Carbo, 2012.
59 Ibid.
60 Ibid.
43
This time the local government, led by a military official appointed by Carranza, sided
with the workers. The company initially offered to increase wages and to meet some of the
demands of the worker's union if the government authorized significantly higher fares, but
authorities refused. According to Toledo Martinez' 2010 thesis (quoted in Ribera Carbo 2012,
15), the company's representative in the negotiations -the economic attache from the British
Embassy- asserted "a confiscation would be preferable" to heeding to workers' demands without
compensation. The Carranza Administration temporarily intervened the company and seized all
of its assets "to guarantee urban transport services" in the capital (Rodriguez 1980, 101). A
Colonel was appointed to manage the company, who immediately decreed a 25% wage increase
and hired back many of the fired workers. In fact, during government intervention, the employee
rolls of the Compaftia de Tranvias grew by 255%.61 It is impossible to know how the Mexican
government financed such policy 62, but the decision significantly bolstered support for the
constitucionalista faction among the more radical wings of the rising labor movement in Mexico.
In fact, when a rival revolutionary faction occupied the city, many of the trolley workers
abandoned their posts and joined the constitucionalista army in Veracruz, as part of its "red
battalions".
By the end of 1915, the constitucionalistas regained control of the city and began to
pacify the rest of the country. The government had to decide what to do with the intervened
Compaftia de Tranvias. Carranza was a staunch nationalist, but at the same time committed to
private enterprise and to the quick redevelopment of urban areas. He wanted to return the
company to its owners, but recanted when stockholders sought to dictate terms, such as insisting
on the fare increase and tough labor standards. Partly because of disagreements about the terms,
State intervention of the Compafia de Tranvias continued until May 7, 1919 -when the
government finally agreed to: (a) cover debt incurred on behalf of the Company (particularly for
electricity), (b) to deregulate the fare for suburban rail lines, (c) to temporarily peg the price of
urban fares to the value of gold (to hedge against continuing inflation) and (d) to extend by 15
61 According to Ramos Garcia, 2010, the number of employees working for the Compania de Tranvias grew from 504 in
1914 to 1,286 in 1919, when state intervention ended.
62 Ramos Garcia (2010) analyzed the financial statements from the Companlia de Tranviarios, before and during state
intervention. He concluded that the raise was financed through savings achieved by substantially lowering the profit margin
previously imposed on the company by its foreign stockholders. While this may have been the case, we can't ignore the fact
that the administration preparing these financial statements had an interest in portraying their foreign predecessors under a
bad light.
44
Mexico City, Part I
years a concession to build and operate the Mexico-Toluca and Mexico-Puebla suburban rail
lines.
Despite government control of the company for five years, or perhaps because of it, the
relationship between the Carranza government and the more radical faction of trolley workers
soured. In fact, the broader national labor movement -united until then around the Casa del
Obrero Mundial- split up during this period over whether or not to continue to support Carranza.
Many of the labor leaders "felt the organization was selling its ideological purity in return for
marginal concessions to better urban conditions and for limited political power within
government circles" (Davis 1994, 45). In July 1916, the Casa called for a general strike
paralyzing all public utilities and public services in Mexico City, trolleys included. In total, more
than 82,000 workers joined. Now fully in political control of the nation and keen on getting the
economy back on track, the government violently repressed this strike, and decreed that acts of
sabotage against public services and utilities would be punishable by death.63 Carranza and his
allies would not jeopardize economic recovery to satisfy the radical wing of the labor movement.
When the constitucionalistas passed a new Constitution in 1917 formalizing worker's right to
strike, they expressly excluded public services like transport.
The mexican national labor movement soon split into two competing organizations -the
radical and strike-prone Confederaci6n General de Trabajadores (CGTr) and the collaborationist
and state-sponsored Confederaci6n Regional de Obreros Mexicanos (CROM)-. Both
organizations dueled to enlist trolley workers to their cause, with encounters frequently ending
violently.64 However, the field for this fight was far from leveled. The alliance linking the CROM
and the governing regime was so deep, that this organization had Mexico City's bureaucracy
fully on its side. CROM members served as councilmen and high ranking officials, and one of its
founders -Celestino Gasca- was even appointed mayor of Mexico City during the period
1920-1923. The enormous amount of resources and legal power available through these positions
bolstered CROM's efforts to sway (or scare) trolley workers away from the CGTr. Actions
63 See L6pez Zaldivar, 1997, 44.
64 CROM affiliated workers frequently tried to break CGTr-sponsored strikes, and these efforts would result in fights. The
most tragic of these encounters was dated February 1, 1923, which resulted in 3 workers killed and 5 severely injured (Lara
2007).
45
included police surveillance of CGTr Figure 2.2 Improvised "fotingo, " circa 1920. Source:
affiliated workers, and forceful (Departamento del Distrito Federal 1930 p. 135)
intervention against increasingly
frequent CGTr-sponsored strikes.
While these actions certainly made
their mark, a subtler, government
sponsored strategy would finally break
the CGTr.
As Diane Davis summarized,
"with the CROM's controlling Mexico
City politics, local authorities
continued to finance and actively
support the development of urban bus
services in an effort to reduce the city's
reliance on electric trolleys and thus
limit the CGTr's and trolley workers'
bargaining power in strike actions" (Davis 1994, 30). This was not difficult. Small entrepreneurs
already operated improvised transport services using vehicles retrofitted with wooden benches
and improvised tarp roofs, popularly known as "fotingos" (figure 2.2).65 The government now
encouraged fotingo operators to join the CROM and offer their services permanently. Starting
1918 -even as the trolley company remained under the control of the state- the city government
selectively awarded permits to vehicle-owners, allowing them to design routes and schedules at
their convenience. 66 These emergent service providers soon organized as "lineas", typically
identified by the points of origin and destination they served.67 The low investment required to
adapt a vehicle for service, the freedom of not being tied to rail tracks and the staunch support of
government authorities lowered the barriers of entry and ensured the success of the buses over
the trolleys, sealing the fates of both the Compania de Tranvias and its radical union. And
associated with the inevitable technological transition, the public transport industry in Mexico
65 The vehicle shown in figure 2.2 is identified as an "autobis antiguo" (Departamento del Distrito Federal 1930, 135).
66 Permits "did not establish routes nor schedules, so that the vehicle-owner could design its route to his
convenience" (Autotransportes Urbanos de Pasajeros-Ruta 100 1993, 46).
67 For further descriptions, refer to Legorreta (1995, 23) and Islas Rivera (2000, 251).
46
Mexico City, Part I
City experienced an organizational transition, from services provided by one consolidated and
investment intensive actor, into services provided by individual vehicle-owners, loosely
organized as associations. This did not preoccupy authorities at the time. After all, with minimal
public investment, the government achieved a multi-pronged political victory. It could be labeled
as nationalistic and revolutionary (it had weakened a foreign monopoly with longstanding ties to
the Diaz dictatorship), as supportive of private enterprise (it had distanced itself from radical
labor organizations) and as committed with social equity (it was promoting a technology better
suited to reach areas previously under serviced by the trolleys). In a last effort to compete, the
Compauia de Tranvias lowered its fares and petitioned for a permit to operate buses, which was
unsurprisingly granted on the condition of only hiring drivers affiliated to a union organized by
the CROM and not by the CGTr. Despite this attempt for survival, the bus-branch of the
Compania de Tranvias soon folded, and the trolleys continued to languish, partly because the
Mexico City government continued to grant bus permits to operators that competed for
passengers on the same routes.68 As the Compaiia de Tranvias lost market share, its radical
union also lost power and importance, and was eventually absorbed by the CROM.
The outcome of this period was the forceful replacement of a foreign owned,
consolidated, professionally managed and investment-intensive private monopoly, with "unions
of owners" formed by hundreds of small-scale entrepreneurs who owned and directly managed
improvised vehicles. 69 These organizations were not only pre-disposed to collaborate with
government authorities -their members understood that they owed their livelihood to a
government decision to limit the trolley industry-, but also found little reason to adopt the class
struggle rhetoric that had characterized the trolley worker union. Authorities from this period felt
empowered. They had successfully established a new kind of negotiating counterpart that
allowed them to reclaim authority over public transport services from both the foreign private
company and its increasingly radical worker union. However, this industry-structure also came
with a cost. The new operators' lower fiscal capacity and unaccountability resulted in lower
quality of service, and perhaps more importantly, the state's future ability to establish
68 In addition to not having to invest on infrastructure to run their services, bus operators always had a competitive edge.
During this period, the city offered subsidized gasoline to bus operators organized by and affiliated to CROM. By 1925 there
were 1,637 vehicles authorized to offer public transport service within Mexico City (Islas Rivera 2000, 251).
69 An official tally from 1926 suggests that during that year, there were 30 bus routes in Mexico City, operated with 1,637
vehicles (Legorreta 1995, 23).
47
transportation policy became limited by the institutionalization of a profoundly transactional
relationship linking authorities with the leaders of these organizations.
The emergence of the organization leader as negotiating counterpart
Moving from a system structured around one consolidated supplier of public transport to
a system featuring hundreds of small-scale entrepreneurs who owned and directly operated their
vehicles did not initially hinder the ability of the Mexican Government to regulate transport
services. Rather than negotiating directly with the managers of the Companiia de Tranvias, the
government now looked to the leaders of the owner-unions as negotiating counterparts. This had
the simultaneous effect of strengthening and checking the authority of these emerging leaders.
On the one hand, these leaders would become the conduit to obtain subsidies and permits, and
for this reason could control the members of their organizations. On the other, they were
structurally dependent on government access to effectively defend the interests of their
membership, which meant that public authorities felt they could weaken or replace them at the
slightest sign of rebelliousness. In addition to retaining control, public authorities could now be
more blunt when placing non-transport, extra-contractual items on the negotiating agenda. In
exchange for decisions over money and rules that benefited private operators, such as lax
standards or fuel subsidies, authorities felt entitled to request -to demand, actually- political
loyalty (and vice-versa).
While several owner-unions initially flourished, one group emerged as dominant by the
mid-twenties: The Alianza de Camioneros, affiliated to the CROM. The dominance of this group
was partly owed to the direct access enjoyed by its leaders to the president, the political actor in
Mexican politics with the most leeway over money and rules. The leaders of the Alianza -using
Mayor Celestino Gasca as conduit- lobbied President Alvaro Obreg6n for fuel-tax exemptions,
and got him to personally negotiate a fuel supply deal on their behalf with the Standard Oil
company.70 In 1922, President Obreg6n decreed a "closure of routes," restricting local authorities
from awarding more bus permits 7 1, and granting incumbent organizations a monopoly over
service. In 1924, President Obreg6n promoted the creation of a Fuel and Lubricant Cooperative
and later instructed the Bank of Mexico to finance the creation of a Transport Bank, placing both
70 See Lettieri, 2010.
71 See Autotransportes Urbanos de Pasajeros-Ruta 100, 1993, 46-47.
48
Mexico City, Part I
institutions under the direct control of the leaders of the emerging Alianza.7 2 Unsurprisingly, the
members of the Alianza de Camioneros corresponded with loyalty -not to the revolution, but to
President Obreg6n personally. This allegiance was manifest, for example, by recruiting members
to join Obreg6n's army when the nation became engulfed once more in war,73 and by abandoning
the CROM when this organization failed to support Obreg6n's reelection attempts74. This
tradition of client-patron relations would continue for several years, and later become
institutionalized within the dominant political party in Mexico, particularly as intra-party
negotiations replaced bullets as the principal way to retain power in Mexico.
As the Alianza de Camioneros consolidated its dominance over the public transport
market in Mexico City, the dependence of its leaders on high ranking political leaders
diminished. The leaders of the Alianza did not limit themselves to representing organization
members, but personally controlled a significant number of bus permits -often using family
members as straw men. They became stockholders of the Transport Bank, of the insurance
company and of the production and distribution facilities established by the Alianza to supply
72 These revelations were made in congress by former mayor and former CROM leader Celestino Gasca in 1939, who
would eventually become a fierce opponent of the Alianza. For a transcription of his accusation, see Cdmara de Diputados,
1939. For a broader discussion of the benefits granted by authorities to the Alianza de Camioneros, see L6pez Zaldivar,
1997, 47-48.
73 See Navarro Benitez, 2005.
74 The national leader of the CROM, Luis Morones, aspired to the presidency and attempted to organize his own political
party. By 1927 Morones had become a clear political rival of the governing elite, and when Alvaro Obreg6n was
assassinated, many suggested that Morones was behind the crime. Such insubordination resulted in the fall of grace of the
CROM, and the Alianza de Camioneros abandoned the organization to protect its good relations to the government. For
details on this part of the story see Davis, 1994.
49
and service members. The Alianza
Figure 2.3 Privately operated 'yulia", from the Judrez - Loreto line
negotiated contracts with the emerging (circa 1930). Source: Guerrero Family
automotive industry75 -which allowed
leaders to supply members with larger
and better adapted vehicles, known as
"julias" (figure 2.3) -, and partnered
with land owners -often military and
government officials- to expand bus
routes to selected housing
developments. All of these actions
carried a commission, and increasing
economic independence came
associated with increasing political
autonomy. The Alianza diversified its
political connections, establishing
linkages with a wider net of local politicians and bureaucrats able to solve day to day regulatory
problems, such as route alignment and terminal location conflicts. With increasing fiscal and
political power, the Alianza leadership achieved a significant degree of autonomy vis a vis the
government, and of control vis a vis its members.
The useful partner becomes a powerful and hard to control opponent
When General Lizaro Cirdenas -the father of future Mayor Cuauhtemoc- became
president in 1933, he found that the Alianza not only controlled "almost all camioneros in the
Republic," but "had become an entity that protected the interests of the bus owners and the route
presidents, more than the workers" and that "essentially constituted a capitalist, monopolizing
enterprise" (Lettieri 2010, 5). The reach of the Alianza was so expansive, that the media began to
refer to it as the "pulpo camionero" -the busing octopus. General CArdenas was troubled by the
concentration of the public transport market in a few hands, and felt that the existing
arrangement was not compatible with the regime's revolutionary credentials. For this reasons, he
instructed his transportation minister -Francisco Mhgica- to suggest a new regulatory framework
for the sector. The Cardenas administration was about to engage in the costly and politically
75 The first auto assembly plant in Mexico opened in 1925.
50
Mexico City, Part I
perilous quest of nationalizing the oil industry, and perhaps for this reason did not consider a
similar approach for public transit in the capital. Instead, Mngica advocated changing the
structure of the industry: opening and fragmenting the public transport market once more,
forcing the entry of transport cooperatives independent from the Alianza. By 1936, M'gica had
prepared a legislative reform package that would:
- establish that only cooperatives or individuals "belonging to the working class" could hold bus
operating permits,
* limit the number of permits that each individual could hold to one, and limit the number of
vehicles associated to each permit to one.
* require individuals serving the same route to form a cooperative, and all cooperatives to belong
to one federation, "which will be the only entity between the government of the Federal
District and the cooperatives" (L6pez Zaldivar 1997, 50)
* reduce the life of each permit from 20 to 5 years, with renewal conditioned on maintaing status
as a cooperative.
- require the inclusion of all workers associated with the activity -drivers, mechanics, fare
collectors, etc, as members of the cooperative.
. open the market to as many cooperatives and as many routes as required by "the public
interest."
The leaders of the Alianza de Camioneros understood that this proposal constituted an
attack on their growing economic power and political influence, and set out to defend their
interests. The fate of this bill illustrates how even under a strong presidential regime, the
Mexican Government was gradually losing its ability to shape transportation policy and to
control at will the private suppliers of service. On December 16, 1939 -one day after the
Chamber of Deputies (House of Representatives) approved Mngica's reforms7 6 and sent the bill
to the Senate for ratification- the Alianza de Camioneros paralyzed Mexico City with a strike, in
a move widely interpreted as a direct challenge to President Cirdenas' authority. Violence
erupted when members of a government-sponsored transport cooperative -Sociedad Cooperativa
18 de Marzo- 77 attempted to break the strike, leaving a toll of several damaged buses and 27
76 Milgica's reforms are contained in the Ley General de Vias de Comunicaci6n. For the full text, see Secretaria de
Comunicaciones y Obras Pniblicas, 1940.
77 Interestingly, the name of this cooperative paid homage to President Cardenas, as March 18, 1938 is the date in which his
administration nationalized oil companies operating in Mexico.
51
workers injured. 78 However, much had changed since the time of Carranza. This time, a violent
strike did not result on the cancellation of permits nor on anybody thrown in jail. In fact, it
resulted in a meeting between the leaders of the Alianza and the president himself, in which the
former "convinced Cdrdenas that it was not worth it to force changes in the industry" (Lettieri
2010, 8). To be sure, the Alianza came out of this meeting publicly apologizing for stopping
service -attributing the strike it to communication problems between its leaders and more
militant members- and pledging its political allegiance to the president. At least in the media, the
story presented to the public was about a kind but firm president that heard the Alianza's
concerns but forced it to return to work without conceding much. However, the reality was
entirely different. Despite the undeniable power of the presidency, Cardenas was aware that his
pro-labor and pro-peasant policies had "disadvantaged a broad spectrum of urban populations in
Mexico City," and resulted in "substantial, growing opposition to his administration" (Davis
1994, 97). He could not afford to fully alienate this interest group, especially as the election to
succeed him was looming near. Despite his personal distaste for the Alianza, the events that
follow demonstrated that his administration did not emerge victorious from this standoff.
While the Senate ratified Mngica's proposals soon after this meeting, the Alianza
succeeded in derailing the cardenista reform efforts. It is no coincidence that it took three full
years for the plan to make its way from the minister's desk in 1936 to congressional approval in
1939, and even more intriguing that the version finally ratified by the Mexican Senate gave
incumbent operators an additional year to comply. This filibuster ensured that a different
presidential administration -and a new transportation minister- would be charged with enforcing
the new rules. This benefited the Alianza, whose lobbyists took advantage of the fact that the
looming presidential election -set to take place in July 1940- promised to be the most contested
in Mexican history. Official party candidate Manuel Avila Camacho failed to carry the election in
the capital, and his national triumph was tainted by suggestions of fraud. Concerned for his
legitimacy in the capital and for the long term viability of the regime, President Avila Camacho
felt inclined to re-establish political alliances with many of the organized groups in Mexico City
that felt disenfranchised by Liizaro Cardenas' policies. Not surprisingly, one of these groups was
the Alianza de Camioneros.
78 For a description of the event, see the congressional debates of the session held on September 19, 1939 (Cimara de
Diputados 1939).
52
Mexico City, Part I
From forcing competition to (again) fostering a cadre of political allies
It is hard to identify a transportation policy enacted in Mexico City in the period between
1940 and 1952 contrary to the interests of the Alianza de Camioneros. After the failed attempt to
break the monopoly held by the Alianza, the governments of Manuel Avila Camacho
(1940-1946) and Miguel Alemain (1946-1952) made a 180 degree turn and set out to cultivate a
good relationship with the only organization able to supply political muscle and decent transport
service in the capital. As early as 1942, the Government of President Manuel Avila Camacho
enacted a new transport law, "eliminating any reference to the cooperatives" (Ibarra 1983, 41),
and in 1945 elevated the Alianza to national policymaking, inviting its leaders to participate in a
commission officially created to "study the problems of the auto-transport industry."79
To be sure, in 1946 Avila Camacho also seized the assets of the Compafiia de Tranvias
(which still survived with a few viable trolley routes), but this action seems to have had more to
do with ridding the city from the frequent strikes of the trolley workers and with severing the
city's relationship with the disengaged owners of the company, than with a deliberate effort to
reinvigorate an alternative to the Alianza's buses. The administration's preference is evidenced
by policies that strengthened the buses and debilitated the trolleys. Since the early forties, the
Avila Camacho administration burdened the Compafia de Tranvias with "comparatively more
onerous obligations"80 -such as increasing the requirements to build and improve street
infrastructure along the tracks-, while authorizing operational subsidies and fare increases to the
private bus operators, including a 1944 presidential decree authorizing the Federal District "to
grant economic help to concessionaires" (L6pez Zaldivar 1997, 60).81 Furthermore, the mexican
government did not put the seized trolleys back in operation until the early 50s, partly because of
the legal battle that ensued with the deposed owners, but probably also due to the financial
implications of running them. Perhaps President Avila Camacho realized that the government
79 See Fulwider, 2009.
80 See Ibarra 1983, 41 and L6pez Zaldivar 1997, 52.
81 Both President Avila Camacho and Aleman also instructed PEMEX -the national oil company- to continue to subsidize
the price of fuel to private bus operators, and appeared to have no significant qualms about frequently authorizing bus fare
increases. Fare increments were frequent during the early forties, and were partly associated to an inflationary spiral
associated with World War II, that affected the price of key inputs used by bus operators, such as imported (and increasingly
scarce) spare parts. These circumstances also worked in favor of the Alianza, as the organization began manufacturing its
own spare parts, sold among members. See Mendoza Cruz, 2001.
53
lacked the necessary resources to compete with private buses, and figured that even if these
resources were available, he obtained no political benefit from jousting with the pulpo
camionero. Whatever the reason, by the mid 1940s, there were 2,502 authorized buses operating
in Mexico City, and only 500 trolleys remained (Navarro Benitez 1984, 86).
In only a few years the political relationship between the Alianza de Camioneros and the
President of Mexico had fully repaired. Just like in the past bus operators had joined the army to
support their revolutionary patrons, starting in the mid forties Alianza members became militant
activists for the candidates of the governing party. Their support was so evident, that during the
campaign to elect Miguel Alemain as president, bus tickets in Mexico City had the candidate's
picture printed, and according to Ruben Figueroa (who later became one of the Alianza's
leaders), the organization assigned 300 buses to accompany the candidate's entourage
nationwide, helping mobilize people to his political rallies.82 However the most valuable
campaign contribution was of a slightly different nature. On election day, the Alianza was
responsible for taking voters to the booths, and for sabotaging attempts by opposition candidates
seeking to do the same.
Political support did not go unrewarded. In fact, the most significant policy changes in
this period took place on December 31, 1947, when the Alemain administration sponsored a
package of reforms to the Transport Law based on the recommendations of the commission
previously appointed by President Avila Camacho. 83 The changes had the purpose of facilitating
the consolidation of the industry, while at the same time protecting incumbents from outside
competition. The reforms established concessions as an alternative to permits as the contracting
instrument used to formalize the relationship of the government with private bus operators. This
apparently harmless change in legal terminology had profound future implications: Concessions
grant a right to operate, while permits only grant an authorization to operate. The reform
simultaneously raised the bar required for the government to open the market to new operators,
and reduced the feasibility of evicting operators already authorized. The reform also included a
significant term extension, as the previous permits were valid for only 5 years and concessions
would last 10, renewable of course. And most importantly, the alemanista reforms attempted to
shift the industry-structure. They eliminated the limits on the number of concessions that each
82 See Lettieri, 2010.
83 See Fulwider, 2009, 144-145.
54
Mexico City, Part I
individual could hold, and on the number of vehicles that could be associated with each
concession. Instead of the one-permit, one-bus maximums set under General Crdenas, the new
law established that individuals could hold any number of concessions, as long as the total
number of vehicles owned
by an individual
concssioairedidFigure 2.4 Privately-operated buses, in front of Mexico's Palacio, Nacional (circa 1945).concessionaire didSore ysaprCi.
not surpass five in the
same route. Finally,
the new law
established that any
type of legal entity -
including mercantile
societies
(corporations)- could
obtain a concession
to operate public
transport services.
All of these
changes directly
benefited Alianza
leaders that had illegally accumulated permits using straw-men, feared the entry of more
competitors to the market and wanted to avoid the cooperativization of their industry. In stark
contrast to the standoff only a few years earlier, this time the Alianza celebrated the approval of
these reforms while the few surviving transport cooperatives tried -unsuccessfully- to stage
protests. In fact, cooperatives operating on permits awarded under Cirdenas were instructed to
reorganize as mercantile societies and required to petition for a concession before the expiration
of their current permits. Such transition proved so conflictive, that many of them -including the
iconic Sociedad Cooperativa 18 de Marzo- were evicted from the system within a few months, in
what represented a final nail on the coffin of the failed MN1gica experiment. 4
84 See Lettieri, 2012.
55
But in addition to sponsoring rules that both protected and enriched the Alianza, both
Manuel Avila Camacho and Miguel Alemin ensured high ranking leaders from this organization
rose quickly in the bureaucracies of the party and of the local and national governments. The
most notable example is Antonio Diaz Lombardo, the leader of the Alianza from 1923 to 1953,
who in addition to becoming a wealthy and powerful businessman in the prior years (in the 30s
he had produced blockbuster movies and founded a national airline8 1) now became a national
political figure. In fact, Alemin appointed Diaz Lombardo as Director General of the Instituto
Mexicano del Seguro Social (the national social security institute) from 1946 to 1952. Several
other leaders of the Alianza, like Manuel Pefia, Narciso Contreras and Rafael Pimentel, became
representatives and senators to the national congress under the governing party ticket. As one of
it members stated succinctly in a press interview, "the bus owners union is a political
organization. We have struggled to maintain a political presence; even though at times it was an
anonymous presence it was always active in national politics. We are politicians and have
achieved, thanks to our organization, important posts in national politics." 86
From a political alliance to consolidate power to a partnership to advance an
urban vision
Under Avila Camacho and Alemain, private bus operators re-enlisted as part of the
regime's political machinery, and the Alianza's marriage to the governing party -the PRI- seemed
ironclad. For a time, governing public transportation in the Federal District meant negotiating
with only a handful of Alianza leaders. However, as Mexico City expanded demographically,
spatially and economically, the limits of this approach would become evident, particularly to
local policymakers concerned with the problems associated with fast, unregulated urbanization.
Unauthorized taxis began appearing in the periphery and soon began offering "collective"
services into downtown, meaning they stopped along the way to pick up more passengers. As
these services grew, these emergent private actors battled the Alianza for control of the streets.
Authorities initially attempted to prevent these illegal services from taking place: In addition to
fines, taxi drivers surprised offering "collective" service spent a night in jail.87 However they
85 In 1934, Diaz Lombardo founded Aeronaves de Mexico, which later would become Aeromexico, one of the two flagship
airlines in Mexico. In 1936, he produced the movie "Alli en el Rancho Grande" ("Away at the big ranch") (Elena and Diaz
Lopez 2003, 27).
86 "El monopolio camionero, en 8 lineas," Excelsior (Mexico City), December 1, 1971.
87 See L6pez Zaldivar, 1997, 56-57.
56
Mexico City, Part I
were so ubiquitous and convenient, that collective taxis became impossible to contain. Soon,
they became known informally as "tolerated" services -they broke rules that the state did not
enforce. Political alliances alone would not suffice to inject the system with a minimal degree of
order and rationality, especially as the goals of authorities began to shift from simply retaining
power and meeting minimal mobility needs, to using transportation as a tool for urban planning.
The broader strategy of Presidents Avila Camacho and Alemin to accelerate the country's
industrialization was based on combining large investments in public infrastructure -highways,
airports, ports- with low tax rates and subsidies to industry. This strategy was quite successful,
particularly when evaluated through a "national" lens. The country grew at accelerated pace and
private investment returned with an intensity not seen since the Revolution -leading some to talk
of a "Mexican Miracle". While many of the benefits of this transformation concentrated in
Mexico City, so did the costs. Industrialization triggered a massive rural migration from the
hinterlands into the MCMA, as thousands flocked to the city looking for jobs. The population
growth rates in the city averaged 5.6% per year during the fifties, and it was during this decade
that the urbanized area of the MCMA first sprawled out of DF and into the neighboring
municipalities of the State of Mexico.
Unsurprisingly, new residents demanded access to basic services -such as transport- and
the city found itself ill equipped to deliver. On the one hand, many of the new industries and
housing settlements located outside the boundaries of the Federal District, creating significant
travel demand while generating no additional tax revenues for the city. On the other, the broader
national policy of combining increased expenditures with generous fiscal incentives resulted in a
growing national deficit, which constrained fiscal transfers to local governments and triggered a
devaluation of the currency. Social services were cut back, at the same time that an inflationary
spiral ate into the purchasing power of new residents. The constant inflow of population, the fast
geographical expansion of the city and the severe constraints on government finances,
overwhelmed local planners and regulators. As a result, the demand for public services and new
settlements began to be satisfied -once again- by improvised private actors with little state
planning.
In this troubling context, Emesto Uruchurtu was appointed regent of Mexico City in
1952. In his public appearances, Uruchurtu stressed the importance of "pre-planning the growth
57
and provisioning of [Mexico City]", calling for proactive government intervention to avoid "the
disordered and indefinite growth of the capital" (Davis 1994, 132). His successful tenure as
regent -that would extend until 1966- was defined by his staunch efforts to reclaim local state
capacity to engage in urban planning amidst fiscal and institutional constraints. He championed
rent control to protect the middle classes and small commerces in downtown Mexico City,
imposed strict limits on the expansion on squatter settlements in the city's periphery, and denied
services to settlements formed through squatter invasions. He fought off informal vendors and
collective taxis and restricted their business activities to outside of the city's downtown, while
simultaneously launching massive efforts to beautify the city, focusing on parks and public
spaces. And he did all of this while governing as a strict fiscal conservative, balancing the city
budget by expanding the tax base and keeping public expenditures down rather than by
increasing rates. While many chastised Uruchurtu for being authoritarian and anti-poor, this
regent became the last line of defense of the middle classes and small commercial interests that
inhabited the city's core.
When it came to transportation, Uruchurtu militantly opposed both road widening and the
construction of the city's subway -a project that was on the drawing board as early as 1952. He
believed that these projects ran against his growth control and fiscal discipline objectives. If
approved, land in the peri-urban areas would be developed at a faster rate, and thousands of
downtown residents and small commercial establishments -his own political base of support-
would be evicted to clear land for construction, or priced out from the area due to gentrification.
Furthermore, the cost of these projects promised to be so large, that they threatened to cancel the
progress made by his administration balancing the city's budget, and to siphon resources away
from other urgent priorities -such as building drainage infrastructure. Uruchurtu proposed to
improve the buses as a fiscally responsible and less disruptive alternative to subway construction.
His strategy exemplifies how financial and institutional constraints shaped the "negotiating
table" during his administration: On the one hand, weak city finances prevented him from
relying solely on city-owned trolleys and trolley-buses (now organized under the STE) to revamp
the bus network. On the other, the culture of arms-length regulation that defined the
government's relationship with the Alianza de Camioneros had accustomed private operators to
run their services with little state meddling. In other words, Uruchurtu needed to reinvent the
relationship of the city with private operators to advance his urban vision.
58
Mexico City, Part I
The plan put forth by Uruchurtu was based on what Diane Davis (1994, 139) defined as
"a two pronged approach to public transportation." The regent allocated available funds to
expand and modernize the STE fleet, concentrating electric trolley-buses in the city's most
important corridors. 88 At the same time, he became much more involved in regulating private
buses, attempting to reshape the network so that authorized private operators would complement
rather than compete against public trolley-buses, and accept his low-fare policy. Uruchurtu's plan
was certainly contentious. On the face of it, his plan implied that some of the Alianza's members
would be displaced from the most profitable routes in the city -ideally reserved to the STE's
trolleybuses-, and reassigned to areas already claimed by other Alianza operators. Uruchurtu
wanted to shorten unnecessarily circuitous routes, eliminate redundant routes, and reorganize the
location of bus terminals 89 to reduce congestion and shorten travel times. Each of these measures
affected the informal property rights of hundreds of private operators. His plan to rationalize the
bus network by negotiating with the Alianza's leaders implied that the interests of many
individual operators would be affected, particularly given the fragmented industry structure that
prevailed in that period.
Quite notably, the private bus industry did not unite in opposition to Uruchurtu. Several
factors can help understand this. First, the displacement of private buses from central corridors
was never fully completed -perhaps the proposal never represented a credible threat. Due to the
costs of maintaining the existing fleet and the complications involved in importing new vehicles
from abroad, the STE had only 173 trolleybuses on the streets by 196590, a minuscule number
compared to the thousands of private buses roaming the streets. Second, the redesign of the
network allowed Uruchurtu to make winners as well as losers from his reform agenda. By
negotiating who could stay and who had to relocate, as well as which routes would remain and
which would be cancelled, Uruchurtu successfully divided opposition to his proposals -and
empowered the Alianza vis a vis collective taxis. Third, Uruchurtu maintained and increased fuel
subsidies to the private buses during his tenure, officially to compensate for the low fares
88 While the concession to operate electric trolley buses had been cancelled in the prior decade, it was not until October
1952 that the assets of the company were formally transfered to the city government.
89 72 different routes had their terminals in the downtown, with boarding stations around the central Plaza de la Constituci6n
(Ross 2009, 229).
90 See Servicio de Transportes Eldctricos del DF, 2013.
59
imposed by his administration -but probably also to reduce the financial autonomy and political
independence of private bus organizations. As a growing share of operator's income came from
the government rather than from the fare-box, the leverage of authorities grew. As Uruchurtu
himself explained in an interview, "they do not miraculously sustain themselves, government
pays."91 And finally, Uruchurtu made sure to explain to bus operators that the changes he
advocated were necessary to protect the private bus industry from the looming threats of the
automobile, the collective taxis, and the subway. In short, Mexico City authorities in this period
seem to have successfully leveraged the legal and financial resources at their disposal to increase
their ability to shape public transport services. As Davis concluded in her own review of this
period, Uruchurtu's "foresight and special skills in politically accommodating providers of urban
transport gave him maneuvering room to successfully administer and service Mexico
City" (Davis 1994, 139).
Nonetheless, Uruchurtu's regulatory power (and personal interest) diminished as distance
from his cherished downtown increased. At the outskirts of the growing metropolis, "fixed route
collective taxis" known as "peseros"92 provided public transport services "without any permit or
authorized concession" (Legorreta 1995, 26), and without public subsidies of any kind. As long
as they kept out of the city's core they had little interaction with the state. To be sure, planners
and regulators kept plenty busy. In fact, for most of the early fifties, the Alianza devolved into an
internal civil war, that magnified after Diaz Lombardo was ousted as leader in 1953 -a decision
encouraged by government authorities concerned over his personal control of the industry.
Lacking a coherent organization to build consensus and enforce discipline, many of the private
bus operators negatively affected by Uruchurtu's policies reacted by disobeying the new
regulations, "invading" routes or unilaterally increasing their fares. Uruchurtu's office soon
became the site to settle disputes among quarreling factions of bus operators, and between bus
operators and groups of disgruntled users.93 On occasion, the regent had to resort to extreme
measures to maintain credibility. For example, in 1959, he ordered the intervention of one of the
most popular routes in the city -the Linea Lomas de Chapultepec-Reforma- in response to the
private operator's failure to respect the authorized fare. However for the most part the "Iron
91 Arturo Paramo, "Pas6 medio siglo y la solucion no llega," Excelsior, June 2, 2013.
92 The name references the price they charged to passengers: One peso
93 Students often mobilized against unathorized fare increases during this period. See Autotransportes Urbanos de Pasajeros-
Ruta 100 ,1993, 18.
60
Mexico City, Part I
Regent" -as Uruchurtu came to be known- had a limited ability to closely monitor services, and
depended on the support of organized operators to enforce his own rules.
To enhance the enforceability of regulatory decisions and to channel public subsidies -in
other words, to insert the state into the the void left behind by the Alianza's internal turmoil-, the
Mexican Government sought to create a forum to centralize negotiations with the private bus
industry. A new regulatory reform, signed by President L6pez Mateos on December 28, 1959
established the Union de Permisionarios de Transportes de Pasajeros en Camiones y Autobuses
en el Distrito Federal (UP) - as "the only body through which the Federal District Department
(DDF) will establish relations with individual permit and concession holders about anything to
do with the delivery of their services" (Camara de Diputados 1958, article 1). The Law, certainly
reminiscent of Mi'gica's early efforts to consolidate transport cooperatives under a single
Federation, established mandatory affiliation and payment of membership dues to the UP, and
gave the Mexico City regent ample powers to appoint and remove the UP leadership. But most
importantly, the UP provided Uruchurtu with a mechanism to mediate his relationship with
roughly 4,000 individuals that held approximately 7,500 operating permits and concessions to
operate buses in the city 94, while also controlling the costs of this relationship to the public purse.
Since the informal collective taxis operated outside of the orbit of the UP, they were
legally barred from formally making claims on the state. In other words, the UP became a useful
"thermostat". When Uruchurtu desired to increase the reach of the regulated network, he could
extend membership to informal collective taxis. When he wanted to decrease the cost of
subsidies, he could expel some members. Since participation in the UP was mandatory to access
subsidies, Uruchurtu was empowered to enforce regulations that distinguished his administration
-such as mandating that all buses be painted the same color, or charge the same fare. Without
resorting to nationalizing public transport and despite maintaining a fragmented industry
structure -with hundreds of individual entrepreneurs as negotiating counterparts-, Uruchurtu used
public transport as a tool to advance his vision for Mexico City, at least within the city's central
district. For a brief period of time in the late fifties and early sixties, Mexico City's downtown
94 While I have found no official sources, the congressional debate records suggest that at that time there were 7,500 bus
operating permits in Mexico City, held by approximately 4,000 different individuals or organizations. This number is
consistent to figures reported by Jimenez Bautista, 2009.
61
"came as close to flowering as it did any other single period of time since 1900" (Davis 2005,
215-216).
To be sure, the UP became a powerful instrument to govern private bus services in the
city, playing an important role settling conflicts, standardizing services and legitimizing
decisions. It became the "table" where all important negotiations took place, and operators who
were not invited were at a serious disadvantage. However, the UP also locked Uruchurtu "in a
strong give-and-take relationship with the urban bus industry that required his political
responsiveness in return for their accommodation" (Davis 1989, 9). In such way, the UP
paradoxically served to re-energize and legitimize the Alianza de Camioneros, "as a principal
institutional player in behind-the-scenes negotiations over urban policy in Mexico City" (Davis
1994, 142). As the largest organization of bus operators in the city, its leaders automatically
became the most authorized voice representing all of the private operators of transport services
negotiating with the state within the UP. Even operators that once attempted to compete against
the Alianza in the streets saw the benefits ofjoining. After all, problems of Alianza members
seemed to get resolved more quickly, and this organization had a systematic upper hand in inter-
operator conflicts mediated by the UP. Furthermore, once internal disputes over the Alianza's
leadership were settled in favor of Ruben Figueroa -a political ally of Uruchurtu 95- the practical
usefulness of the UP diminished significantly. Authorities directly negotiated with the Alianza
leadership, with the role of the UP limited to formalizing their agreements. Scholars
documenting this period have noted how the UP gradually became an irrelevant middleman,
"given that the Alianza could count on the support of public officials" (Gonzalez Ruiz 1996,
29).96 However, Uruchurtu certainly outdid his predecessors. Beyond positioning himself as
patron of a politically important interest group (as President Obreg6n had done in the 1920s),
Uruchurtu united a fragmented private bus industry in support of a vision for Mexico City's
future that focused on more than the immediate transport needs of the population. Even if for a
brief period of time, quality of service improved, and the interests of public regulators and
private bus operators seemed aligned in the pursuit of compact urban development, mixed
residential and commercial uses, and affordable transit services.
95 Ruben Figueroa who later serve as senator and governor of the State of Guerrero under the PRI.
96 Also on this topic see Loyzaga de la Cueva, 1987; and Figueroa, 1990a.
62
Mexico City, Part I
The Metro: Nice but expensive
However, just as Uruchurtu consolidated his partnership with private bus operators -and
well before the benefits of his transportation policies could extend outside of his cherished
downtown- a renewed effort to build the subway emerged. The original proposal, floated in 1952
by Ingenieros Civiles Asociados (ICA), a private engineering consortium with landed interests in
the outskirts of the urban area, had been previously derailed over questions regarding the
technical feasibility of building tunnels in Mexico City's unstable and earthquake-prone soil, and
of course over the associated financial implications.97 Since then, Uruchurtu had succeeded in
convincing the two presidents that retained him as regent that the subway was neither good urban
policy nor a sound public investment. However, by the early sixties Uruchurtu was serving under
a third President, Gustavo Diaz Ordaz, and subway proponents led by ICA' President Bernardo
Quintana made a new push for the project. This time, they anticipated critics by previously
enlisting the support of french engineering firms and banks,98 who promised to supply the
required technology and financial support99.
President Diaz Ordaz had close links to the financial and real estate interests promoting
the subway, 100 and considered this project an extraordinary opportunity to leave a personal
legacy. But in addition to this, he sided with those who questioned Uruchurtu's negotiated
approach to urban transport policy, perhaps interpreting it as a sign of weakness. As Oscar
Figueroa (1990a, 224) concluded, "the absence of initiative on the part of operators, added to the
weakness shown by authorities attempting to influence their behavior, led to the search for a
exogenous formula able to provide an opening for some direct participation of the public sector
in modeling the supply of service." The president likely believed that the subway could solve the
congestion problem of the capital and make downtown attractive for redevelopment, succeeding
97 See Borja Navarrete, 1997.
98 Technical support was offered by the Societd General de Traction et d'Explotation and by the Societd Francaise d'Etudes
de Realisations de Transports Urbains. Financing was provided by a consortium of institutions led by the National Bank of
Paris (BNP) that included Credit National, The Merban Co, Rothschild and Sons, Ltd. and the Export Development Co. For
details see Legorreta 1995; Navarro Benitez 1984; and Davis 1989.
99 See Navarro Benitez, 1984, 90; and GonzAlez, 1988, 65-66. Some accounts, like Henry and Kuhn, 1996, suggest that the
seeds of french collaboration with ICA were planted during the visit of General Charles de Gaulle to Mexico on March 1964,
only a few months before the election of Diaz Ordaz as president.
100 In addition to family connections, President Diaz Ordaz's efforts to clinch the PRI nomination had been supported by
ICA (Davis 1989).
63
precisely where the trolleybuses had failed: driving unseemly private buses out of the city's
central core. Since the subway promised significantly better service than surface options, private
operators of buses were expected to lose patronage and be cornered into accepting relocation.
The original Metro Plan, published in 1977 (quoted in Navarro Benitez and Cadena Perez-
Campos, 1990, 4), was quite explicit in this goal, offering "to service the most congested areas,
eliminating surface public transport modes" (emphasis added). 101 In other words, this was not a
project originally conceived to integrate multiple modes and to foster collaboration, but more
precisely to simultaneously spur real estate development and to evict private bus operators from
the central core of the city.
Adding a sense of urgency to the project, Diaz Ordaz committed in 1964 to build the
subway in time for the 1968 Mexico City Olympics. This event would be hosted by a
"developing" nation for the first time of history, and Diaz Ordaz wanted to showcase a modern
and up and coming country to the world. Uruchurtu's opposition to the subway was
uncomfortable and uncommon, and would soon make his tenure as regent unsustainable.
However, Diaz Ordaz could not simply dismiss the popular regent that had saved the capital
from financial chaos and ungovernability. First, he had to diminish Uruchurtu's credibility, and
weaken his claim that the city's transport needs could be effectively met through a partnership
with private bus operators. Over the course of 1964 and 1965, the president sparred behind
curtains with the regent over the subway project, to the point of accusing him of sabotaging the
Olympics and putting national pride in jeopardy. Many of the long-standing opponents of
Uruchurtu's anti-growth policies coalesced in support of the president, while the middle classes
and small commercial interests from downtown provided the regent with a mantle of protection.
However, Uruchurtu had tied his fate so tightly to the buses, that when when the negative
features of the Alianza were evidenced to the public, and when some voices within the bus lobby
suddenly clamored in support of the subway, his position was significantly weakened.
While it may seem obvious that stakeholders linked to surface transport would unite in
opposition to the subway, two groups broke ranks. First, bus drivers that did not own vehicles
hosted a series of strikes in 1965 and 1966. This group had been continuously exploited by the
Alianza de Camioneros: Working 16 hours per day, forced to work weekends, paid a meager
salary and a small commission per passenger, denied of any social security and forced to sign
101 Interestingly, the original subway plan barely mentioned inter-modal integration (physical, financial or operational), and
only as a long term objective (Covarrubias 2004, 70).
64
Mexico City, Part I
their resignation letter on the day they were hired. 102 Many of them endured this as part of the
job: A tortuous road into bus ownership and organization membership. For a long time, they kept
grievances under the lid, using national labor syndicates aligned with the PRI as conduit to alert
authorities of the Alianza's "fraud against the workers and violations of the labor laws" and of its
its "failures to fulfill its commitments" (Fulwider 2009, 179). However mexican authorities
turned a blind eye to workers' complaints, and even collaborated in defusing them. This is
perhaps unsurprising. How could Uruchurtu simultaneously negotiate low fares and limited
subsidies with private bus operators while at the same time attempting to enforce labor standards
that would inevitably drive labor costs up? The close linkages between the national labor
movement and the governing regime explains why worker strikes had been previously almost
non-existent in the private bus industry. However this time the fallout between the president and
the regent gave workers an invaluable opening to raise their claims. Of course, we can conjecture
-as Diane Davis (1994, 164-165) did in her own account of this period- that the suddenly
frequent strikes were actually promoted from within the state to diminish Uruchurtu's standing
among the public. With the city constantly paralyzed by an apparently ungovernable private bus
system, and with the Alianza portrayed as an exploitative and irresponsible employer, the regent's
case against the subway certainly suffered.
The second group of surface transport stakeholders that supported the subway was
composed of organizations representing collective taxis. While for some years Uruchurtu had
tolerated "informal" collective taxis as a useful complement to the public transport network, 103
he continued to deny them formal recognition as a wink to the Alianza, as a strategy to maintain
subsidy costs down, and as an urban growth control measure. 104 These organizations found no
reason to oppose the subway, as they were already banned from servicing routes affected by the
project. In fact, their leaders soon realized that they actually stood to profit from the subway. Not
only would they be able to feed from its massive passenger flows, but they could "sell" their
support for the subway to negotiate recognition from the state -and thus to become eligible for
102 Francisco Mufioz Aprezza wrote a vivid account of this period, based on interviews with former Alianza workers. This
text is included as Chapter 7 in Gonzalez Ruiz, 1996. I highly recommend it.
103 See Darido, 2001, 34; Gakenheimer et al., 2002, 243.
104 One of Regent Uruchurtu's most effective -and questioned- urban growth control policies consisted on denying public
services to squatter settlements appearing in the city's periphery. He treated collective taxis in a similar fashion to informal
vendors, banning them from entering downtown.
65
subsidies and better able to defend territorial claims from unauthorized competitors. By mid
1966 "several representatives of small and medium sized bus lines broke ranks with the Alianza
and came out with a public statement supporting the Metro" (Davis 1994, 170). Curiously, it is
exactly during this period that the previously independent and politically marginalized collective
taxi associations coalesced as federations. In fact in November 1967 a new organization
representing 80% of the collective taxis -the Coalicion de Agrupaciones de Taxistas (CAT)- was
created, and Uruchurtu's successor authorized it in 1969 to extend its services into the most
profitable routes outside of the city's downtown: Ruta 1 would service Calzada de Tlalpan, Ruta
2 would service Reforma and Ruta 3 would service peripheral services. 05 Several other
organizations would soon follow. While it is impossible to know if these events are related, Jorge
Legorreta provides an interesting clue. He personally interviewed Enrique Leon de la Selva, the
elusive leader of the CAT, who candidly explained that this organization "could only exist thanks
to support offered by important leaders of the PRI" (Legorreta 1995, 156).
With bus services paralyzed during the strikes, and with the surface transport industry
divided, Ernesto Uruchurtu lost much of his political support and resigned in September 1966 as
regent of Mexico City. The new regent appointed by President Diaz Ordaz announced his full
endorsement to the subway project only a few weeks after taking office. In April 1967 a new
government agency -the Sistema de Transporte Colectivo-Metro (STC)- was established to build
and operate the subway, and construction of the tunnels started in June. The first subway line
would not be ready in time for the Olympics, but on September 4, 1969 President Diaz Ordaz
achieved his dream of boarding the first train, with mariachis greeting the underground train at
every station. 106 During the inauguration, the president proudly declared: "Safe, fast, and
continuously extending below the surface of our city, the Metro will forever abolish, each time at
a greater extent, the annoyances and the risks of any massive transportation on the surface"10 7 A
fury of Metro construction overtook the last two years of the Diaz Ordaz administration -building
105 For a brief history of the creation of the CAT see L6pez Zaldivar, 1997, 61-64.
106 See Ross, 2009.
107 Quote extracted from the video documentary by Sedano, 2003.
66
Mexico City, Part I
one kilometer of underground
tunnels per month. 108 By the
end of his term in 1970, a
network of 3 lines and 39.1
kilometers of tracks circling
and crisscrossing the city's
downtown had been
completed, and the system was
already carrying 659 thousand
passengers per day.109 The
stark comparison with the old
buses was evident, and the
popular feelings of the period
were forever captured in a songy
written by Chava Flores:
rFigure 2.5 Mexico City Subway, one day after inauguration day (September 5,1969). Source: Asociaci6n de Aficionados al Transporte de Pasajeros en Mexico
I - 33m ~w
"I'm riding the metro, so
big, so fast, so clean, what a difference from my mate Filemon's bus, who is riding to the tomb."
However the warnings made by Uruchurtu soon haunted not only the finances of Mexico
City, but of the country as a whole. The original Metro plans did not contemplate a direct subsidy
for the city to operate the system, and its advocates optimistically estimated that the revenues
from the system would compensate construction costs only ten years after the first three lines
began operations 10. In reality, the actual construction cost of the first three lines exceeded the
budget by 45%, and system revenues barely sufficed to cover operating expenses,'I' partly
because authorities established a tremendously low fare to ensure political support for the
108 See Figueroa 1990a.
109 See Islas Rivera, 2000, 289.
110 See Legorreta, 1995, 126.
111 See Dosamontes, 1969; Sadot, 1970. The overestimation of benefits and the underestimation of costs is a typical feature
of urban mega-proyects, as demonstrated in Flyvbjerg, Bruzelius, and Rothengatter, 2003. In this case, ICA's involvement in
crafting the feasibility study probably played a major role, as one analyst observed, the principal intent of the studies used to
make the decision were "to sell the idea of the METRO rather than to analyze alternative transport solutions" (Sutherland
1978, 75).
67
project. This situation would only worsen over time, as the low fare became practically
untouchable, laying the seeds of a growing operational deficit. Soon, the subway was aptly
portrayed by Davis (1989, 5) as "an unmitigated economic disaster" -by 1981 Mexico City
devoted more resources to the subway than to health services, drainage services and drinking
water combined. Eventually, subway construction and operating expenses would absorb a third
of the city's yearly budget (Legorreta 1995, 124).112 and the national government would need
step in periodically to cover outstanding debt with foreign creditors. This outcome is perhaps
unsurprising, as the subway not only represented a more expensive technology than the buses,
but also forced the state to internalize many of the costs that went unaccounted in the private bus
system. Not only did the government pick up the tab for building the tunnels and stations and for
purchasing and maintaining the vehicles, but in contrast to the private bus operators, the state
could not easily skimp on labor costs and service-standards.
Luis Echeverria -Diaz Ordaz successor in the presidency- made no secret about his
concern over "the Metro's enormous costs, its high import value, and its contribution to foreign
indebtedness" (Davis 1994, 203). Interestingly, rather than talking about the subway as a tool to
"eliminate" surface transport, the new president pledged to "carefully study the coordination (of
the metro) with buses, trolleys and trolleybuses to find integral solutions to the problems of
urban transport" (Echeverria Alvarez 1971). This change of emphasis was probably also
influenced by Echeverria's commitment to national industry -buses were manufactured locally,
and subway cars imported from France-, and by political alliances linking the PRI with the
Alianza de Camioneros,11 3 and the president personally with Ruben Figueroa. 1 4 Despite the
ambitious plans laid out by ICA and the recent defeat of Uruchurtu's downtown coalition, the
financial and political context that surrounded the subway led mexican authorities to halt the
expansion of the system from 1970 to 1977.115 In the interim, Mexico City authorities turned
112 Also see Gonziflez, 1988.
113 According to one of the sources interviewed for this research, Isidoro Rodriguez (one of the leaders of the Alianza) liked
to say that "bus operators owed so much to the PRI, that they had to be its most committed and loyal soldiers", and often
gloated that in Mexico "politics travels by bus".
114 Ward (1990, 12) suggests that family ties linked Echeverria with the Alianza. But in addition, Ruben Figueroa was
profoundly indebted to Echeverria. His political posts as as senator (1970-1974), and as governor of the State of Guerrero
(1975-1981) were partly owed to presidential support. Further, Figueroa had been kidnapped by a guerrilla group in 1974,
and the president personally intervened to ensure his liberation (Ross 2009, 273).
115 Subway expansion would resume when the oil boom filled government coffers in 1977, and stop soon after the debt
crisis in the eighties.
68
Mexico City, Part I
again to private operators to cover the transportation needs of the vast majority of its residents.
Collective taxis were authorized into even more corridors and the Alianza de Camioneros
recouped much of its influence in city hall -albeit this time without a towering figure like
Uruchurtu to align private interests with public goals.
Private bus operators in government
In 1971 President Luis Echeverria appointed Octavio Senties as regent of Mexico City.
No other individual could better personify the renewed relationship of the mexican government
with the private bus industry: Senties was married to the Echeverria's sister, and had served for
decades as the principal legal counsel to the Alianza de Camioneros (Camp 2001, 907). Just like
in the 1920s Celestino Gasca had used the mayor's office to promote the bus industry vis a vis
the electric trolleys, Regent Senties now used it to protect the Alianza from the threat of subway
expansion. To be sure, pro-subway forces were strong and well connected to the president, and a
plan to expand the system for 50 additional kilometers loomed throughout this administration.
Unable to entirely blockade the subway, Senties suggested a viable compromise, soon adopted
by Echeverria. Rather than extending the network, they should first "mexicanize" subway trains,
by manufacturing them locally. Such proposal fit well with Echeverria's nationalistic leanings,
seemed to appease pro-subway advocates, and at least promised to reduce the costs of the
subway in the long term. In 1973, the mexican government established the Constructora
Nacional de Carros de Ferrocarril (CNCF), 116 and announced plans to produce 345 subway cars
in the country by 1976. In the meantime, bus operators gained valuable time to adapt to a system
that now inevitably included a strong, publicly funded competitor, and Senties could continue to
lobby against future expansions of the system.
116 See Bauer et al., 1990.
69
But even as this period Figure 2.6 Privately operated bus, 973 (source: John Lebeau)
is characterized by a renewed
partnership between the private
bus industry and the mexican
government, the policies
advocated by Senties differed
markedly from those that had
characterized Uruchurtu's.
Rather than warring against
"informal" settlements and
against "tolerated" service
providers who served the
periphery, the period of Senties
in office is also defined by
deliberate efforts to "regularize"
their situation.1 7 Senties granted formal property titles to squatters, and extended formal permits
to hundreds of collective taxis that connected their settlements into the city, always in exchange
for political support to the PRI. This may seem a contradiction from his commitment to the
Alianza de Camioneros, but in fact was not. Mexico City continued to grow, and both the
informal settlements and the transport services that brought its residents into the city were
already there. Mexican authorities could not go on ignoring this fact, focusing their energy and
resources on a formal bus and subway network constrained to the vicinity of downtown. By
bringing the collective taxis into the mantle of the party, Senties ensured that he had control over
the areas they could exploit, and certainly made such decisions with the interests of the Alianza
in mind. Furthermore, the collective taxis operated small sedans in terrains not well suited for the
Alianza's new buses -the unpaved, narrow streets of squatter settlements- and albeit growing,
their participation in the transportation market continued to be marginal. In 1972 at least, buses
were responsible for 50% of the trips in the MCMA, vs. only 3.3% served by collective taxis
(Islas Rivera 2000, 161).
117 See Alvizar SAnchez, 2005.
70
Mexico City, Part I
Lacking the resources necessary to extend STE and Metro services throughout the city,
Echeverria bought into Senties' suggestion that the transportation needs of the city were best
served by working with, rather than against the private entrepreneurs controlling the bus and
collective taxi industries. However, Regent Senties' dual commitments to the Alianza and to the
president constantly blurred the line separating his role as regulator from his role as lobbyist,
with detrimental results to the users of public transport, and to the public interest in general.
Calls to improve vehicles and to use less pollutant fuels were reduced to simply suggestions, and
never forcefully enforced.
The leaders of the Alianza -such as Ruben Figueroa, Hector Hernandez Casanova and
Isidoro Rodriguez- were savvy businessmen. They knew that to thrive amidst the competition
posed by metro and the collective taxis, they could no longer function as member based
organizations, with a fragmented ownership structure. They needed to optimize the number of
buses assigned to each route, reduce or increase frequencies, shorten routes, purchase newer and
more fuel efficient buses, etc. and it was difficult to make these decisions by consensus.
Rationalizing their supply of service had not been critical when they had almost exclusive
control over the profitable downtown services, but it was critical now. Indeed, between 1972 and
1975 many private bus associations in Mexico City registered an observable turn towards more
technically and economically efficient operations (Figuera 1990a, 223). Having an ally as regent
certainly facilitated the required organizational "modernization": Senties used his authority to
71
Figure 2.7 "Delfin" pictured in Mexico City's downtown, circa 1970s (source: broker the deals necessary to
unknown) transition the 86 owner-unions
affiliated to the Alianza into
only 20 firms," 8 and to
redistribute among them the
routes that fed from, rather than
competed against, the
subway.' 19 To get conservative
and risk averse Alianza
members to buy into both
proposals, Senties promised to
significantly increase their
profitability. He offered
government-backed and
partially subsidized loans to
purchase newer, larger vehicles
-70 passenger buses called "delfines" (dolphins) (figure 2.7)- which ran on significantly cheaper
(although more polluting) diesel.120 Second, he continued the policy of subsidizing fuel and spare
parts to Alianza members through the UP. Third, he authorized a significant fare hike to bus
operators running "first class" services -i.e. the newer buses just purchased by the Alianza.121
And fourth, he authorized and facilitated a route redesign -eliminating redundant routes, and
shortening average route lengths from 29.5 to 14.5 kilometers.1 22 In short, Senties cut their costs
118 See Legorreta, 1995, 27; and Gonzalez, 1988, 73. To be sure, this transition was not flawless. While some of the owner-
associations truly transformed into corporations, others simply created shell companies and continued to function as always.
Perhaps this is why the government resolution that revoked their concessions in 1981 refers to twenty "groups", not to
twenty finrs.
119 While metro proponents thought that bus operators would automatically seek their relocation outside of downtown, there
were areas of downtown where buses competed well against the subway. This was particularly the case of line 3, where
ridership was much lower than original ICA estimates.
120 See Navarro Benitez and Cadena Perez-Campos, 1990, 12.
121 The label "first class" was granted to services that supposedly would not accept standing passengers. This rule was never
enforced, revealing that the label was really intended as a fare increase (Figueroa 1990a, 225).
122 See Ibarra, 1983.
72
Mexico City, Part I
and increased their revenues 123, even when doing so resulted in more expensive, less convenient
commutes for users, and in a more polluting bus fleet. 124
All of the previous measures benefited both the private bus operators (who according to
Trueba Lara (1995, 17) doubled their yearly earnings) and the financially struggling subway. By
tweaking the network so that both modes would complement rather than compete against each
other, the subway tripled the ridership registered during its first year of operation without laying
additional kilometers of track. In fact, Metro ridership in 1976 reached an average of 1.8 million
passengers per day,'25 surpassing the theoretical maximum capacity of 1.5 million. 26
Nonetheless, the intermodal complementarity established by Senties did not extend to fare
integration. In order to maximize revenues for both modes, users paid twice for a combined trip
that previously required no transfers and a single fare. The result was on the one hand that trains
and buses were intolerably congested, and on the other that trips more expensive and time
consuming. 127 To increase capacity, subway trains were forced to operate with minimal headway
-to the point that a simple conductor distraction resulted in October 1975 in a fatal Metro
accident that killed 26 people and left 69 injured.128 The buses, in turn, were increasingly scarce
as a consequence of the Alianza's newly found ability to cut costs. According to Islas Rivera
(2000, 256), "multiple and daily complaints over (bus) service included: Worker exploitation,
official fare violations, insufficient routes, scarcity of buses, etc". In short, the same state that
lacked capacity to guarantee good transport services had the capacity to make the business
profitable. After all, it was the state -embodied by Senties- that forced all citizens to pay for the
compromise brokered between the buses and the subway.
At that point government regulators had no exact idea of how many buses were actually
running in the street. In fact its monitoring capacity was limited to only 22 inspectors, charged
123 This transition was of course facilitated by the fact that the ownership structure of the Alianza owner-unions was not as
fragmented as before. Many leaders had by then accumulated concessions and ran as "flotilleros" -fleet-men-, controlling
20-30 buses. However, Senties' intervention was critical to convince more traditional-minded and risk-averse members to
make the transition willingly.
124 For a detailed description of this period, see Ibarra, 1981.
125 See Islas Rivera, 2000, 289.
126 See Navarro Benitez, 1984, 91.
127 In 1981, 97.5% of subway passengers took multiple modes per day (Davis 1994, 231).
128 See GonzAlez, 1988, 68.
73
with supervising services city-wide (L6pez Zaldivar 1997, 65).129 This information asymmetry
had not been a problem in the past -given that there was an oversupply of buses-, but it was now.
The Alianza deliberately withheld services particularly outside of the most profitable routes and
at non-peak hours, leaving many passengers stranded. Anyone who could afford to purchase a
car or travel by taxi escaped from the formal public transit system, solidifying the belief that
public transit is a mobility alternative reserved to the poor, and disproving claims that investing
in transit could reduce congestion.
In 1977 Jose L6pez Portillo replaced Echeverria in the presidency, and Carlos Hank
replaced Senties as regent of Mexico City. Since his electoral campaign, L6pez Portillo faced
public demands for "municipalizing" bus services, for building wider streets, and for renewing
expansions to the subway. Action seemed urgent. Popular dissatisfaction with public transit was
such, that bus hijackings had become a frequent way for citizens to voice their frustration.1 30
Unsurprisingly, soon after his formal appointment Carlos Hank began referring to the
transportation chaos as "the gravest capital sin" of the Federal District (Navarro Benitez 1984,
93). However, the external debt facing the country seemed to be an unsurmountable obstacle to
attempting any comprehensive solution. In fact, only by winning the lottery could a highly
indebted country like Mexico undertake any of the three above mentioned projects that promised
to ameliorate that urban transport situation in the capital.
Unlimited money, unlimited regulatory strength?
Fortunately for L6pez Portillo and Hank, Mexico won much more than the lottery. In the
initial months of the new administration, news broke about massive oil discoveries in the Gulf of
Mexico. Proven oil reserves in the country surged from 16,800 million barrels in 1977 to 40,200
million barrels in 1979. Potential reserves were estimated at 200,000 million barrels, a number
that promised to make Mexico an oil exporting powerhouse overnight. This finding concurred
with a tremendous increase in the international price of oil, triggered by the 1973 and the 1979
energy crises. L6pez Portillo explained the impact of these discoveries to the nation, asserting
that: "Mexico, as a nation of contrasts, has been long accustomed to administer needs and crises.
Now with oil, we must get used to administer abundance." 13' With this newly found wealth,
129 Unsurprisingly, when the service was municipalized years later authorities discovered that only half of the vehicles
supposedly operated by the Alianza were in working condition.
130 See Legorreta, 1995, 28; and Loyzaga de la Cueva, 1987.
131 See Krauze, 1999.
74
Mexico City, Part I
L6pez Portillo undertook a plethora of expensive public works projects throughout the country.
Solving the urban transportation problem of the capital was of course high on his agenda.
In 1978, the president instructed the national finance ministry to absorb Mexico City's
debt, mostly composed by loans taken to build the original 3 lines of the subway.132 In addition,
he pledged to prevent subway fare increases, committing a yearly subsidy to Mexico City's
subway system, funded by the national government. This subsidy explains why Mexico City was
able to maintain fares frozen at Mx $1 peso until 1986, despite surging inflation, 133 making this
the lowest-priced metro system in the world. Between 1977 and 1982 public subsidies allocated
to the subway increased 440%, while revenues only increased by 94%.134
Lacking financial constraints, Mexico City authorities made no small plans. Regent Hank
presented a public works plan to build 34 "ejes viales" -multiple-lane, single-direction
boulevards- forming a 500 kilometer asphalt grid throughout the city. This street plan also
included the completion of the city's ring roads and the construction of 20,000 new parking
spaces.135 A few months later Hank presented a Metro Master Plan, promising and expansion of
the network to 19 lines and 400 kilometers of track by 2010 (Legorreta 1995, 90).136 Finally
turning to surface public transport, Hank ordered the purchase of 118 new trolleybuses for the
STE, and announced that the previously minuscule Linea Lomas de Chapultepec-Reforma
(intervened by Mayor Uruchurtu, and operated by the UP since 1958) would be reconstituted as a
public agency called Autotransportes Urbanos de Pasajeros-Ruta 100 (AUP-ROO) and
strengthened with a fleet of 1,000 new buses.137 These vehicles would run on lanes reserved for
public transport on each of the ejes viales. A public works and procurement frenzy began almost
132 See GonzAlez, 1988.
133 For reference, Mx $1=US $0.08 in 1969, US $0.04 in 1978 and US $0.001 in 1986. Expressed in terms of 2010 mexican
pesos, the real value of the subway fare in 1969 was $6 pesos. Real values decreased steadily as a result of inflation, until
reaching a real value of $0 in 1985. Periodic increases since then have maintained the real value of subway fares between $2
and $3 pesos (Medina Ramirez 2013, 80).
134 (Legorreta 1995 p. 126)
135 See Navarro Benitez, 1984, 94.
136 ICA continued to be the leading force promoting the subway in Mexico. For details on the role of this company see
(Ziccardi 1991).
137 See Navarro Benitez, 1984, 94; and Gonzalez Ruiz, 1996, 33. This decision was formalized by a presidential decree
signed August 3, 1981. For the full text of this decree, see Departamento del Distrito Federal, 1981.
75
immediately, financed almost exclusively with foreign-currency loans, backed with the promise
of future oil revenues.
Unsurprisingly, the members of the Alianza the Camioneros found the plans presented by
Mexico City authorities deeply disturbing. Their leaders complained that STE and AUP-R1 00
presented unfair competition. Public companies received far more public subsidy, and
government authorities made no secret of their intention to allocate public transit lanes on the
ejes viales, exclusively to the STE and Ruta 100,138 causing growing concern about the market
that would be left for private operators. Much had changed since the time Senties protected the
interests of the Alianza at city hall. Their demands for increased subsidies or fare hikes were now
met with distain, and the input of their leaders was no longer considered when laying out plans
for subway and trolleybus network expansion. Operators attempted to negotiate with authorities,
pledging to match the vehicle and service specifications of the AUP-R100 in exchange for tax
exemptions, subsidized loans, increased fuel subsidies, and a fare increase to $6 pesos (US
$0.26). As Alianza leader Hernandez Casanova explained in an interview, "beyond any patriotic
spirit we may have, it is not possible to offer the level of service required by the DF without the
authorization of a fare increase" (Hernandez, 1980, 23). 139 When Mexico City authorities flatly
denied the fare adjustment, a few private operators in the eastern suburb of Nezahualc6yotl
increased fares unilaterally. This measure incensed passengers, and the event escalated into a full
blown riot. "Men and women waiting at the bus depot attacked the buses and their operators.
Rocks and sticks were thrown on the vehicles... somebody turned to using fire... anti-riot police
arrived, equipped with shields and billy clubs" (Trueba Lara, 1995, 18).140 The result: Several
people injured and 23 buses burned. Regent Hank's response was fulminating: he used the
occasion to justify the decision to revoke all of the concessions held by the Alianza and to
disband the UP, promising that in less than 12 months the city would enjoy "efficient and
sufficient transportation," provided directly by the government (Monge 1995c, 9).141
138 See Islas Rivera, 2000, 254; Figueroa, 1990a, 226.
139 Other accounts suggest that the Alianza previously agreed to purchase new vehicles, modify their routes, improve
frequencies and adopt lower emission fuels without any additional subsidy, but failed to deliver. For example, see
Autotransportes Urbanos de Pasajeros-Ruta 100, 1993, 17.
140 Mendoza Cruz (2001, 59) and Loyzaga de la Cueva (1987) also reference this episode.
141 Later critics would point out that many of the buses purchased by Mexico City for Ruta 100 were actually supplied by
Mercedes Benz, a company whose distributor in Mexico was owned by the Hank family, and by Mexicana de Autobuses
(MASA), owned by the Zabludovsky family, also with close links to the regent. For example, see Trueba Lara, 1995, 21.
76
Mexico City, Part I
There is no evidence of a full blown, concerted, protest to defend the Alianza from such
forceful government intervention. This may have been a consequence of the profound symbiosis
linking the Alianza the Camioneros and the PRI -which provided the government with alternative
means of rewarding or punishing its members: Leading Alianza leaders occupied important
positions as these events unfolded: Ruben Figueroa was Governor of the State of Guerrero
(1975-1982), and his son served as congressman (1979-1982), in a seat previously occupied by
Hector Hernandez Casanova (1977-1979). In the PRI's world of political symbolism, it could be
no coincidence that Hank's decision to municipalize bus services in Mexico City was signed
precisely on September 25, 1981, the same date Miguel de la Madrid was "uncovered" as the
party's nominee for the presidency. Another reason that may explain why the Alianza did not
revolt against Hank may be that the previous consolidation of bus owner-unions into few firms
controlled by a few individuals effectively reduced the number of individuals interested in
protesting. Perhaps the leaders of the "pulpo camionero" realized that the fully funded subway,
trolleybus and Ruta 100 ventures were inevitable, and concluded that it was a good time to cash
out. Nonetheless, the tone of the resolution formalizing the decision to municipalize bus services
in the city signed by Hank suggests that the event was anything but amicable. The regent not
only revoked "unilaterally and in advance" their concessions, but also seized all of their assets.
The resolution established that the buses, real estate, and any other property used by the Alianza
to provide its services "are heretofore the property of the Federal District Department", and
instructed city officials to "proceed to the administrative occupation and eviction of those that
may resist the diligence" (Departamento del Distrito Federal 1981). President L6pez Portillo
minced no words when he referred to the municipalization of bus services in his last Informe de
Gobierno (a formal, yearly address to Congress), dated September 1, 1982. He explained: "the
city had 4,000 buses in operation. In november we will have 8,000. We duplicated supply and
did away with anarchy."14 2
It is impossible to know the details of the negotiations that preceded or followed the
municipalization of bus services in Mexico City. After all, the ramping up of STE and Ruta 100
fleets in 1977-8 was a clear indication of what would be coming in 1981. There is some
documented evidence that the decision was largely expected by the leaders of the 20 private
142 See L6pez Portillo, 1982, for a transcription of this speech.
77
groups conforming the Alianza, and that Regent Hank even called on them "requesting their
cooperation." 143 Scholars have mentioned that the government paid "a generous liquidation" to
the largest Alianza stockholders144, and in fact some of these leaders soon reemerged as thriving
operators of interurban transportation services -with companies that survive to this day, like
Flecha Roja-, or reinvested their capital in collective taxis operating outside of the DF, in the
neighboring municipalities of the State of Mexico. 145 As part of the negotiations, city authorities
agreed to rehire all of the workers of the Alianza -drivers, mechanics, etc-, publicly inviting them
"to join this new era in the history of metropolitan mass transport with enthusiasm sense of civic
duty". 146 They also offered to pay financial compensation to the owners of seized property,
although certainly noting that only 3,500 of the 6,300 seized buses were in operating
conditions 147 . The transition, even if forceful, was not cheap.
In any case, the wildest dreams of government transportation planners -and of those who
profited from the transport industry- seemed within reach by the end of the L6pez Portillo
administration. All of the principal modes of public transportation in the city were placed under
the direct control of one government body -the road and urban transport commission
(COVITUR), created in 1977-, and there was clear political will from the president and from the
regent to use an apparently unlimited stream of public money to fund public transport capital
investments and to subsidize fares.
The (short lived) "Golden Epoch" of public transportation
President L6pez Portillo justified the decision to municipalize bus services pointing to the
need to "optimize public services", and asserting his desire to "contribute to the general
restructuring of transit, roadways and transport spearheaded by the Federal District
Department" (Departamento del Distrito Federal 1981). To be sure, the establishment of AUP-
R100 as the only authorized bus operator in Mexico City was, according to transportation
143 See Arenas, 2012.
144 See Loyzaga de la Cueva, 1987; MArquez L6pez and Pradilla Cobos, 2007, 151.
145 See Gonz6lez, 1988, 74-75; Mdrquez L6pez and Pradilla Cobos, 2007, 160.
146 See Ferndndez, 1995, 37; Gonzalez Ruiz, 1996, 36.
147 These figures from Islas Rivera (2000, 256, footnote 14). To be sure, many of the buses seized by the AUP-R 100 from
the Alianza were old and badly maintained. Between 1983 and 1986, the company purchased 3,864 new buses, but was
forced to retire 4,534 older units (Legorreta 1995, 78).
78
Mexico City, Part I
experts, part of a larger effort to "provide clean and efficient service, operating at fixed stops,
with good maintenance practices, an integrated fare policy, and well defined routes and
hierarchies,"148 and to "coordinate service supply segments" (Figueroa 1990a, 227). In December
1982, when a new president was sworn in, Mexico City planners seemed clearly on track to
deliver on these promises. The subway network had expanded to 5 lines, 79.5 kilometers of track
and 80 stations. 149 Further extensions to the first three lines and the construction of a sixth line
were ongoing. All of the 34 Ejes Viales promised by Hank and L6pez Portillo had been built,
with a combined length of 500 kilometers. 150 The STE operated 14 trolleybus lines, serving 317
kilometers with 310 vehicles 1 , and the administration of AUP-R100 had 4,300 vehicles in
operation, with plans to increase its fleet of new and refurbished vehicles to 9,360 by 1988.152
With these instruments available, planners at COVITUR felt empowered. They were no
longer forced to negotiate "tweaks" with private operators, and could now credibly put on the
table a city-wide transformation, ambitious enough to advance second-order goals. Public
ownership, after all, "allowed the government of the city to put into practice a policy of planning
and control for the city as a whole" (Gonzilez, 1988, 73), and to reduce "the ad hockery of
yesteryear" (Ward, 1990, 110). Planners went to work, and soon proposed the implementation of
an "orthogonal network."15 3 The mere fact that transit routes in the city were now designed in
accordance to geometrical cannons and not through lengthy negotiations with private operators
marked a significant departure from the past. This network was composed of feeder services
(sistema alimentador-SARO), and high frequency trunk routes (servicios especiales de frecuencia
intensiva-SEFI). In accordance to the new grid design, services previously offered by the Alianza
were streamlined from 534 routes covering 12,131 kilometers in 1979, to 114 routes covering
148 This quote is from Angel Molinero, cited in Gakenheimer et al. 2002, 240.
149 See Islas Rivera, 2000, 287.
150 See Marquez L6pez and Pradilla Cobos, 2007, 150. Construction of the Ejes Viales resulted in the eviction of close to
25,000 families (Davis 1994, 248).
151 See Islas Rivera, 2000, 299.
152 (Legorreta 1995 p. 78). The figures about the actual number of buses operated by Ruta 100 are rather inconsistent. For
example, President De la Madrid mentioned in his first state of the country speech that the company was running 3,800
buses in September 1983 (de la Madrid 1983).
153 In 1984, AUP-R100 hired London Transport International (LTI) as a consultant to guide the implementation of the
orthogonal network, to optimize operations and to design maintenance facilities. For a conceptual discussion of the
advantages and disadvantages of orthogonal networks, see Molinero and Sanchez Arellano, 2003, 215-224.
79
4,400 kilometers in 1982 (Islas Rivera 2000, 260). Each of the new routes was on average
longer, and better connected. In fact, 45% of the new bus routes had a direct link to the subway
and to four inter-city bus terminals (Legorreta 1995, 76), and promised convenient transit access
in 86% of the urbanized territory of the DF. Furthermore, SEFI routes enjoyed exclusive access
to dedicated lanes on the ejes viales, a feature that increased travel speeds significantly. The cost
to operate these bus services was originally estimated at $18 pesos per trip (US $0.38), but
authorities fixed bus fares at $3 pesos (US $0.06), covering the difference with subsidies.154
Fares for the subway and the trolleybuses were set even lower, at $1 and $0.60 pesos,
respectively (US $0.02 and US $0.016). The image of buses across the city became standardized,
featuring bright yellow and brown colors. Soon, a pre-paid multimodal transit ticket was
available -allowing the public to transfer between AUP-R100, STE and Metro services-, and
"money-boxes" installed onboard buses, 155 providing authorities with more control over
revenues. 156 As one of the best chroniclers of this period wrote in an article for La Jornada, this
was "the golden epoch of public transport service" in Mexico City (Legorreta 2004). However,
unchecked control over money and rules would soon prove to be little more than an illusion. In
fact, the signs of a massive debt crisis -triggered by the pharaonic excesses of the L6pez Portillo
years- were clear since the early eighties. Between 1977 and 1982, Mexico contracted debt in
foreign currency totaling US $51,788 million dollars. 5 7 These massive financial commitments
may have seemed sensible when the international price of oil was on its way to reach US $100
dollars per barrel, but by the early 80s the price was in free-fall. The international price of oil
would dip until hitting a floor of US $20 dollars per barrel in 1986, leaving the mexican
economy in shambles. As Patricia Connolly (1999) rightly stated, this collapse marked "a
definitive turning point in the Mexican economy".
President de la Madrid (in office 1982-1988) was forced to implement severe austerity
and stabilization measures throughout his administration. In fact, 40% of the national budget for
fiscal year 1983 was allocated to service the national debt, up from the 32% in the prior year158.
154 See Legorreta, 2004. These bus fares would remain unchanged until 1986.
155 Users soon dubbed these money-boxes "arturitos", as they reminded of R2D2, the character from Star Wars.
156 See Legorreta 1995, 75 and 82. This multimodal ticket offered unlimited service across the subway, trolleybus and buses
for 15 days, and by 1987 accounted for 19% of the ticket sale revenues of the subway system (Figueroa 1990a, 230).
157 See Krauze, 1999.
158 See Lajous et al., 1988.
80
Mexico City, Part I
Austerity measures included cuts to subsidies directed to subnational governments, particularly
to Mexico City. These cuts not only limited the margin of action of local authorities, but also
created a political environment highly opposed to transit fare increases. Between 1982 and 1985,
unemployment rose from 5% to 15%, real salaries fell 65% and housing shortages hit a new
high.159 How could authorities recant on their subsidy policy precisely when the public seemed
to need it the most? With public expenditures cut across the board, scarce employment and rising
costs of living, the popularity of the PRI in the capital plummeted. While in the past mexican
authorities had tempered urban discontent by expanding city services and programs, the debt
crisis limited such alternatives now.
The financial situation of AUP-R1 00 quickly deteriorated. Fare-box revenue from public
buses accounted for only 14% of total AUP-R100 expenditures throughout the eighties. 160
However, subsidies and government transfers (local and national) to this company were slashed
by 38% in real terms between its peak in 1984 and the end of the presidential term of Miguel de
la Madrid in 1988161. Maintaining fares low and sustaining a large employee roll amidst subsidy
reductions, implied that plans to increase, renew and maintain the bus fleet were shortchanged or
continuously postponed. In fact, the number of AUP-Rl00 buses actually operating in the street
would peak at 4,238 in 1986, never matching the number of buses serving the city under the
Alianza, and never coming close to L6pez Portillo's promised 8,000. While a limited number of
buses was purchased, particularly from national companies such as MASA,162 "more than 3,000
buses were soon out of service, stopped by technical difficulties like insufficient spare parts and
workshops, and obsolete tools to repair them" (Lajous et al., 1988).
Similarly, the gap between subway revenues and system costs increased from US $29.2
million dollars in 1973, to US $79.7 million dollars in 1983, to over US $112.3 million dollars in
159 See Tello, 1986.
160 Own calculation, based on data available in Islas Rivera (2000, 266, table 6.4).
161 Expressing values as 1980 Mexican pesos, Islas Rivera (2000, 273, table 6.6) estimated government transfers to AUP-
R100 at $8,354 million pesos (US $367 millon dollars) in 1984, and at $5,173 million pesos (US $227 millon dollars) in
1986. (Conversion to US $ by author, using 1980 exchange rates).
162 This company was owned by the Zabludovsky family.
81
1987.163 Attempting to close a deficit of its own, the federal government sought to transfer the
responsibility of covering this financial gap back to local authorities, who found little alternative
but increase fares and take on more debt 164. After much internal debate, Mexico City authorities
finally increased the price of subway, trolleybus and bus fares to $20 pesos (US $0.025)165 on
August 1, 1986. As a result of this initial fare increase, and of two subsequent increases in May
and December 1987 that brought the price to $100 pesos (US $0.044), the share of the per person
costs of operating subway services increased from only 5% in 1984 to 40%166 in 1988, still
leaving 60% to be covered by subsidies. Studies revealed that transport's share of family
expenditures had risen from practically zero to 15%.167 Unsurprisingly, the subway became the
largest debt-producing item in Mexico City's budget, siphoning resources from other urgent
priorities, despite serving only 20% of the trips. Quality of service in the subway continued to
deteriorate. Trains remained fully congested, despite the completion of extensions to Lines 1, 2
and 3. In these lines, 9-car trains designed to carry 1,500 passengers were carrying up to 2,500
passengers, a situation that resulted in two highly publicized accidents in 1985, caused by busted
tires.168
Despite the costs, the subway network grew 61 kilometers under President de la Madrid's
tenure. Many of the subway expansion projects completed in this period can be attributed to the
inertia of the L6pez Portillo years: The extensions to Lines 1, 2 and 3, and the construction of
line 6 and 7 had broken ground or had secured foreign financing before the change of
government. It was too late (or too costly) to cancel them, and in any case these projects allowed
the national government to immediately boost employment levels and reduce the likelihood of
163 The sources of these figures are Gonzalez 1988, 79; and Legorreta, 1995, 127. Conversion to US $ by author. Figures in
original sources: Mx $365 million pesos in 1973, Mx $11,846 million pesos in 1983, and Mx $151,500 million pesos in
1987.
164 Of course, the financing terms available to the city were deteriorating. For example, loans offered to Mexico City to
finance the original subway lines carried an interest rate of 4-7% per year (Navarro Benitez 1984 p. 90, footnote 3). In
contrast, loans acquired in 1981 from the national development bank (BANOBRAS) carried an interest of 11% per year
(Legorreta 1995, 126).
165 See Figueroa 1990a, 229. Of course this massive nominal fare increase partly reflects the high levels of inflation
registered in this period.
166 See Legorreta, 1996, 127; Medina Ramirez, 2013, 191-193.
167 See Figueroa, 1990a, 232, footnote 9.
168 This was, at least, the official explanation given by the director of the STC-Metro. The first accident occurred on
October 27, 1985, and resulted in 1,500 people injured. A second one, much smaller, took place on November 13. See Lajous
et al., 1988.
82
Mexico City, Part I
social unrest in the economically depressed capital, despite the future financial burden of
operating them. 169 Other planned expansion projects were postponed (like the construction of
line 8, urgently needed to decongest lines 1 and 3)170, or built at a slower pace using cheaper,
locally sourced technologies (such as using trains with iron wheels rather than with rubber
tires. 171) While covering the cost of metro expansion projects was formally a responsibility of the
local government, in 1985 the national government had to absorb Mexico City's debt for a
second time. This decision was perhaps inevitable, particularly as the deadly earthquake
registered in Mexico City on that year focused the eyes of the country on the capital, but
nonetheless contributed to the nation's feeble financial standing. Unsurprisingly President de la
Madrid also called in 1985 for a revised, more conservative version of the Metro Master Plan.
This version reduced the long term goal from 400 to 306 kilometers, and from 19 to 15 subway
lines, to be fully built by 2010. By the end of 1988, the subway network had a total of 140.4
kilometers, many less than the 257.5 expected to be completed by this date in the plan heralded
by Carlos Hank in 1978. 172
To get a sense of the cost of Mexico City's public transit system, consider the following:
According data presented by Ovidio Gonzilez (1988, 81), in 1987 the combined expenditures for
all of the DF's non-transport "priority social programs" (US $283.3 million dollars), 173 were
roughly equal to public transport expenditures (US $283.8 million dollars). 174 In that year at
least, public transportation outlays accounted for 37.8% of a total city budget of US $749.4
million dollars (including own revenues and federal transfers). The local share of this budget was
so low, that if the city decided at that point to maintain the same level of public transportation
169 I thank Salvador Medina for suggesting this point.
170 See Lajous et al., 1988. This project was cancelled in 1983 when it became evident that appropriately ensuring the
preservation of Mexico City's historical center would significantly impact costs. This line would not be built until 1994.
Other projects postponed in 1986 were the southbound extension to line 4 and to line 7.
171 See Henry and Kuhn, 1996, for a discussion on "metro variants" used to maintain metro expansion plans despite the
financial crisis.
172 See Legorreta, 1995, 103.
173 Figure includes: Health services, public markets, tax administration, planning, public safety, drinking water, drainage,
waste water treatment, land titling, housing, environmental services, and trash collection. Conversion to US $ by author. The
amount reported in original source is $643,145 million pesos.
174 Figure includes: Operational cost of Ruta 100, STE and STC-Metro, metro expansion costs, and administrative expenses
by COVITUR. Conversion to US $ by author. The amount reported in original source is $644,255 million pesos.
83
expenditures without resorting to federal transfers, it would need to triple its own revenues and
cancel all expenditures in other areas, including the salary of its workers and the electric bill for
its buildings. This massive burden, combined with previous debt incurred to build the subway
and the ejes viales, and to renew the fleets of STE and AUP-R100 was "fiscally
devastating" (Davis 1994, 249). What Navarro Benitez (1993b) described as the "the most
permanent, systematic and consistent effort taking place in any Latin American metropolis" came
to an end as the money dried up, shattering the dreams of a comprehensive, integrated, high
quality transit system. The availability of the multimodal ticket was increasingly restricted, and
the scheme eventually cancelled, "because it reduced revenues for the public agencies, at a time
when the dominant policy goal was to increase the financial coverage afforded by own
revenues" (Figueroa 1990a, 230). An internal document from AUP-R100 sums the situation well:
"From an effort aimed toward consolidation in 1982, we turned in 1988 to an effort aimed
toward survival" (Autotransportes Urbanos de Pasajeros-Ruta 100 1993, 60).
The public transit system in Mexico City could barely sustain its existing operations
thanks to generous federal transfers, making the system vulnerable to external shocks, and
financial constraints prevented its transit agencies from extending the reach and frequency of
their services to serve passenger needs in this rapidly growing city. However, the problems faced
by government authorities were not purely of a financial nature. In fact, as soon as AUP-R100
was formally constituted, the dream that authorities would freely govern a publicly-run system
also proved to be overly optimistic.
The SUTAUR-100: From negotiating with private bus operators to negotiating
with public worker unions.
The Mexico City government formally took over the provision of bus services in 1981.
However, authorities soon found that negotiating with the unions of public employees,
particularly at the recently created AUP-Ri 00, was as taxing as negotiating with the Alianza de
Camioneros.1 7 1 Unsurprisingly, soon after the municipalization of bus services, workers
organized to make claims on its new employer. Authorities spent the months following the
establishment of AUP-R 100 negotiating the conditions under which former Alianza workers
would be rehired as public employees. The first dispute was over who would represent the
175 To be sure, conflicts with STE-Metro and STE workers were important, albeit perhaps not as intense. Since their unions
were aligned with the governing regime, conflicts found faster resolution. In this research I will not abound on the relation of
government authorities with these unions.
84
Mexico City, Part I
18,000 workers of the new company. Mexico City authorities wanted to encourage a union
affiliated to the Confederaci6n de
Trabajadores de Mexico (CTM), the Figure 2.8 AUP-RiQO bus, circa 1983. Source: Gabriel Arenas
worker central with ties to the PRI that
had replaced the CROM.17 6 Having a
loyal union at the STC-Metro and at
the STE provided significant leverage
to authorities, which they wanted to
extend to the buses. However, a
militant group of workers -led by
Ricardo Barco and Gabino Camacho-
resisted this decision and created a
rival independent union.17 7 When on
November 17, 1981 the management
of AUP-R100 signed a collective
contract with the CTM, 2,000
unsatisfied workers protested in front of the National Palace, demanding that President L6pez
Portillo personally review their claims.17 8 After receiving no response, workers partially
paralyzed bus services on January 13 and 27, and then again on February 19, 1982.179
These strikes put the government in an uncomfortable position. Constitutionally, public
sector employees have a very limited and circumscribed right to strike. 180 However, in the
negotiations preceding the 1981 municipalization of bus services, government authorities had
offered to treat former Alianza workers as private sector employees for this purpose. Such
agreement was in fact included in the decree that established AUP-Ri 00, signed by President
Lopez Portillo himself. Now faced with the consequences of this deal, Regent Hank recanted,
176 See Loyzaga de la Cueva, 1989.
177 See Gonzalez Ruiz, 1996, chapter 5; and Cisneros Sosa, 2006.
178 See Trueba Lara, 1995, 30.
179 See Juarez and Trejo, 1990.
180 Brief legal legal explanations of this important point are available in Loyzaga de la Cueva, 1989; and in Fernandez,
1995.
85
and on the same day of the February 19th strike obtained a new decree' 81 that established that
AUP-R 100 workers would be treated as public sector employees, significantly diminishing their
capacity to pressure the government
Figure 2.9 AUP-R100 bus, 1983 (source: (Guti6rrez de(Legorreta 1995, 83). This action resulted MacGregor, Godinez, and Kunz 1983 p. 28))
in the incarceration of Barco, Camacho
and other union organizers, leading to
significant conflict escalation, and
galvanizing workers' support for the
independent union. Ultimately, the
government decided to split the difference.
Workers would accept the legal
implications of their condition as
bureaucrats, but the government would
free protest leaders, recognize the
Sindicato Unico de Trabaj adores de
Autotransportes Urbanos de Pasajeros-
Ruta 100 (SUTAUR-100) as only
representative of AUP-R100 workers, and
agree to review the worker's collective contract every year, instead of every three years as was
the norm for other public service unions.18 2
To be sure, AUP-R100 workers had a lot to fight for. Working conditions under the
Alianza had been pitiful, and for decades implicitly tolerated by government authorities. Salaries
were so low that drivers had to work longer hours, compete against each other for passengers,
and accept passengers beyond vehicle capacity to earn sufficient the commissions to make ends
meet. Drivers had to sleep on their buses, and often pay for spares. Attempting to negotiate better
conditions under their previous Alianza employers had been a quick route to permanent
unemployment. "Conflictive" workers were not only fired, but placed in "black lists" shared
throughout the organization.183 At the same time, workers rehired by the AUP-R100 did not want
to entirely relinquish their independence, nor to sell their multiple skills on the cheap. Under the
181 For the full text of this decree, see Departamento del Distrito Federal, 1982.
182 For more on the negotiating logic of the workers, see Loyzaga de la Cueva, 1987, 67.
183 See Autotransportes Urbanos de Pasajeros-Ruta 100, 1993, 19.
86
Mexico City, Part I
Alianza, they were much more than mere drivers. They were mechanics, electricians, in-vehicle
accountants, etc. They managed day to day operations of their vehicle, even if they were not
compensated for this.1 4 A former driver, interviewed by Cudllar Vazquez (2001, 183) shared
how the situation changed for them after municipalization: "Before we had many employers,
many of which we didn't even know. Now the employer was the state, and we had a single entity
to demand our rights, one salary, one just work conditions, one fair treatment." In a very short
period of time, the workers' situation fundamentally changed, from having no rights to
practically controlling the company.
As agreed, the collective contract signed on March 17, 1982 between the AUP-R100 and
the SUTAUR-100 would be revised every year on that date, 185 each time "incorporating new
benefits and incrementing the existing ones... so that few years after the creation of the new
public agency the benefits paid to workers were comparable to those conquered by privileged
unions after many years" (Alvarez del Castillo 1995, 9). Perhaps worried about swiftly
reestablishing service after municipalization, management sought to avoid conflict with the
workers by "being excessively permissive" (Ibid.). Only in 1986, SUTAUR-100 workers
received four wage increases 186, and each year until 1988 successfully obtained wage increases
that were on average 11% higher than government decreed increases to the national minimal
wage. But much more importantly, the union's leadership gradually gained the ability to govern
the company. Among many other things, union leaders were contractually empowered to
selectively award benefits to members, authorize "retroactive payments" and "extra hours"
without the involvement of management (Cuellar Vizquez 2001, 186), condition employment in
the company to union membership, and make temporary hires permanent after six months. 187
One of the negotiated clauses established that disciplinary measures imposed on workers for
faulty performance could only be enforced if authorized on a case by case basis by the union.188
Union leaders were able to use the financial contributions of union members with ample
discretion. According to union dissident Leonel Villafuerte (quoted in Cuellar Vazquez 2002,
184 For a description of the challenges posed by this transition from the perspective of workers, see Hanono Askenazi, 1989.
185 This in contrast to revisions taking place every 3 years in other government sector worker unions.
186 See Lajous et al., 1988.
187 See Mendoza Cruz, 2001, 83.
188 Ibid.
87
79), "the Executive committee could do whatever it wanted with that money, it distributed freely
and of course paid aviadores."189 Soon, the implementation of the detailed operational and
maintenance plans elaborated with the input of
London Transport International (LTI) Figure 2.10 Multimodal transit pass, 1985
consultants had to be rubber-stamped by the
union. As one former employee of the
company confided with the author, "I saw
signed papers, in which union leaders -
basically instructed the general manager of
the company what to do."
Between 1982 and 1988, the salaries
of AUP-R100 workers doubled1 90 and the
number of employees in the company
increased from 18,000 to 24,062191. The
share of the total budget of AUP-R100 spent
in worker wages and benefits stood at
72%,192 severely limiting resources available to
maintain and expand the fleet. As a result, the number of buses operating in the streets during
this period remained well under 4,500193, while the extension of the AUP-R100 route network
shrunk to 2,049 kilometers. 194 Most of the fleet was composed of the old buses seized from the
Alianza, and the purchase of new vehicles progressed only slowly. In fact, by mid 1986 the
purchase of new buses was fully suspended, "as a result of the Federal Government's policy of
budgetary austerity, rationality and discipline" (Autotransportes Urbanos de Pasajeros-Ruta 100
1993, 43). With few new vehicles to replace those that broke down, in 1988 only 52% of the total
fleet remained in operating conditions, down from 76% in 1982.195 So dire was the condition of
189 Aviadores -aviators- is the name informally given to people who earn a salary in large bureaucracies without reporting to
work.
190 See Monge, 1995c, 11.
191 See Legorreta, 1995, 82.
192 See Gonzalez Ruiz, 1996, 121.
193 See Legorreta, 1995, 84.
194 See Figueroa, 1990a, 233.
195 See Islas Rivera, 2000, 263.
88
Mexico City, Part I
the available bus fleet, that the AUP-ROO had 25 "yellow angels" -vehicles fully equipped with
tools and mechanics-, permanently assigned to rescuing the buses breaking down across the
city 196. SEFI routes were relabeled as "direct routes", notably eliminating the "intense
frequency" part of the acronym. Passengers suffered from more than long waits: Two major
AUP-R100 accidents took place in 1987 -one in Ajusco, killing 10 passengers, and one in
Chalco, killing 40.197 Accidents also occurred frequently on the collective taxis, but these could
not be as easily ignored. After all, the state was running the company.
When the presidency of Miguel de la Madrid ended in 1988, five different individuals
had occupied the post of General Manager of AUP-R100, and the union had consolidated its
control over key company decisions. According to a former union member, "Ricardo Barco,
through the union, decided which manager stayed and which manager left, decided who could be
hired, whose actions would be covered up, and who would receive unexpected envelopes with
'retroactive payments"' (Cuellar Vazquez 2001, 188). The government practically relinquished
material control of the company to the union, whose leaders "decided anything having to do with
the administration, use of equipment, and personnel, including salaries, benefits and work
conditions" (Gonzilez and Vidrio 2011, 27). Even as AUPR- 100 struggled financially, the
SUTAUR- 100 became one of the richest and most powerful unions in Mexico, holding multiple
trust funds and owning valuable real estate throughout Mexico City. Corruption was of course
widespread, with union leaders and managers disposing of company assets as their own. Audits
would later detail the existence of "complicated and solid co-administration networks between
the union and some of the managers of the institution, that clouded decisions and tended to
satisfy only personal interests of political and economic nature" (Monge 1995c, 11).
But to further complicate matters, the leadership of the SUTAUR- 100 became politically
active, joining the Independent Proletarian Movement (MPI) in 1983.198 According to Ricardo
Barco -a self-proclaimed marxist-, the MPI's objective was to "establish a more just society in
196 See Juarez and Trejo, 1990, 90; Autotransportes Urbanos de Pasajeros-Ruta 100 1993, 48. Another example: The
management of AUP-RIOG donated 62 AUP-RIO buses "that had no possibility of rehabilitation" for use as temporary
classrooms in schools damaged by the 1985 earthquake (Autotransportes Urbanos de Pasajeros-Ruta 100 1993, 53).
197 See Legorreta, 1995, 85.
198 See Cisneros Sosa, 2006, 76.
89
our country, in which the workers are the government." 199 The MPI shunned electoral politics
and political parties, 200 aligned itself with the teachings of Marx and Mao, and engaged in land
invasions in the city's periphery. AUP-ROO resources -vehicles, facilities, etc- were increasingly
used to bolster MPI activities. 201 For example, SUTAUR-100 drivers informally extended bus
routes to serve informal settlements controlled by the MPI, 202 used company facilities to recruit
and indoctrinate members,203 and diverted member contribution funds to finance MPI events.204
Some scholars even suggest that AUP-ROO workers were being trained in combat.205 Others,
like Cuellar,206 add that leadership of SUTAUR- 100 maintained close relationships with key PRI
members, which could partly explain why the attitude of the government toward the union was
not confrontational during the tenure of President Miguel de la Madrid. But in any case, the
situation at AUP-R100 was growing financially and politically unstable, producing pressure for
the state to create a new policy.
The rise of the "colectivos"
Unsurprisingly, the widening gap between the supply of public transport offered by
government-run agencies and the public's demand for service in the period 1982-1988 was
swiftly covered by collective taxis. The numbers are telling: The share of trips served by
collective taxis in the MCMA grew from 3.3% in 1972 to 32% in 1988 (Legorreta 1995, 157). In
contrast, the share served by the subway stagnated at approximately 20%, despite substantial
extensions to the network, and the share served by buses plummeted from 50% before
municipalization to a mere 19% under AUP-R100. While estimates vary, the number of
199 See GonzAlez Ruiz, 1996, 13.
200 See Cudllar Vizquez, 2002, 78. The MPI even called its members to refrain from voting in the contested 1988 elections,
when the PRI was almost ousted from the presidency.
201 According to Cisneros Sosa (2006), the illegal occupation of 35 hectares in San Andres Totoltepec (south of the city) by
the MPI took place with support of 2,000 AUP-R100 workers.
202 See Loyzaga de la Cueva, 1989, 26-27; Cudllar Vdzquez, 2002, 77-78.
203 See Cudllar Vazquez, 2001, 188.
204 According to a former union leader: "We did not only finance the MPI, we gave away a lot of money. The union's
Central Executive Committee looked like the wall of lamentations. A multitude of organizations would petition for funds and
each would get 10, 15, 20 thousand pesos" (Cuellar Vazquez 2002, 79)
205 For example, see Trueba Lara, 1995, 40.
206 See Cudllar Vdzquez, 2001.
90
Mexico City, Part I
collective taxis operating in the MCMA had grown to approximately 100,000 in 1988207, With
42,000 of them operating in the DF.208 The number of collective taxi routes crisscrossing the DF
increased from 100 in year 1979 to 832 in 1986209, with a combined network coverage of 10,400
kilometers. 210 Collective taxis were everywhere. They not only flooded the SARO and SEFI
routes of the "orthogonal network" but created a multitude of new routes of their own, taking
advantage of the smaller size of their vehicles. According to L6pez Zaldivar (1997, 81), "it was
an epoch of disordered growth, collective taxis proliferated throughout the city. At that time, the
make, model and physical conditions of the vehicles did not matter... the only condition was
getting approval from an organization leader to join." Authorities had so little information about
their services, that in January 1983 city officials found no alternative but to request collective
taxi organizations to submit a list of the vehicles they had in service, and to detail in maps all of
their routes.211 Freed from most government regulation and facing weak competition from
"formal" transit agencies, they were able to charge more expensive fares, with profound negative
equity implications. Poorer populations living in areas only served by collective taxis paid much
more than the relatively richer users of the highly subsidized public transit system, and since
collective taxis did not participate in the multimodal transit ticket scheme, users continued to pay
for each "leg" of their trips.
Mexico City authorities soon acknowledged they were barely able to manage and finance
the not-so "efficient and sufficient" government-operated public transport system implemented
by former regent Carlos Hank. Thus, even as they attempted to balance to the multiple financial
and regulatory challenges posed by AUPR- 100, STE and STC-Metro, Mexico City authorities
207 This figure corresponds to official government estimated reported by Jorge Legorreta (1995, 157). However, according
to Legorreta's own estimations the real number was approximately 178,000 vehicles.
208 See Islas Rivera, 2000, 311.
209 See Figueroa 1990a, 233; Islas Rivera, 2000, 311.
210 See Figueroa 1990a, 233
211 See L6pez Zaldivar, 1997, 81.
91
Figure 2.11 Collective taxis (combis) at the Observatorio Metro returned to the practice of negotiating
Terminal, 1983. Source:(Guti6rrez de MacGregor, Godinez, and Kunz with the leaders of the collective taxi
1983 p. 18)
organizations, bartering marginal
service improvements, fares and
political loyalty in exchange for
government authorization and access
to some subsidies. For example, during
this period, services offered by various
collective taxi organizations
demonstrated noticeable improvement,
substituting their sedans for
volkswagen combis. Operators
obtained loans to pay for these
vehicles from Banobras, the country's
development bank, "with only a simple
recommendation" from Mexico City
authorities, and much of this money was never fully repaid. 212 Soon, the importance of
collective taxis to the efficient mobility patterns in the city was such that authorities were "forced
to use the instruments of control and regulation at their disposal with some flexibility, with the
aim of not interfering in the growth of the supply of this now indispensable service" (Islas Rivera
2000, 309). Just like several decades earlier, tolerating and even encouraging "informal"
operators became a tool for many tasks: To weaken a radicalized transit worker union, to reduce
the costs of providing the population with transportation services, and to secure a base of
political support. 213
DF officials are on record defending this policy in Congress as early as December 1983.
They explained to legislators that "it wasn't advisable to regularize 'tolerated' services, because
they would add to congestion, nor to prohibit their operation, since the insufficiency of service
made them necessary" (Lajous et al. 1988). To manage this apparently contradictory policy,
Mexico City authorities established the Coordinaci6n General de Transporte (CGT) in January
1984, charging it with coordinating government-owned transit agencies, and with regulating the
212 Ibid.
213 For a description, see Wirth, 1997, 156.
92
Mexico City, Part I
operations of the officially non-existent private operators. The CGT is credited on the one hand
with promoting the eventually successful call to increase bus and subway fares 214, and on the
other with institutionalizing government negotiations with collective taxi organizations, much in
the style of the now defunct Uni6n de Permisionarios.
The first stage in this process was to bring as many collective taxis as possible into the
mantle of government regulation: An effort to "regularize" 56,000 collective taxis was launched
in 1985.215 Jorge Legorreta (1995, 154-175) detailed how this process was often mediated by
"high level agreements" between party and organization leaders. In its most basic form,
collective taxis were offered formal permits in exchange for political loyalty. But in addition to
this, these relationships enabled authorities to negotiate marginal improvements to service, and to
influence the behavior of individual operators. For example, in November 1985 the leaders of the
CAT and Mexico City authorities agreed on the implementation of a pilot program to replace
combis for 18-passenger microbuses in the iconic Avenida Insurgentes.216 The CGT later
expanded this program throughout the city, offering private operators subsidies and government
backed loans to purchase one microbus equipped with a catalytic converter for every three
collective taxis they removed from circulation. The plan aimed to introduce 5,000 of these
cleaner vehicles (and eliminate 15,000 collective taxis) by 1988.217 Efforts to improve the
integration of public and private modes, and to protect the DF market from the competition of
State of Mexico operators also were mediated by the CGT. For example, in 1984 collective taxis
from the DF were authorized to pick up passengers at subway stations, and in 1986 a presidential
decree banned State of Mexico's buses and collective taxis from operating within the DF, except
for dropping passengers at subway terminals. 2 18 Each of these policies required long, protracted
negotiations with groups that felt adversely affected. One collective taxi operator revealed the
growing sense of entitlement that emerged during this period. "The peseros are a product of a
deficiency of the public transit system and a consequence of the lack of adequacy of the roads in
the city; we are a service pampered by the authorities... because it is us that carry the burden of
214 For more on this, see Figueroa, 1990, 229.
215 See Lajous et al., 1988 (available from http://www.mmh.org.mx/nav/node/572); and L6pez Zaldivar, 1997, 87.
216 See L6pez Zaldivar, 1997, 90.
217 See Le6n Salazar, 2011, 166.
218 See Covarrubias, 2004.
93
transporting a growing number of passengers every day" (Legorreta 1995, 161). This opinion
was shared by many authorities, to the point that President de la Madrid himself participated in
events where collective taxis were granted concessions en masse. 219
Soon four federations of organizations -known as organizaciones c'pula ("dome
organization")- controlled 80% of the collective taxis operating in the city: The Coalici6n de
Agrupaciones de Taxistas (CAT), the Federaci6n de Taxistas de Mexico (FTM), the Federacion
de Cooperativas de Taxistas (FCT) and the Confederaci6n Nacional Revolucionaria del
Transporte (CNRT). 2 2 0 According to L6pez Zaldivar (1997, 226), c'pula organizations "are the
maximum organizational configuration achieved by transport providers. It is within these
organizations where power, direction and control over routes resides. They are also the medium
giving cohesion and enabling the defense of their interests." Citing journalistic accounts, Wirth
(1997, 164) argues that these cnipulas were in fact controlled by no more than 12 "leaders of
leaders", that constituted a new "pulpo camionero." These leaders replaced the Alianza, and
joined the ranks of the SUTAUR-100 as the key negotiating counterparts of government
authorities interested in transportation policy.
In what proved to be an optimistic assessment, planners at the CGT hoped private
collective taxis would limit their participation only to expanding and complementing services
219 See Lajous et al., 1988, under Gira de Trabajo en el DF. Available from http://www.mmh.orv,.mx/nav/node/572.
220 See Legorreta, 1995, 157.
94
Mexico City, Part I
offered by the troubled public
(Guti6nez de MacGregor, Godfnez, and Kunz 1983 p. 2 1) agencies. They believed that the
substantial fare differential would
be sufficient to prevent AUP-R 100,
STE and STC-Metro services from
being harmed by "tolerated"
competition. However, the AUP-
R 100 deteriorated to such point,
that its buses seldom showed up,
making their cheaper fares
irrelevant for the vast majority of
users who could not afford to wait.
Even the Metro -which in addition
to a cheaper fare had arguably
better performance- suffered from
competition from the collective
taxis, to the point that the lines
outside 1, 2 and 3 carried much lower passenger loads than originally expected. Who would want
to walk to a Metro station and go up and down stairs, when it was possible to hail a collective
taxi almost immediately after reaching the street? Similarly, intermodal coordination efforts soon
resulted in route associations establishing informal property rights over key facilities and routes.
For example, at many subway terminal stations collective taxi organizations forcefully displaced
AUPR- 100 buses from prime spots, often with the support of corrupt city officials. Fights
between collective taxi operators and AUP-R100 workers occurred frequently.221
The logic of mediated deal-making lent itself to corrupt practices, and over time further
disempowered authorities. To be sure, "tolerating" collective taxis was justified as a "transitory
solution that became permanent given the void created by the retraction of public investment in
the sector, and as an alternative of self-employment for the population lacking opportunities in
other activities" (Navarro Benitez 1993, 183). But on the ground, cnipula leaders controlled and
221 See Wirth, 1997, for many examples of such fights as reported in the popular media.
95
conditioned access to the industry, and kept the most profitable routes for themselves, while
exacting contributions from members and making side payments to allies working within
regulatory bodies. And in any case, the mandate to cut government expenditures was so
pervasive, that many well meaning government authorities turned a blind eye to the poor
practices and rising externalities caused by the surge of collective taxis throughout the city.
Limited by weak enforcement capacity, authorities came to depend on organization leaders to
obtain information about what was happening on the ground, and to channel subsidies. The
power of organization leaders as middlemen grew considerably: Both individual operators and
government regulators depended on these leaders to make the system work. Unsurprisingly,
7,000 new minibuses were on the streets ahead of the schedule outlined by the CGT's vehicle-
substitution program222 -but many of these new vehicles were actually built in clandestine
workshops, "where a truck chassis was adapted with a body and mounted with seats" (Le6n
Salazar 2011, 166),223 and did not meet the environmental standards outlined by authorities.
Furthermore, operators often benefited from subsidies and loans without relinquishing their
collective taxis. Rather than reducing the number of collective taxis, the policy of government
backed loans and subsidized vehicle purchases accelerated the surge of vehicles entering the
public transport market, contributing to the excess supply that lowered revenues of publicly-run
services 224. Official estimates for the whole MCMA acknowledge the existence of 3,348
collective taxis in 1970, 4,530 in 1979, 37,500 in 1982 and 98,000 in 1988. Jorge Legorreta
(1995, 162) argues that the real figure was 178,000 by 1989, computing sedans, combis and
microbuses. The system entered a vicious cycle. The more collective taxi routes available, the
less effective the orthogonal network. The more competition from collective taxis, the less
passenger demand available to AUP-ROO, STE and the Metro, and thus, the more need to
publicly subsidize their services or raise fares, which in turn justified the policy of "toleration".
This deteriorating dynamic evolved within the context of the PRI increasingly loosing its
hold over the city and over the country as a whole. The debt crisis and subsequent austerity
measures, combined with deep popular in-satisfaction over the badly managed response to the
1985 earthquake, led to plummeting poll numbers for the PRI, particularly in the capital. Forced
222 See Wirth 1997, 164.
223 In another interview reported by the same author, a collective taxi operator confided: "any blacksmith can put together a
micro, it doesn't even take a good blacksmith, anyone can put a micro together".
224 See Wirth 1997, 164.
96
Mexico City, Part I
by circumstance, President de la Madrid promoted a half hearted democratic reform for the DF in
1987, leading to the creation of a local Assembly of Representatives, composed by elected
members, but only given token powers. This satisfied no one, and when the time came to elect a
new president of the country, the opposition candidate swept in Mexico City, even carrying the
votes of supposedly loyal collective taxi organizations.225 While the votes from the rest of the
country allowed Carlos Salinas de Gortari and the PRI to retain the presidency in 1988, demands
for democratic change in Mexico City -galvanized around the defeated candidacy of Cuauhtemoc
Cirdenas- acquired tremendous force, laying the seeds of reforms that later made possible the
election of Cardenas as mayor in 1997. But in the meantime, the incoming administration had to
define its own transportation policy. Would it increase regulation over private collective taxis and
sustain high but inefficiently spent subsidies to government run public transit agencies, or would
it continue CGT's policy of implicit deregulation and attempt to break the hold of the union over
AUP-R100 to streamline expenditures? The balancing act established by the end of the de la
Madrid administration was unsustainable. Something had to give.
The 1989 strike of AUP-R100 workers, and a first failed attempt to privatize the
public bus company
President Salinas appointed Manuel Camacho Solis as Regent of Mexico City in 1988.
Many observers expected the incoming administration would pursue transformative
transportation policies in the capital, perhaps even privatizing the AUP-R100. Not only had
Salinas hinted at the possible privatization of other critical services -such as telephone and
banking- during his campaign, but he had also expressed grave doubts about the future of the
public bus company. As he put it, "Ruta 100 has not faced the demands of citizens with
sufficiency, some say it does with deficiency. It is unclear whether it can improve in the
future." 226 However, even if President Salinas supported a policy of privatization, it was clear
that the regent had to deal first with the company's workers. Who would invest in AUP-R 100 if it
came bundled with a bloated and powerful union, and forced to compete against thousands of
loosely-regulated semi-infornal collective taxis without guarantees of future subsidies? And,
what would happen with the more than 20,000 militant workers, many of which would be
225 See Trueba Lara, 1995.
226 Impacto, number 2048, June 1, 1989, quoted in Juarez and Trejo, 1990,43. Salinas' critiques of AUP-RIO are also
noted in Ward, 1990, 110.
97
redundant after any restructuring effort designed to maintain a profitable operation? This was
both a social and a political problem that could not be ignored. After reviewing the situation of
the company -and the practical obstacles to privatization-, the new regent probably concluded
that to transform public transport in the capital he needed to work with, not against the union, at
least initially. Warning that the budget approved for the company for year 1989 could only
sustain operations for four months227, Camacho's envoys proposed a particular type of
privatization that had the potential of benefiting workers. The Mexico City government offered
to foster the creation of cooperatives -with 25% of the capital controlled by the government and
75% by SUTAUR-100 members 228- and to gradually allow these cooperatives to take over AUP-
R100 services. If the workers already governed the company, why not formally give it to them?
Since the earnings and future job stability of the workers participating in such transport
cooperatives would be tied to their performance, Camacho hoped to control and reduce the
inefficiency that characterized AUP-R100.
By advocating collectivization and semi-privatization at the same time, Camacho
attempted to get the best of both worlds: Fostering a positive relationship with a powerful and
politically active interest group (treating the union as something akin to a collective taxi
organization) and reducing the financial cost to the city of maintaining transportation services.
The proposal to "vindicate worker's rights by making them owners of the buses and responsible
for maintenance and operation" (Monge 1995c, 10),229 was certainly well received by many
SUTAUR-100 leaders. However, discussions soon became entangled with collective contract re-
negotiations, traditionally occurring every year during the month of march. That month, the
SUTAUR-100 demanded 60% salary increase and improvements in 76 benefit clauses in their
contract 230 After weeks of negotiations, government countered with a proposal of a 10% salary
increase,23 1 conditioned on the implementation of Camacho's "modernization" plan based on the
cooperative alternative. A few union leaders were suspecting of this deal, fearing that the
227 See Monge, 1995c, 10.
228 See Legorreta, 1995, 87. Other accounts point to a 50-50% proportion, which suggests that the details of the plan were
fluidly being negotiated. For example, see Autotransportes Urbanos de Pasajeros-Ruta 100, 1993, 72.
229 Also see Trueba Lara, 1995, 50.
230 See Alvarez del Castillo, 1995. This author served as negotiator on behalf of the government. For an interview with one
of the negotiators on behalf of the union, see Gonzalez Ruiz, 1996, 122-128. .
231 Alvarez del Castillo (1995) recalls that the increase offered by the government was 10%. Cuellar Vazquez (2002, 74)
refers 14%.
98
Mexico City, Part I
proposed modernization was only a roundabout way of closing facilities, laying off workers and
slashing government subsidies to the company without taking public blame for the results.232
When the government failed to make any commitment regarding future subsidies, tension
escalated, talks abruptly ended, and the union called for a strike scheduled to begin at 6 am on
May 3, 1989.
We should recall here that Mexican legislation practically negates the right to strike to
government employees. In fact, the AUP-R100 strike call was declared illegal by the labor court
on April 22, and workers officially warned that paralyzing services would result in their
immediate dismissal. In the past, such standoffs had been used by union negotiators to raise the
stakes, but last minute agreements had always voided the need to carry out the threat. This time
the government would not budge. Only one night before the self imposed deadline, the union had
to resolve whether or not to paralyze services. At a massive assembly organized by the
SUTAUR-100 at Mexico City's Palacio de los Deportes -a stadium with capacity to seat 20,000
persons- workers listened to incendiary speeches describing the alternatives, and decided by
acclamation to paralyze services despite the personal risks involved.233 Rather than deploying to
their bus terminals, they agreed to convene the next morning at the Z6calo, Mexico City's central
square, to hold a protest 234 .
The government made its own preparations. Regent Camacho called on the army and on
private collective taxi organizations to provide emergency bus services at no cost to the public
for the duration of the strike,23 and ordered the immediate firing of the 23,240 employees of the
company. This included all of the workers, not only those that actually struck. Workers were
notified of this fulminating decision on May 3, at 4 pm, while many were still protesting at the
Z6calo. When many of workers heard the news and attempted to return to their posts, it was too
late. Army and police prevented them from entering the premises and from taking the buses. That
afternoon, the General Manager of the company declared that his orders were to "restructure the
232 Such suspicion was probably not entirely off mark. The SUTAUR- 100 demanded that the government maintain at least
the previous year's level of subsidies for the next five years, and authorities would not commit (Monge 1995c, 10). Other
accounts make similar suggestions, but provide little detail (e.g. Islas Rivera 2000, 284; Gonzalez Ruiz, 1996, 124).
233 See Mendoza Cruz, 2001, 77; Judrez and Trejo, 1990, 75.
234 See Juarez and Trejo, 1990, 77.
235 See Autotransportes Urbanos de Pasajeros-Ruta 100, 1993, 68.
99
company, with or without the union" (Juarez and Trejo 1990, 77). Two days later, President
Salinas formally decreed "the immediate, total and temporary occupation and administrative
intervention of all of the assets and rights" of the AUP-R100, "until the delivery of this public
service is reorganized" (Departamento del Distrito Federal 1989). A new administrator was
appointed, with ample powers to hire new workers and contract out services if necessary?26
There are scholarly accounts that suggest that this strike was previously negotiated
between Regent Camacho and the leaders of the union willing to participate in the modernization
plan. Some, like Cuellar Vazquez (2002, 75) and Loyzaga de la Cueva (1987) even claim that the
assembly at the Palacio de los Deportes was manipulated into supporting the strike. This
possibility is certainly plausible as the standoff only resulted in workers loosing leverage to
oppose the plan, but it did not make the government's strategy any less forceful. Public opinion
turned against the SUTAUR-100, and workers lost legal standing to defend their jobs in court.
While we lack definitive evidence confirming internal foul play, a negotiation favorable to the
government authorities certainly took place. On May 9 the union leadership and authorities of
the DF signed an agreement, not only to reestablish bus services and to allow workers to return
to their posts, but to "launch, immediately, a new work scheme based on cooperatives with state
participation to ensure better service for users by increasing productivity in the operation and
maintenance of vehicles, the strengthening of work discipline, and the application of the
principle that each worker will earn according to performance" (Alvarez del Castillo 1995, 11).
What triumphant union signs off on this kind of language? Workers did retain their jobs and
obtained a 14% salary increase, and the government did commit funds to repair and expand the
bus fleet, but the signed agreement established that workers unwilling to participate in the
cooperatives would be offered a severance package to leave AUP-R1 00237 In other words, union
leaders signed off on Camacho's plan.
AUP-R100 organized its operations around 39 "modules" dispersed across the city, that
served as bus depots, driver dormitories, maintenance workshops and administrative offices. In
turn, the union organized itself in worker sections that roughly followed the modules, and
Mexico City authorities planned to organize one cooperative at each of them. The "1989-1994
Modernization Program" presented after the strike to the workers and to the broader public
236 This administrator was Enrique Jackson, who previously served as head of the CGT, and later had a successful political
career as congressman, serving both as diputado and as senator.
237 See Loyzaga de la Cueva, 1989.
100
Mexico City, Part I
contemplated the immediate launch of six cooperatives, suggesting that the rest would be
organized in six months.238 New buses would be jointly owned by the government and by
cooperative members, maintenance costs would be evenly split, while salaries "and other costs of
operation" would be fully paid by the coops. (Autotransportes Urbanos de Pasajeros-Ruta 100
1993, 72). At the end of this transition period, AUP-R100 would swiftly disappear, replaced by a
new (albeit still unspecified) "Metropolitan Transport System,"239 with the yellow and brown
AUP-R100 chromatic replaced by a new one, featuring buses painted in grey, green and blue
colors. According to Regent Camacho, "with these measures the history of a gigantic company
whose management became impossible comes to an end" (Juarez and Trejo 1990, 79).
The cooperatives were nonetheless never implemented 240 and the history of the AUP-
R100's "impossible" management would continue until 1995, when another president and regent
dispersed the company amidst renewed conflict with workers. After a few initial attempts to
launch the cooperatives, this aspect of the "modernization plan" proved to be an impossible task.
Worker-owners discovered that the coops could not survive for long without renouncing to many
of their job benefits, accepting lay offs, and securing higher fares or sustained levels of subsidy
from the state. There was no clarity regarding how workers would finance their share of the new
buses, who exactly would have property rights over them, and how would stock in the
cooperatives be distributed.24 1 At the end, this feature of the modernization plan became little
more than a administrative restructure giving more formal independence to each module -which
would certainly impact the structure of the industry later- but, that had "no consequence on the
efficacy of the agency" (Loyzaga de la Cueva 1995). This independence only legitimized and
strengthened the ability of union leaders to co-manage the company with government authorities,
but without taking any revenue risk, and often maintaining or even deepening the corrupt style
that prevailed before the strike.
To be sure, the footprint of the company shrunk significantly during the Salinas and
Camacho years, as demonstrated by comparing critical statistics of the company between 1988
238 See Legorreta, 1995, 87.
239 Ibid.
240 See Loyzaga de la Cueva, 1995.
241 These questions were raised by specialists as soon as the proposal was made public. See for example Loyzaga de la
Cueva, 1989.
101
and 1993.242 During this period, the number of workers decreased from 23,318 to 14,195 -
meaning that approximately 9,000 individuals ceased to work for AUP-R100 after the strike-.
While 1,100 new buses, and 3,500 "ecological" motors were purchased by the government,243
the number of buses actually in operation continued to decrease in this period, from 4,096 to only
2,764.244 The number of kilometers served by AUP-R100 buses fell from 358,000 in 1983 to
325,000 in 1988, and dipped to 206,000 in 1993. Passengers transported by AUP-R100 buses
decreased from a peak of 2.14 million in 1987245 to 0.98 million in 1992.246 12 of the 39 modules
of the company were shut down.247 This process was of course not exempt from conflict.
However, given that the union leadership had signed off on the cuts, the government had ample
coverage, and disputes were mostly between fired workers and their union representatives. For
example, workers demanded their contributions to the multiplicity of trust funds established by
the union be returned to them before leaving the company. When the union leaders resisted, a
group of 254 fired workers sued the SUTAUR-100, albeit with little immediate consequence.
Counter-Intuitively, all the above mentioned layoffs and adjustments did little to reduce the
amount of public subsidies allocated to the company. After adjusting for inflation, local and
federal government transfers to AUP-R100 in 1992 were only 6.6% lower than transfers
registered in 1986,248 and the share of total expenditures spent on workers wages and benefits
actually increased. Why didn't the government enforce the transition toward cooperatives, and
why didn't the layoffs and the reduction of the company's footprint result in significant financial
savings to the government?
The answer remains muddled amidst multiple possibilities. A few authors point to
"political reasons:" 249 Regent Camacho was seeking the presidency, and would not profit from a
renewed standoff that could open questions about his ability to govern. Another alternative is
corruption. Efforts to modernize AUP-RIOO came bundled with commitments to renew the fleet
242 Figures presented here taken from the investigation of Juirez and Trejo, 1990. While different sources have slightly
different numbers, the trends are consistent.
243 See Autotransportes Urbanos de Pasajeros-Ruta 100, 1993).
244 Islas Rivera (2000, 266, table 6.4) offers slightly lower figures: 2,467 buses in 1992.
245 Juarez and Trejo, 1990.
246 See Islas Rivera 2000, 263, table 6.3.
247 See Cudllar Vdzquez, 2002, 81.
248 See Islas Rivera 2000, 273, table 6.6.
249 i.e. Trueba Lara, 1995.
102
Mexico City, Part I
and to improve facilities, which promised juicy commissions for administrators and union
leaders, likely to feel threatened by the need to explain and justify decisions to workers.25 0 A
perhaps more cynical explanation is that the modernization plan was really a government trap to
divide and weaken the union in preparation for a full blown privatization effort.21 All of these
reasons may have a kernel of truth, but we must not minimize the practical difficulty of building
the required internal consensus, and of containing wasteful inertias typical of a large
bureaucracy. In the end, the transition proposed to workers -to evolve from union-members to
private operators- was not necessarily attractive, and likely resisted. Many of the workers surely
remembered what was it like to work in the industry before the AUP-R1 00, and wondered what
would happen if their union bosses became the leaders of the new cooperatives. Why should they
relinquish their benefits, high salaries and work security? And, why would the individuals that
mined the company's resources for personal gain embrace a business model that promised lower
profits and more risk?
While discussions over the modernization of AUP- 100 continued, plans to extend the
Metro network progressed very slowly. Salinas had committed to building 10 kilometers of
metro per year, but it was not until 1990 -after the AUP-R100 strike was resolved- that the first
expansion project of his administration broke ground. While planned southbound expansions to
Lines 4 and 7 were still pending, Salinas chose instead to build the 17-kilometer line A, the first
to venture for any significant distance outside of the formal boundaries of the DF. In addition to
its metropolitan reach, this line had the advantage of being significantly lower cost. Its
"suburban" features implied that it could be built with surface rather than underground stations
and tracks, and that few land takings were required (as the line used a pre-existing right of way).
Furthermore, trains used on this line were iron wheels rather than rubber tires, and were fully
sourced and assembled in Mexico, which implied lower purchase and maintenance costs.
Notably, the per kilometer cost of this line, completed on August 1991, was approximately half
of the cost required to build line 1.252 To further mitigate the cost impact of this project on the
250 Later audits would suggest, for example, that the director of AUP-R100 awarded the contract to supply the 3,500
"ecological" motors to a favored supplier with no tender. This supplier was Mercedes Benz, partly owned by the Hank
family. For details on this and other examples, see Monge, 1995d.
251 For this take, see Loyzaga de la Cueva, 1995; Cuellar Vdzquez, 2002, 77.
252 For a full description of efforts to reduce costs over the history of Mexico City's subway, see Henry and Kuhn, 1996.
103
balance sheet of STC-Metro, line A was not fare-integrated with the rest of the network. That is,
passengers transferring at the massive Pantitk6n terminal station were required to purchase a
second ticket before boarding another subway line. The other two metro projects undertaken in
the Salinas presidency were the construction of the postponed line 8, completed in 1994 after
significant adjustments to the original plan, and the start of construction of line B, which would
not be finished until 2000.
Decreasing capacity to tackle the second-order goals of public transport policy
Despite the efforts of public authorities to improve and extend Mexico City's public
transportation system, the results were far from sufficient to cover the growing mobility needs of
the population. As his predecessors, regent Camacho had little alternative but to turn to the
private collective taxis to cover this primal need. However, collective taxis thrived precisely by
exempting themselves from costly environmental, labor, safety and other regulations, and by
charging more onerous fares, with the implication that their emergence as an increasingly
dominant mode negated or at least limited the effectiveness of government policies in critical
areas. These effects were no longer easy to ignore. By the mid eighties, Mexico City had attained
well-deserved fame as one of the most congested and polluted cities in the world. The levels of
traditional urban pollutants like sulphur dioxide (SO 2 ), suspended particulate matter (SPM), lead
(Pb) and nitrogen oxides (NOx) were all above World Health Organization (WHO) guidelines,25 3
and commuting times reaching more than three hours per day were becoming commonplace.
Mexico City authorities implemented the first comprehensive program against air pollution in
1990 (PICCA 1990), calling for a wide ranging battery of policies that included vehicle emission
control systems and weekly no-drive days for private automobiles. This program also justified
the above mentioned public investments to expand the Metro and to renovate AUP-Rl 00's bus
fleet. But how could the regent include the collective taxis into the city's efforts to address social
problems like congestion and pollution, without unleashing private operator demands for fare
increases or subsidies?
The regent acknowledged publicly that the policy of "tolerating" collective taxis came
bundled with significant externalities. As he put it in 1989, "given the necessity of transport
alternatives in the areas that can't be covered by the Metro, the buses or the trolleybuses, others
before me authorized increasing numbers of lower capacity units like combis, which caused a
253 See Nava Escudero, 2004.
104
Mexico City, Part I
mayor pollution problem that we can't ignore" (Islas Rivera 2000, 314). The gradual shift from
large to smaller vehicles, amidst a weak regulatory system, certainly generated inefficiencies by
adding to traffic congestion, reducing public transit productivity, increasing emissions and
exposure to pollutants, and increasing accident rates. However Camacho had limited options to
address the multiplicity of problems caused by the collective taxis. In fact, he needed this mode
to exist -not only to hedge against the possibility of SUATUR- 100 strikes, but to ensure that the
inhabitants of the city had access to transport services given the limited reach and quality of the
Metro and AUP-R 100 services. The fact that they represented a base of potential political support
for his own presidential aspirations did not hurt either. The task of navigating this tension fell on
the CGT, which not only continued but expanded its vehicle-substitution program. Paradoxically,
a program justified as a deliberate effort to control pollution and minimize congestion actually
weakened the government's ability to sustain its cleaner and more efficient services, and made
congestion worse. As before, collective taxi operators took advantage from government support
to purchase larger vehicles, easily sidestepping the requirement to take three smaller, older and
more polluting units off the streets. At best, operators replaced one combi for one microbus, and
at worst took the microbus while continuing to run their "retired" combis informally. The leaders
of several collective taxi organization made a profitable business out of adapting truck chassises
with make-shift microbus bodywork, and selling them to members.25  Such apparent oversights
are not due to bureaucratic incompetence or corruption, at least not entirely?55 The reason is that
in addition to negotiating the adoption of cleaner vehicles, the CGT was using every tool at its
disposal to negotiate route alignments , fare policy -and political loyalty- with collective taxi
organizations. To maintain and increase government leverage in these negotiations, authorities
frequently resorted to the selective enforcement of regulations and to the discretionary
distribution of program benefits.
According to L6pez Zaldivar (1997, 100), "the policy of Camacho Solis was based on
pacts ('concertaciones') designed to temper the political ambiance. Collective taxi leaders were
satisfied with the policies directed at the trade: There was no mutual aggression nor street
254 The most famous of these leaders was Heriberto Flores Nava, "El Pollo." He put 75 of these adapted vehicles in the
market, that soon became known as "pollo-vans." For this story see L6pez Zaldivar, 1997, 100.
255 According to an audit, during 1994 the CGT "lost" 1,503 collective taxi license plates and had "duplicated and altered"
concession files (Monge 1995e).
105
blockades for grave conflicts, and their organizations benefited from several sinecures
('canonjias ')." In many ways, the CGT got what it wanted. Camacho was able to maintain the
fare without increment throughout his tenure, although these "savings" certainly impacted the
quality of the service available to the public. Specialists were quick to sound the alarms. Jorge
Legorreta (1995, 184) noted that collective taxi organizations in Mexico City had attained such
influence "that they directly intervene in the planning functions of the state," warning that "by
the end of this century, a group similar to the Alianza de Camioneros will emerge." Bernardo
Navarro Benitez concurred, emphasizing that collective taxis were no longer restricted to playing
a subsidiary and complementary role. Even amidst the multiplicity of problems plaguing the
subway and AUP-R100, this author (1993) argued that no viable and effective "modernization"
could take place without "first breaking the corporative and clientelistic control that currently
exists in the services operated through concessions... the principal obstacle facing transportation
policies that are imaginative and of great significance." However, the corporative and
clientelistic practices that distinguished collective taxi organizations may have been precisely
what enabled the city to retain some ability to influence the system, and the regent knew it.
While many of the loans used to finance new vehicles were subsidized and backed by
Nacional Financiera, the national development bank, the program soon outgrew the financial
capacity of the state. To maintain the vehicle-substitution program running, Camacho encouraged
vehicle manufacturers and distributors linked to the regime to offer better credit conditions to
collective taxi organization leaders, suggesting that in case of repayment problems debtors could
be bailed out either with subsidies or fare increases. Many of these vehicle suppliers were firms
owned by families close to the government, who had acquired them during the privatizing wave
of the de la Madrid and Salinas administrations. Several jumped into this business opportunity,
establishing assembly lines that improved the artisanal practice of adapting truck chassis with
bodywork appropriate to serve public transit needs. This was the case of firms like HAVRE
106
Mexico City, Part I
Figure .13 Microbus, Mexico Cit (1990s) (owned by the Mariscal Family, the largest
General Motors vehicle distributors in the
country), FAMSA (owned by former regent
Hank), CATOSA (owned by Eduardo Gomez,
former Minister of Public Works under Hank),
CAPRE and AYCO. Partly a result of
government support, and partly as a
consequence of the common interests of
organization leaders seeking commissions, and
of vehicle distributors wanting to boost sales,
"vehicles were handed (to operators) without Figure 2.14 Combi, Mexico City (1990s)
any type of paper or credit check" (Pairamo
1994, 34). The effect was a "microbus
boom" (Le6n Salazar 2011, 166). Data
compiled by Islas (2000, 312) is sobering: The
number of collective taxis authorized to operate
in the DF remained practically unchanged
between 1988 and 1994, roughly at 42,000
vehicles. However in this same period the
previously marginal microbus (capacity: 20-25
seated passengers) replaced the combi (capacity:
8-10 seated passengers) as the most prevalent
collective taxi vehicle: By 1994, there were 23,247
microbuses in Mexico City.256 In other words, the passenger capacity of the private authorized
collective taxi industry in the DF roughly doubled under Regent Camacho, precisely as the
vehicle fleet and yearly passenger ridership of AUP-R 100 buses was practically reduced in half.
It is impossible to know if this outcome was deliberate, but the correlation can't be easily
ignored. By 1994, the share of trips in the MCMA served by microbuses and combis had
256 By the end of the Camacho administration, the leaders of the CAT sought to introduce even larger vehicles in main
thoroughfares. Mexico City authorities briefly authorized 10 large private buses to run on Reforma, but they had to be retired
from circulation after a series of fights between AUP-R100 workers and collective taxi operators. See Monge, 1995d..
107
increased to 54%, while the share served by subway and public buses had decreased to 16% and
10% respectively.257 The dream of a multimodal, integrated public transport system, governed by
a single actor that prioritized social over economic objectives, was gone.
A new presidential administration, and a commitment to "force" change
The tribulations of the planners and regulators of public transportation in Mexico City
seem marginal when placed within the larger political and economic context of the the final years
of the Salinas presidency. This period was an emotional roller-coaster. A brief period of sustained
foreign investment had many sold on the idea that the country was moving on the right track, but
a string of dramatic events soon provided a sobering reality check. In November of 1993, the PRI
unveiled Luis Donaldo Colosio as its candidate to the presidency. Evidently upset, Manuel
Camacho resigned from his post as Mexico City regent and briefly toyed with the idea of leaving
the party before accepting a position in Salinas' cabinet. The signing the North American Free
Trade Agreement (NAFTA) took place on December 1 amidst much fanfare, but a few weeks
later an insurgent army -the Ejercito Zapatista de Liberaci6n Nacional (EZLN)- emerged in the
southern State of Chiapas declaring war on the state. As the Salinas administration reacted to the
zapatista uprising -sending Camacho as peace negotiator-, candidate Luis Donaldo Colosio was
tragically assassinated during a campaign event held on March 23, 1994 in Tijuana. The nation
was in absolute turmoil and the market panicked. Soon the political and economic consequences
of these events would lead Mexico City authorities to attempt a much more forceful approach to
public transportation reform.
To replace Colosio the PRI selected Ernesto Zedillo, a Yale educated economist
previously serving as education minister. Feeling snubbed for a second time, Camacho resigned
from his post as peace negotiator in Chiapas, and distanced himself from the incoming
administration. On August 21, Zedillo easily defeated leading opposition candidates Diego
Fernindez and Cuauht6moc Cdrdenas. The PRI even recovered its electoral might in Mexico
City, winning a large majority in the local Assembly. This outcome was at least partly due to a
1993-1994 public relations campaign and public investment splurge, designed to bolster the
PRI's popularity in the city. The first featured PRI congressional support for the 1993 reforms
that granted the Mexico City Assembly full legislative powers, and a campaign pledge by Zedillo
that city residents would be able to elect their own mayor in 1997. The second included President
257 See Gonzdlez and Vidrio 2011, 30.
108
Mexico City, Part I
Salinas breaking ground on the construction of Metro line B and inaugurating the long awaited
Metro line 8 -only one month prior to the presidential election. Many of these public investments
were financed using mexican government bonds payable in foreign currency, due just as capital
started to flee the country in reaction to the tragic events in Chiapas and Tijuana.
However, Camacho's sudden exit from the regency and later break with the PRI certainly
impacted a delicate balance built on protracted negotiations with c'pula leaders of collective taxi
organizations. On the side of the government, key CGT officials followed Camacho and
resigned, leaving behind "a tremendous power void" (L6pez Zaldivar 1997, 106). On the side of
private operators, c'pula leaders no longer had responsive government counterparts and thus
were no longer as useful to their membership base. This was of course compounded by the fact
that any new partnerships built would not necessarily be longer lasting, as the the next election
for city mayor was in no way settled in favor of the PRI. Unsurprisingly, it is precisely during
this period that the CAT began to disintegrate, and that dissidence movements germinated within
each cipula organization. 2 8 Several new organizations were formed, while many Rutas decided
to represent themselves. With the channels of communication that linked public and private
stakeholders broken and with the decision structure of the private collective taxi industry
undergoing a process of fragmentation, the state's mechanisms of control weakened. While this
turn of events had a lot to due with politics, economics also played an important role. Days after
Zedillo was sworn in as president in December 1994, the "tequila crisis" struck the country with
full force, forcing the incoming administration to devaluate the currency and to briefly consider
debt default, all while attempting to pacify the insurgency in the south of the country. Before the
economy could stabilize from this shock, thousands of families had lost their lifetime savings
and many private companies, including some that had too eagerly supplied the microbuses -like
Grupo Havre- faced bankruptcy.2 59 Collective taxi owners fell behind on their new vehicle
payments, and demanded that their leaders mobilize against the government to obtain a bailout or
to force an increase to the price of fares, which Camacho had kept frozen during the previous
four years as part of his effort to bolster a presidential run. This economic fallout also had
258 For example, approximately 20 ruta organizations abandoned the CAT to create the Consejo Unificador de Taxistas
(CUTAC).
259 According to Paramo (1994, 35), at the end of the Salinas administration microbus organization leaders owed $600
million nuevos pesos only to one company -Grupo Havre- (In 1993 the exchange rate was US $1=$3.40 nuevos pesos). This
company would declare bankruptcy amidst substantial scandal.
109
implications for the other transit modes in the city. Unsurprisingly, line B of the Metro took the
full six years of Zedillo's presidential term to complete, and most other large infrastructure
projects promised during his campaign 260 were postponed, limited, or cancelled. 261 The
perspective for AUP-R100 was similarly bleak. The mandate to minimize public subsidies, cut
public expenditures, restrict federal transfers to local governments and increase transit fares
would continue, just as the negotiating table represented by the CGT seemed least appropriate
than ever to find a workable accommodation with incumbent private operators of service.
Ernesto Zedillo appointed Oscar Espinosa as the new regent of Mexico City. He would be
the last regent, governing the city for three years until a mayor was democratically elected in
1997. Espinosa promptly reorganized the city government, creating the Secretaria de Transporte
y Vialidad (SETRAVI), to elevate the CGT to ministerial stature. This decision was partly taken
to empower the CGT vis a vis the autonomous SCT-Metro, STC and AUP-ROO, and to give
more authority for the officials negotiating with private concessionaires. The decision also served
a political purpose: signaling to actors involved in transportation services that the new
administration had in fact begun, and that it would differentiate itself from Camacho's. To head
the new SETRAVI, Espinosa appointed Luis Miguel Moreno, a no nonsense technocrat with
experience as regulator, who had previously served as president of the National Stock Exchange
Commission (CNV). Moreno's most urgent task would be to conduct an audit to the AUP-R100,
and a review ty polices toward collective taxi organizations.
Regent Espinosa spoke freely about relying on the private sector to finance public works
and services in the capital. As one of his aides explained to Proceso in January 1995, his plan
was to "concession more public services, and privatize others." (Acosta C6rdova, 1995). Not
only were the new president and regent ideologically disposed to this option, but perhaps more
importantly, they realized that the economic crisis significantly limited the ability of both the
government and the collective taxi industry to invest the funds required to make a noticeable
impact on the quality of services. Furthermore, they had a political incentive to continue
reducing federal transfers to the capital, which meant that their ability to govern collective taxis
through discretionary subsidies, and to improve the AUP-R 100 by improving its fleet were
limited. In the past, inefficient and inequitable federal spending in the DF could at least be
260 Such as a privately-financed elevated train, and the expansion of the deep drainage system-
261 See Monge, 1995b.
110
Mexico City, Part I
justified within the party as a tool to "feed" the PRI's political machine. However, there was no
longer a guarantee that the mayor elected in 1997 would emerge from the PRI, nor that party
loyalists would have privileged access to these funds. Perhaps it was the right time to privatize
the AUP-R100, if only the government could attract suitable investors. Finding them was
certainly no easy task -particularly since Espinosa wanted to bring new actors to the market. The
economic crisis had diminished the private sector's appetite for risky investments, and the
SUTAUR-100 was still likely to resist with full force. As Espinosa explained publicly in
February when asked about the possibility of privatizing AUP-R100, "I don't think that the
private sector would be interested in a company like AUP-R100 at this time."2 62
Nonetheless, the alternative of continuing on the current path -where the AUP-R100's
gradual decline simply gave ground to the expansion of a weakly regulated mass of collective
taxis- was not tolerable either. Moreno's review of the policy of negotiation with collective taxi
organizations produced a dire diagnostic. The model was based on hierarchical control and
discipline, and organization leaders were dependent on government support to maintain their
hold over increasingly disgruntled members. As he reported "Cnipula leaderships are facing a
process of internal erosion, given that their membership bases demand a fare increment, which
could lead these organizations to rupture and dissidence to grow... there is a possibility that these
leaders will be surpassed, a scenario that will naturally provoke instability in the sector and
consequently render it ungovernable" (L6pez Zaldivar 1997, 124). Helping these leaders retain
control over their organizations would cost more money than the government was willing to
spend, and would at best only maintain the status quo. To be sure, the Espinosa administration
authorized a fare increase in March 4th, 1995 to relieve much of this pressure, but there is no
question that it also began exploring a new way to organize privately operated services in the
city. As Regent Espinosa declared on the same day he announced the fare increase, "Public
transport no longer satisfies anyone, not the users, not the private operators, not the authorities.
No one is satisfied" (L6pez Zaldivar 1997, 116).
Similarly, Moreno's audits to the AUPR-100 revealed that corruption and waste had
ravaged the company and contributed to the failure of Camacho's high profile modernization
program. Further, the close association of the SUTAUR-100 with the MPI raised concerns in
262 La Jornada, February 2, 1995
111
national government circles about the possibility that subsidies for public transportation were
actually financing the EZLN's insurgency in Chiapas. 263 In fact, Moreno's audits linked the
underperformance of the company to the SUTAUR-I00's political activism. An official then
working under Minister Moreno explained, "the union was extending the company's bus routes,
to reach the peripheral areas of the city were the MPI sought to gain influence. By doing that,
they were reducing bus frequencies and thus significantly impoverishing the service. This was
the space that microbuses quickly filled up, running every 3-5 minutes, vs the AUP-R100's 20-25
minutes."264 Fabricated or not, the suggestion of potential terrorist linkages combined with
documented evidence of widespread mismanagement, corruption and impunity probably swayed
President Zedillo into authorizing the new regent to forcefully intervene the public bus company.
And so, the contextual forces of politics and economics laid the groundwork for a significantly
more forceful approach to public transportation reform in Mexico City.
The 1995 bankruptcy of AUP-R100: A second attempt to privatize bus services
March 17 marks the anniversary of the first collective contract linking the AUP-R100 to
its worker union. Every year on that date, the union leadership presented new demands, opening
a period of contract re-negotiation that typically ended with salary and benefit increases.
However, the incoming authorities did not spend the days prior to this yearly milestone lobbying
union leaders, in the style of many of their predecessors. According to journalistic accounts,
Minister Moreno instead hosted a dinner at his home on March 16, attended by owners or
managers of the main bus manufacturers (DINA, MASA and Mercedes Benz) and microbus
assemblers (FAMSA, CATOSA, CASA, CAPRE and AYCO). "Moreno explained the motive for
the meeting: Espinosa wanted to modify the manner in which public transport services were
delivered in the city, and they were invited to play an important role in the transformation. He
suggested that if interested, they would find favorable terms and financial support. When one of
the invitees asked what would happen with AUP-R00 and its union, Moreno answered 'don't
worry about it.' They agreed to meet again in 45 days". 265 Government authorities also reached
out to the leaders of the strongest collective taxi organizations -Francisco Aguirre from the CAT,
263 During the month of february, television newscasts reported on the connection between Ricardo Barco and the EZLN.
This could of course have been a story "planted" to diminish the leverage of the union in the upcoming contract
renegotiation.
264 (Villegas, Alejandro. Personal interview. March 2, 2011)
265 See Monge, 1995d.
112
Mexico City, Part I
Jorge Almaguer from the Consejo Unificador de Taxistas (CUTAC), Jesus Martinez from the
Bloque de Agrupaciones y Rutas de Taxistas (BARTSCE), and Gustavo Roldin from Ruta 2266_
"the only ones who have the economic power and political and financial contacts to partner with
the vehicle suppliers, or to play on their own"267 . While it is impossible to know the exact
content of what was agreed in these meetings, subsequent events clearly demonstrate that the
Mexico City government was committed to forcing change in AUP-R100.
Instead of responding to contract renegotiation demands, the AUP-R100 unexpectedly
filed for bankruptcy in court on April 5th.268 This legal proceeding -usually reserved for private
entities- required formal notification to debtors and workers, which took several days. However,
in this case a judge sanctioned the bankruptcy of AUP-Rl 00 swiftly and quietly by the next
day. 269 On April 8 at 2 AM anti riot police stormed all of the AUP-R 100 modules, securing
company buses and facilities. Workers arriving to their normal shift at 5 AM were turned back
and informed that the company was bankrupt. The city woke up without public bus services -a
problem somewhat tempered since it was a saturday, and the Holy Week vacation period had just
begun. At 1 PM Minister Moreno and Jesus Salazar Toledano -Secretary General of the DDF,
and Espinosa's second in command- held a press conference to explain the motives for the
bankruptcy, and to outline the government's plan to dissolve the company and replace its
services. They presented the results of their audit, highlighting unsustainable levels of subsidy,
mismanagement, "corrupt practices" and "a perverse relationship" between union leaders and
management.270 The officials announced that no less than 1,000 leased buses would offer free
emergency transport services during the coming weeks, and that "on May 2, 1995, a new
transport service would start operations, with a healthy company, without vices, covering the 207
routes operated by Ruta 100" (Fernindez 1995, 36).
266 Both the CUTAC and Ruta 2 splintered from the CAT. Ruta 2 was a single organization, now representing itself,
however given its large size it continued to be considered as a cfnpula organization.
267 Ibid.
268 The process was atypical from the start. Only private entities unable to cover their debts could legally file for
bankruptcy. Public agencies could be dissolved with a presidential decree. Furthermore, the AUP-RIO was not technically
insolvent, since it had an approved budget and could continue to draw from subsidies to meet its obligations.
269 See Fernandez, 1995.
270 See Loyzaga de la Cueva, 1996; Gonzalez Ruiz, 1996, 56; Cudllar Vdzquez 2002.
113
As the SUTAUR-100 organized its response, a different court issued arrest warrants for
eleven union leaders. Surprisingly, these warrants were based on the trust fund mismanagement
case filed back in 1991 by fired AUP-R100 workers, suddenly and conveniently reactivated at
this precise moment. Most of the indicted leaders, including Ricardo Barco, would be
incarcerated in the subsequent days, and the union bank accounts frozen.271 The beheading and
financial handcuffing of the SUTAUR-100 had apparently been flawlessly executed by the
authority, and government plans seemed to progress rapidly. However, on the morning of April
10, Minister Luis Miguel Moreno was found dead with two bullet wounds in his chest.
Surprisingly, it took only a few hours for government authorities to rule out murder and to
declare that the minister had committed suicide272, opening questions that remain unanswered to
this day. On that afternoon, 35,000 protestors (SUTAUR-100 workers accompanied by members
of the MPI and of other left-leaning organizations) convened in the city's central square,
denouncing government attempts to "privatize public transport and increase fares." In what
quickly became an improvised assembly, workers agreed to "guard" their modules, demand the
liberation of their leaders, and refuse the checks for 3-months salary plus 12 days per year
worked that authorities had offered to workers as liquidation.273
Tension escalated rapidly. Hundreds of workers chanting "quiero mi camidn, no
liquidacidn" (I want my bus, not my liquidation) practically sieged several AUP-R100 modules.
It did not help that the management-in-bankruptcy of AUP-R100 signed a contract with another
union, which actively recruited workers to ramp up emergency transport services in anticipation
of the end of the Holy Week break. It was one thing was to secure the company's facilities, but
taking the buses out to provide service was an invitation for violence. On April 21, two molotov
bombs exploded outside of Module 34, and police and workers fought on the streets. In the
skirmish 16 people were badly injured, 24 detained and 15 buses damaged2 74 .After this event,
emergency buses offered services guarded by police cars, as authorities anticipated they would
be attacked. In the meantime, Regent Espinosa ordered a new round of audits, explaining that
"the strongest and most important obstacle" to any restructuring of the industry, was "the
perverse relationship established by Manuel Camacho with the union" (Monge 1995d). On
271 See Loyzaga de la Cueva, 1996.
272 See Mayolo L6pez, 1995.
273 See Loyzaga de la Cueva, 1996.
274 See Trueba Lara, 1995, 99.
114
Mexico City, Part I
several occasions, the regent had to reiterate that the bankruptcy of AUP-ROO was
irreversible 27- The question that remained, however, is what exactly would take its place?
Planning a regulatory regime transition amidst a politically stressed system
To replace Moreno at SETRAVI, Espinosa appointed Jorge Ramirez de Aguilar, the AUP-
R100 General Manager that had oversaw the bankruptcy. The new minister had been part of
Moreno's team, and continued his search for willing investors and for a viable new formula. He
declared publicly that "every transport operator and vehicle assembler ("carrocero") will have
the opportunity to participate in the modernization of transport in Mexico City" (Monge 1995d).
The planners working at SETRAVI decided to divide the AUP-R100 in ten route "packages" -
identified as Ruta 110, 111, 112... and so on until 119- , and proposed awarding them to nine
different private companies, retaining the tenth as a public entity designed to serve financially
unprofitable routes. Ideally, each of these companies would obtain a new concession to operate
these route packages with a fleet of approximately 500 new buses, exploiting the bus depots and
maintenance facilities of the existing AUP-R100 modules. The plan was to include as many
collective taxi organizations as possible into the deal, brokering partnerships between
organization leaders and the vehicle manufacturers able to finance them. After all, the
participation of both types of actors seemed necessary for the plan to work: Collective taxis
needed to be included, or they would continue to engage in ruinous competition against the
buses, and bus suppliers needed to participate, as they seemed to be the only private investors
interested in financing such a large and risky venture amidst the financial crisis that plagued the
country. The fact that many of the collective taxi operators were heavily indebted with the
suppliers of their microbuses was considered by SETRAVI officials as a source of leverage to get
them to the table. To further tighten this plan, SETRAVI planners drafted a new regulatory
package that would outlaw the production and sale of microbuses, empower authorities to inspect
and fine collective taxis, and mandate the conversion of the private microbus fleet to standard-
size buses by the end of 1997.276 As Ramirez explained, his goal was to combat "the regulatory
obsolescence that has harbored discretionally in the authority's decision making and anarchy in
the services operated through concessions." 2 77
275 See Cudllar Vazquez, 2002, 92.
276 See IEA, 2002.
277 See ALDF, 1997b, 44.
115
By April 27, the plan seemed to be moving forward. After weeks of negotiations behind
closed doors, SETRAVI officials declared to the press that the finns "MASA, DINA, CATOSA
and Mercedes Benz would create new companies partnering with transport providers in the
metropolitan area to operate the routes of Ruta 100."278 At least one such partnership (between
Fernando Ruano, one collective taxi leader, and the G6mez Flores Family, owners of Grupo
DINA), appeared to be progressing smoothly. However, authorities may have been too quick to
announce the news. As one of the SETRAVI planners participating in this process recalled, "the
technical and legal concept was very well designed. The political aspect not so much." And in
fact, as the conflict with the SUTAUR- 100 escalated rather than receded, potential investors
grew more uncertain, and soon demanded that the government settle its dispute with the
SUATUR- 100, before committing any investment.279
By May 18, only 427 of the roughly 14,000 AUP-R100 workers had picked up their
liquidation checks, and the SUTAUR seemed more united and unwilling to budge than ever.
With tension mounting, Mexico City authorities offered to negotiate, but the union demanded
that their leaders first be freed. When authorities frowned at this possibility, protests resumed
throughout the city with added force. On May 20, 7,000 people marched to the Presidential
Residence of Los Pinos, by route of the Periferico (the city's main ring road). Three days later,
the SUTAUR- 100 drew an even larger crowd that attempted to reach the Presidential Residence
for a second time, before being blocked by anti riot police city. The demonstration still paralyzed
traffic on the Perifdrico for several hours, turning the city on its head. The likelihood that these
events would keep escalating triggered an emergency security cabinet meeting, attended by
President Zedillo. According to the press release, "the president instructed the regent to resolve
the differences between the DDF and the workers of Ruta 100." Formal talks between Mexico
City authorities and the union finally began on May 25, although Espinosa clarified, "not to
discuss the bankruptcy, but only the future participation of workers and their severance
packages."280 In these talks, authorities insisted that the new firms would hire former AUP-R100
workers and even offered to increase severance payments, but could not guarantee future
employment for everybody nor that the new concessionaires would respect current union salary
and benefit levels. Another option put on the table was that the SUTAUR-100 could create its
278 La Jornada, April 28, 1995
279 See Trueba Lara, 1995, 114.
280 La Jornada, May 18, 1995.
116
Mexico City, Part I
own company, and be awarded one or several of the "route packages", albeit with no government
financial support to purchase the buses. After several meetings, talks broke down again.
Amidst these negotiations, another scandal broke. A magistrate named Abraham Polo
Uscanga denounced having been pressured in March by "high ranking government authorities"
to grant the arrest orders that had landed SUTAUR- 100 leaders in jail. In what became the
second mysterious death associated to this conflict, this magistrate was murdered on June 19 th.
The bankruptcy of Ruta 100 quickly mutated into a high ring conspiracy, with scandalous
political connotations. Cuauhtemoc Cardenas declared that the murder of Polo Uscanga was "one
more proof of the country's rotting political regime and of the incapacity of the president to
establish order."281 Weeks later, Cirdenas visited the SUTAUR-100 leaders in jail, asserting that
"no one in this country has any doubt that you are political prisoners."282 Within days, the image
of these leaders shifted from potential terrorists and delinquents to oppressed victims. By
October 1995, SUTAUR workers had organized no less than 80 assemblies and 345
mobilizations, many of them multitudinous.283 Rather than turning against the union, people
donated coins at metro stations to help workers sustain the protests. Other national organizations
joined -such as the unions of teachers (CNTE) and university workers (STUNAM), and radical
groups like the Frente Francisco Villa and the MPI-, making the protests no longer only about the
buses, but more generally about employment, salaries, and government commitment to public
enterprise. The scandal also garnered international attention, with the AFL-CIO expressing its
solidarity, Amnesty International taking the side of the union and protests taking place outside of
foreign embassies. Even Subcomandante Marcos, the visible leader of the EZLN, came out from
hiding in the jungle to publicly express his solidarity to the union.
With thousands of workers taking the streets, and with Mexico City residents suffering
from traffic blockades and scarcity of public transport services, SETRAVI officials urgently
needed to break the stalemate. Predictably, the emergency transport program was grossly
insufficient to replace the AUP-R100, with all the gaps swiftly covered by collective taxis. The
hold of combis and microbuses as the dominant transportation alternatives in the city grew with
281 See Trueba Lara, 1995, 121.
282 La Jornada, August 31, 1995.
283 See Loyzaga de la Cueva, 1996.
117
each day that passed, putting the entire modernization plan at risk. Why would collective taxis
agree to partner with large capitalists, or even to renovate their vehicles if they could have the
whole market for themselves without investing another peso? For this reason, SETRAVI officials
focused much of their energy getting the new Transport Law passed at the local Assembly
(which now had the power to pass legislation). As Minister Ramirez Aguilar explained to
assemblymen, the law was urgently needed to "give legal certainty to service suppliers, and
establish the normative bases for the reorganization of the sector" (ALDF, 1997b). The Law
assumed the AUP-R100 no longer existed, and empowered SETRAVI to award any bus service
concession it deemed necessary, as long as the decision was based on "technical studies." When
approved, the Ministry would be free to decide whether to hold a competitive tender or to select
the new operators by direct invitation. To make participation attractive, the law allowed a
duration of up to twenty years per concession, renewable. While the regent (and subsequently the
mayor) would retain ultimate authority over fares, the law foresaw a mechanism to introduce
yearly adjustments that would take into account the varying cost of inputs. To limit the free-
roaming collective taxis, the new law empowered SETRAVI to establish "mechanisms of control
and surveillance of the transport operator organizations," -such as a mandatory registry, vehicle
inspections, and fines. In addition, it called for "mechanisms necessary for the transformation of
operator associations into mercantile societies, with the objective of ensuring a level field and
not placing anybody in privileged conditions, and to prevent monopolistic practices and unfair
competition" (Departamento del Distrito Federal 1995, article 26).
While the PRI enjoyed a strong majority in the Assembly, passage of the transport law
required much negotiation with Camacho's sympathizers within the party's back-benches, which
probably explain why the tone condemning corrupt managers and union leaders at the AUP-
R100 practically disappeared by the end of 1995. Debates in the Assembly, taking place over the
month of November were certainly intense. After all, passage legitimized the bankruptcy of
AUP-ROO. According to left-leaning assemblymen, "the project sought to dismantle the role of
the state by establishing economic profitability over social profitability as the criteria that must
guide the transportation project of the city."284 Unsurprisingly, language was added to clarify that
the Metro system "cannot be operated by concession".28 But behind the rhetoric, a more primal
284 La Jornada, November 17, 1995.
285 See Departamento del Distrito Federal, 1995, article 21.
118
Mexico City, Part I
fight was taking place about who exactly would profit economically and politically from the bus
system set to emerge from the ashes of AUP-R100.
Interestingly, the new transport law was not approved until the seeds of a "political
agreement" to resolve the conflict with the SUTAUR- 100 were planted. Primed by
assemblymen, Espinosa sent a personal envoy on November 25 to meet informally with the
incarcerated leaders of the SUTAUR. Espinosa offered to award the union 2 of the 10
concessions -each with capacity to sustain 500 buses and to employ full time 1,500 union
workers-. In addition, he offered to broker a deal to dismiss the trust mismanagement case that
had them in jail, and to significantly increase the severance payments offered to workers.286
While detailed discussions would continue for several months, and while the final tab of this
negotiation to the state would increase considerably, the new transport law was finally passed on
December 20, 1995.287 For a moment it seemed that the impasse was finally breaking up.
However, just like in 1989, getting union leaders to agree was only one part of the problem. The
decision had to be con-validated by the majority of the workers, who certainly worried that not
everybody could find employment in the two union-controlled firms. Unsurprisingly, in February
Ricardo Barco countered the government's offer, demanding that 5 of the 10 concessions be
awarded to the union. As the government considered this proposal, worker protests resumed, now
featuring a group of workers engaging in a hunger strike. Seeking to finalize the conflict, on
March 21, 1996 the government officially proposed to top its previous offer of two concessions
with
* 1,000 taxi medallions, estimating that each medallion would provide a job to two
workers;
* financing for an early retirement and retirement program for 1,000 workers;
* roughly tripling the amount offered as worker's severance packages, bringing their
value to an average of $86,700 pesos (US $11,494 dollars) per worker. This increase had the
286 See Loyzaga de la Cueva, 1996.
287 Incidentally, Mexico City authorities also increased the price of subway fares on December 15, 1995. According to
Espinosa's own testimony: "If we had postponed the fare adjustment, we would have had to suspend construction of (Metro)
line B, suspend operation in line 2, and we would have been forced to retire from circulation cars and even entire trains in
the coming years" (ALDF 1997a, 64).
119
objective of capitalizing workers to pay the downpayment of the buses required to operate their
two concessions, and
. a commitment to award a third concession "if the first two operated in accordance to
established regulations." 28 8
This agreement was finally signed on April 26, 1996 -almost one year after the AUP-
R100 was declared bankrupt. Ricardo Barco and the rest of the leaders of SUTAUR-100 were
freed on July 11, 1996. The approximately 8,000 SUTAUR workers that resisted throughout the
year-long conflict held an assembly and agreed that each member would need to invest at least
30% of their severance checks to participate as stockholders in the new business ventures of the
union. 7,200 of them paid the required amount, and together raised $150 million pesos (US $18.9
million), which were invested in a common trust.289 With this money, the SUTAUR created three
bus companies -Servicios Metropolitanos de Transporte 17 de Marzo, Autotransportes Urbanos
Nuevo Milenio, and Autotransportes Urbanos Siglo Nuevo290- and covered the downpayment for
556 new buses purchased from Grupo DINA. 291 In August 1996, these firms were formally
awarded two concessions to operate route packages 110 and 112.292
A pyrrhic victory?
Mexico City authorities succeeded in getting the new law passed and in bringing closure
to conflict with displaced AUP-R100 workers. The effort took time, political capital, significant
financial resources and at least two unexplained deaths. Surely they expected to end their term in
office with the ten concessions awarded and with the new buses of formal companies replacing
the combis and microbuses of operator associations in the streets. To be sure, between August
and October 1996 SETRAVI organized restricted-invitation bidding processes and formally
awarded the remaining seven concessions. Each of them had detailed specifications of the type
of vehicles that would be required, of the standards of service that were expected, and of the
route grid that they needed to serve. During that same period, the Ministry published several
288 See Cudllar Vdzquez, 2002, 94; Loyzaga de la Cueva, 1996; Mendoza Cruz, 2001, 138. See also El Financiero, April
27, 1996.
289 L6pez, Enrique. Personal interview. March 8, 2011
290 This consortium of firms would eventually be known as the Grupo Metropolitano de Transporte (GMT)
291 See Mendoza Cruz, 2001, 138.
292 The next administration would award them Route 115 two years later.
120
Mexico City, Part I
norms concerning the allowable vehicle age, as well as the "safety, comfort, and environmental
standards that must be met by buses, microbuses and combis offering public transport
service" (ALDF 1997b, 45). Angel Molinero, one of the planners involved in the process,
summarized the feeling of optimism that prevailed within the government: "We had clearly
established the rules of the game. We were on a path to a first world system." However, by the
end of the Espinosa administration in December 1997 only three concessionaires had begun
operations: The two already awarded to former SUTAUR-100 workers, and a third (Ruta 111)
that resulted from a partnership between collective taxi operators led by Fernando Ruano and
Grupo DINA. Furthermore, these four companies combined had far fewer buses than originally
required. Instead of 10 companies with 5,000 buses, the modernization efforts had yielded only 3
companies with 790 new buses (ALDF 1997b, 16). Similarly, "mandatory" substitution of
microbuses operated by collective taxi organizations had only resulted in 316 additional new
buses. 2 93
When Minister Ramirez de Aguilar offered his last testimony to the Assembly as head of
SETRAVI, on October 1997, his tone had changed dramatically. He was no longer talking about
tightening regulation but ofjustifying noncompliance. As he explained, the pending seven
concessions "would begin operations in the coming months, contingent on bus manufacturers
and assemblers having available vehicles, and on concessionaires obtaining the necessary
credit" (ALDF 1997b, 48). However, Espinosa himself explained that collective taxi operators
could not obtain loans to finance bus purchases, "because they did not pay their prior loans taken
to buy their microbuses" (Ibid., 65). The system was locked in: Financing was not available, and
rules did not matter for much. The private companies that had been originally approached by the
government to take on the concessions pulled out, one by one.294 Several failed to even submit a
proposal, forcing SETRAVI authorities to award the concessions to technically and financially
weaker companies than required by the plan, if only to save face. In fact one of the "winners"
only committed to operating a limited number of routes, with only 14 buses. Part of the reason
had clearly to do with the financial crisis, which on the one hand prevented the government from
offering subsidies and revenue guarantees, and on the other kept private investors from securing
293 See ALDF, 1997b, 46.
294 (Hernindez, Javier. Personal interview. March 4,2011). Two of the companies that pulled out were UTEP -a large
company of school and industrial worker transportation services- and MASA, the microbus assembler.
121
attractive financing to purchase the required vehicles. However, this was not the only nor the
most important factor. By the time the protracted conflict with the SUTAUR-100 was finally
settled, the city was overrun with combis and microbuses.
And relatedly, the possibility of regime change now loomed too close for a profound
transformation to occur. The Mexican Congress approved in August 1996 the constitutional
amendment that concluded the democratic reform of the Federal District. Whatever happened, a
mayor would be democratically elected in July 1997. With only eleven months to go before what
promised to be a contested election, who would want to pick a fight with the collective taxi
organizations, attempting to forcefully evict hundreds of members from the most profitable
corridors in the city? And what investor would be willing to enter the market when a new
administration might change the terms or even void a recently awarded concession?
122
Part II. State Capacity: Carving a niche for transport planning
A democratically-elected mayor and the new constraints to public transport
planning in Mexico City
Cuauhtemoc Cirdenas achieved a landslide victory on the July 6, 1997 local election. Not
only did he obtain double the number of votes of his closest competitor, but his party, the Partido
de la Revoluci6n Democritica (PRD), won 38 out of 40 seats in the local Assembly. The
Cardenas' campaign platform, "A city for all", promised an antithesis to the neoliberal
programme and authoritarian style of regents governing under presidents de la Madrid, Salinas
and Zedillo. Cardenas denounced the "drastic reductions in social expenditures, that
systematically and deliberatively provoked the dismantling of fundamental public services in the
areas of health, education and public transit",295 and advocated, a "bottom up" approach to
decision making, seeking "to turn verticalism on its head to base decisions on the decision of the
people." 296 To head SETRAVI, Cardenas appointed Jorge Martinez y Ahnaraz, an academic who
pledged to "establish a new way of working that placed the common good over private
interests." 297 In the opinion of many cardenistas, recent government efforts to replace AUP-ROO
with private companies had been mostly intended to benefit regime cronies. A SETRAVI official
serving under both administrations recalls the shift taking place within the ministry, "When
Cirdenas came in their basic directive was, 'we'll do things differently'." 298 Within months of
taking office, Martinez Almaraz reaffirmed the new administration's policy of "frozen" fares,
committed to relaunch the AUP-R100, and revoked seven of the ten area-based concessions
awarded by his predecessor. These companies had not supplied the promised new buses, and
were asking for financial support the government was not willing to give. In his testimony to the
Assembly, Martinez y Almaraz summarized the new administration's approach to dealing with
the collective taxis: "We cannot accept generalizations that label microbus operators as criminals,
assassins and bandits... what we need to do is organize them, support them, make credit available
to them."299
295 (Cardenas Solorzano 1998)
296 This quote is by Enrique Gonzalez Pedrero.
297 (ALDF 1998 p. 8)
298 (Villegas, Alejandro. Personal interview. March 2, 2011)
299 (ALDF 1998 p. 30)
123
Such turn of the tide was not by itself noteworthy. Over the past decades, subsequent
government administrations had shifted back and forth in their stance toward private transport
operators, from forcing to fostering styles and vice-versa. In many ways, the new minister's
rhetoric appeared to signal little more than a return to the policies prevalent under the CGT and
Camacho Solis. However, the challenge confronting the Cirdenas administration was different.
In contrast to his predecessors, Cairdenas could not count on unrestricted financial support from
the Federal Government for subsidies and capital investments (in fact, the PRI dominated
Federal Congress blocked Cardenas' attempts to finance public investments with long term
debt),300 nor rely on instruments of power long available to former regents through the president
and through the PRI. Without these levers of support to empower and discipline collective taxi
organization leaders, the simultaneous commitment to low fares and to non-conflictual regulation
of collective taxis proved to be a devastating combination. On the one hand, financial limitations
forced the new mayor to significantly scale down his plans to revive AUP-R100 and to expand
subway services, and on the other, the threat of unfair competition and low profits kept potential
private investors away from the sector. In fact, Mexico City authorities had to declare deserted a
competitive bidding process announced by Minister Martinez Almaraz in 1998 to award three of
the seven revoked bus concessions. A later effort in 1999 had the same result. 30 1 No company
expressed interest.
And while the new government tried to define its own vision for the sector, collective taxi
organizations suffered from their own vicious cycle. The low fares established by Cdrdenas soon
resulted in "past due payments of microbus loans, insufficient mechanical maintenance and
scarce vehicle fleet renovation". 302 Unsurprisingly, vehicle-owners reacted by demanding fare
increases, and when this proved to be a non starter with authorities, they invaded more profitable
routes, stopped honoring government-mandated discounted fares for students303 and demanded
further relaxation to regulation. Discussions between collective taxi organizations and officials at
SETRAVI, or between rival organizations grew more confrontational, and both street blockades
and bus operator protests became frequent. In response, the SETRAVI ramped up its body of
300 Crdenas sought authorization to contract debt for $7,500 million pesos (US $760 million dollars) during his tenure as
city mayor. The Federal Congress only authorized $1,700 (US $172 million dollars).
301 (ALDF 1999 p. 10)
302 (Leon Salazar 2011 p. 168)
303 Collective taxi operators had agreed to offer a 20% discount on fares charged to students as part of the negotiations that
led to the March 1995 fare increase authorized by Espinosa.
124
Mexico City, Part II
inspectors -241 motorcyclists known as the "Dantes"- and empowered them to make on site
revisions to public transport vehicles and to impose fines. Tension certainly escalated. Many
buses displayed a large sign, explaining to users that "it is impossible to provide first class
service with third class fares."
Figure 2.15 "For our users: First rate service, with third rate fares" Further, collective taxi organizations
no longer operated on the fringes of
legality and thus could resist
regulatory efforts through legal
means, and not only through back
room deals brokered by cnpula
organization leaders. For example,
Ruta 1 and Ruta 2 -two collective
taxi organizations that abandoned the
CAT and represented the owners of
6,000 microbuses in the city-
obtained in 1998 an injunction to
exempt their vehicles from
SETRAVI's vehicle inspections,
rendering the Ministry practically powerless to enforce standards.3 04 Soon, the Cardenas
administration had to choose fares over rules, jettisoning its ability to address second-order
objectives of public transport policy, in order to maintain mobility affordable. Martinez Almaraz
described well the duality of the resulting system: "The Metro with adequate planning, under a
centralized administration, vis a vis an unplanned transport mode with anarchic growth,
inadequate vehicles and pulverized administration, and relaxed regulatory framework." 305
The problems associated with loosely-regulated and atomized bus service provision were
so large, and the resources and power available to the government to do much about them so
limited, that it was no longer practicable to approach transport planning through city-wide,
broad-ranging reforms. As Alejandro Villegas put it, "between the exit of Espinosa and the entry
of Cardenas the city-wide vision was lost. The Metro Master plan was forgotten, and nothing was
304 (ALDF 1999 p. 8)
305 (ALDF 1998 p. 8)
125
really left to take its place. Cirdenas comes in with substantial democratic legitimacy, but does
not invest this resource in transportation reform. They concentrated only in little small parts."306
When analyzed at a distance, it becomes clear that Mexico City authorities for decades bridged
the recurring problem of insufficient state capacity by institutionalizing negotiating "tables" that
allowed them to balance fiscal, regulatory and political objectives city-wide. Given a fragmented
industry structure, where thousands of individuals own vehicles and hold concessions, these
tables centralized decisions and made them enforceable. Only when the relevant private actors
chose not to participate at these tables, and/or when the government had little to give as
compensation, did the alternative of conflict and full system reinvention gained traction, as
exemplified by the forceful decisions to municipalize the Alianza de Camioneros in 1981, and to
dissolve the AUP-R100 in 1995. Now, a democratically elected mayor faced something much
worse than a renewed "pulpo camionero." In addition to the long prevalent atomized industry
structure, the government lacked a strong counterpart able to take agreements from the
negotiating table down to the operators working the streets. The result was anarchy.
Cnpula leaders still existed, but their ability to enforce agreements had been largely
eroded by a new political and economic context that limited their usefulness both to authorities
and to organization members, with the result that the sector was fragmented in roughly a hundred
separate ruta organizations increasingly seeking to negotiate on their own, and willing to publicly
challenge authorities. As Nicolis G6mez, current leader of cinpula organization BARTSCE,
explained, "the system broke down in 1997, when the city government was no longer from the
PRI. Before 97 the transport power group -to call it some way- was modeled around a PRI-
framework, vertical and pyramidal. There was a line and everyone followed. When the PRD
arrived, this system broke to pieces, and we began to see these pieces everywhere." 307 But what
were the options for the government, except trying to piece this system back together? The failed
attempts to competitively tender area-based contracts clearly demonstrated that there was no
market appetite to compete with the collective taxis, to say nothing about the ideological
hesitations within the PRD about employing this option again in the future. And even if Cirdenas
and his democratically elected successors preferred instead to challenge private operators by
municipalizing services and relaunching the AUP-R100, how could they legitimately evict such a
large interest group and still claim to be any different from the regents governing under the PRI?
306 (Villegas, Alejandro. Personal interview. March 2, 2011)
307 (G6mez, Nicolas. Personal Interview. March 7, 2011)
126
Mexico City, Part II
And even if this was feasible, how would they possibly deliver the level of service required with
low fares and without the almost unlimited public funds that had been available to Hank?
Consider this: Cirdenas launched a microbus-to-bus substitution initiative, modeled around the
CGT program implemented under Camacho. This program offered microbus owners a Mx
$100,000 subsidy (roughly US $12,400) to be used as down payment for a new bus, for every
microbus taken off the streets. However, the financial limitations were such, that by the end of
his tenure the program had only introduced 100 new buses to the network.308 At that rate, it
would take several decades to improve the city's microbus fleet.
Faced with these limitations, Cdrdenas replaced Martinez y Almaraz with Joel Ortega,
who had previously worked at the CGT under Camacho. His task was to reestablish the lines of
communication between city authorities and collective taxi organizations, i.e. to bring them back
to the table. As he put it, "the transport sector is a nodal point of interests in conflict, and for
some time it has been accused of vice and absence of authority. For this reason my challenge will
be propitiating operative frameworks that strengthen the margins of governability in the
sector."309 By late 1999, the "operative frameworks" that Ortega had in mind became clear.
SETRAVI modified the comprehensive transport plan designed under Espinosa,3 10 with the most
noticeable update being the identification of "33 corridors of strategic character."311 Mexico City
authorities incorporated these corridors as part of a strategic decision to award route-based,
rather than area-based contracts. Public transport services on these corridors would be in theory
reserved for "medium capacity" vehicles -filling the modal void left after the demise of AUP-
R100, and serving as a bridge between the "high capacity" subway and the "low capacity"
microbuses. Since the formal private sector was clearly not interested in the area-based "route
packages," the only likely private partner that remained to operate these corridors were the
collective taxi organizations that already provided services on them. While formally tendered
competitively, it was clear that only the existing organizations would participate. In fact, it was
the government's challenge to entice them to participate willingly. Bringing them back to the
308 (ALDF 1999).
309 "El transporte concesionado, centro de intereses en conflicto," La Jornada, 27 February, 1999
310 This was the Programa Integral de Transporte y Vialidad 1995-2000
311 SETRAVI's planners identified and detailed these 33 corridors previous to the AUP-RI00 bankruptcy. They were part of
an "emergency plan" designed to maintain critical services in the event of a contingency such as a SUTAUR- 100 strike
(Villegas, Alejandro. Personal interview. March 2, 2011).
127
table and fostering agreements to improve their vehicle fleets and rationalize their supply of
services implied crafting "modernization" projects amenable to their financial capacity and
capable of eliciting broad agreement among organization members. To this aim, SETRAVI
planned to concentrate available resources -vehicle-substitution subsidies, infrastructure
investment, etc-, as well as to consider authorizing limited fare increases, for the "special"
services running on these corridors. To participate, collective taxi organizations would need to
complete their transition into more professional, more accountable and more credit worthy
transportation companies. In this manner, a corridor-by-corridor negotiating table was created.
This plan could only be implemented gradually. On the one hand, the government had no
money to promote the 33 corridors at the same time, and on the other not every collective taxi
organization was inclined to participate. SETRAVI would select its partners, and maintain its
policy of arms length regulation for the rest of the system. In fact, as part of the effort to defuse
tension and facilitate negotiations in the corridors, Ortega reorganized the "Dantes" and
promoted changes to the 1995 Transport Law to "limit the discretion of authority" and to address
the "excesses on the part of the team inspecting transport services." 312 These 33 corridors would
soon become the focal point of government efforts to marginally improve bus services, always
seeking the participation of the incumbent organizations holding a territorial claim over them. By
the end of the Cirdenas administration, a new public transit agency was established to operate
the few modules and buses that remained under the control of the AUP-R100. This firm, called
Red de Transportes de Pasajeros del DF (RTP), was however restricted to offering services to
low income populations and peripheral areas. This framing demonstrated that the government
was committed to working with, and not against collective taxi organizations. And, to be sure,
negotiations were taking place between SETRAVI and the collective taxi organizations that
operated 7 of the 33 strategic corridors, labeled by Ortega as "pilot." 313
Reforms to the surface transport network could now follow an expansion pattern similar
to the subway, except using "strategic corridors" rather than "lines" for nomenclature. The 33
corridors represented something akin to a master plan, providing authorities with a long term
road map. Since implementing everything at the same time was politically and economically
unfeasible, authorities could now break down this plan into manageable stages, choosing which
312 (ALDF 1999 p. 8)
313 Insurgentes, the south arc of the Anillo Perifdrico, Reforma, the north arc of Circuito Interior, the Ejes Viales 5 and 6 Sur
(as a paired corridor), Eje Central Ldzaro Cardenas and Eje 8 South.
128
Mexico City, Part II
stage to do next depending on the political and economic conditions prevalent. To be sure, details
of what exactly would happen at each "strategic corridor" were not fully thought out, other than
the fact that each project implied a substitution of individually-owned microbuses for
corporately-owned buses. In fact, negotiations to corporatize organizations, and to optimize
service supply in any of the corridors under the Cardenas administration achieved little beyond
introducing the 100 new buses previously mentioned. "Route invasions were very frequent,"
explained the operations manager of Ruta 110, "once it happened, we needed to get a group and
kick invaders out immediately. If they stayed there one or two days, SETRAVI would likely split
the difference and negotiate a little bit for both."31 4 Magdaleno Barragin, the leader of Ruta 88,
described the role of authorities during this period in a similar way, "they acted like firemen,
except each time they put out a fire in one side of the city they started a new one elsewhere." 315
With competitors permanently threatening to enter "their" corridor, it made little sense for
collective taxi organizations to heed to the government's wishes. A few firms were in fact
created, but operated mostly in paper. The incentives offered to corporatize were not that
attractive, and the financial capacity of individual collective taxi operators to purchase new
vehicles was very limited. By the turn of the century the public transport system in Mexico City
had the following structure:
106 collective taxi organizations (known as "rutas"), formed by vehicle-owners holding
individual concessions, operating 1440 bus routes (named "ramales") with 22,850 minibuses,
2,271 buses and 3,094 vans.
9 private firms operating 1,197 buses (including the 3 finns created by the
SUTAUR-100).
Three publicly owned companies: STE-Metro, STE with 489 trolleybuses, and RTP with
1,400 buses. 3 1 6
How could Mexico City authorities entice the collective taxi organizations to become
firns, to rationalize their supply of services, and to replace their microbuses for cleaner buses?
Fortunately for the democratically elected mayors of Mexico City, a new transformative
314 (L6pez, Enrique. Personal interview. March 8, 2011)
315 (BarragAn, Magdaleno. Personal interview. March 14, 2011)
316 (Transconsult 2003)
129
transportation innovation that not only promised subway levels of service using relatively
cheaper buses, but that implied a new, more bankable business model, became known and
available. Propitiously, this technology had been developed in cities with a public transport
industry structure similar to Mexico City, and had been implemented through collaborative
partnerships linking state authorities and private operators.
Bus Rapid Transit: A trojan horse for industry transition
In September 2002, Claudia Sheinbaum, the Minister of Environmental Affairs of
Mexico City (SMA), secured seed funding from the World Bank, the Shell Foundation and the
317
Hewlett Foundation to explore "the introduction of climate friendly measures in transport."
The relationship linking the World Bank and SMA authorities originated in the mid nineties, as
part of a joint effort to measure green house emissions in Mexico city. During this early period,
Claudia Sheinbaum participated as an external consultant, and had established contacts with both
the Hewlett Foundation and with officials at the World Bank's Global Environmental Facility
(GEF). This research had naturally identified transportation, and particularly the business
structure of private microbus services, as a key area of environmental concern. Throughout the
Cardenas administration, Mexico City authorities maintained a dialogue with officials from both
the Hewlett Foundation and the GEF about what type of policies to implement, and SETRAVI's
"strategic corridors" gradually emerged as a candidate for financing.318 This alternative only
strengthened after 2000 when a new mayor, Andres Manuel L6pez Obrador (PRD), appointed
Claudia Sheinbaum to head the SMA, and when GEF authorities became keenly interested in
replicating the resounding success of Bogota's Transmilenio system.
Bogotd had launched its bus rapid transit system in December 2000, and soon became an
international benchmark for developing world cities. The first phase of Transmilenio replaced a
large number of microbuses for high-capacity, cleaner articulated buses running on the
previously congested Avenida Caracas. BRT operations have many similarities with a subway
system, and can be implemented for a fraction of the cost. Passengers pay to enter enclosed
stations, where multiple-door, high-frequency vehicles pick them up. The stations are often
located on street medians, and vehicles enjoy exclusive right of way in at least one full lane each
317 (World Bank 2009)
318 Relatedly, the latest revision to the comprehensive transport plan of Mexico City (PITV 2000-2006) mentioned the
implementation of 5 "strategic corridors" between 2002 and 2006.
130
Mexico City, Part II
way. As a result bus speeds improve tremendously, giving public transit an advantage over cars
and significantly expanding public transit capacity, while simultaneously reducing air pollution,
bus congestion and accident rates. But perhaps more interestingly, a feature of the colombian
system was that the contracting rules had been designed to ensure that former microbus permit
holders owned at least part of the stock of the companies that owned and operated Transmilenio's
new buses. Fares collected at the stations concentrated into a common pool, producing a
predictable revenue stream that made the system, and thus these new private companies, highly
bankable. With this structure, the system itself could underwrite the loans required by private
operators to purchase the new vehicles. Since fare revenues were only later distributed among
private operators, regulators gained leverage, particularly when compared to the previous system
where fares were collected directly by drivers. With control over the flow of payments, the
government could structure rules that rewarded desired features of operator performance, and
even reserve part of the revenues to pay for the state's planning and regulatory functions. In other
words, the implementation of a Transmilenio-like project not only promised a technological
transformation, but also a savvy strategy to modify the structure of the industry and to expand
state capacity: It simultaneously made bus-based public transit more attractive for private
investment, strengthened the government's role as planner and regulator of public transit, and
enticed incumbent bus operators to consolidate their organizations as firms.
The Hewlett Foundation had produced a "business case" for implementing BRT in
Mexico City.3 19 To pursue this idea further, the World Bank contributed a grant of US $5.8
million from the (GEF) and of US $1.31 million from the Japan Policy and Human Resources
Development (PHRD) Fund. The Shell and the Hewlett Foundations contributed each US $1
million through the World Resources Institute (WRI), which led to the creation of Mexico City's
Centro de Transporte Sustentable (CTS), an NGO charged with providing technical support.320
Several other donations and grants were collected throughout this planning process, adding up to
US $11.86 million dollars of non-governmental seed money.32 1 Part of this money was explicitly
319 (Villegas, Alejandro. Personal interview. March 2, 2011)
320 The creation of the CTS was partly due to the fact that the Hewlett Foundation's rules did not allow directly funding
governments, so this NGO was created as a special purpose vehicle (Villegas, Alejandro. Personal interview. March 2, 2011)
321 Metrobus (2005). Powerpoint presentation at the "Calidad del Aire en el Distrito Federal y Cambio Climatico" Forum.
Mexico City.
131
earmarked for the development of a viable model for the participation of collective taxi operators
in strategic corridor projects, including mechanisms to help them finance the acquisition of clean
fuel vehicles. For the World Bank this was a worthwhile exploratory investment, and its officials
proudly referred to the initiative as "the first transport and climate operation under GEF
financing worldwide." 322 For Mexico City authorities, it provided a way to transform
SETRAVI's "strategic corridor" concept into a tangible (and attractive) reform package that
could be brought to the table when negotiating with collective taxi organizations. Nonetheless,
Mayor Andres Manuel L6pez Obrador was skeptical of BRT's political feasibility and did not
initially consider it a priority. In fact, his closer team of advisors had already decided that the key
transportation investments in this period would be the purchase of new trains for the subway and
the construction of an elevated highway over the Anillo Periferico, leaving a severely restricted
financial margin available for other projects. 32 3 In fact, both of these capital intensive projects
were approved before BRT was even a possibility. Still, the World Bank grant implied that this
project would not require any upfront investment from the city government, and perhaps for this
reason, L6pez Obrador agreed to form an exploratory committee chaired by Claudia Sheinbaum.
Other committee members were the directors of STE and RTP -Florencia Serrania and Luz Elena
Gonztlez- as well as the head of SETRAVI, Francisco Garduio, later replaced by Luis Ruiz.32 4
During most of 2003, and before engaging incumbent operators with the idea, the committee
studied legal and institutional options for the new service scheme, prepared a financial model
and business case, and evaluated several corridors that could support a pilot.
The committee recommended the creation of a new public agency, named Metrobis,
charged with planning and regulating privately-operated bus services on BRT corridors.
SETRAVI would still grant these private operators with the necessary concessions, but Metrobn's
would have administrative autonomy and be responsible for day-to-day governance of the
system. Drawing heavily from the Transmilenio model, private bus operators would not have
322 (World Bank 2009 p. 11)
323 The cost of the elevated highway of the Perifrico was never publicly disclosed, but specialists estimate it came close to
US $683.6 million dollars (Mx $7,000 million pesos, using 2003 exchange rates). For details, see (Marquez Lopez and
Pradilla Cobos 2007)
324 The fact that it was the SMA and not SETRAVI heading this project had tremendous implications. This mechanism,
while not deliberately designed, freed this project from longstanding commitments developed over time between middle
level SETRAVI officials and transport operators.
132
Mexico City, Part II
control over the fare-box, and would be paid a fixed amount per serviced vehicle-kilometer
(vkm). Fares would be collected by a third private party and deposited into a trust fund, which
would distribute revenues according to a fixed pecking order: (1) trust manager, (2) fare
collection services, (3) bus loan payments, (4) station maintenance and services, (5) payments to
operator companies serving the BRT corridor, (6) the regulatory agency (Metrobn's), (7) feeder
bus routes and (8) contingency and reserve funds. The city government would pay for stations
and pavement, while private operators would pay for the fare collection technology and the
buses. According to Arturo Herrera, finance minister under L6pez Obrador, "the project was
never conceived to have a subsidy scheme similar to the subway." 25 The expectation was that the
operations of the system would Figure 2.16 Conceptual design of a MetrobOs corridor
be financially self-sustaining.
The consultants hired by
the exploratory committee -
many of which had direct
experience instrumenting
Transmilenio- insisted BRT
operators should be selected
through a competitive tendering
process, preferably
international. 326 They pointed to Source: (CTS-Ceiba 2004)
the difficulties implicit on
getting individual vehicle-owners to agree on their transition to a BRT operator firm, and
suggested that the introduction of competitive pressure could serve as a catalyzing force.
However, Claudia Sheinbaum disagreed. As she explained, a competitive tendering process "was
325 (Herrera, Arturo. Personal Interview. January 18, 2010)
326 (Transconsult 2003 p. 130)
133
never a possibility, because it implied significant social, legal, and political problems." 327 This
position was likely influenced by the ideological predisposition of the PRD, and by the failed
tendering processes attempted by SETRAVI in prior years. Further, attempts to implement BRT
systems in other Mexican cities without guaranteeing the participation of operators directly
affected had recently failed. The most notable example was in the city of Puebla, where BRT
infrastructure (stations and a transfer station) was built and inaugurated by the local government
in 1999, only to be abandoned soon after amidst bus operator protests. In contrast, the city of
Le6n, Guanajuato beat Mexico City to the punch, launching in September 2003 the BRT system
in the country, managed by private companies created by the incumbent associations of bus
operators. 328 Adriana Lobo, a key player then working as a consultant for the project, later
justified this position: "Government officials knew that if they attempted a tendering process, we
would probably end up with nothing."329
To be sure, a competitive tender would have been problematic for social reasons. Since the
demise of AUPR-100, microbuses provided ubiquitous services, at reasonable prices with no
public subsidy, while providing livelihood for thousands. 330 How could a government of the
political left justify a system that would tend to concentrate rather than redistribute wealth? How
would it deal with the thousands of people likely to be affected, particularly after tolerating them
for so long? A legal problem also existed. Most individual incumbent operators have concession
titles, and their organizations hold government authorizations to operate their current routes. A
competitive tender implied (a) voiding the current permits and authorizations, (b) creating a new
legal framework for issuing new concessions, (c) conducting the actual tendering process and (d)
327 (Sheinbaum, Claudia. Personal Interview. 11 March, 2011)
328 Curiously, both the Puebla and the Le6n efforts had their own seeds on a World Bank grant. These cities participated in
the Programa de Transporte Urbano para Ciudades Medias organized by the Mexican Federal Government and financed
with World Bank funds. As part of this project, officials from 10 mid sized cities traveled in 1993 to several south american
cities, including Curitiba.
329 (Lobo, Adriana. Personal Interview. 27 January, 2011)
330 This does not mean that service quality was good, or that operators were popular. Martin Mejia, the SETRAVI officer in
charge of negotiating with bus operators put it quite clearly: "Citizens in general applaud attempts to eradicate the minibus.
There are polls showing that the most feared people in Mexico City are policemen, politicians and minibus
operators" (Personal interview. 17 March, 2011).
134
Mexico City, Part II
defending the winner. This simply provided too many moments when the project could become
engulfed in protracted legal battles, especially if conducted in an adversarial fashion against
incumbent operators with both formal and informal property rights over their current routes."
Finally, a forceful strategy posed a political problem. With democratization, bus operator
organizations in Mexico City had indeed grown more independent and powerful relative to local
authorities. Their support, important for electioneering, led to political alliances hard to reconcile
with "forceful" reforms. Indeed, PRD administrations had long realized the need to rebuild the
city alliances with the collective taxi organizations, and SETRAVI was actively working toward
that objective. And even beyond electoral calculation, city governance was at stake. As a public
official who later served as director of the BRT system put it: "If at any time, we chose a non-
negotiated, non-concerted intervention, the city would be immediately paralyzed. Bus operators
form quite a powerful guild, able to inflict severe economic and political damage to the city."332
According to several experts advising on the project, these social, legal and political
constraints "forced a trade-off between political expediency/feasibility and economic efficiency
of the new system."333 Indeed, the implementation strategy of the government was designed
explicitly to minimize conflict with incumbent operators. This was not a gracious concession to
private operators, but the savvy realization that their participation was an indispensable element
to guarantee the project remained feasible, particularly considering recent experiences in the
city.3 3 4 Their buy-in was considered so important for success, that authorities continuously
adjusted the technical specifications and the financial models of the project so that participation
331 A transport operator recalled discussing his options with Mexico City officials later negotiating BRT implementation in
this manner: "Look, if you want to displace us you will face an amparo (legal injunction), and after that amparo you will
face a second amparo, and we will go all the way legally. What's going to happen? The trade will put the break on your
project for three years, exactly the time your boss the mayor has left to show off how great he is."
332 (Calder6n, Guillermo. Personal interview. March 3, 2011)
333 (Kete et al. 2005)
334 This was stated explicitly in the legal notice that later established Mexico City's BRT system: "To make the operation of
the transport corridors feasible, the overseeing authority may consider the participation of the concessionaires operating on
the road declared as a transport corridor, as long as these concessionaires adapt to the new norms of operation to deliver
service" (SETRAVI 2004 p. 33, emphasis added).
135
in the BRT would not entail financial loss for individual operators. Without a doubt, "the most
complex element of this project was figuring out a way to get operators to participate."3 3 1
Crafting an offer private operators couldn't refuse
The team planning the BRT settled on making the following proposal to collective taxi
organizations: To participate, incumbent operators in the selected corridor would have to agree to
the cancellation of their individual concession titles and route authorizations. With counseling
from government advisors, these individual operators would join to create a new firm, with stock
distributed according to the number of buses owned. The new fmn would acquire a loan
(negotiated by authorities with the banks) to purchase new buses suited for BRT operations
(negotiated by authorities with the manufacturer). This loan would be underwritten with future
system revenues, but private operators would still be required to put down 20% of the total cost
of the vehicles as down payment. The government would grant the new firm a single concession
title to operate BRT services in that corridor, without subjecting it to any competitive pressure. In
other words, the chosen transition mechanism was a guaranteed swap: Incumbents would trade
their existing individual concessions for a single new concession awarded to a company owned
by themselves. The underlying logic was that anyone with an individual bus concession in the
corridor had the right to be part of the emerging BRT system. For unconvinced operators,
SETRAVI would offer relocation to a similar route elsewhere in the city, and/or other types of
compensation, such as taxi medallions.
To help operators finance their organizational transition, Mexico City authorities would
concentrate resources from the minibus-to-bus substitution program into the selected corridors.
Individual operators would submit their microbuses for scrapping -an indispensable element to
meet the SMA's environmental goals- and obtain the Mx $100,000 subsidy (by then worth US
$9,100). However, rather than distributing this money to individuals, Mexico City authorities
would pool the subsidies and make a payment to the bus manufacturers on behalf of the new
BRT company. Each stockholder would then have to contribute its share of the difference
335 (Herrera, Arturo. Personal Interview. January 18, 2010)
136
Mexico City, Part II
between this payment and the required 20% down payment for the buses. The debt on the
remaining 80% would be guaranteed by, and paid with, future fare revenues. To further reduce
the investment required from collective taxi organizations making the transition, the Mexico City
government would offer exclusive use of the appropriate number of AUP-R100 modules, for use
as BRT vehicle depots and maintenance facilities.336 The rest of the infrastructure of the system -
such as stations and heavy duty pavement required in the corridors- would be built, owned and
maintained by the government.
And perhaps more important to seal the deal, the new bus operator firms would be paid a
price per kilometer sufficient to cover not only the company's operating costs, but also a monthly
stipend to each of the partners, equaling their previous earnings as microbus operators in that
particular corridor. According to Luis Ruiz, who represented SETRAVI throughout this process
and would later serve as minister: "We were not displacing them, not taking advantage of them.
Our quest was to find a healthy equilibrium, that allowed them to operate in good terms. We
always strived to ensure, as an equilibrium point, that their individual revenues matched their
current revenues... that was our commitment, and thus the data, the financial runs, and everything
was structured around it." 3 3 7 In practice, this meant that all stockholders would receive a
payment akin to a salary, informally treated as a fixed cost, and independent of any profits
achieved by the firm through efficiencies. Claudia Sheinbaum stated the government's
negotiating logic succinctly: "You can't offer a business opportunity to anyone by saying 'you'll
earn less'. What would they reply? 'No thanks!" 3 38
Mayor L6pez Obrador realized this framework made implementation politically and
financially feasible. To move forward, he instructed Mexico City authorities to devise an
incremental implementation strategy, with only one corridor immediately pursued. This was,
336 These modules would remain government property, administered by BRT operators under bailment (through a figure
called "Permiso de Administraci6n Temporal Revocable.")
337 (Ruiz, Luis. Personal Interview. 1 March, 2011)
338 (Sheinbaum, Claudia. Personal Interview. II March, 2011)
137
after all, more a test than a city-wide policy. SMA and SETRAVI worked together analyzing the
list of 33 strategic corridors, reducing it to only 10 that met the passenger demand conditions and
physical characteristics required to
Figure 2.17 Corridors suited for &'T implementation. Source: sustain BRT operations (figure
Metrob~s
Insurgete 2.17).339 But where should M etrob sInsurgentes
begin?
Avenida de los Insurgentes:
The right corridor with the
right private partners
The technical studies narrowed
on two options for the pilot BRT
corridor: (a) Eje 8 Sur, running east
from Tlalpan towards the southeastern
fringe of the city, and (b) Avenida de
los Insurgentes, the main north-south
axis in Mexico City. Eje 8 Sur promised much higher passenger demand (and thus higher
revenue generating potential) than Insurgentes (576,586 vs 250,900 daily passengers), and
reached a lower income area grossly underserved by the subway system. However the numbers
for Insurgentes were not bad. In fact, the Metro Master Plan still contemplated a subway line for
this corridor, probably unfeasible given the prohibitive cost of the land takings required.
Furthermore, the L6pez Obrador administration was facing intense criticism for the construction
of the "second floor" over the city's main ring road (Periferico), located only a few blocks away
from Insurgentes, particularly from environmental and neighborhood advocacy groups. Critics
pointed out that the supposedly left-leaning PRD administration was paradoxically prioritizing a
highway investment that benefited higher income commuters and make citizens more auto-
dependent, while not expanding the subway and allowing the microbus system to operate in
apparent anarchy. Making a conspicuous public transport investment served the political purpose
339 The source of this map is (Metrobus 2006)
138
Mexico City, Part II
of countering this claim -even if the BRT would cost many times less than the highway. If he
built in Insurgentes, this investment would be most visible, particularly to his mostly middle-
class critics.
Whatever his political calculation, two practical reasons helped sway the mayor towards
choosing Insurgentes. The first was that the deal that authorities could put on the table to entice
the participation of individual operators was less attractive financially on Eje 8 Sur than on
Insurgentes. The reason was simply that many more microbuses operated on Eje 8 Sur than on
Insurgentes (2,500 vs 352). If the government wanted to avoid operational subsidies, the
available revenue "pie" would have to feed many more mouths. Further, the land uses prevalent
in Insurgentes suggested that passenger demand was distributed in many short-distance trips
throughout the day, rather than overly "lumped" at peak hours. This implied that a smaller fleet
of buses could offer the same standards of service on this corridor compared to Eje 8 Sur. Such
propitious conditions led members of the planning team to refer to Insurgentes as the golden
eggs-goose: It enabled negotiators to offer a deal sweet enough to practically buy the operator's
collaboration. The second reason for prioritizing Insurgentes was that negotiations for Eje 8
promised to me much more complex. Eight feuding ruta organizations operated bus services on
this corridor, including one of the companies created by former SUTAUR- 100 workers
(Autotransportes Urbanos Siglo Nuevo). The implication, as explained by the leader of one of
these organizations, was that "the government had to get eight different leaders in line, and then
each of them would have get their people in line. Obviously (government authorities) concluded
it couldn't work, with so many parts to stumble upon" 4 0 In contrast, Insurgentes was served by
two organizations only. Conveniently, one was the publicly owned RTP, meaning only one
private group of operators needed to be convinced to move forward. In the end, L6pez Obrador
made the decision to prioritize Insurgentes because it enabled his government to put more
propitious conditions at the table: It promised higher revenues for vehicle-owners, required less
vehicle-substitution subsidies and avoided (or rather, minimized) complicated negotiations with
340 (G6mez, NicolAs. Personal Interview. March 7, 2011)
139
organization leaders. With this decision, he instructed SETRAVI to reach out to the potentially
affected private operators with the idea.3 '
Ruta 2 had done well since splintering from the CAT. It had expanded its reach beyond
Reforma, and established a significant number of routes throughout the city. The organization
had approximately 2,300 members and 3,000 microbuses. It was so big, that indeed it functioned
like a c'pula organization. Each minor route (ramal) had a delegado, and each route had an
executive committee with a president. Then, overseeing all these minor routes was another
executive committee, led by Heriberto Flores, "El Pollo." The most profitable microbus route
controlled by Ruta 2 -indeed, the most profitable route in the city- was undoubtedly Insurgentes:
In this corridor, 262 microbuses generated roughly 30% of Ruta 2's total revenues. 342 For this
reason, when Mexico City authorities first reached out in 2003 to the leader of Ruta 2 about the
BRT project, his reaction was of skepticism and caution. He was accustomed to government
proposals turning bad, as he had personally experienced the financial bust that followed
Camacho's call to purchase microbuses. As instructed by authorities, "El Pollo" had then
promoted the purchase of new vehicles -and in fact had made a personal business out of it- only
to find that authorities did not increase fares for several years, leading to a quick deterioration of
the fleet and to a mountain of overdue payments from members. SETRAVI had also promised
that the government would retire RTP buses running on Insurgentes, and had not honored this.
This had resulted in significant opposition to his leadership within Ruta 2, and particularly
among the operators running microbuses in Insurgentes, and therefore, while not completely
against the BRT proposal, El Pollo was non-committal and tried to keep information from
reaching potentially affected members.
As rumors of the BRT grew, however, a dissident group engaged the government directly,
and demanded to be included in the negotiations. For several months, the planning team brought
in international consultants -like Ignacio de Guzman, Edgar Enrique Sandoval and Paulo
Custodio, who had participated in the implementation of Transmilenio- to detail elements of the
BRT plan, assuage fears of displacement, and convince individual vehicle-owners to push for the
project. The deal on the table was sufficiently attractive to sway most into supporting the BRT,
but discussions within the Ruta escalated, not about whether to participate, but over the details of
341 (Villegas, Alejandro. Personal interview. March 2, 2011)
342 (Moreno, Arturo. Personal interview. March 3, 2011)
140
Mexico City, Part II
the transition. How much would they personally need to invest, and who exactly would be
stockholders of the new company? The Ruta 2, or the branch of Ruta 2 that operated on
Insurgentes? Who would "lead" this firn, "El Pollo" or someone else? According to Jesn's
Padilla, who led the dissident group, "we spent 90% of the time fighting among ourselves, trying
to protect our interests from the president of the ruta that controlled our service in Insurgentes.
We fought against his group, we fought among ourselves, it was practically everyone fighting
against everyone." 343 For authorities, it was not initially clear which group was a better partner.
On the one hand, keeping Ruta 2 as an organization on board implied that they could more easily
expand the "strategic corridor" idea to other areas, like Reforma. On the other, dissidence among
the operators serving Insurgentes threatened to escalate, putting the pilot project at risk.
Furthermore, Heriberto Flores had a longstanding relationship with the PRI, and this was an
opportunity to harbor new leaderships, closer to the PRD. In the end, Padilla grouped enough
support, called the Ruta 2 members operating in Insurgentes into an assembly, and ousted El
Pollo's group from this project.34 4 This does not happen magically in Mexico City. As one
official from SETRAVI explained, "how do we enter a Ruta, when the government decides to do
a project? SETRAVI throws its support behind a dissident leader, empowering him. In contrast,
doors are closed to enemies of the government, weakening their ability to solve problems on
behalf of its members. Before long, their leadership deteriorates. And so, we began strengthening
Jesn's." 34 1 To be sure such strategy, if pursued simultaneously city-wide, would have led to
significant turmoil, and perhaps sparked cohesive resistance to the "strategic corridor" concept as
a whole. However, by breaking down reform in "projects," the government had better control of
the table, and it could choose who among incumbent collective taxi interests would be invited to
participate.
343 (Padilla, Jesfis. Personal interview. March 11, 2011)
344 The vote in favor of Padilla was 202 out of the 262 (Nava and Ramirez 2008 p. 445).
345 (Mejia, Martin. Personal interview. March 17, 2011). There are several other versions that suggest this "pressure" was
exerted much more actively than mentioned in the previous quote. One of these was that authorities ordered a round of audits
on an advertising company run by El Polio's son, that placed billboards on Ruta 2 buses without paying the required
contributions to the City. Another, more obscure version, points attempted to make El Pollo responsible for the murder of
one of the dissident operators, that occured on the date the Insurgentes BRT corridor was announced publicly. These are of
course unconfirmed, but converge on the key point: Authorities actively supported dissidence within Ruta 2 to facilitate
implemetation of the project.
141
Individual operators had two major concerns related to corporatization. First, they
worried about losing their individual concessions, an asset worth much more in the informal
market than their 9-15 year old buses, and their direct "link" to the industry.346 Second, they
worried about losing cash liquidity, as the proposed model implied compensation would be paid
to the firm, giving individuals no certainty that money would reach their pockets. Significant
effort focused on mitigating these concerns. The basic premise of the negotiation was that
incumbent operators would earn at least the same amount of money by participating in the BRT;
yet, determining pre-BRT earnings implied significant haggling. How much, exactly, did they
earn? Many operators overestimated their income, ignoring unpaid taxes, non-existing insurance
policies, high maintenance expenses, frequent bribes, social security contributions and even their
own salaries as drivers and mechanics. Only after protracted discussions did they agree that the
new system should be able to guarantee $15,000 pesos/month (US $1,366) per stock. Intense
discussions also revolved around who, exactly, held formal title over the 262 Ruta 2 concessions
on Insurgentes. Since the transport law prohibited any single person from holding more than 5
individual concessions, operators holding more than this quantity had long worked with false
concession titles or with titles registered under different names. Some titles had been
informally passed on to sons and daughters. Many were expired, or the vehicles used did not
correspond to information on file at SETRAVI. Eventually the list of people with rights over the
corridor was ascertained, identifying 180 individuals. To mitigate individual concession holder's
concern that they would be soon bought out by large investors, language was added to the
concession title stipulating that the original number of stockholders had to be maintained
throughout the life of the concession, and that no stock could be sold before 5 years. Similarly, to
eliminate the fear that they would be shortchanged by whomever ran the company, authorities
agreed to develop a compensation mechanism that guaranteed that the Mx $15,000/stock (US
$1,366) would effectively be distributed.
In October 2004, more than a year after the conversations had begun, a majority of Ruta 2
members holding bus concessions on the corridor (representing 68% of the buses) finally joined
to create Corredor Insurgentes, S.A. (CISA). The operators that did not join CISA may have sold
the rights to their shares to other members, or joined later. According to official records, 180 of
346 The approximate market value of bus concessions with authorization to operate on Insurgentes was Mex$600,000.
347 A former SETRAVI official interviewed for this project estimated that 2/3 of concession titles in Mexico City are
informally owned and operated by someone different to the official holder.
142
Mexico City, Part II
262 vehicles were scrapped under the substitution program, and the pooled money from the
resulting subsidy deposited in an escrow account under the name of the company, to be paid to
Volvo for the new buses. 348 As promised, on March 2005 SETRAVI awarded CISA a new
concession to operate the Insurgentes BRT corridor, without accepting bids from any other
group. In exchange, the government suffered almost no militant opposition from incumbents.
One notable exception was bus drivers, a group that was consistently excluded from the
negotiating table349 despite the fact that it certainly stood to lose in this process, as optimization
in the number of buses implied that many drivers would be left redundant. According to an
estimate by an official working in CISA, the pre-BRT corridor had approximately 500 bus
drivers working for Ruta 2. Of these, only 180 drivers were retrained and retained by CISA.3 0
This group indeed staged a few protests, but had little leverage to influence or derail the ongoing
process and rapidly dispersed.
Figure 2.18 Metrobos vehicle
and station, Insurgentes
Corridor
Arturo Herrera summarized quite succinctly where the true complexity laid. As he put it,
"negotiation with the operators took 2-3 years. The construction of the corridor took only 3
348 Official records accessed August 2011 at the Fondo de Promoci6n para el Financiamiento del Transporte Piblico
confirmed that 180 scrappage subsidy payments (bonos de chatarrizaci6n) were paid for Ruta 2 buses previously operating
on Insurgentes.
349 (Nava and Ramirez 2008 p. 460)
350 (Moreno, Arturo. Personal interview. March 3, 2011). This figure is confirmed in (Nava and Ramirez 2008 p. 456), who
add that 400 of the 500 original drivers did apply for a job at CISA.
143
months."351 Luis Ruiz agreed, "in this case, 95% of the project was striking an agreement with
transport operators. The rest was easy, a project like any other."35 2 Indeed, once CISA was
created and details ironed, everything progressed quickly. The first BRT corridor in Mexico City,
spanning 19.6 kilometers and 37 stations across Insurgentes, began operations in June 2005, only
days before Mayor L6pez Obrador left office to run for president.
Original sins and the price of BRT Inclusion
For the first time since the arrival of the PRD to the mayor's seat, Mexico City authorities
seemed on the verge of a major, conspicuous achievement regarding privately operated public
transportation. The new stations, the more organized traffic flows, and the cleaner vehicles
running on Insurgentes offered a stark contrast to the anarchy of the microbuses elsewhere in the
city. For a relatively low public investment, Mexico City residents experienced significantly
improved transit services, at least in this emblematic avenue. Indeed, L6pez Obrador liked to
point out that the whole Insurgentes corridor cost the city less than what it would have cost to
build one kilometer of underground subway. The interest rate offered by Volvo's financial branch
for the purchase of the new vehicles was 14.5%, which although still high represented a marked
improvement from the interest rates typically available to individual collective taxi operators,
around 26.5%.3 Furthermore, this success was achieved without displacing incumbent transport
operators, and instead contributed to re-establishing government's authority (and the PRD's
authority) over the industry city-wide. The message for the rest of the ruta organization leaders
was clear: If you don't come to the table the government can oust you, like it did with El Pollo.
But if you do come to the table, the government will deliver on its promises. After all, CISA
stockholders seemed happy, and Jesu's Padilla became the rising star of the transport leader
landscape. To many, this successful transition from ruta organization into a viable firn, and from
a "gremialista" leader into an "empresario" embodied the PRD's long sought model for a city-
wide negotiated industry transition.
However, replicating the success of Insurgentes would prove difficult. As previously
mentioned, this corridor represented the low-hanging fruit: The high revenue potential and the
low number of incumbent operators enabled the government to offer a propitious deal. Further,
351 (Herrera, Arturo. Personal Interview. January 18, 2010)
352 (Ruiz, Luis. Personal Interview. 1 March, 2011)
353 (G6mez, Nicolds. Personal Interview. March 7, 2011)
144
Mexico City, Part II
all affected operators were part of a single organization, reducing the number of parties that had
to be at the table. Despite these advantages, negotiations had proven significantly complex and
time consuming. Several elements of the Insurgentes project had been discussed and detailed at
the table, with the objective of mitigating the concerns of pre-existing operators and retain their
support. These adjustments were probably inevitable, given the simultaneous need to defuse
opposition and to secure implementation within L6pez Obrador's personal political calendar.
Nonetheless, each of these adjustments had an important effect on the costs of operating the
systems, and on the complexities of future negotiations in other corridors. To be sure, Insurgentes
became an implicit baseline, that inevitably constrained the capacity of the state to expand this
model. As Guillermo Calder6n explained, "we had to make certain additional concessions to get
them on board. These were, to say it in some manner, the original sins. When we negotiated the
next BRT lines we had to revert what we had agreed to in Line 1, and this required a lot of
work." 35 4 Among these "original sins," were:
* The number of new buses on the BRT corridor
The planning team debated intensely about the number of new buses required on
Insurgentes. The wide range recommended by various consultant groups, from 65 to 120
articulated buses, had to do with differing estimations about the speed that was feasible in a
corridor with no passing lanes, no overpasses and a large number of streetlights. In the end,
however, rather than settling the question on purely technical grounds, the final size of the fleet
was determined as part of negotiations with incumbent operators, who were concerned that more
buses implied a larger capital investment from each individual stockholder. Each BRT vehicle
cost Mx $3.5 million pesos (US $318,750), meaning that to pay for the 20% required
downpayment, CISA had to cover Mx $700,000 (US $63,750). The company had pooled a total
of Mx $18 million pesos (US $1.64 million), from the subsidies paid by the government for 180
scrapped microbuses (as part of the vehicle-substitution program). This amount was enough to
cover 25 new buses without requiring any additional investment from CISA's shareholders.
However to reach a technically acceptable fleet size, an additional out of pocket capital
contribution was required, and many stockholders resisted. In the end, they agreed to contribute
Mx $70,000 (US $6,375) in addition to the Mx $100,000 (US $9,100) coming via their vehicle
354 (Calder6n, Guillermo. Personal interview. March 3, 2011)
145
scrappage payments, in total enough to purchase CISA's initial fleet of 60 buses.3 5 5 CISA's fleet
of 60 articulated buses was then combined with 20 articulated buses directly purchased by the
government, to be operated directly by RTP. Weeks after the launch of operations, however, this
fleet size proved insufficient to service demand on the corridor, leading to a hurried purchase of
17 new buses (10 by the government, 7 by CISA). Ex-ante financial models were, thus, quickly
obsolete.
* Participation of other operators on the corridor
Mexico City officials wanted RTP to operate some of the BRT services on Insurgentes.
They saw this as a way of protecting the governability of the corridor -since whatever happened
with CISA, this government-run company would be able to maintain a minimal supply of
services. Further, RTP could provide Metrobnis authorities with detailed information about costs
and operational problems, and bring credibility to the threat that authorities could void CISA's
concession if it failed to deliver on its commitments. And perhaps more importantly, the PRD
had long defended the need for a viable, publicly owned transport company that took the place of
AUP-R100. In fact, Insurgentes represented one of the few routes that RTP operated at a profit,
and its director adamantly wanted to maintain it. RTP's participation was, in the words of
Claudia Sheinbaum, "a matter of justice." If the BRT promised significant profits for private
actors, why couldn't if also benefit the publicly-owned transit company?
Operators initially resisted, demanding exclusive control over the new corridor. It was
only because RTP's participation in fact reduced the investment required from each individual
stockholder that they finally agreed. However, CISA required that pre-existing market shares be
maintained throughout the life of the concession. But which measure of "market share" should
be used as benchmark? According to the service supply analysis conducted as part of the
corridor's feasibility studies, RTP operated 26% of public transport vehicles working on
Insurgentes, but due to their relatively larger size, they transported 38% of the passengers (see
table 2.1). To gain CISA's agreement, authorities fixed RTP's participation on the corridor
according to vehicle share and not to passenger share. To further make RTP's participation more
acceptable to CISA, the government committed not to finance RTP's buses with the system's
revenue stream, expanding the capacity of the trust to pay for CISA's buses instead. RTP would
355 The effective substitution rate for the private operators' fleet was thus approximately 4.4 microbuses per new BRT
vehicle. Vehicle-Owners that did not submit their vehicles for scrappage contributed the subsidy amount themselves,
increasing their out of pocket investment.
146
Mexico City, Part II
pay in for its buses up-front, drawing from the city's general fund, establishing an important
precedent. But perhaps more importantly, CISA's concession title established that RTP would be
the only other company allowed on the Insurgentes corridor, required to maintain a 3-to- 1
proportion of buses (CISA to RTP) throughout 10-year life of the concession. In practice, this
shielded CISA from any competitive pressure and, ultimately, severely complicated the
operational integration of future BRT corridors, as buses operated by different private companies
Table 2.1 Bus service supply on Avenida de los Insurgentes, before and after BRT
Prior to BRT Line 1-South After BRT Line 1-South (March, 2008)
Organi- Vehicles Passengers/Day Passenger Company Stock BRT Buses
zation Capacity/ Share-( % Scrapped Shares /d
____(,000s) Deadholders
Ruta 1 245 73% 38.0 71% 115
(pre-BRT)
Ruta 76
(pre-BRT) 55 16% 30 6% 22 137 109 19 73%
RECSA
(post-
BRT)
Rutaill1 15 4% 1.7 3%
(pre-BRT)
RTP(p 21 6% 10.8 20% 7 27%
(public)
Total 336 100% 53.5 100% 28% 137 26 100%
Sources: (SETRAVI 2007, 2008)
would not be allowed into Insurgentes.
* Costs per kilometer: Hidden profits and public-private disparities
In order to determine a fair price per vehicle-kilometer (vkm), consultants estimated the
cost of BRT operations on Insurgentes by accounting for fixed and variable costs such as fuel,
tires, driver salaries, vehicle maintenance, etc. Upon discussions with CISA's representatives,
Mexico City authorities added an additional "fixed cost" to reach the "equilibrium point"
sufficient to cover the sustained payments of Mx $15,000/month (US $1,366) per each of CISA's
stock. According to Luis Ruiz, "that was our commitment. Data, financial projections and
147
everything else were estimated around this figure."3 56 This adjustment added Mx $11.96/vkm
(US $1.09/vkm) to the estimated cost of operations, and was labeled explicitly in CISA's
concession title as "payments to concessionaires," ultimately accounting for 35% of the finally
agreed price per vkm. 357 In other words, a built-in profit margin was included in the price that
Metrobn's agreed to pay CISA, earmarked to be distributed in a manner akin to a salary to each
former microbus operator. The price/vkm for CISA was further adjusted upward to include Mx
$8.97/vkm (US $0.82/vkm) to cover payments on the 5-year loan taken to purchase its buses.
The trust would pay this money directly to the creditor, but structuring payments in this manner
had the critical implication that once the loan was fully paid, that money would revert to CISA.
While government authorities wanted to withhold this money in the trust and earmark it for
CISA's fleet renovations, the final deal was that starting in year six (2011), the Mx $8.97/vkm
would add to CISA's earnings, to be used as the company deemed fit. Metrobn's' financial
statements for fiscal year 2011, suggest that indeed, during that year CISA obtained a financial
windfall of Mx $49.6 million pesos (US $3.55 million dollars) from this concept.358
To be sure, there is nothing inherently wrong in this negotiation. However, while Mexico
City authorities adjusted the vkm price offered for CISA's services, they kept the amount offered
to RTP fixed at the original vkm cost estimate. The price paid to RTP would not include "fixed
payments" to stockholders, nor would it consider a margin to renovate this company's bus fleet
or to make other investments. In other words, the public company was paid much less that the
private for exactly the same service, and was inevitably poised to require significant amounts of
public subsidy. This disparity only worsened over time. While CISA's per vkm payments were
periodically adjusted to reflect cost increases for fuel and other inputs, RTP's per vkm payments
remained fixed.359 At the initiation of the Insurgentes BRT in June 2005, CISA earned Mx $33.87
pesos/vkm (US $3.12/vkm) vs. RTP's Mx $24.9/vkm (US $2.30/vkm); by 2011, CISA's price
had been increased to Mex$40.2/vkm (US $2.88/vkm), but RTP's remained pegged at the
356 (Ruiz, Luis. Personal Interview. 1 March, 2011)
357 These figures appear in Annex 6 of CISA's concession title (SETRAVI 2005). Unfortunately, concession titles made
available to the author for companies operating subsequent Metrobnis corridors did not include the Annexes with similar cost
breakdowns.
358 (Metrobus 2012). Conversion by author, using December, 2011 exchange rates (US $l=Mx $13.98).
359 The first input-based adjustment to CISA's vkm price occurred in 2008, coinciding with the first fare increase authorized
for Metrobnis services; a second adjustement took place in November 2009.
148
Mexico City, Part II
original price of Mx $24.9/vkm (now worth only US $1.79/vkm).360 This of course served the
purpose of decreasing pressure on the fare: Costs increased for both CISA and RTP operations at
the same rate, but since the price paid to RTP could remain fixed, Metrobnts had a wider financial
margin to increase payments to CISA without requiring a fare increment. Of course, this was
nothing else than a hidden subsidy from the public company to the private, but never publicly
discussed in such terms.
. Fare revenue distribution scheme
The original design assumed that revenues from the Insurgentes corridor would finance
the costs of the new regulatory agency, Metrobn's. Indeed, 5.6% of fare revenues were earmarked
for this purpose and acknowledged as such in the trust. However, the incumbents secured
preference in the agreed pecking order for revenue distribution: Metrobiis would only get its
share of the fare after (and if) bus operators were fully paid. This implicitly guaranteed the need
to either increase fares or subsidize planning and control functions if operating costs were greater
than anticipated.36 1 Indeed, this is exactly what happened. Financial statements published by
Metrobn6s reveal that in years 2005-2007 and again in year 2011 the agency did not receive any
money from fare revenues. 362 In years 2008-20 10 the amount actually paid to the agency
approximated only 1% of fare revenues.363 Contrary to the initial expectation, the operations of
the planning and regulatory body Metrobnis are almost fully financed with the city's general
fund.
Expanding an inclusionary BRT system
Mexico City's emerging BRT system became financially strained ahnost immediately
after launch. To begin, authorities left too little leeway between the technical fare (sufficient to
cover costs and commitments to operators) and the published fare of Mx $3.50 pesos (US
$0.32).364 Further, operating costs grew faster than projected, as Metrobnis ordered operators to
360 In June 2005, US $1=Mx $10.84. In December 2011, US $1=Mx $13.98.
361 The original plan also considered a share of fare revenues to fund feeder bus services. This was subsequently cancelled.
362 (Metrobus 2008, 2012)
363 (Metrobus 2009, 2010, 2011)
364 According to Jesus Padilla, the original fare (Mx $3.50, US $0.32) was in fact below the technical fare, that he estimated
at Mx $4.13 (US $0.38). I could not confirm this information, but in any case it does suggest that the L6pez Obrador
admnistration faced significant political pressure to keep the fare charged to the public as low as possible.
149
run significantly more vkms to relieve onboard congestion. This led to the previously mentioned
purchase of more buses. By the end of 2005, six months after inauguration, and despite the
promise of a self-sustaining fare, the Insurgentes corridor was operating at a growing deficit.
presidential and mayoral elections slated to occur in July 2006 ruled out a fare increase, and
CISA authorities resisted attempts to renegotiate contractual conditions. Instead, the city
government negotiated on beha/fof CISA with the creditor, to lower interest rates on its bus
purchase loan from 14.5% to 10.5%.365 Even with this adjustment, it soon became clear that fare
revenues alone would not suffice to cover the expenses of the regulatory agency, of servicing
stations and perhaps even of paying operators. So, the Mexico City government chose instead to
implement a formal, albeit hidden, subsidy to the emergent BRT system: on December 26, 2005,
Metrobas instructed the trust fund that manages fare revenues to suspend vkm payments to RTP;
payments to this publicly-owned bus company would instead come from the city government's
general funds. This order was negotiated with the city's Finance Ministry and formalized with an
agreement among Metrobu's and RTP, signed July 28, 2006, and later renewed "until further
notice" on February 21, 2007. By the end of 2007, the amount paid to RTP through this non-fare-
based operational subsidy summed US $8.21 million dollars. 366 Interestingly, this amount
corresponds almost precisely to CISA's yearly built-in profit margin (the part of the vkm price
added to guarantee monthly payments to stockholders). That is, we could argue that the
government's subsidy to RTP really went to CISA's stockholders. Could it be possible to do
away with those guaranteed payments in future corridors?
This question was part of a larger discussion taking place among local authorities. How
sustainable was this inclusionary model, especially if Mexico City strived to simultaneously
expand its BRT system and keep costs down? Insurgentes was a choice BRT corridor, due to the
combination of high passenger demand and relatively few operators grouped in only one ruta
organization. In contrast, other corridors physically fit for BRT operation had lower revenue
generating potential, larger numbers of collective taxis and a much more complex web of
incumbent organizations potentially affected. Nonetheless, the sweet-deal offered to CISA had
365 Volvo's financing branch provided the original loan for 14.5%. Several interviewed stakeholders indicated that the
10.5% interest rate was not originally available, as banks did not trust the project would work. For reference, microbus
operators interviewed said that interest rates offered to individual operators by the banking system reached 26.5%.
366 Mx $89.5 million (Mx $44.2 million in 2005-6 and Mx $45.3 million in 2007). These amounts are reported in the
minutes of Metrobfis' Insurgentes fare revenue trust fund. Conversion by the author, using December 2007 exchange rates
(US $I=Mx $10.90).
150
Mexico City, Part II
created unrealistic expectations among all other collective taxi operators. They wanted -
demanded- similar conditions in order to participate. And to complicate matters, the participation
of RTP in other corridors could not be taken as granted. This public company provided the
government with a mechanism to inject operational subsidies to the Insurgentes corridor,
relieving pressure on the fares. This was not yet a major budgetary problem, as the subsidy
commitment to only one corridor was still relatively small. However, the city could not easily
expand this subsidy model to other corridors without straining its own finances, and in any case,
incumbent operators would not necessarily accept the intrusion of RTP into corridors not
previously serviced by this company. Perhaps for these reasons, we observe a gradual tightening
of the terms offered to incumbent operators in subsequent BRT corridors. After proving its worth
and viability, the negotiated "strategic corridor" model was fine-tuned, relaxing the commitment
to include everybody and reducing the financial guarantees offered.
Some of the changes were inserted into the concession titles by increasingly experienced
and capable Metrobis and SETRAVI officials, who suggested possible tweaks to the deals
finally put on the table. Without a doubt, the state's institutional capacity increased as subsequent
BRT corridors were negotiated and implemented. For example, Metrobnds authorities successfully
pointed out that the price per kilometer offered to CISA included many costs that should decrease
as the number of kilometers increased, such as insurance policies. In future corridors, Metrobn's
officials added a distinction between "base kilometers" and "extra kilometers," with the later
paid at a lower price. However, the broader picture that emerges is a larger strategic
reassessment, especially after the administration of L6pez Obrador ended and Marcelo Ebrard
(PRD) became mayor in December 2006. Soon after being sworn in, the new mayor launched a
plan to implement 10 BRT corridors over the next 10 years, expanding the network at least 200
kilometers during his administration.367 To deliver, both the time used to negotiate with
collective taxi organizations and the amount of public funds required to sustain the resulting
system had to decrease significantly. Perhaps for this reason, Mexico City authorities gradually
moved away from a "fostering" strategy towards a "forcing" one.
367 (World Bank 2009 p. 15-16)
151
Figure 2.19 Avenida de los Insurgentes, before and after Metrobus
MetrobiUs Line 1 expansion: Same corridor, different deal
Incoming authorities continued negotiations started under L6pez Obrador with several
Ruta organizations, seeking out viable private partners for a second BRT corridor. Initial efforts
pointed to the iconic east-west Reforma corridor, but this project was abandoned partly because
of the opposition of neighborhood and historic preservation groups, and partly because of the
inability of leader Heriberto Flores to coalesce sufficient support among Ruta 2 members.
Attempt to implement the previously mentioned Eje 8 alternative were not successful either,
despite completed feasibility studies and earmarked funds to build the required stations in the
budget for fiscal year 2007. In fact, the first successful replication was not a second corridor per
se, but actually an 8.5 kilometer (10 stations) southbound extension to the Insurgentes corridor.
In February 2007, authorities approached Ruta 1 leader Francisco Aguirre Guadarrama, to gauge
his interest. By March, an informal letter of intention was signed by the leaders of all three
organizations potentially affected (Ruta 1, Ruta 76 and Ruta 11, which was owned by the
152
Mexico City, Part II
former SUTAUR-100.) 368 However, it would take a full year to iron out the details; this
extension was not inaugurated until March 13, 2008. Part of the complexity had to to with the
fact that this segment had much lower passenger demand (53,503 passengers/weekday) and
much larger supply of transport vehicles (315 private buses in addition to 21 RTP vehicles) than
the northern part of Insurgentes. The SETRAVI/Metrobn's team planning this expansion
estimated that passenger demand should be served with a fleet only 26 articulated buses, which
implied a very high substitution rate: Almost 13 vehicles currently running on this corridor
would have to exit the corridor to make room for each new articulated bus (see table 2.2).
Table 2.2 Bus service supply on Avenida de los Insurgentes Sur, before and after BRT
Prior to BRT Line 1-South After BRT Line 1-South (March, 2008)
Organi- Vehicles Passengers/Day Passenger Company Stock BRT Buses
* . Vehicles
zation Capacity/ Scrapped Share-
(,00s % Dead Scrapped Shares #odr
___000__(,Os) Demand holders
Ruta 245 73% 38.0 71% 115(pre-BRT)
(pRe- T) 16% 30 6% 22 137 109 19 73%
RECSA
(post-
BRT)
Ruta 111Ruta-BRT) 15 4% 1.7 3% -(pre-BRT)
RTP 21 6% 10.8 20% 7 27%(public)
Total 336 100% 53.5 100% 28% 137 26 100%
Sources: (SETRAVI 2007, 2008)
In practice this meant that not every incumbent operator could expect to participate in the
BRT scheme and maintain the accustomed level of profits. Given that the amount of fare
revenues predicted for the corridor was fixed, increasing the number of participating operators
reduced the monthly profit that could be guaranteed to each individual operator. This led to
significant intra-ruta and inter-ruta conflict. Ruta 1 is the largest standalone collective taxi
368 (Hernandez 2007 p. 72)
153
organization, with 3,500 microbuses dispersed throughout the city, of which Insurgentes-South
was only a branch. Similar to what happened in the first segment of the corridor, Ruta 1 leader
Francisco Aguirre soon found himself unable to manage the process, as members of the
organization working on that corridor fought among themselves over whether to participate and
under what conditions. The minority that did want to participate splintered from Ruta 1, joined
others from Ruta 76, and created a firm of their own: Rey Cuauhtemoc, SA (RECSA). To keep
the project viable, SETRAVI had to step in and broker a deal with Ruta 1 leader Francisco
Aguirre, and with Ruta 111 managers 369 to relocate the vehicles that did not join RECSA
elsewhere in the city. Only 137 of the 315 privately operated buses and minibuses previously in
the corridor were finally scrapped for the Mx $100,000 pesos subsidy, which indicates roughly
the number of operators that remained as participants of the project. In addition to the Mx
$100,000 (US $9,278) subsidy per scrapped vehicle, each RECSA stockholder contributed Mex
$57,000 (US $5,289) per stock, and pooled these resources towards the downpayment of a fleet
of 19 BRT vehicles. The difference was covered by RTP, which purchased 7 additional buses,
again drawing from the city's general fund. Given the lower revenue potential, authorities
negotiated a vkm price that was significantly lower than what CISA earned for its services in the
northern segment of the corridor. RECSA settled for Mx $22.66 (US $2.10)/vkm price. Since this
lower price was still not enough to make the financial models work, authorities determined that
RTP would charge even less -Mx $16.00 (US $1.48)/vkm- and decreed the first increase to the
fare charged by Metrobn's, from Mx $3.50 to Mx $4.50 (US $0.32 to US $0.42).
In other words, while this extension proved viable, it still required evicting more than half
of the incumbent operators, authorizing a 29% fare increase, and committing significant public
investment -not only to build infrastructure in the corridor and to purchase RTP's buses- but also
to cover the operational subsidies needed to maintain RTP's underpaid services in the future. A
second problem also came up. Since different companies operated the north and the south
segments of the Insurgentes BRT, passengers intending to traverse the corridor were forced to
alight in one station, only to board an identical bus operated by a different company. This lack of
integration resulted from previous negotiations: CISA's concession established that no other
private company could operate on "their" corridor. This situation remained for five months to
much ridicule in the media and inconvenience for commuters, until Metrobns authorities finally
369 Ruta Ill is a firm owned by Grupo Ruano, with a contract awarded in the tender process that followed the bankruptcy
of AUP-R100
154
Mexico City, Part II
brokered a deal on October 2008 that allowed the buses from each company to enter the rest of
the corridor. Again, this agreement implied that no company felt financially affected, and
probably came at the expense of reducing vkms to RTP. In the words of Jesn's Padilla, now
president of CISA, "we have tolerated it (the entry of RECSA's buses to the north-segment), and
can put a stop to it whenever we want"370
Metrobd~s Line 2: Many operators, many firms, lower profits
Line 2 began operations in December 2008, running on the 18.7 km east-west Eje 4
Oriente "strategic corridor" (estimated demand: 142,847 passengers/day). Prior to this BRT line,
620 private microbuses, grouped around 5 different organizations (Rutas 110, 27, 53, 49 and 11)
served this corridor, along with 30 trolleybuses operated by the publicly owned Sistema de
Transportes Eldctricos (STE). Planners estimated that this corridor required no more than 71
BRT vehicles to operate efficiently, with 20 of these to be allocated to RTP (taking the rightful
place of STE's trolleybuses). In other words, the negotiation at this corridor implied substituting
9.15 of the vehicles currently offering services, per each new BRT vehicle introduced.
Maintaining RTP's 20 bus slots was important for many reasons, but particularly to retain the
ability to subsidize Metrobas operations, in case financial problems arouse in this corridor as
they had in Insurgentes. The original plan was to allocate the remaining 51 BRT bus-slots to one
or two firms that resulted from the merger of the incumbent organizations. However, the creation
of these firms proved to be very problematic.
One of the key reasons why authorities selected this corridor was the insistence from
Ruta 110. As you may recall, Mexico City authorities awarded the contract to operate Ruta 110
to Servicio Metropolitano de Transporte 17 de Marzo, of the firms created by forner
SUTAUR- 100 workers, as part of the "political agreement" to settle the conflict following AUP-
RI00's bankruptcy. Since this company's creation, Ruta 110 had struggled to balance its dual
commitments: Guarantee jobs and benefits to former union members, while at the same time
remaining financially viable. Since the arrival of the PRD to power, former SUTAUR- 100
leaders vigorously denounced the unleveled ground they faced competing for passengers against
370 (Padilla, Jesis. Personal interview. March 11, 2011). The director of the Metrobus explained hte agreement in different
terms: "It was an agreement. We let them see that it would be good for the system and that it would be profitable for them.
Will you generate more kilometers? Yes. Yes for CISA and yes for RECSA. It was good for both" (Calder6n, Guillermo.
Personal interview. March 3, 2011).
155
weakly regulated collective taxi organizations. As the operations manager of Ruta 110 explained
during my visit to their facilities, "taxes are killing us. We pay 20-30% of our revenues as taxes,
while collective taxis get away evading them. Our employee roll is also killing us. All of our
workers have all the benefits established in law, raising our operational costs, making us go
through a very tight financial situation. Collective taxi organizations don't pay that."371 A BRT in
one of Ruta 110's corridors would be blessing to former SUTAUR- 100 workers, precisely
because it promised to "guarantee their investment" 372 by leveling the playing field. In their case,
participation did not imply any organizational transition: This firm already had most of their
processes centralized, retained state of the art facilities from the AUP-R100, and ran a relatively
tight ship. Since the implementation of the Insurgentes corridor, ex-SUTAUR-100 leaders
insisted that they should be next, and had even suggested five different corridor alternatives.
Both their ties to the PRD and their pro-activeness paid off. In February 2008, SETRAVI
authorities announced that the second line of the Metrobnis system would be built on Eje 4, and
that it would be operated by a firm called Corredor Eje 4-17 de Marzo (CE4-17M), owned by
Ruta 110.
Of course, the collective taxi organizations that also operated in that corridor were not
interested in partnering with Ruta 110. Relations between these stakeholders were historically
bad, and for good reason. Many former SUTAUR- 100 members blamed the private microbus
operators for the demise of their former company, and for their current financial struggles. So,
authorities conceded that three different firms would operate on this BRT corridor: RTP (20 bus-
slots), CE4-17M (20 bus-slots) and a third firm owned by the individual operators of Rutas 27,
53 and 49, who were conveniently part of the same "c pula" organization, led by Encarnaci6n
Jniarez (with the remaining 31 bus slots). This left Ruta 11 out, since its routes only marginally
touched upon the corridor, as demonstrated by the fact that their vehicles carried only 4% of the
passenger demand (see table 2.3). SETRAVI offered them relocation. Of course, such alternative
was not well received, and Ruta 11 members organized protests in the streets, rapidly escalating
to violent confrontations with police.
This did not initially threaten the project, as Encarnaci6n Juirez had expressed
willingness to participate, of course seeking to retain control of the new company himself. To
371 (Lopez, Enrique. Personal interview. March 8, 2011)
372 (Ibid)
156
Mexico City, Part II
elicit support from Ruta 27, 53 and 49, he invited representatives from these organizations to
Le6n, Guanajuato to show them how a single BRT company composed by different groups could
function well. He also hired renowned professional consultants, such as Angel Molinero to run
the numbers for them, and to prep himself for sitting at the table. As he put it, "we knew the
corridor was inevitable, so my strategy was to muster as much knowledge as possible in
anticipation of negotiations".373 However, organization members perceived him as "too close" to
government authorities -calling him "Padilla the Second"- and a dissident group soon emerged.
Both groups jousted over the 31 bus slots reserved to them, with discussions mediated by
SETRAVI carrying on for months, with the dissident groups at times threatening to join Ruta 11
in opposition to the project. As part of efforts to sway members to their side, both groups
lowered the amount of money they requested as contribution from potential member-
stockholders, to the point that those that joined Juarez paid nothing beyond the Mx $100,000
vehicle scrappage subsidy. Seeking to move forward, authorities decided to split the difference
allowing two different firms to participate in those bus slots, Juarez' COPSA (15 bus slots) and
the dissident's CTTSA (16 bus slots).
While these negotiations took place, the leaders of Ruta 11 sought back doors to re-insert
themselves into the project. As a SETRAVI official privy to the process described, "there were
plenty of protests, mobilizations. When we determined that there was no room for Ruta 11 they
rose in arms. There were fights, anti-riot police (granaderos), people injured, all that, and at the
same time we had to manage the negotiating tables with the other groups. A political agreement
was finally brokered, and the instruction came from the office of the mayor, ordering us to make
room for Ruta 11. This situation messed up all the framework we had prepared." 374 Another
planner, working for Metrobnis, confirmed this, "our technical position was that they should not
participate, but there were public protests. The matter escaped the technical negotiation managed
by us, and moved toward a political negotiation, managed in the Secretaria de Gobierno, and
conditions changed." Simply creating more bus slots to fit in Ruta 11 would not work financially.
Again, the only buffer available to facilitate a compromise was RTP. The mayor ordered the
373 (Juarez, Encarnaci6n. Personal interview. March 4, 2011)
374 (Mejia, Martin. Personal interview March 17, 2011)
157
public company to cede
12 of its 20 bus-slots to a
firm created by Juan Jose
Sinchez Armas, the
leader of Ruta 11. This
decision not only limited
the possibility of
managing financial stress
by paying the public
company less (or even by
not paying for its
services) but also created
immediate problems. For
example, the financial
models had assumed that
RTP's buses would not be
financed with fare
revenues, while SAJJ's buses
Table 2.3 Bus service supply on Eje 4 Oriente, before and after BRT (Line 2)
Prior to BRT Line 2 After BRT Line 2 (Decem er, 2008)
Vehicles Passengers/Day Passenger Company Stock BRT Buses
# Capacity/ Vehicle Share-# % % Scrapped Shares i d%('lOs)I Demand i holders I
Ruta 110
(pre-BRT)CE4-T7 35 5% 30.5 21% 31 60 3 20 28.2%CE4-17M
(post-BRT)
Ruta 11
(pre-BRT) 217 33% 5.0 3% 52 50 2 12 16.9%
SATJ
(post-BRT) -___ ___ ___
Ruta 27
(pre-BRT) 148 23% 34.3 24% 81
(utaB3 44 7% 76 5% 33 114 85 161 25%(pre-BRT)
CTTSA(post-BRT)
Ruta 27
(pReuBRI) 40 6% 9.3 7% 22
Ruta 53 52 B 8% 9.0 6% 21
ua 84 13% 18.4 13% 39
(pre-BRT)
COPSA
(post-BRT)
ST/I 30 5% 28.6 20% 8 113%(public) ___ ____ ___ ___
Total 650 100% 142.8 100% 19% 279 71 100.0%
Source: (SETRAVI 2008, 2008)
certainly would. That was a problem, as a Metrobns official explained, "RTP had always served
us as a cushion, as an allied operator, that in many ways, allowed us to absorb many of the costs
we had to take on. At the least, it gave us a needed breather to reduce deficits or give us some
margin of action." 375
Interestingly, 45 of the 50 shares in this company were personally owned by Mr. Sanchez
Armas, and his firm was named after his initials: SAJJ.3 76 Perhaps by acting as a committed trade
association leader, Mr. Sanchez Armas proved to be the savviest businessman around. But in any
case, it was clear that even with new, beautiful Metrobn's buses, pressure politics continued to
play an important role in Mexico City's transportation planning agenda. In the words of
Bernardo Navarro, by then serving as an chief advisor to the SETRAVI, "what is technical is not
really technical, but political, and transportation is pure politics. The stakeholders in
375 (Coxteica, Jorge. Personal interview. March 9, 2011)
376 (SETRAVI 2008)
158
Mexico City, Part II
transportation are political actors."377 In the end SETRAVI awarded not three but five different
concession titles to operate this BRT corridor (RTP, COPSA, CTTSA, SAJJ and C4-17M). The
decision to have several companies operating on BRT line 2, with a relatively small number of
buses each, was a pragmatic choice that enabled the project to move forward. However, it would
soon create significant coordination problems and negate many of the expected economies of
scale promised by the new industry structure. Each of these firms would have its own
administrative body, its own procurement, etc. Further, COPSA, CTTSA and SAJJ shared the
same bus depot (owned by the city), with conflicts between drivers frequent. Still, authorities
managed to get agreement on a price of Mx $22.10 (US $1.67)/vkm 378 for all five companies,
partly as a consequence of C4-17M signing first and lowering the bar for everyone else. Former
SUTAUR-100 workers could offer such a low price because of their decade-long long experience
with corporatization, but this figure became the new benchmark for negotiations with collective
taxi organizations only beginning this transition. The low vkm price in turn translated in a
relatively low guaranteed profit for each of individual collective taxi organization member. In
attention to the lower revenue potential of the corridor, they had to settle for Mx $7,300 (US
$550)/month, compared to Mx $15,000 (US $1,130)/month offered to CISA's stockholders on
Insurgentes.379
As a result, many individual vehicle-owners felt cheated and opposed the project and/or
demanded to participate without relinquishing their existing bus for scrappage, seeking to retain
the ability to complement their personal income by operating elsewhere. Authorities probably
conceded. As Martin Mejia explained his role in SETRAVI: "what do we do? Negotiate,
negotiate, and when it comes down to it, we throw in a taxi medallion or something that will
complement their revenues." 380 It is at least suggestive to note that only 279 of the 620 privately-
run buses previously on this corridor were officially destroyed,381 with most of the non-scrapped
buses soon reemerging as competition to the BRT on parallel streets, chipping away from the
377 (Navarro, Bernardo. Personal interview. March 14, 2011)
378 December 2008 exchange rates (US $1=Mx $13.27).
379 Ibid.
380 (Mejia, Martin. Personal interview. March 17, 2011)
J81 One Jetrobi oficiy further fon ded thatth w e s of 7 gvotge 2If79 icr buses su ~dl scW ed neveredtaestroyed eirvehices es iollectingtesubsiy;thers have o erve s cases b weNehifres scrapped than
originally planned in BRT transitions. (Orrico Filho, Gilherme de Aragao, and Medeiros do Santo 2007), for example,
suggest that Bogota's Transmilenio expected to retire 5,000 vehicles, but only 1550 were eventually eliminated.
159
corridor's anticipated passenger demand. Since each of the five BRT operators had a guaranteed
number of vkms, they suffered no penalty if microbuses affiliated to their organizations
continued to run in competing routes. "It was a perversion. The BRT paid the per kilometer, and
thus they kept running their microbuses taking all the passengers, since at the end we also paid
for BRT services running with or without passengers" 3 2 The result was not negligible: While
BRT line 1 reached 80% of its expected ridership only three weeks after launch, it would take
line 2 a full seven months to achieve the same milestone. It also did not help that one of the
firms, COPSA, failed to produce its buses on time, claiming financial problems, partly caused by
its own decision not to raise capital from members beyond the scrappage subsidies.
The combination of operational inefficiencies, unauthorized competition from
incumbents, and the need to pay for SAJJ's buses from the fare revenue stream strained the
already precarious finances of the entire system, which could not be informally subsidized as
previously planned given the reduced participation of RTP. In fact, line 2 operated at a significant
financial deficit every year since the start of its operations (US $2.38 million dollars in 2009, US
$2.10 million in 2010 and US $2.00 million in 2011).383 But in addition to the financial
problems, Metrobnis authorities were increasingly unable to establish terms. In fact, line 2 began
operations without all the terms of the concession contracts accepted and signed, and SETRAVI
did not make them public until 2011.384 Disputes over particular clauses -such as the ones
stipulating whether companies should earn windfall payments after the bus purchase debt was
settled- carried on for months, with operators successfully able to get their way by exploiting
back doors to the mayor's office, such as PRD assemblymen. Metrobnas was also unable to easily
re-distribute vehicle resources across the different BRT Lines, for example to leverage the lower
price (and willingness to delay payment) of RTP to the system's advantage. Although line 2 had
redundant buses, and line 1 was displaying significant passenger congestion, Metrobnis was
legally unable to order line 2 companies to run their vehicles on line 1, due to CISA's
"exclusivity." What would otherwise be a simple reallocation of available resources within a
382 (Rocha, Jorge. Personal interview. March 7, 2011)
383 Figures reported in Mx $ in Metrobfis' yearly financial statements: Mx $31 million in 2009, $26 million in 2010 and $28
million in 2011. Conversion to US $ by author, using exchange rates from December each year.
384 To access them for this research, a freedom of information request was submitted at both SETRAVI and Metrobns.
These requests were first denied, and granted on appeal.
160
Mexico City, Part II
network became a protracted negotiation between the regulator and the operating companies,
only solved through informal, ad hoc agreements.38 5
The experience of line 2 raised multiple flags regarding the scalability and the
sustainability of the approach chosen to expand Mexico City's capacity to plan and regulate
public transportation services. Each subsequent BRT corridor promised increasingly complex
negotiations, and rising subsidy commitments. Further, while services noticeably improved in the
selected corridors, authorities increasingly resorted to shifting excess bus capacity to other areas
of the city, moving the location of a city-wide problem rather than really solving it. Authorities
realized that the leaders of collective taxi organizations were slowly, but successfully adapting to
the new "table," limiting the extent to which Metrobnis could plan, regulate and finance its
services. Regardless of whether SETRAVI's private counterparts in a particular corridor were
traditional, conservative and risk averse, or progressive, entrepreneurial and risk-seeking, the
emergent leaders of the new BRT firms seemed to gradually regain control over the agenda. To
be sure, many key figures making this transition -Jesnis Padilla, Encarnaci6n Juirez, etc-
appeared to have made their choice between two irreconcilable business models, choosing to
become "empresarios," rather than "gremialistas." They certainly played the part. However, once
at the table, they continued to engage in value claiming, protecting "their" territories, "their" bus
slots, even if this made the system less attractive to users. Similarly, beyond the ability to
establish the corridors, transportation authorities seemed disempowered, torn between the need
to satisfy the technical and financial imperatives of BRT while at the same time mitigating the
political and social costs of collective taxi organization corporatization. As Bernardo Navarro
aptly described "we were producing a sort of neo-corporativism, with a type of actor who
sometimes played being a businessman, and sometimes played at being a collective taxi
organization leader."386
An unsustainable pattern seemed to be emerging. Every subsequent strategic corridor had
lower passenger demand, and a higher number of collective taxis to be either included or ousted.
This resulted in a larger vehicle-substitution rate, and thus in more implementation complexity,
385 In the end, a complicated scheme was agreed upon: RTP would increase operations on line 2 while one of the line 2
companies would operate RTP's slots on Line 1. This reduced the number of line 2 buses that depend on fare revenue for
payment. While this move was revenue-neutral from a system perspective, it served two important purposes: It enabled the
city to introduce another -lower cost- private operator into line 1, while reducing the likelihood that the rest of the private
companies in line 2 would require a formal, direct subsidy.
386 (Navarro, Bemardo. Personal interview. March 14, 2011)
161
involving protracted discussions with, within and between each incumbent organization over
who could be included, under what terms and at what price. To keep the deal at the table
attractive in the first two BRT corridors, the public company RTP had accepted reduced or
delayed payments for its own services, and financed its own fleet from the city's general fund
and not from fare revenues. The government paid for the stations and corridor infrastructure, and
subsidized a significant share of the downpayment on the privately-owned buses, via its vehicle
scrappage program. Metrobn's, the planning and regulatory agency, also financed its expenses
from external, non-fare sources. Despite this, the emergent BRT system displayed severely
constrained finances, which in the end combined to put pressure on the price of fares. If
authorities saw BRT as more than simply a demonstrative project, and sought to base their efforts
to transform privately owned public transport city-wide around it, perhaps the terms of its
inclusionary implementation model had to change.
Metrobnis Line 3: From Fostering to Forcing Change
Between 2009 and the first half of 2010, SETRAVI and Metrobnis officials continued to
explore options for the negotiated implementation of a third BRT line, holding talks with the
leaders of collective taxi organizations with presence in several plausible "strategic corridors."
One likely option was the 17 kilometer north-south Eje 1 corridor (estimated demand: 123,293
passengers/day). Authorities estimated that it could be well serviced with a fleet of 54 BRT
vehicles, that could replace the 702 collective taxi vehicles from three incumbent organizations:
Ruta 1, Ruta 3 and Ruta 88. Despite the high vehicle-substitution rate (13 incumbent vehicles per
each new bus), the leaders of all three organizations initially expressed their disposition to
participate, and seemed strong enough to muster the required support from members. Ruta 1 was
led by Francisco Aguirre, who had previously facilitated the implementation of the southbound
extension of the Insurgentes corridor by accepting (and perhaps forcing) the relocation for his
non-participating members. The city "owed" him, and he had already proven his capacity to
enforce agreements. Ruta 3 was another large organization in the city, with 1,300 members and
67 routes (ramales) city-wide, of which the corridor under consideration represented only a small
part. Its leader, Felipe NI-ez, had already obtained authorization from the 152 affected members
of his organization to create a firm to participate in Metrobn's. A similar case was the smaller
Ruta 88, led by Magdaleno Barragan, who already had celebrated an assembly dividing
potentially affected operators among those who wished to participate and those that would prefer
relocation, without noticeable conflict. All three groups were inclined to partake on BRT,
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Mexico City, Part II
particularly after initial talks with authorities -seven "working tables" occurring between
February and May 2010- suggested that the deal on the table was as inclusionary and financially
attractive as the first two Metrobn's corridors.387
However, authorities abruptly suspended talks in May, leaving participants to think that
the government decided to shelve the project and build line 3 elsewhere. When SETRAVI finally
invited collective taxi leaders to resume conversations in July, the meeting was no longer run by
mid-level officials, but by Armando Quintero, head of SETRAVI and by Guillermo Calder6n,
head of Metrobnis. "The tone changed dramatically," recalls Felipe Nnez "as well as the data."
Metrobu's authorities made it clear that RTP would not participate in this corridor, eliminating the
city's responsibility to supply capital investment and subsidies.388 Every single new bus in this
corridor would need to be privately owned and financed through fare revenues. This put pressure
on the financial model, with the implication that the deal on the table was nowhere as attractive
as previously expected. Using revised passenger demand estimates, authorities explained that
there was no way the system could sustain guaranteed monthly payments for the owners of the
702 incumbent vehicles. At best, only the owners of 430 vehicles could be integrated into the
BRT, and the rest would need to accept relocation as "feeder and complement routes."38 9 But in
addition, instead of a downpayment of 20% on the new buses, authorities expected operators to
put 40% up front, in an effort to reduce financing costs. Guillermo Calder6n, director of
Metrobnis, explained the logic behind the change of terms: "Inserting RTP into this corridor
implied that we had to purchase 25% of the fleet with city funds, and probably that we would
subsidize the services of 25% of the fleet. We did not want to do that anymore. Why? Because it
implied an immediate investment to buy the buses, and because it created a financial hole that
had to be covered with subsidies. We decided to do something different. We would invite an
investor."
This suggestion came as a bomb to ruta leaders. According to Magdaleno Barragain, the
increased down-payment implied that the contribution of each individual member of his
organization would need to be around US $23,800 and $31,745 dollars (Mx $300,000-$400,000
387 (Nuftez, Felipe. Personal interview. February 28, 2011)
388 (Rocha, Jorge. Personal interview. March 7, 2011)
389 (SETRAVI 2010)
163
pesos), in addition to the US $7,936 dollars (Mx $100,000 pesos) 390 from the vehicle scrappage
subsidy. "It was too much. The numbers were manipulated. My partners were up in arms, but
what could they do? They did not have this money."391 But perhaps even worse, government
authorities suggested that to cover this financial shortfall they should accept an "investor-
partner." The PRD administration was beginning to resemble the later PRI governments, inviting
large capital into "their " industry -which made sense, as Marcelo Ebrard had worked in the
Manuel Camacho administration. Predictably, this meeting heated up rather quickly. The leaders
of Ruta 3 and 88 abandoned the table. And while Francisco Aguirre seemed inclined to continue
negotiations, 50 of the 199 Ruta 1 members with interests in this corridor splintered from the
organization and declared they would represent themselves. Between August and November
2010, collective taxi organizations in Mexico City took their protest to the streets, amidst
growing rumors about who exactly was the "investor-partner" that Mexico City authorities had in
mind.
Since the start of the Ebrard administration Autobuses de Oriente (ADO), the largest
inter-urban bus company in the country, approached Mexico City authorities with the intention of
entering the city's urban transport industry. They had done this with insistence, seeking to
diversify their operations to hedge against competition posed by low-cost airline carriers.3 92 In
fact, ADO had already participated with the french conglomerate Alstom in a bid to build and
operate an electric trolley running into Mexico City's downtown. This project was embraced by
Mayor Ebrard as part of his downtown redevelopment initiative, but canceled in May 2010 due
to its high costs and to the mounting opposition from historic preservationist groups. 393
Collective taxi organization leaders rumored that the city offered ADO participation in the BRT
as a "consolation prize," after the trolley project failed. This is of course speculative, but in any
case the dates of the cancellation of Alstom's downtown trolley project and of the change of
terms offered in this BRT line three coincided. Collective taxi organizations had every reason to
be worried: If any private company in Mexico was well positioned to compete successfully
against them, it was ADO.
390 June 2010 exchange rates (US $1=Mx $12.60).
391 (Barragdn, Magdaleno. Personal interview. March 14, 2011)
392 (Garcia, Gonzalo. Personal interview. March 9, 2011)
393 The same sources insisted that Mexico City authorities invited ADO into Metrobis as a sort of "consolation prize." This
is of course speculative, and I could not confirm if in fact ADO owned stock in Alstom's trolley project, but if it did, the
dates coincide with the change in tone of the negotiation with collective taxi organizations over Metrobfis line 3.
164
Mexico City, Part II
In fact, ADO was quite an attractive choice for the city. It had 70 years of experience
running buses, unquestionable financial capacity and a long established relationship with bus
manufacturers and suppliers. Its nationwide inter-urban transport business carried 120 million
passengers per year, with a fleet of 4,500 buses.394 It was so well established and known to the
public, that one of the most popular songs of El Tri, Mexico's most famous rock band, was about
someone waiting for a bus on ADO's terminal ("Estoy esperando mi cami6n en la terminal del
ADO... "). But perhaps more importantly, it had only transitioned from a cooperative of vehicle-
owners into a corporatized firm in the early nineties, and thus understood how collective taxi
organizations worked. Through their conversations with Mexico City authorities, ADO managers
identified that the city was struggling with the financial implications and slow progress of its
inclusionary approach to BRT expansion, and saw a tailor-made opportunity. It bluntly offered to
operate this corridor without public subsidy and to finance the required buses at a much lower
interest rate, while also committing to include existing operators as minority shareholders,
offering them a guaranteed monthly payment. In the words of Gonzalo Garcia, ADO's Director
of Metropolitan Transport, "we offered to internalize the social costs of the project... freeing up
funds, eliminating subsidies, and delivering a profitable model that considered the social part...
and that allowed authorities to make much faster progress."3 95 This was music to the ears of an
administration approaching the end of its tenure with little to show for its promise to build 10
BRT corridors in 10 years. ADO offered 49% of the stock of a special purpose company called
Movilidad Integral de Vanguardia, SA (MIVSA) to the 430 individual operators eligible to
participate in line 3, committing to pay them a "guaranteed monthly flow" ranging from US $635
to US $952 dollars (Mex$8,000 to Mex$12,000).396 In addition, ADO pledged that operators that
joined MIVSA would not contribute any capital beyond their US $7,936 dollar (Mex$ 100,000
394 "Invertird Grupo ADO$1,500 millones de pesos en tecnologia y camiones," T2JMx, June 8, 2005
395 (Garcia, Gonzalo. Personal interview. March 9, 2011)
396 (MIVSA 2011). This variance accounted for the vehicle age and the size of the buses used by each incumbent operator.
165
pesos) vehicle scrappage subsidy.397 Finally, ADO committed to hiring former operators as
mechanics, drivers and administrative staff in MIVSA.398
Of course, collective taxi organizations did not interpret this as generosity. Noe Rend6n,
the leader of the group that splintered from Ruta 1, explained their position: "first, we did not
need them. We could deliver on our own, just like the organizations in Insurgentes and Eje 4. To
be clear, partnering implied sharing a slice of our pie. They had no right. They had not exploited
these routes, like us, for decades."3 9 9 The entry of such a large player into the city's urban
transport market threatened not only the members of Ruta 1, 3 and 88 working in this corridor,
but all collective taxi organizations in the city. Progressive and conservative industry leaders
alike interpreted ADO's entry as the first step towards a government-sponsored intrusion of large
external competitors into the market. If only briefly, this threat served as the catalyst that united
incumbent transport organizations in Mexico City in ways not seen since the Alianza de
Camioneros. Ruta 3 and Ruta 88 convened a series of emergency meetings to discuss industry-
wide options. Soon, 62 of the 106 rutas in the DF were represented at these discussions.4 0
397 Garcia suggested that MIVSA paid US $280 000 per bus relative to a price US $317,000 available in the market at the
time of purchase. Financing cost available to MIVSA was 8%o, the lowest achieved by a Metrobis operator yet. ADO's long
history as a consolidated bus operator, with well-trained personnel and an established line of suppliers, support its stated
ability to operate at a lower cost.
398 According to MIVSA's manager, 110 of the 130 drivers originally hired by MIVSA were previously working in this
corridor under Ruta 1, the first organization to agree to the proposed scheme (Garcia, Gonzalo. Personal interview. March 9,
2011)
399 (Rend6n, Noe. Personal interview. March 6, 2011)
400 This figure was offered by Martin Mejia. Leaders of collective taxi organizations mentioned a superior number.
166
Mexico City, Part II
Table 2.4 Bus service supply on Ele 1 Oriente, before and after BRT (Line 3) Proposals included
suspending all
Prior to BRT Line 3 After BRT Line 3 (February, 2011) interlocution with
Vehicles Passengers/Day Vehicles Company Stock BRT Buses
Organization Passenger , ETAIcllnOrgaizaion ~aap i Scrapped Ihre SETRAVI, callingI ~Capacity/ ScapdShare-
#j% # (,000s) % Demand (Asl of Mah. SharesDemand holders
-oler_ for the resignation of
Rua 8 218 31% 27.3 22% 79 (9%) Minister Armando(pre-BRT) Mnse rad
Ruta 3 152153 22% 47.5 39% 250 81(pre-BRT) (17%) Quintero, and
Ruta 1 331 47% 48.5 39%(pre-BRT)(2%
(pAD-BRT (2204% demanding a directADO 0% 0 0%
__ ____ ______ ______ 
(51%)_ _
MIVSA (post- dialogue with the54 100%
BRT) ______ ______
RTP (public) 0 0% 0 0% 0 0% mayor. Interestingly,
Total 702 100% 123.3 100% 32% 250 877 54 100% Jesus Padilla,
Source: (SETRAVI 2010; MIVSA 2011) president of CISA,
Juan Jose Sinchez
Armas, president of
SAJJ, and Nicolis Vazquez, president of COPSA, participated actively in these meetings,
probably concerned about the entry of a new player that could disrupt their existing
accommodation as Metrobiis operators. Felipe Nunez and Magdaleno Barragin explained to their
peers how authorities wanted to force them into an unnecessary partnership with ADO. They
argued that Ruta 3, 88 and the dissidence of Ruta 1 had already created their own firms and had
in fact signed a contract to purchase their buses from Mercedes since June. Further, they accused
SETRAVI of deliberately underestimating passenger demand in their corridor to corner them into
accepting help they did not need. The message was powerfully simple: What is happening to us
could soon happen to you. It the end, most ruta organizations agreed to join a city-wide protest
"against the privatization of transportation," 401 which of course really meant against the entry of
new private actors into to the industry.402
Several protests took place, including one on September 21, the very day that the mayor
offered his state of the city speech at the local Assembly. Anti riot police had to prevent 4,000
microbus operators from marching into the Assembly hall, with the event nonetheless ending in a
401 (Nuftez, Felipe. Personal interview. February 28, 2011)
402 These paragraphs are based on my conversations with several individuals, such as Nicolis G6mez, Jesns Padilla, No&
Rend6n, agdal eno Barragdn, Felipe Nifiez, Martin Mejia, Guillermo Calder6n, Jorge Coxteffica, etc.
167
major traffic jam. That day, head of SETRAVI Armando Quintero reacted by stressing publicly
that the city "will not
stand down from the
proposal to incorporate
ADO as operator of
Metrobns line 3," and
explaining that "we have
dialogued with all parts
affected, but we simply
can't change the proposed
plan. We will not subsidize
those that are not making
investments they should
make."403 Undeterred, Protest against participation of ADO into Metrob6s line 3. Source: La Jornada, September
protestors simply raised 22, 2010.
the stakes. They promised
to disrupt two international events hosted by Mayor Ebrard: The World Summit of Local and
Regional Leaders hosted on November 16-20 and the World Mayors Summit on Climate on
November 21. Mayors from around the world would visit the city during that week, and Ebrard
was scheduled to receive a prize as "best city mayor." Having public transport break down or
streets blockaded precisely on those days promised to be a tremendously embarrassing
blunder.404 Soon after posing this threat, leaders Felipe Niifiez (Ruta 3), Magdaleno Barragin
(Ruta 88) and Noe Rend6n (Ruta 1-dissidence) finally received an invitation -via the Secretario
de Gobierno (Ministry of the Interior)- to talk with the mayor directly. At this meeting, Ebrard
told them that he was not sold on ADO's proposal, and that his concern was rather centered on
ensuring the system remained financially viable. He accepted that 37 of the 54 BRT vehicles
considered for this corridor corresponded to their constituents, and asked them to present an
alternative proposal of how to finance and operate these buses without ADO. As proof of
goodwill, Ebrard ordered SETRAVI to deposit their scrappage subsidies into an escrow account
in favor of Mercedes Benz, the company with whom these leaders had pre-negotiated the
403 La Jornada, "La linea 3 del Metrobus va, con o sin microbuseros, afirma Armando Quintero," September 22, 2010
404 Excelsior, "Anuncian mega-marcha: Planean aguarle la fiesta a Ebrard," November 5, 2010
168
Mexico City, Part II
required BRT bus purchase.405 With this, production of the buses could start. This seemed so
tangible, that it worked to defuse tension. Thinking they won -perhaps recalling the experience of
SAJJ in line 2- ruta leaders called off the protest, and the Ebrard hosted his meetings without
complications.
However, there is little indication that Mexico City authorities had second thoughts about
ADO's entry to the market. In fact SETRAVI's negotiations with Francisco Aguirre, the leader of
Ruta 1 who conspicuously never opposed a partnership with ADO, continued. SETRAVI
officials contend that Aguirre's pro-ADO stance is explained by his history as one of the oldest
leaders in the industry. He had once led the CAT, where he learned that the best way to protect
his organization's city-wide interests was not to joust but to find accommodation with
authorities. Perhaps with good reason, officials referred to him as the most cunning leader in the
pack ("el de mds colmillo "). There is another, complementary explanation. Francisco Aguirre
did not see himself as a marginal partner to ADO. Passenger flows suggested that BRT line 3
should be extended southbound, to the National University (UNAM), but such option had been
shelved to save costs. According to SETRAVI's negotiator Martin Mejia, "Francisco Aguirre
pointed out that this profitable southbound extension would inevitably happen within 2 to 3
years. So we made a deal, authorizing him to immediately offer services from Etiopia (the BRT
terminal station) to the University with his existing bus fleet... we will eventually extend the
BRT, and Francisco is already there."406 As a consequence of this agreement, Ruta 1 announced
that the majority of its members working on this corridor accepted ADO's offer to partner,
severely weakening the position of Ruta 3, 88 and of Ruta 1 dissidents.
Government authorities reached out to the leaders of other organizations supporting the
protests as well. Many stopped attending the meetings, and gradually distanced themselves,
ending the very brief attempt to create a united front against ADO. According to Felipe Nuftez,
"when authorities saw that many Rutas were united behind us, they began to operate. They
reached out to the c'pulas. You know, to the folks that have always served the government.' 4 07
Of course, these leaders, such as Nicoias G6mez and Jesu's Padilla -who by now had ousted "El
405 El Universal, "los primeros autobuses de la linea 3, listos," October 19, 2010
406 (Mejia, Martin. Personal interview. March 17, 2011).
407 (Nuftez, Felipe. Personal interview. February 28, 2011)
169
Pollo" as the leader as all of Ruta 2- argue they broke ranks only after the mayor gave
incumbents a chance to put forth an alternative proposal. According to Padilla, he personally
offered to raise US $4 million dollars (Mx $50 million pesos) towards the US $24 million dollars
(Mx $300 million pesos) 40" required to match ADO's exact terms, and suggested that other
organizations may be able to contribute the difference if asked. Ruta 3 and 88 flatly refused this
offer. G6mez explained, "the first thing Nnez and Barraga.n said was that they would take all the
decisions regarding their business... we stood back, but the whole process became so
unproductive that we stopped attending. Sometimes it felt as if they considered us the enemy."409
Clearly, the organizations immediately affected did not want to partner with ADO, but neither did
they want to partner with anybody else. Coordinated efforts require a minimal level of trust, and
collective taxi organizations were so fragmented, and accustomed to each other's route invasions
that they could not really coalesce, even against this very real threat. Perhaps with good reason,
they interpreted Padilla's offer to help as a more formal version of a route invasion: An
acquisition. To divide collective taxi organizations, it did not hurt that authorities reopened
negotiations with other organizations regarding pending corridors. Members of Ruta 7, for
example, reported being close to reaching agreement about yet another BRT corridor -inclusive
of RTP and without ADO- in Eje 3 Oriente. While these talks were only preliminary, they
conveyed the message to the industry that the "inclusive" model of BRT expansion continued to
be the preferred method, and that ADO's participation was only an exception. Perhaps also as
part of this strategy, Jesu's Padilla was invited to present a proposal to operate BRT line 4,
running into Mexico City's downtown, precisely along the route previously reserved for
Alstom's cancelled trolley project.
In December, Mercedes-Daimler void the contract signed with Felipe Nifiez, Magdaleno
Barragin and Noe Rend6n to supply the buses. "We had every paper signed, with every required
seal on them. The order was approved in Mexico, in the USA, in Germany. They didn't give a
shit... Mercedes knew this corridor only had 54 bus slots. They could not produce a second set
of 54 buses for ADO, as one of the two groups would not be able to pay for them, and so had to
choose: Producing them for us, or producing them for one of their largest clients in Mexico,
perhaps worldwide, with the blessing of authorities."4 10 The affected operators threatened
408 October 2010 exchange rates (US $1=Mx $12.48).
409 (G6mez, Nicolds. Personal Interview. March 7, 2011)
410 (Rend6n, Noe. Personal interview. March 6, 2011)
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Mexico City, Part II
Mercedes with legal suits, with burning the buses, even with traveling to Germany and hosting
protests there. However, at this point it was clear to them, and to the members they represented,
that Ebrard had made his choice. On December 11, 2010, ADO gave the 430 eligible members of
Ruta 1, 3 and 88 a window of 75 days to accept their stock options in MIVSA. In addition to the
Ruta 1 members that had already agreed to join, many individual members saw their ship sinking
and broke ranks from their leaders, taking the stock option or even selling their concession to
ADO, which paid above market rate. Again, SETRAVI authorities helped catalyze this process,
on the one hand throwing in taxi medallions or route authorizations to sweeten individual deals,
and on the other shunning opposition leaders. For example, Magdaleno Barragan recalls,
"SETRAVI started calling on my deputies (delegados) rather than me. It empowered leaderships
within my organization that wanted to join MIVSA. In fact, one of these deputies is now vice-
president (of MIVSA). When we saw that we no longer had the majority, many of us decided to
sell"411
On February 2011, Mayor Marcelo Ebrard inaugurated the 17 kilometers and 32 stations
of Metrobiis line 3, operated by MIVSA -which not only retained the concession to run the buses,
but also to manage fare collection and to put advertising on stations and vehicles. ADO's
majority stake in this company allowed Metrobnis to overcome many of the consequences of the
first corridor's "original sins." In fact, MIVSA accepted in 2011 a significantly lower vkm price
(Mx $24.90, US $2.06) than CISA obtained seven years earlier (Mx $33.87, US $3.12), which
only highlights the amount of money initially paid to foster collaboration in this system. In
addition, MIVSA committed a share of its revenues for a fleet replacement fund, and accepted
that Metrobn's could run buses from other BRT operators on its corridor if needed, solving two
key issues that remained contentious with other Metrobns operators. Government officials hoped
to leverage ADO's strengths to reduce the public subsidy needed to operate Metrobn's, and to use
these freed-up resources to accelerate BRT network expansion. Furthermore, the entry of ADO
empowered authorities, as it established a credible threat for future negotiations either with the
collective taxi organizations exploring participation in a corridor, or with other Metrobn's
operators, like CISA, that may demand unsustainable terms. Even if ADO does not expand
beyond this initial corridor, its readiness as an alternative actor put the balance back in
411 (Barragin, Magdaleno. Personal interview. March 14, 2011)
171
equilibrium, since the other side is still dominated by former organization leaders that at the end
of the day may regain their capacity to coordinate actions.
Nonetheless, Metrob s'2011 financial statements show that Line 3 operated at a US
$1.15 million dollar deficit 412, so it is still unclear whether MIVSA will fully deliver on its
financial promise to the city. But perhaps more importantly for the purposes of our discussion on
industry transition, official records suggest that only 250 of the 430 pre-existing vehicles were
actually scrapped, as small figure particularly if we consider that it was 702 vehicles originally
servicing the corridor.4 3 This is perhaps indicative of the number of operators that actually
joined MIVSA as stockholders, rather than selling their stock option, after perhaps negotiating
with SETRAVI a taxi medallion or relocation of their vehicles into a different route. 414 In other
words, despite its original claim, ADO's contribution to the city was mostly in terms of
efficiency gains -reducing the vkm cost to the city,- rather than equity -facilitating the transition
of incumbent bus operator organizations into viable transport companies-. To be sure, this
contribution alone justifies ADO's participation in the market, however, it opens up the question:
if most incumbent operators were going to be bought out, why didn't the city open a competitive
call to select the operator of this corridor, rather than directly award it to ADO? Other actors -
either external to the industry or internal, like Padilla, may have assembled a competing bid. The
response of course may be that the appearance of an inclusionary approach to BRT is still
required in Mexico City to keep collective taxi organizations at the table. Does Metrob s' line 3
provide a model for expanding the system while keeping incumbent operators as integral
partners? Only time will tell. Perhaps it simply reflects authorities' increased willingness for
confrontation - a government emboldened, more confident that it can survive the legal, political
and social costs of displacing incumbent operators, at least in one corridor.4 15 Maybe it simply
marks a step towards the long-abandoned objective of enticing larger, stronger, private investors
into the bus industry.
412 Metrobis' 2011 financial statement reported a MIx $16.1 deficit for this corridor. Conversion to US $ by author, using
exchange rates from December 2011 (US $1=Mx $13.98).
413 Official records accessed August 2011 at the Fondo de Promoci6n para el Financiamiento del Transporte Pfiblico.
414 To avoid repeating the experience of Line 2, in which retired buses -supposedly scrapped- reemerged as competition to
the BRT, MIVSA required submission of a scrapping certificate, and estabhshed in its by aws that any stockholder found
competing "directly or indirectly" against the firm would lose all its privileges.
415 At the suggestion that the government's inclination for inclusion was ideological, one rufa leader responded: "Bullshit.
Our participation happens only as long as the government believes it needs us. As soon as it is able to displace us it will do
so without asking for permission."
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Mexico City, Part II
Assessing Metrobas
While rarely, if ever, acknowledged by authorities or advocates, Mexico City's BRT
system incurred an operating deficit every year since its creation. That is, not only did the city
government invest in stations, pavement, and the publicly owned buses; it also subsidizes
operations. Using the presence of the publicly owned operator (RTP) on relevant corridors,
paying an important share of RTP's per-kilometer remuneration from the city's general fund, at a
lower rate and without inflation adjustments, the government essentially subsidizes all operations
on the corridor. Furthermore, the city pays for the regulator/planner of the system, Metrobils,
from general funds, although these costs were originally to be covered by fare-box revenues.
Available evidence suggests a deteriorating financial situation. In 2005, Metrobiis' operational
subsidy per transported passenger was Mx $0.30 pesos (US $0.03 dollars); a small amount that
still resulted in a Mx $12.3 million peso (US $1.15 million dollar) deficit.4 16 In 2008, coinciding
with two system expansions, two fare increases took place: in March, from Mx $3.50 to Mx
$4.50 (US $0.32 to US $0.42); and, in December, from Mx $4.50 to Mx $5.00 (US $0.34 to US
$0.38). These increases barely sufficed to maintain the real price of the fare, and were
insufficient to close the system's operational deficit. By 2011, the per-passenger subsidy had
increased to Mx $0.72 (US $0.05 dollars), while the yearly deficit, Mx $135.3 million (US $9.68
million dollars), was 8.4 times greater than in 2005.
Public transit subsidies can be justified on economic efficiency and equity grounds and to
be clear, Metrobzis operating subsidies are not particularly high, particularly when contrasted to
the subsidy needed to operate the subway. However, part of the reason this financial burden
remains manageable is that the BRT system's share of the total number of trips in the city is still
very low. The vast majority of public transport trips in the city remain served by private
microbuses. If Mexico City were to suddenly apply the same standards of service, with the same
inclusionary approach, throughout its current surface public transport system, the cost to the
public purse would be very significant. Furthermore, subsidies to Metrobiis remain hidden from
the public eye, preventing an important policy discussion from taking place, and diminishing the
possibility of using those subsidy funds as sources of leverage and accountability. Notably, most
of the subsidy goes as rents to original incumbents, shareholders in companies holding
416 These deficit figures estimated from Metrobfis' yearly financial statements. They do not account for funds used to pay
for Metrobis' bureaucracy. Conversion to US $ by author, using exchange rates from each year reported.
173
concessions awarded non-competitively, with substantial profit guarantees. For example, in 2011,
the guaranteed profits to CISA's shareholders inserted into the vkm price as operational costs
amounted to US $3.38 million dollars. Similarly, payments to this company from the revenue
stream previously earmarked to cover debt on its original bus purchase amounted to US $3.55
million dollars.4 7 Combined, these payments to CISA account for 72% of the total financial
deficit registered by the system of US $9.68 million dollars reported above.
To be sure, the sequential implementation experience of Metrobils suggests a gradual
tightening of conditions over time. Nonetheless, the original sins committed during the initial
"fostering" era continue to haunt the system:
the fostering era's initial compromises certainly hampered system expansion (evidenced
in Line l's southern extension) and conditioned (not necessarily negatively) the rest of the
system expansion, as all actors in the system learned from the process;
the effects on regulatory leverage have not been entirely negative as the authorities
certainly have more regulatory power than over the non-BRT system and this power is likely
increasing and possibly spilling over into the non-BRT system;
the process has increased operating costs as measured by the levels of operating
subsidies, themselves product of the initial fostering stance, although possibly also necessary for
BRT operations -which internalize costs previously unaccounted by private operators; and,
somewhat negative effects on performance insofar as operational flexibility (e.g., adding
buses) has been constrained due to initial deals struck.
Although Mexico City remains committed to expanding its BRT system, this objective
will continue to clash with its stated commitment of incorporating incumbent operators into the
new system. As even Jesus Padilla, the president of CISA, recognizes: "I am now convinced that
this model is not viable. I am sorry to say this now, because I wouldn't have said it before. It is
not viable financially, and it takes too much work to keep everyone happy all of the time."418 In
fact, Metrobnis' recently inaugurated line 4 (in April, 2012) appears to represent another step
towards a "forcing" strategy. For the first time, authorities did not require the selected BRT
417 Estimates from figures reported in Metrobns' financial statements: Mx $47.2 million pesos paid as operational costs to
CISA's stockholders, and Mx $49.6 million pesos paid to CISA from the revenue stream previously going to cover debt on
its bus purchase. Conversion to US $ by author, using December 2011 exchange rates (US $1=Mx $13.98)
418 (Padilla, Jesns. Personal interview. March 11, 2011)
174
Mexico City, Part II
company to reserve stock for and guarantee profits to incumbent bus operators affected by the
project, despite the fact that the city's own reports acknowledged that 15 different ruta
organizations serviced sections of the selected corridor.419 Instead, the selected company -
Transportes Ejecutivos Centro Aeropuerto Buenavista- has only four shareholders, none of which
has a history operating buses in this area of the city.420 Further, this line was not considered as a
"strategic corridor" in earlier plans, nor does it have the physical characteristics that enable most
of BRT's performance gains. Further, each of the hybrid vehicles used in this corridor -much
smaller than regular BRT vehicles- cost US $400,000 dollars, and the passenger demand of only
40,000 passengers per day used to calculate this line's financial model, has proven grossly
overestimated, suggesting that the level of subsidy required to sustain this line is significant.42
Achieved without significant protest, this deal's details remain, for the moment, unknown. A new
mayor was elected in 2012, also from the PRD, pledging during his campaign to expand the
Metrobis system 200 kilometers during his administration. His first corridor, in construction
since September 2012, is still to be inaugurated at the time of this writing, and will apparently be
operated by RTP and by a firm created by the dominant collective taxi organization, Ruta 7. My
hunch is that while still inclusionary, the terms on the table for this fifth corridor are probably
much less financially attractive for incumbents than in previous iterations.
Case conclusion
Mexico City's adoption of four BRT corridors (plus an extension to Line 1) led to the
scrappage of almost 900 small and underutilized microbuses and their substitution with at least
230 newer and less polluting articulated buses. It also facilitated the transition from several
quasi-informal ruta organizations into nine more professional and presumably more accountable
private firms. Service has improved along the affected corridors, with reduced travel times, lower
pollutant emissions and safer and more reliable trips. The number of traffic accidents featuring
public transport vehicles has decreased along these corridors, and the stations and vehicles are
safer and more accessible than the microbuses. Drivers operating BRT buses are now paid fixed
salaries, and receive the benefits mandated by law, and in contrast to the vehicle-owner
419 (SETRAVI 2011)
420 Jesus Padilla acknowledged to the author being one of the four shareholders, and the names of the rest remain
undisclosed.
421 Padilla, Jesus. Personal interview.
175
associations, BRT companies now pay taxes. Quite deservedly, Metrobnis has garnered
international recognition as a best practice. Further, the public sector's role as planner and
regulator of public transport has been clarified and reasserted in the process, and the industry has
become more bankable and attractive for private investment. However, the sequential,
negotiated, conflict-averse implementation strategy of BRT corridors requires increasingly
complex discussions at the table, increasing the cost and decreasing the pace of system
expansion and integration. The ambitious plan to comprehensively reform all public transit in the
city after the demise of AUP-R100 was reduced to a focus on 33 strategic corridors. Then,
authorities reduced their goal further to implementing 10 BRT lines, and even this has proven
difficult to implement. This gradual, conflict-averse strategy is partly the legacy of Mexico's
public transport history, that resulted in a severely atomized and weakly regulated private
industry, which not only acted as a barrier for external competitors and private financing to enter
the market, but also limited the incumbents' ability to coalesce and rationalize their own service
supply. In other words, Mexico City authorities have had to tailor its recent reforms to the
capabilities of its likely private sector partners, which in turned reduced the scope of feasible
changes from a city-wide transformation to route-level improvement efforts.
To be sure, Mexico City's BRT system continues to grow, a feat that should not and is not
under-appreciated in this study. However, each additional corridor typically has more incumbents
organized around more ruta organizations, fighting over smaller passenger demand pies, which
has led to added costs and to increasing numbers of displaced operators who don't magically
disappear. Mexico City authorities negotiate their relocation into other areas of the city, which
contains conflict but also implies that the system-wide benefits of the BRT are not as big as
suggested by the ordered, high quality services experienced in a few choice corridors. Further,
while officials initially asserted that Metrobils could function without an operating subsidy, the
government is subsidizing operations, increasingly so, primarily to satisfy initial deals made to
mitigate harm to existing operators. These subsidies remain hidden from the public eye, and are
not subject to a transparent appropriation process. This money does not seem to provide much
leverage for regulators, and operators continue to interpret subsidies as the official recognition of
their pre-existing rights. Partly for this reason, authorities appear limited in their ability to use
this money as leverage to force the private operators of Metrobn's into accepting increasingly
stringent performance standards. Instead, when system revenues have been insufficient to
maintain subsidies, the city has chosen to "punish" the publicly owned bus company, and even to
176
Mexico City, Part II
raise fares, rather than revising committments made to participant private operators. Rather than
formal contract renegotiations based on shifting circumstances, authorities are forced to petition
Metrobnis operators for their case by case cooperation in solving problems. The negotiating
"table," even after corridor implementation, remains tilted in favor of private operators, and the
ability of their leaders to condition agreement on extra-contractual "perks" remain as valid as it
ever was. To this day, no private operator of BRT in Mexico City has been ousted, nor
systematically forced to improve their performance as a condition to retain their contracts or their
expected revenues. In fact, their permanence in the system is still perceived as a "right," and the
ability of authorities to link operator revenues to performance remains severely limited.
This complication is even more relevant if we assess the likelihood that the state planning
capacity presumably developed through the conformation of the Metrobn's system will eventually
extend beyond its current corridor niche and integrate to city wide transport services. To be sure,
the business model that underlays the Metrobnis system could certainly be exported to bus routes
that are not physically suited for BRT operation, and eventually integrate into a single system
that includes the subway. However, it appears that the city would face severe financial and
political difficulties, that would probably require authorities to either use more forceful, less
inclusionary reform strategies, or to commit a significant amount of money to mitigate harm to
potentially displaced vehicle-owners. This would probably require reallocating current subway
subsidies to fund private bus services, and/or increasing fares. Further, in a city-wide reform,
where would redundant operators be relocated? Why would current operators of profitable
services -including the subway- agree to "share" "their" revenues to enable the system to
subsidize less profitable services? Why wouldn't collective transport operators -realizing that this
time all are equally affected- join in sustained opposition? And, how could the city possibly
finance a city-wide system that guaranteed pre-existing levels of profits to all participants, only
to secure their buy-in?
This case study indicated how even within the BRT corridor framework the planning and
regulatory capacity of the Mexico City government has not yet reached its full potential, and how
authorities have turned to increasingly forceful strategies to manage the money and rules
dilemma. This tendency may be partly attributable to an increasingly empowered public
authority; but, it also appears to be correcting for original sins committed during the initial
corridor implementations. These original sins may have been the inevitable costs of initiating
177
change in a complex urban system, meaning that Metrobn's required a fostering strategy to enable
it to eventually assume a more forceful posture. We cannot know for sure; nor can we know
whether the price of the original sins was "worth it." However, there are multiple signs that
authorities are aware that the Metrobns' "fostering" strategy has not proven sustainable; both
operators and implementers learn from experience, adjust their expectations, and position
themselves to extract more value from the system. Extending BRT's model of increased state
planning and regulation to city-wide non-BRT services, will undoubtedly come associated with
either significant conflict or significant financial cost. In fact, there are clear signals that
collective taxi organizations are actively preparing for the incoming negotiation or fight. I
participated in a meeting with several cinpula leaders present, and one of them mentioned, "either
due to cunning or necessity, we are re-grouping. Locally, and nationally. If we don't do
something to ensure that this model remains inclusive and democratic, the authorities will
certainly displace us. And by that I don't mean that we displace the individual members of our
organizations, but that large capitalists displace us."422
BRT may be a useful tool for authorities of developing world cities seeking to
change the terms of their relationship with the private operators of bus-based public
transportation. Beyond its performance advantages, it provides a path to transition away from the
weakly regulated, privatized and atomized system, while in the process reasserting the role of the
state as regulator and planner. Nonetheless the challenge remains on how to extend this added
state capacity outside of its corridor "niche" in a financially and politically sustainable way. The
Mexico City case also serves as a powerful reminder that this transition is inevitably costly, and
that compromises, when managed without a healthy dose of conflict, can become obstacles to
realizing and sustaining BRT's true potential. How have other cities approached city-wide
reform? Is there a flip-side to the previous argument, suggesting perhaps that more forceful, city-
wide efforts to expand state capacity in the urban transportation services have their own sets of
complications? With this question in the back of my mind I turn to Santiago de Chile, a city
where a slightly different pattern of conflict and compromise implemented in a relatively similar
context is already producing significantly different -and perhaps more promising- results.
422 Present at this meeting were Jesus Padilla, Nicolas G6mez, Jos6 Luis Gonzdlez Galdn, Agustin Herndndez and Jos6
Antonio Sdnchez Escalante, who claimed to represent 50% of bus routes in Mexico City.
178
Chapter 3: Governing public transport in Santiago, Chile
This chapter details how the City of Santiago, Chile transitioned its privatized, atomized,
and weakly regulated public transport industry into a more accountable, transparent, efficient and
integrated system. It is the story of how a resource-constrained, democratic government of a still
developing nation reinserted itself as an active participant in a critical public service industry
previously left to fend for itself. Over a span of 20 years, the Chilean State reclaimed on behalf
of the public the ability to plan, the capacity to regulate and the willingness to be held
accountable for the performance of a service that has "public" on its name.
This is also the story of how public transportation of one city became the dominating
item in the public discourse of an entire nation. After decades of invisibility, it took a long
succession of planning mistakes and financial mishaps to place effective, efficient and equitable
urban transport services at the forefront of the policy agenda in Chile. To be sure, the transition
implicit in this reform inflicted severe pain to many of the stakeholders involved. But even in the
face of plummeting approval rates and of dire financial instability, the key protagonists of this
story -from both the public and the private sector- found ways not only to save but to strengthen
a system that will at the end leave the users of public transportation and the citizens of this great
city better off.
When analyzed from a distance, the 20-year history of the strategies used by the planners
and implementers of public transport reform in Santiago reminds of a pendulum. No matter from
which side the pendulum is released, it eventually finds its own equilibrium, until a new
disruption sets it in motion once again. This observation is perhaps not notable in itself. The
world of politics and of policy demands occasional shocks to open windows of opportunity for
radical reform. In fact planners and regulators in cities with similar public transportation
industries, navigate this pendulum continuously, changing the ways they deal with the financial
constraints and political interests that provide context for their efforts. Bus operators will demand
a fare increase, or stop service, or deliberately lower service-standards, and authorities will either
concede or fight them, until eventually a new equilibrium is found. Despite the occasional "big
bang", this equilibrium becomes public transportation policy. What is powerfully different in this
case, however, is that at each turn of the pendulum, the authorities of Santiago enhanced their
planning and regulatory capacity to demand increasingly stringent standards from the private
179
sector, while simultaneously finding ways to compensate them for their efforts. While this
process was slow -and on occasion even briefly regressed- a long-run analysis shows how both
public and private counterparts strengthened their relationship and positioned themselves to
pursue more ambitious transportation goals.
Today disputes with operators are settled in court and not breaking protests in the streets.
Bad service performance implies a financial loss for operators. Subsidies are transparent,
discussed publicly, and closely audited. Investing in public transportation is less risky than
before, and a market exists where the only way to guarantee permanence is ability to deliver
better service. Public authorities can not only establish standards by decree, but they can also
closely monitor everyday service performance. In fact, today it is the authorities and not the long
gone cartel of private operators that is able to extract value from the system. The bus system
complements instead of competing with the Metro system, and the bus route network
increasingly responds to the needs of the city and not to the territories of rent seekers. Since
buses no longer carry cash, they are no longer robbed, and since fare discounts are automatically
applied through the smart-card system, drivers no longer discriminate the elderly or students.
Drivers work 8 instead of 16 hours per day, buses are maintained properly, and accidents,
congestion and emissions are lower than they would have been without this reform.
Of course not all the promises of the system have been realized. The gap between what is
socially desired and practically feasible; and between what is technically possible and financially
sustainable, is so large that progress is slow to come by. Much planned infrastructure remains
unrealized. Implementers have to thread finely between measures that benefit many by a little,
while harming some by a lot, and between implementing measures that take the city closer to a
world class public transportation system, while continuing to charge the public with fares that
most people are able to afford. This has implied increasing the level of fares and subsidies
significantly, opening questions about the desirability of pursuing second-order transportation
goals at the expense of other social needs. Perhaps one conclusion for planners if that an
overnight "big bang" cannot deliver the type of reform that is necessary to build the public
transport system that now exists in Santiago. But another conclusion, hopefully as persuasive, is
that there is hope: As the pendulum fluctuates from one side to the other, in Santiago it also
moves forward.
But let us start at the beginning, when the Chilean State decided that the best way to plan
and regulate public transportation policy was paradoxically not to plan or regulate at all.
180
Santiago, Part I
Part I. The era of laissez-faire (1973-1989)
The Chilean path to deregulation
On September 11, 1973 a military Junta toppled President Salvador Allende and seized
power in Chile, putting an end to months of escalating conflict between groups with radically
opposing views about the appropriate role of the state in the economy. Allende had won the 1970
presidential election by a razor thin margin, with votes almost evenly distributed evenly between
the left, the right and the centrist Partido Dem6crata Cristiano (DC). 423 This three way-split
became two-way, as Allende's coalition of socialist and communist parties -the Uni6n Popular
(UP)- aggressively implemented its "Chilean Path to Socialism."4 24 The country was polarized,
and soon "there wasn't a household in Chile that wasn't either fervently in favor of Allende or
against him."425 The transportation industry was no exception. In fact, the leader of the national
trade association of truck and lorry operators -the Confederaci6n de Camioneros- called for a
national strike in October 9, 1972 protesting plans from "the marxist-state dictatorship" to create
a state enterprise to control all land, maritime and air transport firms in the southern region of the
country. The truckers denounced that Allende's true intention was "to liquidate all privately
owned means of transport, beginning in Aysdn and ending in Arica". 426 At least fifteen national
trade associations, including the organization of private operators of public transport services
(the Confederaci6n Nacional de Ch6feres de Taxis de Chile) joined the strike, transforming it
423 The election was split three-way: Allende won with 36.6% of the votes, versus 35.2% obtained by Jorge Alessandri, the
candidate representing the right, and 28.2 obtained by Radomiro Tomic, from the Christian Democrat Party (Taylor 2006 p.
23). For a good, concise, overview of the history of Chilean politics prior to this election see (Oppenheim 1999 p. 3-31).
424 This was the title of the speech delivered by Allende to the Chilean Congress on May 21, 1971.
425 (Lagos Escobar 2012 p. 26)
426 (Alexander 1978 p. 303). See also (Rojas 1976 p. I11-115; Kaufman 1988 p. 108 and 200). The heightened rhetoric was
both ways. The government owned newspaper La Naci6n dismissed the movement as "a strike by the bourgeoise against the
workers" (Kaufman 1988 p. 80).
181
into a broad based national movement opposing Allende's economic policies 427. This standoff
paralyzed the economy for 45 days, cost the country approximately US $100 million, narrowed
the margin for compromise and set the stage for the military revolt.428
Members of all parties that opposed Allende in the 1970 election now supported the coup,
including the Christian Democrat Party. In fact, throughout 1974, Allende's predecessor in the
presidency Eduardo Frei Montalva (1964-1979) publicly justified the coup, stating that Allende
was an aspiring dictator, and that the military had no alternative but to intervene. 429 Legitimized
by the political class, the Junta appointed General Augusto Pinochet as president in December
1974. The General filled his cabinet with a combination of military officials and young graduates
from the University of Chicago, soon known as "the Chicago Boys." This administration
overturned Allende's programme in a few years, implementing a wide range of reforms inspired
in the teachings of Milton Friedman4 30 "that would have been almost impossible to implement
under democratic rule," and that "dismantled labor organizations."4 3 1 These included enactment
of business-friendly fiscal and labor reforms, the elimination of barriers to international trade, the
privatization of close to 300 state-owned, state-controlled or "intervened" companies, the
privatization of health and social welfare programs, and the deregulation of key sectors such as
energy, telecommunications and mining. Urban policy was not unaffected. The military regime
eliminated in 1976 the "green belt," a strict urban growth boundary established in the 1960 Plan
Regulador Intercomunal, and starting 1979 expanded the allowable area for urban development
from 38,000 to 99,935 hectares, encompassing vast areas in the agricultural hinterlands and high
427 The strike was organized by the Confederaci6n de Camioneros (62,000 trucks owned by 52,000 members). The fifteen
organizations included the National Chamber of Commerce, the national manufacturer's organization (Sociedad de Fomento
Fabril), the national builders organization (Camara Chilena de la Construcci6n), as well as small industries, artisans and
agricultural producers. The full list is available at (Gonzalez Pino and Fontaine Talavera 1997 p. 503-505). Bus and taxi
operators of Santiago had paralyzed service earlier, in May 23, 1973, demanding fare increases and subsidies to buy
imported spares and vehicles. See (Gonz6lez Pino and Fontaine Talavera 1997 p. 645-646)
428 "The growing economic problems, acts of sabotage and terror, and the near paralysis of the country triggered by the
truck owner's strike, contributed to the determination of the generals to take the country's destiny into their own
hands" (Kaufman 1988 p. 131). See also (Alexander 1978 p. 301-305).
429 See, for example, Frei Montalva's letter to the president of the World Union of Christian Democrat Parties (Frei
Montalva 1974).
430 In addition to having taught many of Pinochet's advisors, Friedmann visited Chile as a government advisor in March
1975, recommending the need for "shock treatment" to eliminate inflation (Oppenheim 1999 p. 121; Collier and Sater 1996
p. 365)
431 (Huneeus 2007 p. 2-3)
432 (Collier and Sater 1996 p. 366)
182
Santiago, Part I
in the mountain slopes surrounding Santiago.433 These measures liberalized the urban land
market and accelerated sprawl. When it came the turn of public transportation, the shift was just
as profound: Pinochet reduced to a bare minimum the role of government as provider, planner
and regulator of services.
To be sure, publicly owned transit agencies supplied only a small fraction of public
transport services in Santiago at the time of the coup. In 1968, President Eduardo Frei Montalva
had approved a comprehensive plan to build a subway system comprising 5 lines and 62
kilometers of rail track by 1980, and to simultaneously reorganize all bus routes in the city. 4 34
Construction of the first two subway lines had indeed begun in june 1969 and october 1973,
respectively.435 However, the combination of subway construction costs proving to be
significantly higher than expected, and Pinochet's distaste for such a large scale government-run
endeavor, stripped out the surface transport component of the plan, and significantly slowed
down subway construction. The first 8 kilometers of line 1 -barely enough to make a much of an
impact in a rapidly growing city- would not be open to the public until 1975. Only that year,
subway construction costs absorbed 29.7% of the total national public works budget, and similar
proportions would persist in subsequent years. 436 Line 2 would not open until 1978, and the
project to build line 3 would be postponed indefinitely in 1985437. Budgetary limitations had
also prevented governments prior to Pinochet from expanding services provided by the Empresa
de Transportes Colectivos del Estado (ETCE) -a public bus and trolleybus company with roots in
433 (Pavez Reyes 2009; Zegras and Gakenheimer 2000 p. 55)
434 (Ministerio de Obras Pnblicas y Transportes 1968). The consortium presenting this plan to President Frei Montalva was
composed of the Bureau Central d'Etudes pour les Equipements d'Outre Mer (BCEOM) and the Societ6 Francaise d'Etudes
et de Realizations de Transports Urbains (SOFRETU) from France, and by CADE-Ingenieros, from Chile. For details of the
origins of the Metro plan, see (Morales 1988). A 1969 evaluation alerted that the plan represented "both a political and an
economic problem... since the decision to dedicate these resources to public transport in Santiago implies sacrifices in other
areas of national investment" (Gakenheimer et al. 1969 p. 33).
435 (Cadiz 2007)
436 (Morales 1988)
437 This decision had been long discussed within government circles, particularly after the 1982 devaluation of the Chilean
peso, that brought its value down by 88% (Collier and Sater 1996 p. 371). However, it was not until an earthquake shattered
the central region of Chile in March 1985 that the Chilean government formally announced its decision to shift its
investment priorities away from the subway.
183
the 1945 expropriation of the electric trolley system.438 At the time of the coup, ETCE struggled
with an insufficient fleet of 710 buses, approximately 35% of which was routinely out of service
awaiting for repairs and spare parts.439 Even in its heyday, ETCE served only 9% of the travel
demand in Santiago44 0. Thus by the early seventies ETCE's buses were complemented by
approximately 2,500 buses and 1,500 taxi buses (known as "liebres," avg capacity: 20
passengers), operated by hundreds of individual entrepreneurs, each owning one to two vehicles,
on average4 4 1. These small-scale private operators emerged spontaneously in the 1920s and
1930s, originally employing improvised vehicles dubbed "g6ndolas,"44 2 that multiplied rapidly
amidst the frequent worker strikes and limited reach of the trolley company.44 3 These private
operators soon organized as "lineas," to establish informal property rights over routes, determine
service frequencies and homologue fares. Over time, however, their incipient rules were adopted
and legitimized by the state, so that by the time of the military coup private operations were
actually tightly regulated444 . The central government established fares, authorized routes, and
controlled market entry by means of permits. Also, since the market was closed for imports,
private operators were often dependent on authorities to obtain spares and new vehicles. Private
operators had to buy ticket rolls from the state bank, a mechanism designed not only as an
efficient way to tax operators and to keep tabs on their accounting ahead of periodic fare
negotiations, but also to prevent the emergence of informal services. According to Estache and
G6mez Lobo, this period was characterized by "chronic shortage and low quality of
services" (2005 p. 140).
The Military Junta created the Ministry of Transportation and Telecommunications
(MTT) in July 1974, charging it with "materializing the Junta's transportation plans and
438 The private electric trolley company was first intervened in May 1941, after a protracted worker strike that paralyzed
transit services for several days in Santiago. Workers demanded wage increases, and in turn the company demanded either a
subsidy or a fare increase from the government. Intervention did not solve the economic problem underlying this conflict,
partly explaining why authorities resorted to "tolerating" informal private bus operators to complement services.
439 A 1973 government press release admits 25% of ETCE's fleet out of service for repairs. See (Gonzalez Pino and
Fontaine Talavera 1997 p. 645). The 35% figure is taken from (Coeymans J.E et al. 2008).
440 (Fernandez 1994)
441 According to Fernandez and Mufioz (2007 p. 28) , average firm size varied between 1.4 and 1.5 vehicles.
442 (Collier and Sater 1996 p. 296)
443 At its peak in 1930, the electric trolley network in Santiago carried approximately 200 million passengers. By 1958, this
mode only carried 15 million passengers (Morales 1988 p. 21).
444 For a short history of this period, see (Figueroa 1990).
184
Santiago, Part I
programs." 445 Deregulation of the public bus industry began in 1975 with the relaxation of
requisites to participate in the market, and with significant budget cuts to ETCE. However, the
project gained momentum in 1978 with the appointment of Jose Luis Federici, an economist
trained in the USA, as head of the MTT. Previous to taking on this responsibility, Federici was
charged with streamlining the state owned railroad corporation, EFE, by laying off
approximately 14,000 workers.446 By the end of Federici's tenure at the MTT in December 1979,
anyone with a suitable vehicle could once more become a public transportation entrepreneur,
design routes and determine service frequencies. This process was paired with Pinochet's urban
land reform, which enlarged the boundaries of Greater Santiago, opening up vast sways of
farmland for real estate development. Soon massive comunas for poorer populations emerged in
Santiago's periphery 447, and their transportation needs were swiftly covered by spontaneous
private bus and taxi bus operators. According to one of them, "the only rigidity of the system was
applying to operate a service, practically always authorized. Absolutely nothing else. Quality of
service controls were non existent, and there was no supervision over our operations. Everything
was non regulated."44 8 The chilean government dissolved ETCE in 1981, with many of the old
buses sold to former workers of the company as part of a purported government effort to promote
"popular capitalism". 449 Fares were fully deregulated by 198340. Except for discounted student
fares, which continued to be set by the government, operators could modify fares by simply
advertising changes on their windshields. That year, the tax on real sales previously paid by
operators was replaced by a lump sum tax ("rentapresunta", computed as 1% of the replacement
value of the vehicle), and the requirement to buy ticket rolls from the state bank eliminated.
Between 1977 and 1982, the Pinochet Regime also liberalized the importation of vehicles and
spare parts from abroad, a policy that certainly increased the number of vehicles available, and
445 Decreto Ley 557/1974
446 (Barria Reyes 2008)
447 (Oppenheim 1999 p. 152-155)
448 Dosque, Sim6n. Personal interview. 15 june, 2012. The quote is consistent with the description offered in (Fernandez
1994 p. 167): "The Transport Ministry kept the power to authorize through a resolution the acceptance of new vehicles on
existing routes or the incorporation of totally new routes, but it never denied an incorporation application, except for formal
reason."
449 This policy was employed in the privatization of many state owned companies. For a discussion, see (Huneeus 2007 p.
314-317).
450 Fares were first liberalized via the Presidential Decree No. 320, dated November 2, 1979, and fully deregulated by 1983.
185
lowered the investment cost required to enter the industry.41 Furthermore, collective action by
workers was profoundly weakened through "anti-union practices enshrined in the authoritarian
labour code" 452 , reformed in 1978 and 1980, which allowed vehicle-owners to pay low salaries
and establish exploitative work conditions. The climax of bus deregulation came March 30,
1988, with the passage of Law 18.696. Article 3 stipulated that "remunerated transportation
services... will be allowed without requiring any authorization, sufficing to have a certified
technical revision that establishes that the vehicle is apt for the service it provides." 453 Advocates
of these reforms believed that the absence of government regulation would result in reliable and
efficient service, "under the assumption that free entry would reduce fares and that lower fares
would control entry."454
As a result of deregulation, supply of public transport services in Santiago certainly
increased. Between 1977 and 1990, the number of buses and taxi buses in Santiago increased
266%, from 4,760 to 12,678,45 while passenger demand remained relatively stable at an average
of 1,050 million passenger trips per year.45 6 Approximately 30-35 thousand people were
employed in the bus transport sector, including 18,000 full time drivers, 12,000 part time drivers
and about 1,000 route assistants, known as sapos (toads). The transit network expanded
organically, with the number of bus routes increasing from 80 in 1979 to 110 plus 325 variants in
1989,457 and with the average route length increasing from 37.1 kilometers in 1976 to 47.38
kilometers in 1984.458 The network became so dense that it was possible to hail a bus after
451 (Paredes, Sanchez, and Sanhueza 2001; Morales 1988)
452 (Taylor 2006 p. 64-67 and 107). Among the key points of the labor reforms under Pinochet were employer's right to fire
workers without reason and to hire replacement non unionized workers during a strike. The reforms of 1978 and 1980
actually softened early decrees by the Junta. Decree Law 198/1973 banned union elections and collective bargaining over
new contracts until further notice, and required unions to report planned meetings to the police 48 hours in advance. This
decree stayed in place until 1977 (Alexander 1978 p. 426-430). For a discussion on the diminishing power of worker unions
under Pinochet, see (Angell 1991; Oppenheim 1999 p. 175-176).
453 (Ley 18.696, Chile)
454 (Paredes and Baytelman 1996 p. 200)
455 (Paredes, Sanchez, and Sanhueza 2001). While figures reflecting the size of the bus fleet vary slightly according to the
source consulted, the trends are consistent. Other sources with vehicle fleet size estimations are (Figueroa 1990; Estache and
Gomez-Lobo 2005; Diaz, Gomez Lobo, and Velasco 2004).
456 (Fernandez 1994)
457 (Darbera 1993)
458 (Morales 1988 p. 38)
186
Santiago, Part I
waiting an average of 3 to 4 minutes459, and to reach most major destinations without transferring
to a different bus. The number of operator organizations participating in the industry also
increased, from 79 lineas in 1980 to 108 in 1990.460 The aesthetics of the system changed with
deregulation. ETCE's green buses were replaced by multicolored chromatics that identified
different lineas. Not only did average wait times and distance to bus routes dropped, but average
vehicle capacity utilization was reduced to 55% for buses and to 32% for the smaller taxi
buses."461 This meant that users were much more likely to find a seat -even at peak periods-, and
thus travelled more comfortably. And perhaps most importantly, these noticeable improvements
were achieved mostly without government subsidies.
However, deregulation also produced a range of problems. Lax vehicle standards led to
an increasingly old and poorly maintained fleet, mostly running on highly polluting diesel. By
1988, there were more than 400 different kinds of vehicles offering service 462, and the average
vehicle age increased from 7 to 12 years for buses and from 5 to 10 years for taxi buses.463
According to Fernandez (1994), 71% of the material emissions with breathable particles found in
Santiago's atmosphere during this period came from public transport vehicles. The city became
clogged, as 80% of bus routes overlapped in only six main avenues, and most buses entered the
city's central core.464 At the same time, less profitable areas in the periphery were severely
neglected. Since drivers were paid a low base salary plus a percentage of daily revenues, they
engaged in cut-throat, curbside competition for passengers, which significantly impacted
accident rates. In short, public transportation became one of the main contributors to air
pollution, congestion and accidents in Santiago.465
459 (Figueroa 2013 p. 90; Estache and Gomez-Lobo 2005 p. 142)
460 (Figueroa 2013 p. 90)
461 (Cruz 2001)
462 (Fernandez 1994 p. 169)
463 (Figueroa 1990)
464 (Malbrdn 2001)
465 To be sure, public transportation was not the only cause of transport related externalities in Santiago. Motorization rates
surged in this period, as a result of General Pinochet's decision to liberalize the import of private vehicles.
187
Counter-intuitively, fares more than doubled in real terms, from Ch $51.3 (US $0.13) in
December 1979 to a peak of Ch $125.5 (US $0.33) in June 1990.466 Part of this increase has to
do with economics: In an atomized market every bus appearing at a stop holds a "pseudo
monopolistic" position. Operators are able to increase fares without losing much ridership, since
passengers face a structural incentive to pay the surcharge. Once a "high fare" bus appears, many
passengers will tend to board it, given the uncertainty of how long they would need to wait until
a "low fare" bus appears. This, over time, acts as an incentive for all buses to increase fares.
Furthermore, even if demand was so elastic that lower fares resulted in significantly increased
passenger demand, operators couldn't possibly capture the potential gains. Since buses and taxi
buses have limited capacity to accommodate additional passengers, additional revenues from this
strategy are limited.467 In fact, by raising fares, operators actually managed their capacity
constraints. According to Figueroa (2005), per bus average ridership fell as a result of
pinochetista reforms: the number of passengers per bus per year in Santiago was 32% lower in
1989 compared to 1978. In contrast, their business thrived. During that same period, the average
revenues per bus per year increased almost 50% in real terms.
The negative externalities and the increase in fares discussed above are a function of the
industrial structure that emerged from government deregulation. To be sure, informal, private,
regulation of services persisted, similar in kind to the agreements that had originally justified the
creation of the lineas, with little intervention from state authorities. As Figueroa (1990b, 24)
concluded in his early analysis of this period, "the abolition of the state's regulatory role as
guarantor of this public service gave place to private, unchecked regulation and to the hegemony
of transport operators, leading to an activity dominated by private objectives." As we will see,
the private operator industry was gradually constituting a cartel.
Trade associations and federations: A free market that wasn't so free
Pinochet's advisors believed that in a free market, the lineas would professionalize and
optimize their operations to slash costs and gain a fare advantage. In theory, inefficient
organizations would be priced out, or at the very least have their membership rolls streamlined.
466 Figures by (Fernandez 1994), expressed in 1992 Chilean Pesos. Conversion by author, using 1992 exchange rate of US
$1=Ch $380.22.
467 For a detailed explanation of the economic model that underlies this logic, see (Fernandez and Mufioz 2007). An
alternative offered to explain the increase of fares during this period is the increase in fuel prices. This explanation is not
persuasive, since except for 1985, the price of oil was higher in 1979 than any of the following years until 2000. See (Diaz,
Gomez Lobo, and Velasco 2004) for further discussion on this.
188
Santiago, Part I
However, once the lineas replaced the state as the true regulators of service, the risk of being
displaced by competitors radically diminished. After all, consolidated, specialized, "modem"
operators were unlikely to contest their market dominance. On the one hand, no such players
existed in Chile at the time, and on the other, the market was rapidly saturated by thousands of
"micro bus" and "taxi bus" operators. Instead, deregulation made this industry attractive for
thousands of middle to lower income Chileans who feared losing their jobs as a result of the
ongoing liberalization in other sectors of the economy. They approached the lineas, seeking to
include their vehicles into existing routes, or to gain employment as sapos, drivers or mechanics.
To formalize their activities, lineas constituted as "asociaciones gremiales" -trade
associations-, a figure inserted into chilean law in 1979 that enabled members to participate
jointly in a productive activity without necessarily sharing ownership of productive assets
employed.468 These "not for profit" trade associations served four main purposes: 1) establish
informal property rights over a particular set of bus routes, 2) coordinate members to offer
regular, stable service, 3) pool resources to gain access to basic services or common
infrastructure, and 4) represent member interests when dealing with other trade associations or
with the government. The typical union was named after the points of origin and destination of
the linea that had originated it. However, as membership increased, trade associations opened up
additional routes and variants. By the end of the eighties, the largest public transport trade
associations in Santiago were the Maipn-Cerrillos, led by Juan Pinto, the Ovalle-Negrete, led by
the Marinakis Family, and the San Crist6bal-La Granja, led by Manuel Navarrete, each with
several hundred members. Most of the remaining trade associations were much smaller, typically
comprising 30-40 buses owned by approximately 20 individuals. 469
468 The concept of "asociaci6n gremial" was promoted by Jaime Guzmin, one of the key civilian advisers to Pinochet, and
included into law in 1979. Conceptually, it unified small business organizations and professional associations, distinguishing
them from unions that represented workers. For details on the "gremialista" movement, see (Huneeus 2007, chapter 7). For
the remainder of this text I will refer to the asociaciones gremiales of private transport operators as "trade associations."
469 These figures were reported by Carlos Roman (personal interview), and confirmed by several other sources, including
Demetrio Marinakis and Juan Pinto.
189
Trade association members working in the same route coordinated their fares, and painted
their buses in the same color.470 Membership provided access to basic services, such as bus
dispatch at terminals. These organizations also protected members from internal and external
competition. For example, sapos were deployed at various points along a route to ensure drivers
maintained appropriate headways, and to alert about the presence and location of buses from
rival organizations.47' Conflict between organizations certainly occurred. When two unions
claimed the same route, authorities tried to mediate and suggest alternatives. However, as
acknowledged by former trade association leader Dominga Nogales, "we frequently accepted
only half of the suggestions and invaded other routes, and it was then when problems began: The
crashes, the races and all else".472
To survive and thrive in such market, individual operators needed to find strength in
numbers. Joining an organization with sufficient sway and muscle was so critical, that buses sold
in the market at a significant price premium when affiliated with a major organization. Similarly,
smaller trade associations sought alliances with larger organizations, forming federations.
Optimization of resources was not a priority, as organization leaders found that it was more
important to expand their influence and power by growing their membership base. Larger
organizations could control larger territories, access a larger pool or common resources, and were
more likely to establish alliances with other organizations. The result was a very hierarchical
system, where every player -from sapos to linea leaders- knew their place.
By the end of the eighties, there were 106 trade associations in Santiago, aligned under 6
different federations. The largest were the Asociaci6n Gremial Metropolitana de Transporte de
Pasajeros (AGMTP, known informally as "la gremial"), and the Federaci6n Gremial de Dueiios
de Taxi Buses de Santiago (FGDTS, known informally as "Iafederacidn"). The former originally
affiliated mostly bus owners, while the latter represented owners of taxi buses, but this
distinction faded over time. Paradoxically, as this consolidation took place, the public
transportation industry in Santiago remained highly atomized. By 1989 there were 3,900 "one
470 Dominga Nogales, former operator and leader of one of these associations, recalls: "A typical passenger arrived to a
street-corner and found 40 taxi buses, all looking alike, and could hardly distinguish which to take home. This is why we
established a common color for each lineaa. Ours was white with dark and light blue stripes. Each lineaa picked a different
color, made things simpler."
471 While sapos earned their income from tips paid by drivers, they were usually affiliated to a particular association.
472 Nogales, Dominga. Personal interview. 13 july, 2012.
190
Santiago, Part I
vehicle" owners out of a total of 6,200 operators, with an average of 1.8 vehicles per owner. 3
Demetrio Marinakis, for a long time president of the AGMPT, recalls: "Here everybody was an
artisanal mini-entrepreneur, as most had only one, two, three machines. I had 1,500 partners,
each responsible for fixing their own buses and hiring their own drivers, and yet everything
worked out. We had the most disordered order."474
Of course, one of the key factors explaining the incentive to expand the membership base
in each trade association, was that more members paid more dues. In addition to the one-time
entry fee attached to each bus (sometimes reaching as much as US $3,000 dollars), trade
associations typically charged members a daily due per vehicle, in the form of a quota called
"planilla", that provided access to dispatch terminals. This quota varied by route, but was not
trivial. In turn, each trade association contributed financially to its federation, often through a
monthly payment intended to cover administration costs, and to pay for services offered to
affiliated members. In addition to these fees, the AGMTP and the FGDTS financed themselves
through two additional sources. The first was the sale of "carets" to students, required by
drivers on board buses to grant the discounted fares. Students had to renew their carnets yearly,
or pay full fares. The second source of additional revenue was the sale of ticket rolls to
individual bus operators, a function that was taken by the federations when government
authorities determined that purchasing them from the state bank was no longer mandatory.
The amount of resources pooled by the trade associations and their federations were
significant, enabling the leaders of these organizations to undertake more complex activities. For
example, the largest federations established insurance-like programs, offering vehicle repair and
legal representation services to members involved in accidents. Some developed 'mutual help'
funds, available to pay for funerals or other personal emergencies. Many offered medical care to
members and their families. Dominga Nogales recalls,"The Federation manufactured and sold
ticket rolls to affiliated lineas, and charged a margin for each roll to finance itself. We therefore
had spare money. This is when we created a medical department, equipped with doctors and
dentists. This service lasted decades..."As trade associations, we could purchase real estate, build
473 (Fernandez 1994)
474 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
191
our own terminals, build a casino. At our linea, we employed a full time mechanic and a painter.
I installed a gas station in our terminal and purchased gas wholesale."47 5
Each trade association elected a governing structure, usually comprising a president, vice
president, treasurer and three to seven directors.476 The president was in charge of "solving
problems. " They would talk to police in case of accidents, negotiate agreements with the
presidents of other lineas, and seek discounts from spare part suppliers on behalf of members.
These actors concentrated significant power within their organizations. They had access to
information about who wanted to buy or sell buses, and weighted on whether a new member
should be accepted. They decided whose buses could operate on the most profitable routes. In
most cases, linea leaders had a lot of discretion on the use of common funds, and many exploited
them for their personal benefit. Each federation elected a similarly structured governing body.
Federation leaders had access to higher level public officials, and negotiated with supply
wholesalers. While not critical, being active in the politics of your organization was important to
ensure financial success.
Unanticipated outcomes of laissez faire
The hands-off approach adopted by the Pinochet government enabled trade associations
to dissuade large firms from entering the market, and to limit participation to members going
through the ranks, to establish and sustain an informal system to coordinate fares and divide the
territory, and to reward rent-seeking behavior. Each of these unintended outcomes is briefly
summarized below:
* Dissuasion of large firms from entering the market
Trade association leaders knew that better capitalized firms could displace them.
Demetrio Marinakis described the proactive approach taken to prevent this possibility: "As a
dirigente, I told members that the only way to keep large entrepreneurs out of our market was to
ensure that profit and liquidity levels in the business remained at a low percentage. We have a lot
of wealthy people in Chile, that could enter the sector. My thought was always that we needed to
maintain low profit margins in order to dissuade the appetite of moneyed individuals." 47 7 A key
475 Nogales, Dominga. Personal interview. 13 july, 2012.
476 The description offered in this paragraph is based on interviews with trade association leaders such as Orlando Panza,
Demetrio Marinakis and Juan Pinto.
477 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
192
Santiago, Part I
strategy to implement this policy was to deliberately increase the number of buses operating in
Santiago. Despite lowering the profit levels of individual bus owners, flooding routes benefited
the trade associations and the federations, as they financed themselves from dues from members.
More members implied collecting more dues, and control over larger territories. 478
To outsiders, this industrial structure seemed like a saturated, chaotic market. Many
potential investors surely concluded that participating in the public transportation market as a bus
operator was a risky, marginally profitable, venture. As summarized by Fernandez (1994 p. 171),
"the system lacked a framework of basic rules, establishing the conditions that an eventual
private investor should follow, with clear and stable rules of the game." However, those
participating in the socio-organizational labyrinth of the trade associations, found a clearly
delineated career path to follow. New trade association members typically emerged from within
the organization. "Sapos" became bus drivers, and bus drivers eventually bought an old bus from
their employer. Then, as members, they participated in the plethora of committees that
conformed the government of the trade association, not with the objective of becoming the
captains of a large transportation company, but of gaining more responsibilities within the union.
As such, members groomed into the organization were from the start invested in preserving,
rather than challenging the existing power structure.
* Fare inflation
As previously discussed, deregulation amidst industry atomization creates a structural
incentive to increase fares. 479 However, decisions about the timing and the magnitude of fare
adjustments still require coordination, provided by trade associations and federations.
Furthermore, since an increasing number of routes overlapped in key avenues, almost
instantaneous comparison of fares was indeed possible. To prevent a fare war, the leaders of
stronger organizations colluded, pressuring weaker organizations into modifying fares to their
preferred level at the agreed moment. Once agreement was reached about how much to charge
passengers, linea leaders ensured the fare was respected by members of their organizations. Juan
Pinto describes the mechanism: "We talked. A group of friends would meet, and someone at the
478 Of course, this strategy did not benefit individual vehicle-owners. One of them recalled, "there was competition within
our own linea, because too many buses worked on it. My drivers fought against the others to maximize revenues. We had to
compete within our linea! And against any other lineas that overlapped our streets! There were over 400 Lineas!"
479 (Fernandez and Mufioz 2007)
193
table would say 'we are short on cash, so the fare is going up by 10 pesos'. When someone
resisted, we simply asked 'are you going to raise them or notT. At the end, everybody adjusted
their fares, some happy and some scared, but the fares were adjusted and the city worked".480
As a result of these agreements the fares in Santiago were mostly flat, and did not
account for the length of trip, demand levels on different routes or quality of the vehicle. 481 This
fare structure certainly raised suspicions of collusion among government authorities, but
Pinochet's Antimonopoly Preventive Commission never took action against the cartel, due to "its
inability to demonstrate satisfactorily the existence of agreed (monopolistic) behaviors"482 . In
fact Paredes and Baytelman (1996) reviewed more than 20 collusion-related complaints against
bus operators, discussed in Pinochet's Antimonopoly Preventive Commission between 1982 and
1994. Trade associations threatened individual bus operators resisting fare hikes with expulsion
from their organization, or "punished" them by reassigning their vehicles to less profitable
routes. The Commission typically ruled against the plaintiffs, arguing that even in the face of
expulsion, the affected operator could lower its own fares if so desired. While technically true,
such belief was tremendously naive.
Territorial division and institutionalization of conflict resolution
The lineas defended their territory from competitors, initially by force. "Collision
denunciations, physical aggressions, and damaged windows and seats, were common. These
practices, even when they are not necessarily generalized, have dissuasive consequences, mainly
if they are easy to commit and are difficult to control or demonstrate in court". 48 3 However, once
the cartel was fully structured, disputes could be settled in a more civil (but still forceful)
manner. Demetrio Marinakis, who served as president of the AGMTP, recalls: "When one linea
elongated its route and affected the interests of another, I simply called their leaders into my
office, and got them to agree on what I considered just... we had no conflicts because we were
united."484 Conflicts existed of course, only the federations of trade associations created a forum
to institutionalize negotiations and enforce resolutions.
480 Pinto, Juan. Personal interview. 27 july, 2012.
481 This was different from Valparaiso, where the presence of a trolleybus company, unaligned with the cartel, acted as a
fare regulator.
482 (Fernandez 1994 p. 170)
483 (Paredes and Baytelman 1996 p. 204)
484 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
194
Santiago, Part I
* Rent seeking
The trade associations provided vehicle insurance and maintenance, legal representation
and health services, which were very valuable to members. Once these services became
established, the cost of exiting the system grew further, leaving few to question the need to pay
membership dues to finance them. Soon, the management and financing of such activities
became an additional source of income and power to many leaders, often more than their own
activities as vehicle-owners. They provided access to side deals and commissions, and control
over a large patronage network. The personnel hired to deliver these services quickly became
part of a bureaucratic structure that reinforced the control of the dirigentes over their
organization. As the value of controlling an organization became clear, the power of the
dirigentes in each trade association grew, and so did their ability to extract rents from the system.
Strong enough to challenge Pinochet?
The stated commitment to free market principles did not mean that government
authorities and private operators did not negotiate under the dictatorship. Demetrio Marinakis,
who served both as president of the AGMTP and as president of the Consejo Superior, recalls:
"We thrived under the military regime because the military regime did not mess with us. In fact,
we were among the first to hold a strike under the military regime." 485 To be sure, there were
service stoppages even under Pinochet, but these were not designed to challenge the regime, but
rather to get its attention regarding service related concerns. For example, bus operator
organizations stopped service in 1984-5 to demand exemption from the vehicular restriction
policy implemented in Santiago, and to demand less discretionary mechanisms for pollutant
emission testing. However, it is also true that as social unrest in the country grew, Pinochet's
civilian Minister of the Interior, Sergio Onofre Jarpa, interceded with military officials serving as
MTT ministers on behalf of bus operators.486 They frequently conceded to bus operators'
demands, probably as a deliberate strategy to prevent them from joining protests occurring
485 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
486 Under Pinochet, the MTT had seven different ministers, five with a military background. This in stark contrast to other
cabinet posts, like the Ministry of Economy or Finance, overwhelmingly dominated by civilian technocrats. For a discussion
on the composition of Pinochet's cabinet see (Huneeus 2007 p. 207-213).
195
amidst the severe economic crisis that affected Chile during 1982-3487. That year, official
unemployment rates stood at 19.6%, despite a massive temporary work program (the PEM,
"programa de empleo minimo") implemented by the regime. The seeds of grass roots opposition
to Pinochet were planted amidst this crisis, 488 and bus operators used the occasion to request and
obtain financial support from the government. While the Pinochet administration consistently
denied their pleads for operational subsidies, it did authorize US $80 million dollars in credits at
preferential rates for operators to purchase new vehicles, renegotiated bus and taxi bus owner's
outstanding debt with banks (offering government backed guarantees), and authorized discounts
in fuel prices.489
In 1988 -the same year Chile held a national plebiscite to decide whether or not General
Pinochet should continue in power for eight additional years- the AGMTP and the FGDTS joined
to create the Consejo Superior de Transporte (Superior Council of Transportation). Operators
created this umbrella organization to increase the leverage of trade associations when dealing
with government authorities. 490 This was a period of mounting political tension, linked to the
uncertainty surrounding the plebiscite, and to the rising social costs of the regime's economic
policies. As the iron grip held by the military over the rest of chilean society weakened, relatively
frequent acts of sabotage against the regime took place, and some of these events ended up with
buses burnt down. After all, the low quality of bus services and the high price of fares was
identified as part of the policies of the regime 91. At least on one of such occasions the Consejo
Superior ordered members to stop service for a day, demanding that the Pinochet administration
increase policing on the streets, and requesting government coverage of the damages. When
authorities granted this request, trade association members certainly took advantage. Juan Pinto
recalls, "basically, the Pinochet government agreed to compensate the owner of any machine that
was burnt, and we exploited this. I had colleagues who burnt their own buses when they were
487 In this period there was unrest in among labor and small business interests: On the one hand, the copper worker union
struck in 1983, and on the other small buisnesses threatened with paralyzing services. For a description of the
"entrepreneurial revolt," see (Campero 1991p. 140). However, these forces never joined, partly due to a "stick and carrot"
strategy implemented by Pinochet: Sticks to workers, carrots to groups like the trade associations.
488 (Huneeus 2007 p. 365; Oppenheim 1999 p. 176-177).
489 (Fernandez 1994 p. 168; Huneeus 2007 p. 369-371, 389)
490 (Darbera 1993 p. 53)
491 In fact one TV ad used by the "Campaign for NO" in the 1988 plebiscite featured a citizen unable to board a speeding,
smoke-exhausting bus.
196
Santiago, Part I
short on cash... They got paid Ch $20 million (US $81,756) when the machine actually cost Ch
$10 million (US $40,878). They used these funds to pay their debts and to buy another bus.
Mischievous." 492
Bus operator federations built an aura of invincibility around them, partly as a result of a
growing perception that they could get away with abusing both citizens and the government, and
partly due to the sheer number of people participating in the industry. The importance of the
Consejo Superior as a political instrument to protect bus operator interests only grew as the
transition to democracy became a real possibility. This unifying body allowed bus operators to
participate in high level discussions about the future of the country, and linked its leaders to
decision-makers in both sides of the political dispute. The Consejo Superior had a seat within the
Multigremial de Transporte, a national organization of transportation business interests, led by
the politically powerful truckers, whose strike had triggered the military coup in 1973. It also had
a seat in the Confederacion de la Pequefia y Mediana Empresa, the national organization of small
industries, commerces, and small exporters. Both of these organizations were concerned about
the potentially disruptive impact of regime change, and kept lines of communication open with
key players in both sides of the political spectrum. While the Consejo Superior was careful never
to issue a full blown endorsement of the forces opposing Pinochet, there is some indication that
trade associations felt sufficiently secure that their interests would not be affected if the
dictatorship ended. In fact, former trade association leaders interviewed in the course of this
research claimed personal connections to key opposition figures during this period, and stressed
that they actively used their buses to mobilize voters in the 1988 plebiscite.
The return of democracy
Throughout his government, Pinochet claimed that Chile would have a transition to
democracy, except it never came. In 1980, his government organized a plebiscite, asking whether
the country should have elections or keep the military in power for eight more years. The left-
leaning parties had been banned and dissolved, and it was the DC that led the campaign against
the general. It did not matter. Pinochet had such a grasp over the country -not only controlling
the media and government spending, but the feared Carabineros- that he easily won. Eight years
492 Pinto, Juan. Personal interview. 27 july, 2012. Conversion to US $ added by author, using the December 1988 exchange
rate (US $1=Ch $244.63).
197
later, the country had suffered from a terrible economic crisis, the opposition to Pinochet was
better organized, and it was time to vote again. The "Concertaci6n de partidos por el NO", a 17-
party alliance that for the first time teamed up the christian democrats with the socialists, carried
the plebiscite held on October 5, 1988. After the triumph, the Concertaci6n held a primary
election, selecting Patricio Aylwin, from the Christian Democrat Party (DC) as its presidential
candidate. To be sure, the 38-page government plan set out by the Concertaci6n mostly focused
on the items that united, rather than divided members of their broad based coalition: Defense of
human rights and reestablishment of democratic institutions.493 Aylwin was careful to ensure that
his economic proposals did not suggest anything resembling a radical return of the Allende years.
In fact, many Concertaci6n ideologues "were adamant that their new regime would not succumb
to populist pressures." 494 Rather than overturning Pinochet's economic agenda -which had
resulted in annual growth rates of 7.9% since 1985495- the DC-led Concertaci6n sought to ensure
that the gains of policies implemented in the prior 16 years were better distributed. It promised
"growth with equity." As Aylwin summarized during a campaign rally, "the meaning of justice is
that the advantages of growth, of the diversification of exports, and of the modernization of the
economy -all of which is good- benefit not only a small minority, but all Chileans, whose work
contributes to the production of this progress and richness." 496 On December 14, 1989, the
Concertaci6n carried the election, and on March 11, 1990, Patricio Aylwin was sworn in as
president. Democracy had returned to Chile.
The public transportation system in Santiago left behind by Pinochet was composed on
the one hand, by a subway network with only two lines, 37 stations and 27.3 kilometers of track,
operated as a publicly owned corporation with legal, administrative and financial autonomy from
the central government 497, and on the other, by a dense private bus and taxi bus system operated
by thousands of individual private operators organized as a cartel. According to Collier and Sater,
in 1989 no visitor could fail to notice "that the Santiago smog was one of the most noxious in the
493 Incidentally, this text has no explicit references to the words "city" or "transportation" (Martelli 2011).
494 (Taylor 2006 p. 117)
495 (Huneeus 2007 p. 8)
496 For a detailed description of the policy objectives of the Concertaci6n's first government, see (Boeninger 2008 p. 33-41)
497 Pinochet enacted Law 18.772, removing the subway from the purview of the Ministry of Public Works (MOP), and
creating Metro, S.A., an autonomous corporation to build and operate it. Curiously, this Law was enacted on January 28,
1989, only 42 days prior to the change of government. Similar last minute reforms affected the water treatment companies of
Santiago and Valparaiso. For more on this, see (Huneeus 2007 p. 442).
198
Santiago, Part I
western hemisphere -caused partly by the sheer rise in the number of automobiles (approaching
1.5 million in Chile by the mid 1990s) and partly by an uncontrolled increase in bus
traffic" (1996 p. 375). Little was left from the integrated plan envisioned in 1968, as both modes
in fact competed for passengers, to the point that at peak hours roughly 1,500 buses and taxi
buses ran on the very same corridor served by line 1 of the subway.498 The commitment to inter-
modal competition was such, that instead of forcing both modes to complement each other,
subway expansion projects and operational subsidies were cancelled to ensure this mode
achieved financial self-sufficiency and didn't enjoy unfair advantage. This of course resulted in a
grossly underutilized subway system, and in surging air pollution, congestion, and accident rates
on the surface. Many within the Concertaci6n questioned the state's lack of involvement in the
urban transport sector under the military regime, pointing to the market failures and oligopolies
that accompanied the ample degree of freedom bestowed on bus operators499. Would the new
government leverage the economic strength of the country to expand the subway system and re-
regulate the buses? Would it expand state capacity to use transportation policy as a tool for
"equitable growth"?
498 (Alvarez 1991). According to Collier and Sater, "at the end of the 1980s Santiago was reputed to have as many buses as
Buenos Aires, a city three times larger" (1996 p. 375, footnote 12).
499 (Figueroa 2009 p. 11)
199
Part II. The reinsertion of state regulation (1990-2000)
Forcing the tiger into the cage
The main road in Santiago is Libertador Bernardo O'Higgins, a ten-lane avenue (5 each
way) that crosses the city from east to west, running beside the Mapocho River, and providing
access to the city's downtown. It is popularly known as "La Alameda", a name reminiscent of
colonial times, when it was bordered by cottonwood trees -ilamos-5 00. La Alameda has critical
importance for efficient passenger transportation in Santiago: Line 1 of the subway runs
underneath it, and in the early nineties, it was congested by thousands of microbuses and taxi
buses. Hector Moya, a trucker that had gained notoriety for leading the faction of the iconic
national truck and lorry operator organization that announced its support for the return of
democracy, and who now served as president of the Multigremial de Transporte, received an
invitation to meet with newly elected President Aylwin. At that meeting, Mr. Moya was asked to
convey to bus operators that profound changes would be coming to the industry with the arrival
of the Concertaci6n, and that their cooperation would be appreciated. President Aylwin pointed
to the congested, polluted and perilous Alameda, and told Mr. Moya that such service was
unacceptable for the Chilean people.
The political context was propitious for sweeping and conspicuous reforms in Chile. This
was the first democratic government elected in 16 years, immensely popular, and with a clear
mandate to shake things up. Further, public transportation in Santiago was one of the public
services that received lowest ratings from the public, an outcome clearly associated to Pinochet's
laissez faire. Surely it would be possible to re-regulate transportation services distinguishing "the
aspects where contribution from the market is expected and where public regulation ought to
take charge of the failures of the market." 01 Intervention in this sector offered a clear
opportunity to signal that the new government was at least as concerned about the quality of
urban public services as it was committed to national economic growth. For these reasons,
President Aylwin instructed his newly appointed head of the Ministry of Transport and
500 The name of this street during the spanish colony was "Alameda de las Delicias."
501 (Figueroa and Orellana 2007)
200
Santiago, Part II
Telecommunications (MTT), Germin Correa,"0 2 to "find deep solutions." 03 Correa rapidly
recruited a competent team to strengthen the institutional capacity of the Ministry, and ordered a
city-wide origin and destination survey (completed in 1991) to base plans to intervene the sector.
Correa prepared an ambitious, overarching reform agenda that included: (1) establishing clear
and stable rules to govern privately operated public transportation services, (2) tightening
regulation to address transport externalities (congestion, accidents and pollution), (3) establishing
incentives for modernizing bus operator management, improving control and supervision
mechanisms, (4) modernizing the public transport vehicles and (5) creating economic
disincentives for the use of private vehicles. 504
Mr. Moya recalls talking with the leaders of the major public transport trade associations
on behalf of the president: "We tried to build an agreement with the microbuseros, that would
allow us to work together, by consensus, in meeting the president's desire to inject order in the
system. There was no way".505 After years of deregulation, bus operators felt entitled.
Furthermore, they were confident of their ability to block any proposed reform that threatened
their business by going around the MTT and negotiating with the heads of more "political"
Ministries, such as the Secretary General of the Presidency or the Ministry of the Interior. They
had indeed done this to military heads of the MTT under Pinochet. Since transport is a critical
service, linked to the everyday governance of cities, transit operators naturally develop
relationships that expand above and beyond areas directly tasked with transportation. These
relationships serve as "back doors," used to lobby for or against a particular policy. The leaders
of the Consejo Superior utilized these doors seeking assurances that the new government would
respect "ownership" of "their" routes. They approached Aylwin's Minister of the Interior, who
was a member of the DC and not a socialist like Correa. They also reached out to senators and
congressmen. However, part of the conditions established by the Socialist Party and by Correa to
accept responsibility for the MTT under a Christian-Democrat president, was that transportation
502 Germin Correa is a sociologist, trained at UC-Berkeley, and a high profile member of the Socialist Party of Chile, part
of the Concertaci6n. Previous to the military coup, he briefly worked in President Allende's administration, and then went
into exile, working in favor of the return to democracy from abroad.
503 (Correa, German. Personal interview. 13 june, 2012)
504 (Hohmann and Fernandez 1990)
505 (Moya, Hector. Personal interview. 21 june, 2012)
201
concerns would be resolved exclusively at his desk. This agreement was upheld, and for this
reason trade association leaders were turned back and forced to acknowledge Correa's authority.
When Correa met with the leaders of the AGMTP for the first time, at his ministerial
office, one of the trade association leaders scoffed at the suggestion of changing the rules that
govern the system: "Many Transport Ministers have sat in your chair, while the rest of the
individuals present in this meeting have been here for more than 10 years. We will continue to be
here after you leave." 06 Correa responded "I would love to implement the president's orders
with your cooperation. That is my purpose here. But if you insist on blocking me, I will
implement these reforms against your will." 07 Such was the start of a very rocky relationship.
To further empower Correa, President Aylwin sent a bill to Congress to modify Article 3
of Law 18.696, shaking the very foundations of Pinochet's free market approach to public
transportation. The revised article, enacted December 12, 1990 stipulated that:
"National remunerated transport of passengers, public or private, individual or collective,
on streets or roads, will take place freely, notwithstanding that the Ministry of Transportation and
Telecommunications (MTT) establishes the conditions and dictates the norms within which these
services will ftnction, with regard to the mandatory observance of technical norms and polluting
emissions from the vehicles, and regarding the operational conditions of the services of
passenger transport and use of roads."
"...The MTT may, in the event of road congestion, deterioration of the environment, and/
or of the safety conditions for people or vehicles resulting from vehicular traffic, decree the use
of streets for certain types of vehicles or services, through public tender process."
"... Also, the MTT will be authorized to dictate the technical norms that refer to safety
and pollution, that enable declaring the definitive technical obsolescence of vehicles destined to
passenger transport and its resulting exit from the vehicle fleet." 08
In other words, private operators now required ministerial authorization to run their
services, and Correa was now empowered to grant the exploitation of existing roads, in
exclusivity, to whomever won a competitive tender. Furthermore, the Ministry had ample
506 Both this meeting and this quote were confirmed by both Mr. Correa and by Mr. Juan Pinto, one of the trade association
leaders present.
507 (Correa, Germdn. Personal interview. 13 june, 2012)
508 (Ley 19.011 Chile)
202
Santiago, Part II
freedom to mandate exit of "obsolete" vehicles from the streets. These were major, radical
reforms. Correa reflects on its importance: "The Law entitled me to determine the conditions, the
Law gave me the power to determine if a tender was necessary, the Ministry -do you get this? It
was a Law that gave me extraordinary powers, with a few lines of text I had all the legal power I
needed." 09
Working under a new set of rules
The first challenge facing Correa was to reinvent the relationship between private
operators and his Ministry. Going forward, the state had formal capacity to unilaterally change
technical specifications, route alignments, service levels, and any other aspect of public transport
service. However, it wasn't advisable to forcefully break a system in equilibrium. While the rules
in place allowed the Transport Ministry to be profoundly bold, Correa exercised restraint. After
all, the transportation system was embedded in a larger social social structure that could only be
gradually modified. As he put it, "transport operators tend to be a socially deprived sector, with
little social recognition, and nonetheless hard working; the mafiosos are their leaders, not the
operator who repairs his bus until two or three in the morning." Negotiations about the content of
the two main ultimately projects promoted by Correa -a bus retirement program and a tender to
award route-based concessions- took place almost daily. "These were very strange meetings in
which I negotiated and conceded some points, but also continued to hit them hard. When we
fought, they reacted with some display of force, for example by stopping service in a particular
linea. I responded to such threatening moves by adding two or three additional items of proposed
regulation to the discussion...so that the next time we sat at the table I was positioned to concede
one or two points, and still come out ahead. My strategy was to slowly corner them, as they
knew that fighting the government was not in their best long term interest."51 0 Rather than the
details of the regulation, the underlying point was to establish the state as the player with
ultimate authority at the table.
An example may illustrate this. One of the trade associations that operated taxi buses had
been particularly combative, and refused to attend the meetings at the Ministry. Correa reacted
by suggesting in public that taxi buses would no longer be permitted in Santiago. This possibility
509 (Correa, German. Personal interview. 13 june, 2012)
510 Ibid.
203
brought disgruntled operators speedily to the negotiation table. The actual decree eventually
published, dated February 1991, was significantly less harsh than the statement had indicated. It
banned taxi buses only from La Alameda, which represented a major change, but still
demonstrated willingness to compromise.
Bus operators lived through this period with intense frustration. Orlando Panza, then
president of a trade association, recalls: "Everything became a conflict after the military
government ended. The new socialist authorities wanted the scape tubes in our vehicles to point
up, then to point down; they wanted us to switch to petrol that would not smoke, but it smoked
because the petrol sold by the market was bad quality. They wanted us not only to change our
ways, but to absorb the costs of their proposals, while the state never invested in street paving or
in improving petrol."511 Others took it personally. For example Dominga Nogales -who served as
president of the FGDTS for some time- referred to the transportation minister as "evil, very evil,
a destroyer of the trade associations" and described his re-regulation efforts as the socialist
vengeance against the private transportation industry "since it was us who provoked the military
coup." 12 However, it would be quite a stretch to describe the conditions of the bus retirement
program and of the route concession tender that emerged from this negotiation process as
aggressive.
An attractive bus retirement program
On December 31, 1990, Correa signed a ministerial resolution stipulating that buses and
taxi-buses of models earlier than 1973 were no longer authorized to provide public transportation
services in Chile, and that later models required passing a new technical revision to remain in
service.113 To be sure, the vehicle age limit of 18 years was quite generous. Any strict analysis
would consider buses of such age fully depreciated. Yet, the fleet was so old, that this resolution
still meant that 2,600 buses (owned by approximately 2,000 individuals) had to exit the system
immediately. To mitigate the social dislocation implicit in this reform, President Aylwin
promoted a bill in Congress to fund a cash-for-clunkers (chatarrizacidn) program. Law 19.040,
approved January 25, 1991, established a fund to purchase and destroy buses and taxi buses
"affected by the measures to retire vehicles from the public transport fleet stipulated by the
511 (Panza, Orlando. Personal interview. 19 july, 2012)
512 (Nogales, Dominga. Personal interview. 13 july, 2012). She was refering to the fact that bus operator organizations in
Santiago had joined the 45 day strike against Allende organized in 1972 by the Confederaci6n de Camioneros.
513 (Resoluci6n No. 157 que establece disposiciones sobre la circulaci6n de vehiculos de locomoci6n colectiva)
204
Santiago, Part II
MTT.""1 4 Prices offered were generous: Owners would be paid between US $2,669 and US
$7,710 dollars per vehicle, depending on the model year. The government's mitigation efforts
also covered potentially displaced workers. To participate in this program, bus owners had to
fully pay any pending social security contributions (cotizaciones previsionales) of their
employees in full. But in addition, Law 19.040 established that drivers "made redundant as a
consequence of the sale of their vehicles to the state" were eligible to receive additional financial
compensation from the government. Redundant drivers would receive between US $445 and US
$949 dollars depending on the number of years worked.515 This benefit applied also to redundant
inspectors, cleaners, and administrative personnel working at the the trade associations.
According to Correa, the full cost of this program to the Chilean Government was USD$14
million.
Several trade association leaders claimed the government's "generosity" simply
acknowledged the strength of their organizations. "When Germin Correa did what he did he paid
us. Your bus was sent for scrappage, you relinquished the license plates, collected a green piece
of paper, and got Ch $2 million (US $5,931), or whatever the bus was worth, and simply used the
money to get a new one. Obtaining such concession was only possible because the trade
associations were united."516 But to be fair, the Law also stipulated that moving forward, any
vehicles added to the fleet had to be new, and that any operators surprised providing services
with vehicles that had not passed the MTT's technical revision, or that were older than
authorized, would be severely fined. While the average vehicle age in Santiago remained high,
the MTT had started a process to gradually modernize the fleet with the cooperation of transport
operators. The impact was immediately noticeable, as many bus operators did in fact use the
money as downpayment to purchase new vehicles. 7
514 (Ley 19.040 Chile). Figures in original source are Ch $900,000 to Ch $2.6 million. Conversion by author using the
January 1991 exchange rate (US $l=Ch $337.23).
515 Ibid. Figures in original source Ch $150,000 to Ch $320,000.
516 (Pinto, Juan. Personal interview. 27 july, 2012). Pinto was contrasting this to what happened later, in 2005 with
Transantiago, where no compensation was offered.
517 This number, mentioned by Juan Pinto, was confirmed by looking at the "bump" of 1991 model year buses that
composed Santiago's public transport fleet in the early 2000s.
205
Designing the framework for a negotiated tender
In addition to retiring old buses, Correa used the other instrument available to the MTT
since the reforms to Law 18.696: The public tender process. Arguing that most streets in
Santiago met the condition of "road congestion, deterioration of the environment and/or of the
safety conditions," Correa set out to tender all bus routes in 1991. Such option may appear
forceful, but in reality the bases detailing who could participate and under what conditions were
the result of protracted negotiations between MTT officials and private operators. In fact, the
conditions finally accepted were structured in such way that only operators already participating
in the market would find it attractive to bid.
The rules did not call for a redesign of the transit network nor for the cancellation of
redundant or unnecessarily circuitous routes. Instead, they simply formalized the services
designed organically by operators during years of deregulation. The bases did not require
operators to include new vehicles nor to
optimize their fleets, but simply Figure 3.1 Privately operated bus in Santiago, October 1992
acknowledged the number of buses
already servicing in each route as the
accepted baseline. They did not force
trade associations to consolidate as
corporations, and accepted bids
presented by trade associations on
behalf of their members. The rules
established that operators could
determine their own fares, except they
could no longer increase them beyond
a maximum price established in the LA4 destes de prme dio de )as nvcvanormon do
bases. The fear of cost inflation was ___________________
assuaged by the creation of a fare
adjustment mechanism included in the tendering rules, designed to periodically adjust for
fluctuations in the cost of critical inputs, like fuel. Furthermore, contracts offered by the MTT
were very short-term, lasting only 18 months5 18. And finally, the rules required interested parties
518 This term could be extended to 36 months if the vehicle fleet was composed by at least 80% new vehicles, or if 50% of
the fleet was owned by a consolidated company and not by individual owners (Figueroa 2013 p. 93)
206
Santiago, Part II
to have the required bus fleet available at the time of the bid ("flotapresente"). Both of these
final conditions made participation significantly less attractive to new players. In addition to
likely concerns about whether or not the state would be able to restrain unauthorized competitors
from contracted routes, new investors would need to (a) acquire their buses before knowing
whether or not they would win the contract, and (b) develop a business model that ensured a
profit in a very short time.
With the benefit of hindsight, many former trade association leaders agree today that this
tender process posed little threat. According to one of them, "The new system would maintain
the routes that for many years had existed in Santiago. There would be no regulation about the
property of the vehicles. We could maintain the individual property of buses and still participate
as trade associations. Regulations regarding vehicles would be basic, and no rules would be
established about who we could hire as workers and under what conditions. None of that. We
would still be free, working under complete informality". 519 One critic suggested that the most
transcendent transformation achieved by Correa during this period, was getting all operators to
agree to paint their buses color yellow, and to identify their existing routes by numbers, rather
than by their points of origin and destination. The resulting system -popularly known as the
"micros amarillas "- would consist of the same buses, running on the same long, convoluted and
overlapping routes, operated by the same organizations. In other words, while revolutionary at
the time, the new rules represented only a slow and gradual expansion of state capacity,
preserving much of the status quo. Even if successfully implemented, the tender would not result
in new players entering the transit market, in less curbside competition for passengers, or in less
artisanal bus operations.
Yet, the negotiated approach to the bus retirement program and to the city-wide tender of
bus routes actually made sense. It immediately addressed the most pressing concerns of the
public: a) doing something about congestion, b) controlling the increase of fares, an c) reducing
the emission of air pollutants. At the same time, it began a previously unthinkable process toward
reestablishing the state as planner and regulator of public transportation service in Santiago.
Correa reflects on this period: "I knew that it was not politically feasible to move forward by
piling changes on top of changes. When you do this the possibilities of defeat and of a bad
519 (Dosque, Sim6n. Personal interview. 15 june, 2012)
207
outcome increase exponentially. You need to make a change, and only when this change is
consolidated, move onto attempting the next one. That is, you do need a strategic design that
encompasses all, but you can't get to the final objective in one trip". Correa's objective at that
time was not to replace the existing bus operators, but rather to contain them. "We had a tiger
roaming the streets of the city and we needed to place it in a cage. This unregulated tiger was
destroying, killing, causing most of the accidents... our task was to put it in the cage of a state
that regulates, of a state that says "this service will not be delivered in such fashion, but in ways
that benefit the people". 2 0
Despite Minister Correa's attempts to secure the buy-in of bus operators for his reforms,
negotiations soon hit a wall. In early April 1991, bus operators broke talks and scheduled a one-
day general stoppage of service throughout Santiago. The tiger was not willing to enter the cage
willingly.
The first tender attempt and the first city-wide service strike: Action and
reaction
When analyzed from the perspective of trade association leaders, resistance was
understandable. The long term survival of the business model of the trade associations depended
on preserving an atomized industry structure, where individual operators would retain ownership
over their own bus, where routes would remain flooded, and where the purchase of older buses
by former drivers served as the main entry point to the market (e.g. a path that allowed leaders to
reward discipline and loyalty). While the tendering rules agreed with Correa implied no
immediate changes to the existing socio-organizational structure of the trade associations, the
process certainly empowered the transportation ministry. Even if only by means of a cosmetic
formality, for the first time in years it would be the public authorities and not the leadership of
the trade associations, who authorized whose buses serviced which streets. The tender did
preserve the status quo, but at the same time carved out more capacity for the MTT, and
empowered public officials to attempt bolder changes in the near future. Once the new contracts
were in place, trade associations would lose their ability to move into new territories, adjust their
operations and increase their fares unilaterally. These losses were not only of rhetorical nature. In
order to be awarded a contract, operators would be required to take an onerous bond (boleta de
garantia), that the MTT could execute if operators failed to meet the agreed terms.
520 (Correa, Germin. Personal interview. 13 june, 2012)
208
Santiago, Part II
To be sure, progressive trade association leaders recognized that transforming their
organization into firms, consolidating membership, optimizing operations, and bidding at a lower
fare level to win additional contracts could prove beneficial521 . However, most were limited by
their role as representatives with delegated power. Acceptance of the tender threatened to fuel
internal opposition within their organizations, with fellow members challenging them out in
assemblies for "selling out". Most rank and file organization members, both defenders of the
status quo (whom I will refer to as "gremialistas ") and modernizers (whom I will refer to as
"empresarios "), soon concluded that the tender was not in their best immediate interest. They
realized that once the awarded contracts expired a new tender would probably take place, re-
opening the door for the MTT to revisit the rules negotiated with Correa. Regardless of whether
they personally opposed or were willing to consider a negotiated reform, the outcome could not
be considered sufficiently stable for them to commit to changes, at least not yet. So, instead of
participating in the tender, they agreed to strike. On one morning of April, 1991, the people of
Santiago saw no buses in the streets.
The city was paralyzed: the subway system quickly collapsed and taxis were unable to
handle demand. Smaller cities throughout the country also suffered, as their local transport trade
associations stopped service in solidarity. The response of Chilean Governments to public
transport strikes before and during the dictatorship, had usually consisted in a rushed search for
compromise to reestablish service. This time, however, Correa strategically leveraged service
disruption to elicit public support for his reformist agenda.
Correa organized a press conference, not at MTT headquarters, but at the Presidential
Palace of La Moneda. He appeared on television screens throughout the country, flanked by the
Minister of the Interior, the Secretary General of the Presidency, and the most important
members of President Aylwin's political cabinet. The scene had such formality that any observer
would assume the country had been invaded by a foreign power. The press conference was
designed to convey a clear message to the trade associations: The fight they had chosen to fight
was not be against a rouge minister, but versus the state united. Correa recalls using his speech to
frame the leaders of the trade associations and their federations as a mafia, and to describe
521 In fact, members of Correa's team were enthusiastic about eliminating the 2,600 older buses from the streets, as they
thought that this measure would be stronger supported by the bus operators that would remain in the system, as they could
reap an immediate windfall from less internal competition within their routes.
209
Presiden Aylwin's reform agenda as "a fight on behalf of the great majority of Chileans who
have no alternative to move around the city".52 2 He stressed that regardless of the strike, bids
would be accepted on April 13, 1991 as established in the tender bases. The MTT certainly won
the public relations battle. The great majority of Chileans reacted negatively to the strike. Correa
recalls, "they gave us the opportunity to expand the conflict, so that it was no longer the usual
scenario of bus operators vs government authorities, but a direct confrontation of bus operators
vs the public interest". As a result of this strike, the government's transportation reform agenda
became immensely popular, and the public pointed to the trade associations as an obstacle for
progress.
Partly because of such supportive public reaction, and partly because the stoppage costed
money to thousands of bus operators living day to day, service was reestablished the next day.
However, the protest had not ended. Operators simply resorted to a different tactic to oppose
Correa: Boycotting his efforts by not submitting bids. Bus operators were confident they could
not be evicted from the system. As previously discussed, the tendering rules made external
competition unlikely, and in the event Correa awarded a route to a newcomer, bus operators
pledged to sabotage its entry, by running "pirate" (unauthorized) buses on the same route. This
alternative strategy was certainly more effective than the strike. The government tendered 255
routes, covering 85% of the territory of Santiago, and yet only 7 bids (for seven different routes)
made their way to the MTT before the deadline. This outcome is certainly a consequence of the
socio-organizational logic that still guided decisions within the trade associations: "Collusion
was evident, and was obviously organized by the mafia, by these dirigentes, who were quite able
to punish indiscipline. Whomever broke ranks would immediately be black-listed, never able to
find work again in Chile as bus operators. Whomever was blacklisted had to take his bus home,
because the news of treason spread. 'Bye. Mr. Pedro Perez is dead, he will have to eat or sell his
bus, whatever, because he is not operating it anymore'. Such was the strength of their
organization at that time."5 23
In reaction to the boycott, public authorities sought other available instruments to regain
leverage. Correa turned to the Chilean Antimonopoly Preventive Commission, accusing the most
notable trade association leaders of collusion. This Commission had analyzed more than 20
522 (Correa, German. Personal interview. 13 june, 2012)
523 (Correa, German. Personal interview. 13 june, 2012)
210
Santiago, Part II
similar accusations during the Pinochet regime, almost always dismissing the case.524 While the
Commission investigated, members of the Aylwin cabinet started to question whether Correa's
"negotiated" approach made sense. At least one alternative project was on the table: President
Aylwin formally announced that his administration was committed to building a new subway
line. It is at least indicative that this announcement came soon after the failure of the 1991 bus
route tender, and despite the fact that Correa was on record opposing the project.525 In any case,
the Commission ruled on September 12, 1991, that the trade associations had engaged in anti
competitive behavior, and ordered the MTT to call for a new tender.
The second tender attempt and the collusion of bus operators.
Consistent with his previous strategy, Correa reacted to the tender boycott by tightening
regulations. On August 1991, he signed a decree stipulating that buses older than 12 years
(manufactured before 1979) and taxi buses older than 10 years (manufactured before 1981)
would no longer be permitted within the city's congested downtown 26. He also announced the
creation of the National Registry of Passenger Transport Services, establishing that any bus
offering public transport services had to be registered. Perhaps more aggressively, he modified
the language of the tender rules, so that new entrants could participate. "Since they did not want
to participate, the second tender would be open to anyone. I modified two lines of the tendering
rules, and with that simple change anyone could bid. Instead of demonstrating ownership of the
bus fleet at the time of the bid ("flota presente"), interested parties would be given a reasonable
time period to produce the buses, after the contracts had been awarded."5 27
Correa consulted with bus manufacturers in Brazil and Mexico to identify the time
required to produce new buses and have them ready in Santiago. He then inserted this time frame
into the tendering bases, so that participants could bid without a readily available bus fleet, only
purchasing vehicles after being awarded a route contract. In addition, Correa suggested that the
Chilean Government would guarantee loans required by new entrants to purchase new buses.
524 (Paredes and Baytelman 1996)
525 (See, for example Alvarez 1991). On August 30, 1991, President Aylwin announced that his administration would build
Line 5 ("jumping" over lines 3 and 4). Construction would not begin until 1994 and its inauguration would not occur until
1997.
526 (Decreto No. 145 que regula el funcionamiento de servicios de locomoci6n colectiva en 6rea que indica)
527 (Correa, German. Personal interview. 13 june, 2012)
211
Such measures were really a scare tactic, as the investment in new buses would hardly make
sense to new entrants given the short contract duration. Furthermore, participants competing with
new buses, would probably require higher fares, making their bids easy to beat. However, the
change in language -and the ruling of the Antimonopoly Commission- certainly influenced the
behavior of the trade associations. This time they would participate.
On 27 December, 1991, the last day the tender was open, the MTT had suitable bids for
226 of the 255 tendered routes.52 8 Notably, the Ministry received only 307 proposals in total, on
average 1.2 per each available route, meaning that most of the services were simply claimed by
the incumbent trade association. Sim6n Dosque explains the calculus from the perspective of
operators: "Since it was, more than anything, an ordering process where no third parties were
involved, the fundamental incentive we had was to preserve services we already operated. You
would not bid for someone else's route, unless you had previously been displaced by someone
else. There was no real competition in these bids."' 29Arnando Huerta, who succeeded Dominga
Nogales as president of the FGDTS, agrees: "The tendering processes of the 90s were among
ourselves. I had three routes and I was clear about where and at what fare I could bid. There was
a level of respect among us. I would not touch your side of town and you would not invade mine.
When we participated in tenders during that period all of our organizations got in, keeping our
routes. There was no mayor problem." 30
Unsurprisingly, the bids for all of the routes came at a very similar fare prices. If there
was a benefit to this "competitive" tender, it was not terribly evident in the price of fares. The
nominal fare decreased only slightly, from US $0.27 to US $0.25 (Ch $100 to $91.5), after the
tender 3 . Cristiin Marinakis, son of Demetrio and then working at the AGMTP, gives a good
reason why: "since these huevones (referring to the most important dirigentes) decided to go for
the maximum possible fare, nobody dared to bid 5 pesos (US $0.015) below."5 32 The visible
results of this tendering process amounted to little more than a photograph of the prior,
deregulated system, albeit with buses now displaying a vibrant yellow color. However, this
528 (Paredes, Sanchez, and Sanhueza 2001 p. 30)
529 (Dosque, Sim6n. Personal interview. 15 june, 2012)
530 (Huerta, Armando. Personal interview. 18 july, 2012)
531 (Diaz, Gomez Lobo, and Velasco 2004). Conversion by author, using the October 1992 exchange rate (US $ =Ch
$373.10).
532 (Marinakis, Cristiain. Personal interview. 20 june, 2012)
212
Santiago, Part II
photograph offered a baseline for future work. It wasn't that the authorities were naive, they
simply pushed as much as was feasible given the existing resistances, hoping that the initial
results would mark the start of a broader process of state capacity expansion. As summarized by
Sanhueza and Castro (1999 p. 228), "more than introducing competitive elements that improve
the efficiency in the supply of services, the tendering system has been a way of regulating the
functioning of the sector."
"Legalizing the Cartel"
German Correa left the MTT in 1992 to become president of the Socialist Party of
Chile,5 3 3 but the framework he left behind would continue throughout the 1990s. The new rules
of the game allowed the MTT to play a much more active role governing the system. Regulations
established by the Ministry were expected to become more stringent over time, and bus operators
would be either invited or forced to catch up. Contracts would complete their lifespan, and thus
new opportunities to improve service would periodically present themselves as part of re-
negotiations between operators and authorities. Correa reflects: "I always saw this as a problem
that had to be solved in stages, and thought of my contribution during the 90s as clearing the
terrain, hoping that once cleared we would proceed to build a house."5 3 4
Two more tendering processes took place in that decade, one in 1994 and one in 1998.
These tenders continued to protect incumbent operators from any significant outside competitive
pressure, but each included marginal adjustments compared to the preceding one, with changes
conceptually designed to continue a gradual but consistent transformation. When looking at the
numbers, it appears that much was achieved. Between 1988 and 1997, the average age of the
buses running in Santiago fell by more than half, from 12.1 to 5.1 years.53 5 In addition to the
2,600 buses retired due to the 18-year vehicle age limit established in December 1990, 2,000
additional buses were retired in the context of the tender of 1994. This time, however, no
533 The context of Correa's resignation was the rapidly approaching primary election to select a new presidential nominee
for the Concertaci6n, scheduled for May 1993. While the coalition would remain united, discussions about which party
should head the ticket were not devoid of tension. The PS ultimately lost the primary, but Correa returns to government as
Minister of the Interior under President Frei Ruiz-Tagle (DC), elected in 1994, and then returns to this story as a key
protagonist in 2002.
534 Correa, German. Personal interview. 13 june, 2012.
535 (Paredes, Sanchez, and Sanhueza 2001 p. 37)
213
compensation was paid to the owners. 536 The type of vehicles utilized was effectively
standardized, and the distinction between buses and taxi buses became only rhetorical. But the
most notable indicator of the transformation was the dramatic reduction in that number of buses
operating in Santiago. Before Correa's policies were implemented in 1991, the number of buses
in Santiago had reached a peak of 13,353. Ten years later, in 2001, the number was only 8,179.
Capacity utilization rates doubled, and the number of passengers transported per day per bus
went from 268 to 523. Fare escalation was effectively curved. In fact, as shown in the figure 3.3,
the real price of fares fell by about 30% from 1991 to 1993, and their level was maintained
practically unchanged
until 1998.53? Figure 3.3 Price of fares and number of buses in Santiago (1979-2001). Source: (Diaz,
Gomez Lobo, and Velasco 2004 p. 10)
During this
decade, most of the
transport trade 14.0001 300
associations 250
transformed the way
they were legally 200
constituted, 151
transitioning -on 60W
paper- from a 4.0()
member-based trade 2.000 5o
association to joint-
liability companies. -M- Nin0ero de buses Tarifas
They did this
exclusively
responding to the ,
tendering processes of
the nineties. While having a firm was not a strict requirement to bid, the tendering bases
established a point system to determine which bid would win the contracts, giving some point
advantage to those presented by companies rather than trade associations. The leaders of several
536 (Figueroa and Orellana 2007)
537 (Diaz, Gomez Lobo, and Velasco 2004)
214
Santiago, Part II
associations established shell companies, and collected additional payments from individual
members, and/or transferred the property titles of real estate owned by the trade associations
(terminals, offices, recreation centers) to capitalize them. Nonetheless, most continued to operate
as they always had. As Jorge Monteguiaga -a supplier of equipment who closely interacted with
these organizations- explained, "there was no effective consolidation of their assets -the buses- as
patrimony of the firm. Drivers continued to end their working day delivering a plastic bag full of
coins to the owner of the bus. These firms existed only on paper, and probably this was as much
change as was feasible at the time, given the power of the trade associations." 3 8 Cristian
Marinakis explained how this worked in practice, at least in his family's trade association: "The
trade associations constituted companies starting 1991, to please the Government. However, we
really didn't use them until 2005. In 1991, the Ovalle-Negrete trade association created Ovalle-
Negrete, S.A. We had these two entities within our organization. During that period, the money
flowed as always, from the passenger to the old guys driving and owning their buses, but the
binders sent to the Ministry during the tenders had the name of the firm (sociedad anonima) on
the cover."5 39
Savvy officials knew this was happening, but nonetheless hoped that at a virtuous cycle
would emerge from this process. State capacity to trigger a round of organizational restructuring
would harbor more state capacity to demand higher standards of service. Even if artificial, the
creation of these shell companies made some trade associations think hard about why, how and
when to "modernize" their operations, and to begin to distinguish their new role as entrepreneurs
from their old role as trade association representatives. Having too many member-partners not
only reduced the level of profits that they could draw from exploiting a bus route, but also
became increasingly cumbersome for decision-making. Governing a firm by consensus was
simply not an efficient way to deliver a coordinated operation and to secure advantageous
financing conditions. For trade association leaders predisposed to becoming empresarios, the
events of the nineties served as an epiphany. For example, Juan Pinto, describes the nineties as
538 (Monteguiaga, Jorge. Personal interview. 18 June, 2012). A report later written by Correa acknowledged that these firms
"existed only on paper" (Comite Asesor Transporte Urbano 2000 p. 39).
539 (Marinakis, Cristian. Personal interview. 20 June, 2012)
215
"the beginning of our transformation, from something akin to amateur soccer clubs, into true
transportation companies."54
However, the majority of more traditional trade association leaders -the gremialistas-
were not inclined to making such transformation. They were not really interested in efforts to
maximize profits from exploiting bus service provision. Instead, they banked on maintaining a
status quo that allowed them to extract rents and consolidate significant power. They would
follow through the government tenders because they had to, but either continued to conceive
their business as one of extracting rents, or were sincerely committed to protecting a traditional
and artisanal way of life, on behalf of their members. Soon, the gremialistas realized that their
business model could be preserved, perhaps even improved, by simply turning Correa's strategy
on its head. Rather than opposing the government through strikes and tender boycotts, they could
negotiate with authorities to expand their own capacity to govern the system. In this, they were
certainly successful, as one of the interesting side effects of the tendering processes of the
nineties, was the gradual empowerment of the trade association leader as an essential middle
man. They were so able to negotiate favorable terms, that according to critics,"these were not
really tendering processes, but political agreements. A huge and perhaps necessary step, but still
concerted politically"54 1 .
Despite thousands obsolete buses retired from the system during this decade, the number
of organizations awarded contracts throughout the tendering processes remained practically the
same, ranging from 106 in 1992 to 119 in 1998. There was practically no company submitting a
bid lacking a direct connection to the trade associations. While regulations occasionally affected
individual members of their organizations, leaders almost always survived unscratched, and
actually thrived during this period. In the words of Hector Moya, the outcome of reform efforts
in this decade "can be summarized in one phrase: The government legalized the cartel."4
Three unanticipated outcomes of the reforms of the 1990s
* Empowerment of the dirigentes of trade associations
Constant re-negotiation over the terms included in the tendering bases and over the
technical norms established by the MTT contributed to making the role of trade association
540 (Pinto, Juan. Personal interview. 27 July, 2012)
541 (Diaz, Guillermo. Personal interview. 6 August, 2012)
542 (Moya, Hector. Personal interview. 21 june, 2012)
216
Santiago, Part II
leaders valuable and indispensable, both to the government -that needed rules to be accepted-,
and to individual bus owners -who ultimately carried the burden of complying. Orlando Panza
recalls, "During those years, we needed to negotiate a lot of issues, everyday. They began to say
that our vehicles were too big, then too small. They wanted us to paint them red, then green, then
yellow. They continued to ask for things, and we had to mediate on behalf of our members."543
Individual bus owners looked up to the leaders of their trade association for guidance, and these
in turn looked up to the leaders of federations that had direct access to the highest level decision-
making circles within the bureaucracy. This process made leaders powerful among the rank and
file. As one former operator told me, "they could fix things." Simultaneously, these dirigentes
became valuable to government, because they represented a convenient and efficient tool to
communicate, negotiate and enforce policies within the sector. By negotiating with only a dozen
dirigentes, they could determine and implement policies that would be observed and accepted by
thousands of bus owners.
Empowerment of the trade associations
The contracts awarded through the tendering processes of the nineties gave formal title to
the trade associations -or rather, to the shell companies created by the trade associations- over
particular routes. In other words, it was not individuals but organizations who had the right to
exploit the service. To be sure, individuals had worked through trade associations for a long time,
but the tendering processes legitimized the informal socio-organizational structure that had been
created through the years. Now, to participate in a route, a trade association could legally demand
a fee. This process also legitimized the informal mechanism established by the trade associations
to enter the market and thrive in the industry -starting up as a "sapo", driving a bus, and working
your way up the ranks of your association's bureaucracy. Furthermore, people quickly realized
that some trade associations provided access to better routes and services than others, creating
substantial demand to be admitted into them. With control over the career ladder of members on
the one hand, and with a large pool of applicants desiring to join on the other, trade associations
were increasingly able to extract rents from members and to demand financial contributions from
suppliers seeking to sell fuel, tires, oil, tools, etc. The result was rather simple: "The trade
543 (Panza, Orlando. Personal interview. 19 july, 2012)
217
associations came out of the nineties with impressive economic power."544 They became, in the
words of a trade association president,"rich organizations formed by poor members".545
Empowerment of the federations of trade associations (particularly the AGMTP)
Paradoxically, regulations created to rein in bus operator organizations actually made the
federations of trade associations stronger. Weaker trade associations needed to belong to a strong
federation in order to survive. While each trade association kept its individual identity, in
practice many of the smaller ones were fully absorbed or became mere satellites. According to
Demetrio Marinakis, roughly 60% of all bus operators in Santiago affiliated to the AGMTP
during this period. This organization thrived both financially and politically. At its peak, it
directly employed 150 full time employees, including administrative staff, lawyers, accountants,
doctors, dentists and mechanics. In addition to offering health services, legal representation, and
vehicle insurance to members, the AGMTP became an important financial contributor to political
campaigns. When asked which political party had the support of the powerful AGMTP, Demetrio
Marinakis (president in 1994)- simply responded, "I distributed money to everyone". 46 The
growing organizational and financial strength of this federation certainly provided access to
power. According to Juan Pinto, treasurer of the AGMTP during this period, "We had good
contacts with politicians. The Zaldivar brothers547 were friends of the bus operators, and several
other politicians made their rounds for support, since as you know there are intermixed
relationships and closeness to politicians from all sides. In fact, when we inaugurated our
headquarters, during the Frei Government, it was the Minister of Public Works Ricardo Lagos
who attended the ceremony. He was our friend. He talked to us."54 8 The building in question was
a 7-floor corporate building located close to the heart of downtown Santiago, with a pool in its
544 (Moya, Hector. Personal interview. 21 june, 2012)
545 (Panza, Orlando. Personal interview. 19 july, 2012)
546 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
547 Andres and Adolfo Zaldivar, high ranking politicians from the DC, part of the Concertaci6n. Both were Senators at the
time, and Adolfo would become one of the staunchest opponents of the Transantiago project in the next decade.
548 Pinto, Juan. Personal interview. 27 July, 2012.
218
Santiago, Part II
Figure 3.4 Former headquarter building of the AGMTP in downtown Santiago rooftop
5 49
. It was only one of
(now occupied by a university). Photo by the author, July 2012 several investments made by
the AGMPT. In fact, the
organization took over the
Santiago Morning, a
professional soccer club.
The efforts designed
by Correa in the earlier part of
the decade to expand state
capacity to guarantee better
transport services, had been
turned on their head. There is
no denying that the two first
governments emerging from the
Concertaci6n initially drew bus
operator organizations out of
their comfort zone, and forced
them into accepting a set of rules unthinkable during the era of laissez faire. According to Correa,
"after I left, those responsible didn't build anything. They faced a cleared terrain and yet did not
build anything, and Santiago regressed.""5 0 To understand why, we must review the actions taken
under the Presidency of Eduardo Frei (1994-2000).
Twisting the arm of the government
On December 11, 1993, Eduardo Frei Ruiz-Tagle (DC) won the presidential election on
behalf of the Concertaci6n."5 1 Frei easily defeated Arturo Alessandri, the candidate from the
549 When asked about the pool, one of the AGMPT leaders explained: "I thought that if we managed the organization well
we would continue to run it as old men, influencing the younger ones. We would become the Elder Council, and this Elder
Council would use these facilities, take a swim, play cards, enjoy themselves. I built it and designed it, but it never worked
that way".
550 Correa, German. Personal interview. 13 june, 2012.
551 Eduardo Frei Ruiz-Tagle became the candidate of the Concertacion afer defeating Ricardo Lagos (PS) in a primary
election held May 23, 1993. He is the son of former President Eduardo Frei Montalva (1964-1970), but only became
politically active in 1982.
219
coalition of right leaning parties,1 2 obtaining 58% of the vote in the first (and definitive) election
round. His presidency began on March 11, 1994, and would last for 6 years, until 2000.55 To
head the MTT, Frei Ruiz-Tagle appointed Narciso Irueta, a 70 year old lawyer and founding
member of the Partido Dem6crata Cristiano, who had served as member of Congress for eight
years until Augusto Pinochet dissolved it in 1973, and who challenged Frei Ruiz-Tagle in 1991
for the leadership of the party. The new minister was nowhere close the new president's inner
circle, and his inclusion to the cabinet owed more to intricate DC politics than to a bold vision
for Chile's transportation future. Minister Irueta led the MTT for two years, and was replaced by
his under-secretary, Claudio Hohmann, who completed Frei's term. This was the second
presidential term headed by the Concertaci6n, and Germin Correa was invited to serve as
Minister of the Interior,5 " but on close analysis it is difficult to define this administration as the
continuation of prior work556. Few members of the original team brought in by Correa remained
at the MTT, and the strategic negotiation of public transport regulation, designed to gradually
expand state capacity, mutated into a mechanism exploited by trade association leaders seeking
to entrench their control over the future of the system.
The Frei administration is frequently characterized by its technocratic leanings, partly
because of the personality and previous experience of the new president, staying away from
active politics and working as an engineer for a multinational private conglomerate.5 5 7 President
Frei tasked an inter-ministerial commission (comprising the heads of the MTT, the Ministry of
Public Works (MOP) and the Ministry of Finance) with planning major transportation
investments, and established the Secretaria Interministerial de Planificaci6n de Transporte
(SECTRA) to provide permanent technical support to this commission. In 1995 SECTRA
formulated a plan comprising all modes of transportation in Santiago, the first of its kind since
552 Since the end of the military regime, right leaning parties created their own coalition to present a unified front in
presidential elections. The main parties in this coalition are the Uni6n Dem6crata Independiente (UDI) and Renovaci6n
Nacional (RN).
553 Presidential terms before the Pinochet Regime lasted for 6 years. However, since the return to democracy, Chile has
been going back and forth between shortening the period to 4 years (as was the case for Aylwin and Bachelet), and 6 years
(as was the case under Lagos and Frei).
554 (Espafia 2002 p. 23; Otano 2006 p. 229-23 1)
555 Correa would serve in this position less than one year due to intra-party political infighting in the Concertaci6n.
556 This may apply to other areas as well. In fact, only 2 ministers and 4 underministers from the Aylwin administration
remained in their posts under Frei Ruiz-Tagle. For details on this transition, see (Otano 2006 p. 419-423)
557 (Martelli 2011 p. 84).
220
Santiago, Part II
1968. Such effort is indicative of the ambitious, system-wide vision of the new president, as well
as of his personal commitment to continuing the unfinished work started by his father. In
December 1995, the Commission approved the "Urban Transport Investment Plan 1995-2000,"
and in July 1996, an "Urban Transport Policy" followed suit. Just like its 1968 predecessor, these
comprehensive plans explicitly recognized the role of the state as "planner, regulator and
supervisor" of public transportation and emphasized that all projects should be evaluated and
prioritized in terms of their social benefits. 558 And, similar to the prior plan, privately operated
bus services that had dominated the MTT's agenda under Aylwin, were dismissed as an easily
manageable piece to a much grander puzzle.
The Frei Administration certainly had grander plans than simply improving the bus
system. The seeds of an ambitious program to build urban highways and underground parking
lots across Santiago using private financing were planted in this period. The new administration
not only embraced the challenge of completing subway line 5, which had only begun
construction two months before Aylwin left office, but committed to extending the original
design to bring the line into the heart of downtown Santiago. In contrast to Aylwin's
Administration, Frei prioritized expanding the metro over reforming the buses. Benefiting from a
period of sustained economic growth, Frei inaugurated 10.3 kilometers in 1997, and by March
2000 had practically completed the 2.7 kilometers added to the project to connect line 5 with line
2 at the Plaza de Armas. With MOP taking the lead in the urban highway and parking projects,
SECTRA drawing up comprehensive transport plans on behalf of several ministers, and Metro
spearheading construction of line 5, the role of the MTT was practically limited to avoiding
frequent, disruptive and contentious standoffs with bus operators, that could easily consume the
agenda. Furthermore, the AGMTP had by that time established important alliances with key DC
parliament members, such as the Zaldivar brothers in the Senate, who certainly lobbied on their
behalf. A direct confrontation with the trade associations put Frei's government at risk of being
accused of "authoritarian regression."559 Perhaps as a consequence of this combination of
reasons, the presidency of Eduardo Frei Ruiz-Tagle is also characterized by harboring a much
558 Cited in (Martelli 2011 p. 50)
559 Garret6n (2002 p. 61), writing about Frei Ruiz-Tagle's presidency, noted that: "demands and social mobilization were
subordinated to the political goal of stability, avoiding any situation that could be interpreted as risk of an authoritarian
regression."
221
smoother relationship between private bus operators and transport authorities. Surely, planners at
MTT had a vision for a "modem" bus system. However, they worked in an administration
increasingly disposed to compromises with the status quo.
Consistent with the approach followed under Correa, route contracts were re-tendered by
the MTT in 1994 and in 1998, both times negotiating the terms with incumbent operators. At
each iteration, however, bus operators expanded their capacity to water down or fully eliminate
proposed regulations they particularly disliked. Some service-standards continued to be
gradually improved, and the number of buses and their average vehicle age of the fleet continued
to fall, but proposals that threatened the capacity of the cartel to extract rents and prevent
external competition were effectively sabotaged, and collusion among operators persisted. "Had
the process continued as we had planned", reflects Correa, "the AGMTP would have obviously
disappeared and its leaders knew it."5 60 Bus operator Juan Pinto remembers that in this period
back-door negotiations returned. "With Minister Narciso Irueta and President Frei we came back
to zero. The political ministers intervened and twisted the arm of the transport ministers."5 61 The
leaders of the AGMTP thrived by simultaneously having public confrontations and private
negotiations with government authorities. These dirigentes struck deals with authorities, usually
supported by lobbying outside of the MTT, and presented every compromise as major triumphs
to their membership. This process consolidated their leadership and made them popular among
the ranks as a result. Then, they used the leverage they had gained over the gremio to extract
further compromises from authorities.
The president of the AGMPT in this period is a good example of the above. Demetrio
Marinakis was a third generation Greek immigrant, whose family had been in the business of
public transportation for several decades. He was a committed gremialisla and one of the most
vocal opponents of reform of the bus sector. He personally owned five vehicles, but governed an
organization of several thousand. His trade association, the "Ovalle-Negrete", was one of the
largest, and by allying himself with Manuel Navarrete, from "San Cristobal-La Granja", and with
Juan Pinto, from "Maipni-Cerrillos", secured firm control over the AGMTP for several years.
560 )Correa, German. Personal interview. 13 june, 2012). Such critique may be expected from a protagonist of the previous
administration, but similar sentiments were shared by other knowledgeable sources. For example, Hector Moya stressed that
"under Frei's government, the original strategy started to water down, and the cartel maneuvered so that Correa's vision
wasn't followed through." (Personal interview. 21 june, 2012).
561 (Pinto, Juan. Personal interview. 27 July, 2012). When chileans refer to "political" ministries, they usually refer to the
Ministry of the Interior and the Secretary General of the Presidency.
222
Santiago, Part II
During this period, it made no sense for "gremialistas" like Marinakis to become an
"empresario". The business model of the former was based on getting as many partners as
possible to maximize dues, while the business model of the later would imply optimizing costs to
maximize profits. Even those predisposed to explore such alternative, like Juan Pinto, balked at
the prospect of alienating the rest of the members of their organization, or of "optimizing" their
routes only to suffer encroachment from rivals or risk external competition. Furthermore, the
status quo promised plenty of power and money. A collection of quotes from my interview with
Demetrio Marinakis, sheds light on how he conceptualized his role, vis a vis his peers ("...
whenever there was a conflict, I was the one to 'cut the cheese', I was the law." "Excuse me for
saying so, but I was the capo di capo.") and vis a vis the government ("...I reciprocated with
authorities. Most members wanted to increase fares to students, but the minute I shook hands
with the minister, the fare remained untouched. And then we would get something in return" 5 6 2).
This was a golden period for the AGMTP as an organization. According to Demetrio Marinakis,
Narciso Irueta was "the best minister we ever had: we shook hands and never had to sign any
paper."5 63
The mechanism of negotiated reciprocity functioned well for authorities too, at least
while the country's economy thrived. There was credit available, and the foreign currency was
relatively cheap, and so in exchange for conditions that minimized the threat of external
competitors submitting a bid, bus operators agreed to continue retiring old buses and to import
new ones, even it the government no longer offered a subsidy to do this. However, Chile
continued to be an export-oriented economy, susceptible to external shocks. After navigating the
"tequila crisis" of 1994-1995 with relative ease, the 1997 Asian crisis triggered a local recession.
From achieving sustained GDP growth rates of 7.8% between 1994-1997, the Chilean economy
grew only 1.1% between 1998 and 1999.564 The chilean peso suffered a devaluation in this
period and this change in conditions affected the negotiations for the 1998 route tender
significantly. In fact the trade associations, unwilling to bear the costs of stricter regulations
proposed by the MTT, abandoned the negotiating table to hold a strike on October 1997565. The
562 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
563 Ibid.
564 (Ffrench-Davis and Muiioz Goma 2002 p. 247)
565 (Rivera 2008 p. 20)
223
MTT made concessions, and confidently called for bids in November 1997, establishing April 5,
1998 as the date in which the new concession contracts should be in force5 66. However,
negotiations over the terms carried on despite the published bases, with the leaders of the
AGMTP pressuring authorities into accepting much softer standards than originally agreed.
Rather than threatening operators with opening the market to external competition, as Correa had
attempted to do, Minister Hohmann found no alternative but to fully cancel the ongoing process,
and on April 15, 1998 organized a new, "complementary," call for bids, conceding once again. 567
In this iteration, "the gremio successfully negotiated increments to the fares, extended the
maximum allowable vehicle-age from 10 to 12 years568, and obtained significant leeway in
meeting technical norms."5 69 By the time the bids were due at the MTT, only one proposal
arrived for the vast majority of the 280 routes tendered, and 97% of these proposals went for the
maximum fare permitted of Ch $190 (US $0.41).570 Collusion was not even hidden. "It says a lot
that the majority of the envelopes containing the offers arrived together to the Ministry."571
Perhaps more illustratively, Demetrio Marinakis candidly described how operators
colluded to coordinate bids. "When someone wanted to bid for a route variant that was already
occupied, I tried to find an appropriate accommodation. All problems were solved in my office,
sometimes very late at night. Before I became president of the gremio, there were many different
fares across Santiago, because the tendering rules gave extra points for bids offering lower fares.
For the tendering process of 1998, I established a unique fare. If all of us had the same costs,
how could a huevdn bid at Ch $190 (US $0.41) and another one at Ch $150 (US $0.32)? That
behavior hurt me. I made all the huevones agree, without any consultant present! I had all the
bids in my office, all the binders, I knew which routes were going to whom. If at the very last
minute someone wanted to play on his own, I took away his rights, I took away his current route.
I ordered all the huevones at a single fare, and that had never happened before". 572
566 See MTT's Excempt Resolutions No. 2.085/1997 and 244/1998.
567 See MTT's Excempt Resolution No. 588/1998. The new tender was later officially titled "Licitacion de Vias 1998-Il."
568 See numerals 2.4.5, 2.4.9 and 2.4.10 of the tendering bases of 1998.
569 (Diaz, Gomez Lobo, and Velasco 2004 p. 25)
570 (Sanhueza and Castro 1999 p. 222). Conversion to US $ by author, using the exchange rate for July 1998.
571 (Diaz, Gomez Lobo, and Velasco 2004 p. 25)
572 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
224
Santiago, Part II
But the power of the cartel went well beyond coordinating bids to the maximum
allowable price. Trade association leaders were increasingly able to (1) abuse regulations,
skimping on compliance and transforming them into side business opportunities, and (2) block
proposals that threatened the trade's atomized industry-structure. To illustrate, the next section
presents two powerful, concrete examples.
Abusing regulations
The case of the automatic fare collectors: From good concept to side business.
One of the goals pursued by regulators at the MTT was reducing cutthroat curbside
competition for passengers in the streets of Santiago. This could not be accomplished simply by
granting exclusive rights over a route to a single organization. Routes overlapped at various
points, leaving buses from different organizations to compete for passengers. But most
importantly, bus owners continued to pay drivers a variable wage composed of a small fixed
salary and a percentage over daily sales5 7 3 . This system derived in making bus drivers the most
"entrepreneurial" actor in the production chain of the trade, since their earnings depended the
most on maximizing the number of passengers boarding their vehicle. This compensation
mechanism gave bus drivers every incentive to step on the gas and to overpass other buses on the
same streets -even those from the same trade association-, or to hold back and increase headways
as to allow potential ridership to accumulate. This salary model benefited owners since it ensured
maximum effort from drivers for minimal monitoring costs, and benefited drivers since it
allowed them to maximize their own income. However, it also resulted in maddened drivers
behind the wheel, fighting over passengers and oblivious to risk. In addition to the negative
effect on safety, this compensation mechanism also resulted in discrimination of certain types of
"low-value" passengers during peak hours: Eldery and handicapped users were left curbside,
because they would take too long to board, and stations typically boarding students were
bypassed, to "win" potential clients down the road that paid full fares.
573 The complete earnings of most bus drivers in Santiago resulted from combining 4 revenue streams: (1) A small salary
paid by the bus owner (and used to calculate social security contributions owed by the bus owner to the state), (2) a
percentage of daily fare revenues, agreed with the bus owner, (c) the full amount of the discounted student fares, either with
knowledge of the bus owner or not and d) stolen fare revenues, estimated by sources at 30% of daily fare revenues.
574 For a lively description, see (Tomic and Trumper 2005; Trumper 2005).
225
To eliminate incentives guiding this behavior, Congress passed a law in January 1997,
"strictly prohibiting drivers from simultaneously performing the functions of driving and fare
collection or ticket dispenser" and stipulating that "a fare collector must be present or an
automatic fare collector machine must be installed." 75 The deadline to comply was set at one
year, and the MTT announced that the technical specifications of the authorized machines would
be soon forthcoming. Minister Hohmann wanted private operators to install automatic fare
collection machines in each vehicle. Revenues from all buses in a route would be pooled and
deposited into a general fund, and then distributed equitably to the bus owners operating the
route, who would then pay a fixed salary to their drivers. On the face of it, this was an attractive
proposition to all actors involved. Drivers would earn higher salaries, bus owners would no
longer be robbed, and vehicles from the same organization would not race against each other.
However, trade association members vigorously resisted the idea. According to Orlando Panza,
"people did not want these automatic fare collection system to work. They would not only be
paying a hefty sum to equip their buses, but would place themselves at risk of being robbed by
their dirigentes."576 Bus drivers reacted in similar fashion. Despite the promise of a higher fixed
salary, the new system would curtail their ability to cream off fare revenues, leaving them at the
end worse off.
Even after Congress enacted the law, trade associations forced Minister Hohmann to
negotiate. What alternative did he have? Beyond imposing symbolic fines, he couldn't credibly
threaten to revoke the concessions of operators, especially as he felt that their participation on the
1998 tender was indispensable. Discussions carried on for months. Operators first argued that the
equipments did not exist in the market, and later that they were too costly. In February, a month
after the original deadline to comply, Congress approved an extension to comply by December
31, 1998.577 This requirement was inserted into the tendering bases, to little effect, and the MTT
seldom imposed any fines over the issue. Instead, between 1998 and 2002 the MTT was cornered
into accepting no less than eight deadline extensions,578 until the issue turned moot as the next
administration announced its plans to centralize fare collection and administer it through a third
party, while compensating operators by vehicle-kilometer rather than by passengers transported.
575 (Ley 19.495 Chile)
576 (Panza, Orlando. Personal interview. 19 july, 2012)
577 (Ley 19.552 Chile)
578 (Ramirez 2002)
226
Santiago, Part II
In the interim, however, the MTT granted trade associations freedom to decide how to comply
with the law. A few trade associations resorted to "cobradores humanos " -human collectors,-
which was nothing more than incorporating a second worker to each bus. However, most trade
association leaders soon turned compliance into a profitable side business: No less than 17
suppliers of fare collection machines approached them, offering commissions in exchange for
their members' patronage.5 79 Approximately 5,500 fare collector machines were actually
installed, using a multiplicity of technologies, only to suffer malfunctions soon after. Tokens
would get stuck in the slots, or fail to give change. Planners at the MTT suspected sabotage from
drivers and vehicle-owners, while owners argued that the equipment sold was simply low quality.
According to one operator, "the automatic fare collectors never worked well, the conditions were
not given, the law was not applied, the regulation was not clear, and finally the whole idea got
discarded despite significant investments made to comply."58 0 The whole project turned into a
major media fiasco, and consumed Minister Hohmann's tenure at the MTT. In the end, the only
actors that benefited were equipment suppliers and trade association leaders.
Blocking norms that threatened the atomized structure of the industry
The case of the failed efforts to cor poratize: One step forward and two back.
Authorities in the Transport Ministry since Correa knew that one of the key obstacles to
to demand stricter standards from private suppliers and to deliver more efficient bus transport
service in Santiago was the atomized nature of the industry, organized around powerful trade
associations rather than around legally constituted firms. Part of the rationale for holding
frequent, negotiated, route-based tendering processes was to create an environment where trade
association leaders would see the value of transitioning member-based trade associations into
consolidated transportation companies, with a corporatized ownership structure. Presumably,
under the new structure operators would seek to optimize their operations and streamline their
costs, instead of trying to enlist as many members as possible to increase dues and political
influence. Rather than representing the interests of individual bus owners, managers of bus firms
would try to maximize value for their stockholders. While planners at the MTT were not naive
enough to believe that the tendering processes resulted in any real competition, they still thought
579 (Monteguiaga, Jorge. Personal interview. 18 June, 2012)
580 (Romrin, Carlos. Personal interview. 6 July, 2012)
227
that by going through the processes of creating shell companies and of retiring older buses from
circulation, trade association leaders would see the benefits of corporatization. After all,
incorporated firms with legal rights and liabilities distinct to those of their stockholders,
potentially make better, faster management choices and can find more attractive financing than
trade associations governed by consensus.
This process of corporatization, dubbed "empresarizacidn," was however fiercely
resisted. According to bus operator Orlando Panza, "nobody in the rank and file wanted the
'empresarizaci6n'. When you are the owner of the bus you call the shots. You buy supplies from
whomever you want, and sell your bus to whomever you want, whenever you want. No
individual bus owner wanted to lose this freedom." 581 Sim6n Dosque offered a similar argument:
"No individual bus owner was interested in relinquishing property over his key asset -the bus- to
a third party. Individual bus owners are very attached to their vehicles. For them it was very
difficult to understand that their vehicle would be owned by a firm, and that their income would
no longer be related to their individual ability to exploit their vehicle, but to the overall
performance of the firm." 8 2 Once separated from their bus, individual bus operators could
indeed be vulnerable. In the opinion of the staunchest gremialistas, like Armando Huerta, "the
idea was perverse. Larger capitals could come in at any time and buy us out, or leaders would
simply appropriate the firm for themselves, and we would no longer be able to work." 8 3 But in
addition to resistance from the rank and file, and to the ideological qualms of some members,
most trade association leaders were simply not interested in exploring a new business model.
"The old guys with the buses generated a lot of cash, and that cash flowed up, to the dirigentes",
explained Cristiin Marinakis, "when you have a thousand guys giving you a thousand pesos
every day to represent them, you are not interested in messing the system up".584 In Demetrio
Marinakis' own words: "I knew that the 'empresarizaci6n' was going to fuck us all."585
581 (Panza, Orlando. Personal interview. 19 july, 2012)
582 (Dosque, Sim6n. Personal interview. 15 june, 2012)
583 (Huerta, Armando. Personal interview. 18 july, 2012)
584 (Marinakis, Cristidn. Personal interview. 20 June, 2012)
585 (Marinakis, Demetrio. Personal interview. 12 july, 2012)
228
Santiago, Part II
Correa knew that advocating too aggressively for "empresarizaci6n" would derail the
reform project as a whole. Thus, the 1992 tender approached "empresarizaci6n" timidly: rather
than making it a requirement, the MTT offered "extra points" to bids presented by firms rather
than trade associations, promising to evaluate them more favorably or to grant longer contract
terms. This "carrot" strategy was replicated in 1994, but the second-round effect was marginal.
Trade associations did little beyond creating shell companies to checkmark the requirement, and
continued to operate as always, with trade association members maintaining property and
management of their vehicles. However, in 1998 Minister Hohmann wanted to take the strategy
one step further. The terms for the 1998 route contract tender required legal entities presenting
bids to own at least 10% of their bus fleet. A few trade association leaders reacted positively.
Juan Pinto recalls: "My trade association had 500 buses and I created a firm that bought 50 of
them, to meet the 10% requirement. Other dirigentes responded similarly. The idea was that
firms bidding for routes would buy 10% of the fleet that year, and maybe next year we would
buy another 10%, and gradually, the trade associations would transform and modernize
themselves." Since corporate ownership was a requirement, entrepreneurial trade association
leaders like Pinto could defeat internal resistance to corporatization. However, the stronger
gremialista wing of the AGMTP and the FGDTS would have no part on this. Sidestepping the
MTT, they used their "back door" channels to the Ministry of the Interior, leveraging the ongoing
economic recession and the internal political dynamics of the Concertaci6n coalition to their
advantage.
The context surely helped. The slowing down of the economy had sparked serious
questions about Frei's ability to deliver on the promise of "growth with equity." During
1996-1999, Frei's government faced mounting critiques from varied social groups, but specially
from an increasingly vocal student movement. 586 This was not only hurting the Concertaci6n at
the polls 587, but more importantly, it was hurting the Partido Dem6crata Cristiano precisely when
the time to determine which party would lead the coalition in the next presidential election
loomed near. The Ministry of the Interior, by then headed by Raal Troncoso, a senior DC
586 (Ramis 2011)
587 In the December 1997 election, the Concertaci6n retained its slim majority in Congress. However this was mostly due to
the inability of the opposing coalition to capitalize on citizen insatisfaction, reflected in 1.1 million emitted votes -17.75% of
the total- nulled or left unmarked (Espaila 2002 p. 32-35).
229
member and political strategist for both presidents Frei Montalva and Frei Ruiz-Tagle, was
interested in tempering down policies that could fuel student opposition to the administration.
The long overdue increment to the discounted student transit fares was clearly one of them. Soon
enough, trade association leaders accepted to postpone this increment in exchange for dropping
Minister Hohmann's 10% rule from the route contract tendering bases. Juan Pinto explains what
happened: "The ministers of the time were nice guys... good friends of ours, we used to eat pork
steak with them and make deals... I was present at one of these lunches when Demetrio
(Marinakis) negotiated the elimination of the 10% requirement, offering to withhold increasing
the price of student fares in exchange... Days later, we were formally notified by the MTT that
student fares would stay put, and that the requirement of 'empresarizacion' was formally
cancelled. I immediately called my trade association into assembly, and sold back the 50 buses to
members. I dismantled the firm immediately, and so did other dirigentes." 88
Changing of the presidential guard
By the end of the nineties, the trade association were more intransigent than ever. The
state did reinsert itself into the industry, but its ability to establish standards was contingent on
the willingness of the dirigentes to cooperate. The relationship between the public and private
actors that participated in the bus industry grew increasingly transactional, with authorities often
bartering money and rules to preserve current levels of service rather than to radically transform
the industry. The ambitious plan to adjust the bus network to complement rather than to compete
against the subway, did little beyond adding 21 "Metrobn's" feeder routes 589 while leaving the
rest of the grid unchanged, despite studies commissioned by SECTRA constantly warned about
"significative public transport capacity duplication between buses and metro in several important
corridors," and "practically negligible numbers of combined mode (bus-metro) trips."590 The
strategy established by Minister Correa to gradually enhance the capacity of the MTT to govern
the cartel, appeared to evolve in the opposite direction. Furthermore, officials working in the
Chilean Government became accustomed to politically expedient compromise, particularly with
regards to fare policy. While in theory the price of fares is adjusted automatically using a formula
that considers changes in the price of key inputs such as fuel, the trade associations frequently
588 Pinto, Juan. Personal interview. 27 July, 2012.
589 (Diaz, Gomez Lobo, and Velasco 2004 p. 13). Notably, the contracts to operate these Metrobfis routes were awarded to
trade associations with linkage to the AGMPT.
590 (Fernandez y De Cea Ingenieros 1999)
230
Santiago, Part II
accepted to postpone increases in exchange for the relaxation of rules and standards. There is of
course nothing inherently wrong with seeking to keep fares low, but most other policy objectives
pursued at the MTT were slowly negotiated away. Several of the individuals interviewed in the
course of this research -from both the public and private sides- suggested that these negotiations
increasingly correlated with the electoral calendar.
The country was changing politically, perhaps in a different direction. After two
Concertaci6n administrations led by PDC members, many questioned whether it was time to
elect someone that could accelerate the Chilean quest for equity by pursuing bolder reforms. To
be sure, Aylwin and Frei Ruiz-Tagle had been tremendously successful presidents, and much of
Chile's international credence as the emerging "latin american jaguar" was due to their work591.
However, the Asian crisis had indeed resulted in a spike in unemployment, and many
"authoritarian enclaves" left by the dictatorship remained untouched. For many Chileans, the
first two democratic governments after Pinochet had been all too eager to compromise. For this
reason, in a May 1999 primary election, the balance of power within the Concertaci6n shifted to
the left. Ricardo Lagos -a former member of the socialist party, and one of the most visible
spokesmen of the "Campaign for No" during the 1988 plebiscite 92, easily defeated PDC
candidate Andres Zaldivar, who incidentally was one of the key "back doors" used the transport
trade associations to influence policy.
Trade association leaders had grown comfortable with PDC administrations, and were
uncertain about what this "shift to the left" would imply for their business. On the one hand, they
had met Lagos before in his role as Minister of Public Works under Frei, and some trade
association leaders claimed to have a personal relation with him. On the other, Lagos was known
to be a courageous hardliner, rising to national preeminence in 1988 after using a rare nationally
televised interview to speak directly to Pinochet, accusing him of torture, assassinations and
violations of human rights. He was also pragmatic. Despite his socialist credentials, he had
paradoxically spearheaded a plan to finance highway improvements using private tolls, awarding
591 I first encountered the term "latin american jaguar" in (Oppenheim 1999 p. 239).
592 Lagos served as Minister of Education under Aylwin and as Minister of Public Works under Frei-Ruiz Tagle. He was the
founder of the Partido de la Democracia (PDD), created in 1987 to build momentum for the plebiscite, at a time when key
figures in other left-leaning parties like the PS where hesitant about participating in an election likely to legitimize Pinochet.
231
long term concessions to large, foreign, private consortia. 593 As president, he could certainly
attempt to apply this model to draw private investment into public transportation. Perhaps due to
this uncertainty, trade association leaders sought to demonstrate their support by postponing a
fare increase slated to occur by the end of 1999, practically coinciding with the presidential
elections. Polls showed Ricardo Lagos, in a dead heat against Joaquin Lavin, the candidate from
the Alianza por Chile, the coalition of center-to-right political parties that included the Union
Dem6crata Independiente (UDI) and Renovaci6n Nacional (RN). The presidential election took
place in December 1999, resulting in victory for Lagos by only by 30,000 votes. Since the
Concertaci6n received less than 50% of the votes, a runoff election was scheduled for January,
which Lagos won again, this time by a slightly larger margin. It is impossible to know whether
the negotiation with the transport trade associations to postpone adjusting bus fares in Santiago
played any role in this outcome. What is certain, however, is that key dirigentes of the AGMTP
and of the FGDTS staunchly believed that the newly elected administration was indebted to
them.
593 For Lagos' own description and justification of his decisions at MOP, see (Lagos Escobar 2012 p. XI; 137-140).
232
Part III. A bold vision for public transportation in Santiago
(2000-2006)
PTUS: An ambitious urban transport agenda
Ricardo Lagos was sworn in as president of Chile on 11 March, 2000. If there was any
doubt about his intentions, Lagos merged the the Ministry of Public Works with the Ministry of
Transportation and Telecommunications, creating the MOPTT, and appointed his former
coordinator of concessions, Carlos Cruz, as the new bi-minister. According to Cruz, the decision
to merge both bureaus "responds to the need to articulate and replicate criteria used in public
works concessions to (urban) transportation policy". 594 One of the first actions taken by Minister
Cruz was to convene, in May 2000, an advisory committee on urban transport, informally
dubbed "the four wise men."5 95 This committee was charged with updating President Frei's
1996-2000 Transportation Plan, expanding its vision until 2010, the year of the country's
Independence Bicentennial. Notably, German Correa was the only former participating minister.
Other members were Sergio Gonzalez Tagle (Under-Minister of Transportation under Correa),
Eduardo Abedrapo, (advisor to former Minister Hohmann), and Sergio Solis (businessman). With
the support of SECTRA, this team reviewed Santiago's past and ongoing public transport
projects, and looked at best practices from other cities. They only briefly glanced at Bogotai. That
city was in the course of building the first phase of its now famous Transmilenio BRT (which
would be inaugurated on December 4, 2000), but soon discarded as a model for Santiago since it
only promised to reach a few main corridors, leaving the rest of the city untouched. The "four
wise men" wanted a "global intervention," 596 something akin to Curitiba's Rede Integrada de
Transporte (RIT), except at a much grander scale.
Their 107 page report5 97 served as basis for the 2000-20 10 City of Santiago Urban
Transportation Plan (PTUS), formally adopted by the MOPTT in November 2000, and launching
pad of what today is known as Transantiago. With the PTUS, "the authority proposes the
ordering of the urban transport system of Great Santiago, orienting and articulating the necessary
initiatives to provide the city with a modem and efficient transport system, environmentally and
594 (Cruz 2001 p. 17)
595 (Hidalgo and Graftieaux 2007 p. 7, footnote 6)
596 (Correa, Germdn. Personal interview. 13 june, 2012)
597 (Comite Asesor Transporte Urbano 2000)
233
economically sustainable, consistent with the demands of mobility, accessibility and quality of
life of citizens." The PTUS sought to:
* Incentivize public transportation as "the principal mode of transport" and improve the
quality and safety of the system, with the goal of maintaining the current share of motorized
trips done by public transit (estimated at 69%).
- Incentivize the rationalization of the use of the automobile, "with the goal of making
the users of private transport become aware of the real costs of this modal option."
- Influence the location of homes and activities, with the goal of reducing the average
trip-distance.
. Reorganize the institutional framework related to the transport system of the city. 599
To advance these objectives, the PTUS called for "a leading role from the state to order
and correct the imperfections of the urban transportation market," and for an "equilibrium
between market regulation and competition." 600 The PTUS included 13 wide-ranging programs,
including the creation of a new metropolitan authority of transport, the revision of land use
policies, and the reassessment of the city's policies governing public and private transport,
motorized and non motorized. It outlined an ambitious agenda to build tolled urban highways,
expand the metro, establish a network of underground parking lots, and improve conditions for
non motorized transit. And of course, Program I of the PTUS referred to the "modernization,
ordering and integration of public transportation services." PTUS implied a profound changes to
the public transportation system in Santiago. Once (and if) fully implemented, the bus and metro
networks would be physically, operationally and fare integrated. Automatic, contact-less fare
cards would replace cash onboard buses and subway stations. Instead of tendering several
hundreds of bus routes, the MOPTT would award a few contracts to operate "service
areas" (later called feeder units) and "structuring corridors" (later called trunk units) the later of
which "must be equipped with exclusive busways, segregated for public transport vehicles." 601
The original version of the plan (figure 3.5) considered 284 kilometers of segregated busways in
10 main avenues, as well as 35 transfer stations, including 8 intermodal (where passengers could
598 (MOPTT 2000 p. 1)
599 (Ibid. p. 8)
600 (Ibid. p. 9)
601 (Comite Asesor Transporte Urbano 2000 p. 25)
234
Santiago, Part III
Figure 3.5 Network of bus-exclusive infrastructure considered in the PTUS.
RED DE VIAS EXCLUSIVAS PARA BUSES
PROYECTOS
PRESUPUESTO 2001
MINVU
Al Siatema Sta. Rosa y par
San Francisco ISan
Isidro Tramo II (Av.
Matta - P. Cicarelli)
A2 Av. Grecia (V.
Mackenna-C. Errizurriz)
y Nudo Grecia-San
Eugenio-Bustamante
MIDEPLAN-SECTRA
C1 Sistema Gran Avenida-
San Diego y par Nataniel
Cox (Placer -A.
Vespucio)
C2 Av. Independencia (Sta.
Maria -A. Vespucio)
C3 Av. San Pablo (A.
Vespucio - Matucana)
C4 Av. Pajaritos (C. Melipilla
- Alameda)
PROYECTOS POSTERIORES
AL 2001
MINVU
A3 Sistema Gran Avenida-
San Diego y par Nataniel
Cox (Alameda -Placer)
A4 Siatema Gran Avenida-
San Diego y par Nataniel
Cox (A. Vespucio - Sta.
Marta)
A5 Av. V. Mackenna (A.
Vespucio - Eyzaguirre)
MIDEPLAN-SECTRA
CS Av. Grecia (Los
Presidentes - Tobalaba)
C6 Av. Recoleta (Sta. Maria -
A. Vespucio)
C7 Anillo Intermedio
C8 Sistema Sanchez
Fontecilla - Tobalaba
C9 Corredor El Pef6n-
Gabriela Poniente-Lo
Blanco
CIO Corredor Eyzaguirre
(V.Mackenna -Los Morros)
Source (MOPTT 2000 p. 13)
switch between city buses, interurban buses, metro and taxis).602 Additional infrastructure, such
as thousands of roofed bus stops, would be built throughout the city.
With regards to the subway, the advisory group sought to convince the minister and the
president to prioritize projects that increased ridership of the existing subway network -such as
the overhaul of the bus route grid-, rather than building costly additional lines.603 However, this
was one suggestion discarded by the new government. In fact, President Lagos had promised
during his political campaign to bring the subway to Puente Alto, a poor suburb located in the
south of the city604, and he had made up his mind about extending the subway before the
602 (Muhioz and de Grange 2010; Morande and Dofia 2007)
603 (Comite Asesor Transporte Urbano 2000 p. 46)
604 El Mercurio, "Lagos inaugur6 la nueva Linea 4," 1 December, 2005.
235
advisory committee had even submitted its report. On May 24, 2000, Lagos announced a 5.6 and
2.5 kilometer extension to subway lines 2 and 5, respectively, and was already considering
Metro's proposal to break ground on line 4 -the line needed to keep his promise. Despite this
divergence of opinion, the PTUS represented the first time that the bus component of Santiago's
public transport system was targeted by a Concertaci6n government in such a comprehensive,
ambitious way. Unsurprisingly, the biggest challenge identified by the "four wise men," and
embraced as such by the PTUS, was the fragmentation prevalent in the private bus operator
industry. As they put it, "to meet the aims of the PTUS it is indispensable that public transport
firms emerge, that are able to take advantage of economies of scale; that can efficiently
administer and maintain their fleet of vehicles; that are able to technologically innovate; that
compete in tendering processes and not in the streets; that formalize their labor relations with
drivers... and that formalize their tributary regime."605 The plan outlined the type of private
partners that would henceforth be sought by government authorities: "with a clear property
structure, professionally administered, subjected to the general fiscal regime, able to ensure
quality and efficiency, and with labor regimes that motivate friendly and safe behavior"606
The PTUS was clearly designed to mark a before and after. It embodied the long
postponed Concertaci6n promise to balance national growth objectives with equitable
development at the local level. It promised radical, systemic improvements to the quality of
urban services experienced by the vast majority of santiaguinos, and particularly by the poor,
which relied on public transport the most. In many ways, the negotiated bus-route tenders of the
nineties and the expensive but still quite limited expansions to the subway undertaken under
Aylwin and Frei Ruiz Tagle fell short, and public transport deserved its place as one of the
lowest-rated public services in Santiago.607 The abusive service, the hours wasted commuting,
the congestion on the main thoroughfares, the perilous street crossings and the deteriorating air
quality served as constant reminders that state capacity to use transportation policy as a tool for
urban planning remained as limited under the Concertaci6n as it had been under Pinochet. The
first government led by a socialist since Allende was committed to correcting this.
605 (MOPTT 2000 p. 14)
606 (MOPTT 2000 p. 9)
607 G6mez Lobo (2007) refers two polls showing this result. One by Solimare, where public transport came out as the
lowest rated, except for "municipal services", and one by ProCalidad and Adimark, where public transport was the third
worst service evaluated among 22.
236
Santiago, Part III
From vision to reality
Despite its far reaching implications, the regulatory reform implied by the PTUS quickly
fell under the radar. Part of the reason was that both the president and Minister Cruz used their
bully pulpits to highlight other elements of the plan, such as the extensions to the metro network,
the construction of multimodal transfer stations, as well as the establishment of both bus priority
lanes during peak hours throughout the city, and of bus exclusive lanes on a few mayor streets.
Beyond the language contained in the PTUS, the first two years of the Lagos administration
offered no indication that the government seriously wanted to challenge the bus operator cartel.
At most, Minister Cruz made a point of appeasing existing operators, declaring that "if they
accept the challenges (implicit by the PTUS) it will be possible for them to obtain long term
concessions that will allow them not only to recoup and monetize their investments, but also to
prevail over the periodic crises facing the sector".608 More frequently, however, Cruz explained
that improving the infrastructure used by public transportation vehicles should precede any new
regulations on bus operators. "The usual is to impose changes and then generate the conditions.
We are acting in the opposite manner, and for this reason we expect a better disposition from the
dirigentes of transport ."609 The immediate implementation of bus priority and bus exclusive
lanes -to be used by same old buses, racing drivers and unaccountable trade associations- soon
frustrated those expecting radical change. As published in the editorial page of El Mercurio,
"public transit exclusive lanes, even though they aim to improve the flow of public transport,
constitute an irritating preference, since the service offered by the buses using them is of low
quality... unfortunately, transport authorities of every Administration have lacked enough force
to break the lobby power of the transportation organizations." 610 In reality, however, plans to
fundamentally modify how the Chilean government planned and regulated bus services in
Santiago were discussed quietly but intensely since day one of the Lagos administration.
During his tenure at the MOP, President Lagos had what Bill Clinton later described as a
"Nixon-going-to-China moment" 611: Despite being a committed socialist, Lagos realized that the
608 El Mercurio, "Inversi6n de $1,000 millones: Cambio total para servicios de transporte en Santiago", September 17,
2000.
609 El Mercurio, "Medidas aplicadas al trinsito son positivas pero mejorables," Carlos Cruz, April 4, 2001. p Al and A19.
610 El Mercurio, "Editorial: Plan Maestro de Transporte," February 22, 2002.
611 (Clinton 2012)
237
introduction of market forces could paradoxically expand state capacity. Opening highway
projects to private investors reduced the financial burden of expanding critically needed
infrastructure, while also enabled authorities to set regulation. His instructions to Minister Cruz
were explicitly to adapt this model to public transport in Santiago. The window of opportunity to
design an attractive framework, find willing investors, and launch the new system was not very
big: Everything had to be ready by 2003. That year, the bus operating contracts awarded in the
tender of 1998 would expire, affording the administration a critical juncture to radically change
the rules of the game. Germin Correa recalls being summoned to the Presidential Palace of La
Moneda in August 2001, where discussions were already taking place to analyze how the
"highway concession model" could apply to public transport. Among the ideas floated at the time
was fully privatizing the system, awarding one or a few number of contracts to large private
investors to build 9 metro lines and to replace the existing buses with light rail and hybrid
vehicles.612 Correa reacted by pointing out the key way in which highways and buses were
different: "I explained that this proposal implied killing the micreros, and that doing so would
cost a lot of money. His government could not remove several thousand people from the activity
without expecting to compensate them, and neither could it send them to unemployment." 613
The mere possibility of opening the surface transport sector to external competition
raised several implementation questions for the government. How likely were world class bus
operating companies to invest in a place like Santiago? What type of business model would
attract them, and what if any would be the financial outlay on the part of the government? How
could the government manage the transition from existing operators to the new investors? Would
existing operators need to be compensated, and how strongly would they resist the project? The
lack of definitive answers contributed to separating the subway and the bus components of the
PTUS. Due to its high, up front, capital investment cost, its centralized and predictable revenue
stream, and its more established list of potential investors, subway extensions fit much more
closely with the highway concession model. The Metro was institutionally well-established and
612 According to Correa, this plan was advocated by Matias de la Fuente, president of the Bicenntenial Commission and
close advisor to Lagos. Fernando Bustamante, president of the Metro, and Genmin Molina, Director of Concessions at MOP,
were present in this meeting.
613 (Correa, Germdn. Personal interview. 13 june, 2012)
238
Santiago, Part III
in a good financial position: It operated without operational subsidies since 1994,614 and on July
2001 successfully issued a first series of bonds, raising cash from the private sector to refinance
its impending capital debt (extending its re-payment obligations to 25 years) and increasing its
borrowing capacity.615 In other words, adding the buses as part of the same package added
significant "noise" to what seemed to be a financially sound financial strategy already underway
at the subway company. Perhaps for these reasons, Lagos gave the green light to the construction
of Line 4 of the subway, a decision announced by the president of Metro on November 21,
2001.616 Nonetheless, the conditions to move forward with the PTUS as a package, including the
buses, continued to be discussed in utmost secrecy for several months, until a not entirely
unrelated national political scandal forced the resignation of Minister Cruz in January 2002. The
"highway concession model" implemented at MOP was not universally heralded as a success,
and opposition parties had long sought to establish a direct connection between the contracts
awarded and President Lagos' campaign funds. In 2001, a link was apparently established:
Money paid in 1999 by the MOP to a private consulting firm owned by a member of the Socialist
Party circled back to several MOP officials, as "compensations." The official explanation was
that these "extra" payments enabled the ministry to pay competitive salaries to officials
managing the concession program, but the scandal escalated nonetheless. Beyond claiming that
this compensation mechanism was illegal, the opposition argued the money was really used to
finance the campaign. 617 Only the resignation of Cruz kept the investigation from raising
questions about the president's own involvement.
Amidst the scandal, Lagos appointed Javier Etcheberry as new bi-minister and recruited
Germin Correa to formally come back to government, serving as the Coordinator of the
Directorio de Transporte Urbano, a new inter-ministerial commission tasked exclusively with
614 (Metro de Santiago 2007 p. 49). The budgetary balance at Metro was partly due to its chosen strategy to compete against
from the buses. Given the ubiquitious competition, Metro targeted a higher income market segment, offering more comfort
for higher fares than the buses.
615 (Metro de Santiago 2012 p. 95). The first seven bond emissions (series A to G) took place between July 2001 and
September 2005. All of these bond series were backed by the Chilean central government.
616 El Mercurio, "En octubre del 2002 comenzar-n obras de linea 4 del Metro," November 22, 2001. During the event,
Metro president Fernando Bustamante announced that the 33 kilometer project would cost US $1,007 million, and that US
$650 million would be financed with a 15 year, 3% interest loan from BNP Paribas.
617 El Mercurio, "Obras pnblicas indaga sobresueldos de jefes," November 2, 2002.
239
implementing PTUS. Etcheberry was known as a no-nonsense technocrat: He was an engineer
with a PhD in operations research, credited with revamping the Chilean Internal Revenue
Service. The president ordered them to move the PTUS forward, from planning to
implementation. The days of Cruz's conciliatory statements to the press appeared to be over.618
Thinking of the upcoming battle with the leaders of the trade associations, Etcheberry used his
first public appearance as minister to stress his instructions were "to modernize this country, not
cowed by special interest lobbies." 619 Only days later, Correa publicly outlined the government's
strategy: "The upcoming tender of 2003 will fundamentally change the existing bus route
structure. It is absolutely illogical to have 113 of the existing 334 bus routes currently in Santiago
overlapping in Vicuta Mackenna Avenue. Something similar happens on Alameda, and we can't
allow it. Most importantly, we need existing trade associations to become professional transport
companies. The sector is highly informal, and can't continue like this. Having many
entrepreneurs on the same bus route leads to internal competition: In the future we want firms
that own the vehicles, and that have formal contracts with their employees... My role will be to
lead the great challenge of ordering public transport in Santiago, to radically modernize it, as
President Lagos instructed."62 0
Details about the exact content of the regulatory framework proposed by the government
would come later, but the key underlaying point was clear: The objective of replacing the trade
associations with corporatized firms was no longer negotiable. The state would use market
competition as a tool to enforce this regulatory objective. Trade associations could either adapt
and take this challenge head on, or step aside and allow someone else to take their place. The
leaders of the AGMTP surely took note, and many drew out their drums of battle. Their position
was clearly stated by Manuel Navarrete, who along with Marinakis and Pinto was the most
618 The contrast was clear to people that interacted with both ministers."Etcheberry was much tougher than Carlos Cruz.
Etcheberry cared little about what the micreros had to say. He was tough, and seldom talked to them directly" (Diaz,
Guillemo. Personal interview. 4 August, 2012).
619 (Etcheberry, Javier. Personal interview. 17 July, 2012)
620 La Naci6n, "German Correa: Los objetivos de la licitaci6n son intransables," March 10, 2002
240
Santiago, Part III
powerful trade association lellllllll &- .
Figure 3.6 A typical view of Santiago's thoroughfares. Source: El Mercurio, April
leader in Santiago. Primed by 005
a newspaper reporter, he dryly
warned: "reasonable people
do not talk when
threatened."6 2 1
Beta-testing market
responsiveness: Finding
operators for Metrobiis
services.
Despite heightened
rhetoric, threats where
nowhere near credible. A
recent, low key effort to
attract private investors to
Santiago's public transport
system had failed as recently
as June 2001. The contracts of
the trade associations operating a handful of bus routes that fed passengers to key metro stations
-services known as 'Metrobn's'- had expired, and MOPTT organized a tender to renew them,
demanding higher standards of service. The potentially affected trade associations were affiliated
to the AGMPT, and their leaders decided to boycott the process. As they expected, MOPTT
received no alternative bids, the process was indefinitely postponed, and the incumbent operators
nonchalantly continued to operate these routes. Metrobn's services could be operated with
250-300 buses. If the government was unable to defeat a boycott and to elicit market interest for
a relatively small project, how could it expect to succeed in a city-wide process threatening
thousands of operators at the same time?
Etcheberry and Correa decided to relaunch the Metrobns tender, not only to demonstrate
to cartel leaders that suitable alternatives did in fact exist, but perhaps more importantly, to learn
621 La Tercera, "Surgen primeros roces entre German Correa y Microbuseros," March 9, 2002.
241
more about the true appetite of the market in advance of the upcoming, city-wide process. They
found that the outlook was not promising. According to Guillermo Diaz, who joined MOPTT as
Under Minister of Transportation and worked recruiting investors, "there was a bad assessment
of this sector as a business opportunity. Potential entrants did not know for sure if the banks
would offer financing, and the MOPTT was not perceived as a trustworthy counterpart...
considering that the results of every single previous bus tendering process had been pre arranged.
Who would believe that we were actually serious about awarding contracts in a competitive
manner? (Potential bidders) saw politicians promising a lot of things, who would surely continue
the tradition of negotiating with the micreros."622 Apparently, the strategy of compromising with
trade associations during the nineties had come back to bite state authorities. Now potential
investors gave no credence to the government's promise to competitively award contracts. To be
sure, the Metrob's contracts were not particularly attractive on their own, if only because it made
little sense for passengers to take a bus to a metro station when there were plenty of bus routes
offering point to point services. 623 To counter private investor hesitations, Etcheberry personally
reached out to representatives of large european conglomerates, assuaging their fears, and
framing the Metrobu's contracts as a strategic investment. As he put it, firms entering the market
now have a foot in the door of Santiago's large public transport market, precisely when the Lagos
administration launched an aggressively competitive process to award contracts city-wide.
One of the firms invited to submit a bid for Metrobis was the french conglomerate
Connex (now Veolia). In addition to running public transport operation in several continents, this
firm operated solid waste management facilities in Chile since the nineties, and owned a
minority stake in Ciudad Mvil, one of the consortia that operated BRT buses in Bogota's
Transmilenio system. Another was ALSA, a spanish company already running an inter-urban bus
service between Santiago, Valparaiso and Vifia del Mar, and with broad international experience,
including the operation of public transport services in Zaragoza, Spain. Their participation would
certainly send the desired signal to the trade associations. They were large, well capitalized and
had experience in similar markets. According to Alberto Urquiza, who represented Connex in
Chile, "the government asked us by every possible means to participate in the Metrobis, but my
622 (Diaz, Guillermo. Personal interview. 4 August, 2012)
623 Also, the contract period offered was only 3 years, not enough to recoup the investment if someone came in with new
buses. Changing these terms was risky: "We couldn't get creative, because there weren't too many external actors
interested," recalls Diaz (ibid.)
242
Santiago, Part III
superiors in France were very uncertain about the true viability of a long-term business plan".624
With large conglomerates uncommitted, chilean authorities turned to local alternatives. They
reached out to their contacts within the trade associations, trying to enlist a local player willing to
break the boycott. As it happened, the AGMPT was experiencing internal turmoil. In May 2001
Juan Pinto had left the organization, taking with him nine trade associations controlling
approximately 1,000 buses to create a new federation, Siglo XXI. It is impossible to confirm if
news about the PTUS had anything to do with this rupture, but authorities had for months
nurtured their relationship with the more entrepreneurial trade association leaders like Pinto.
According to Correa, "I gave (Pinto) more information than the rest... tried to empower him as
leader. I knew he was trying to convince the most backward members of his organization of the
positive aspects of the policies pursued by the government". 625 Such nurturing approach was not
reserved to consolidated trade association leaders. Jaime Sanchez, the son of a bus owner
unaligned with the AGMTP saw the Metrobns tender as an opportunity to enter the market
without having to go through the ranks of cartel bureaucracy. Owning no buses, and with scant
experience, Sinchez created Red Bus, a firm that Etcheberry acknowledges "was created, partly,
in response to overtures made by us."626 But even with such support Sanchez had good reason to
withhold to the last minute his decision to bid: "Once my intention was known, I began receiving
messages, stating that I would be shot. I stopped going to my office, and only met people in
public places."627
As the deadline approached, the process seemed likely to fail for a second time. Both
Pinto and Connex announced their decision not to participate, asserting that "the numbers did not
make sense," 628 and the AGMPT stood firm in its decision to boycott the process. According to
624 (Urquiza, Alberto. Personal interview. 11 July, 2012) Guillermo Diaz offered confirmation: "We actively tried to recruit
them... the first attempts were not successful, but Javier Etcheberry gave them a lot of certainty that this process was
serious" (Personal interview. 4 August, 2012).
625 (Correa, German Personal interview. 13 June, 2012)
626 (Etchebery, Javier. Personal interview. 17 July, 2012)
627 (Sanchez, Jaime. Personal interview. 23 July, 2012) ALSA and Connex representatives also received "invitations" to
withhold their bids, albeit in a much more civilized tone. "The micrero leaders approached all firms considering a Metrob6s
bid. You can call the former managers of ALSA and they will tell you a story similar to what I experienced personally: They
warned us, claiming that we would not survive in this market" (Urquiza, Alberto. Personal interview. 11 July, 2012).
628 (Pinto, Juan. Personal interview. 27 July, 2012) In separate interviews, Sim6n Dosque and Alberto Urquiza offered
similar explanations.
243
Etcheberry, "we offered to support whomever made an effort to modernize. They listened, but
did not believe me, or simply did not want to participate. They thought they had more power
than they actually had, and convinced themselves they could effectively block our efforts". 62 9
Indeed, they even staged protests. On July 25, 2002, incumbent Metrobn's operators organized a
semi-paralysis of service on the Alameda. They placed one bus in each of the lanes of this critical
avenue, and ran them at 5 km/hr, producing a massive traffic breakdown, right in front of
MOPTT headquarters. The leader of these trade associations, Marcel Antoine, promised to
organize a larger strike if the government did not cancel the tender. Fortunately for the
authorities, their efforts paid off. They received viable bid commitments from ALSA, the spanish
firm, and from Jaime Sanchez' Red Bus. So, on July 30, Correa summoned the the AGMPT
leaders, and notified them that failure to submit bids would "end in tragedy": The 540 buses
currently serving Metrobn's routes would automatically lose their authorization to operate, an
outcome that "only forecasted the business challenges they would all face in the tendering
process of 2003 ."630 Albeit barely, the threat was now credible.
On August 6 th, 2002 The MOPTT awarded seven contracts to operate Metrobnis services.
It would the first time that a large, foreign owned private conglomerate operated public transit
services in Santiago since the electric trolley era. ALSA's chilean subsidiary -Bus Lit- won three
of these units, while Red Bus won other three. Rodrigo Perez Calaf, a local entrepreneur with no
previous experience in the sector, won the seventh unit after submitting a last minute bid. To be
sure, bids presented were far from ideal, and in fact Jaime Sinchez had to sell Red Bus soon after
its contracts were awarded, lacking financing to deliver the promised vehicles on its own.63 1
Similarly, ALSA was so uncomfortable with its own bid, that its managers offered to partner with
displaced Metrob's operators immediately after winning.632 However, this battle had immense
significance: The chilean authorities had successfully created a market where none existed
before, demonstrating to potential investors that the government was in fact committed to
629 (Etcheberry, Javier. Personal interview. 17 July, 2012)
630 El Mercurio, "Como fracas6 el nltimo didlogo," August 19, 2002
631 According to Jaime Sanchez, large bus manufacturers aligned with the cartel pressured his bank to withdraw previously
promised financial support to his firm. Sdnchez sold to Jos6 Yuraszeck, a former public official during the dictatorship, that
in 1983 oversaw the privatization of Chilectra, the national electric utility, and emerged from the process as one of the
wealthiest men in Chile. From more details on Yuraszeck, see (Huneeus 2007 p. 311).
632 The reason this did not happen was probably because Manuel Navarrete and the AGMPT pressured Metrobus operators
not to.
244
Santiago, Part III
awarding contracts on a competitive basis, and expanding its capacity to use the threat of
competition as an instrument to modify the rules governing bus services city-wide. "This was the
first real face-off between this government and the trade associations," recalls Alan Thomas,
former official at SECTRA."Had we failed then, operators would probably succeed organizing a
boycott to the larger reform effort".633 Instead, the government's success attracting bids forced
trade association leaders to adjust their tactics. According to Juan Pinto, "the gremio felt a
debacle was coming... Many thought: 'What happened to (the Metrobnis operators) will surely
happen to us." 634 A few trade association leaders took this as an opportunity to accelerate the
transition of their organizations into real corporatized firms, able to compete in the upcoming
city-wide tender. The broad majority, however, were overwhelmed by the fears of an infuriated
member base that demanded a united, resolute and militant response to the PTUS.
Escalating conflict: The road to the Santiago bus blockade of 2002
The outcome of the Metrohs episode triggered frantic calls from the offices of transport
trade association leaders. They tried to enlist the support of politicians to go around the MOPTT,
but their key allies -mostly centered in the DC- were too far from Lagos' decision making circle.
Senators Andrds and Adolfo Zaldivar, known as "friends of the gremio," 635 had in fact opposed
the candidacy of Lagos within the Concertaci6n. The Minister of the Interior, Jose Miguel
Insulza (PS), had contact with the trade associations, but in any case Etcheberry -a member of
the PPD- had a significant degree of political autonomy that resulted not only from his close
connection to Lagos, but from a career-long reputation as an uncompromising technocrat.
Lacking "back doors" to influence policy, the Consejo Superior de Transporte had little results to
bring to the rank and file members of their organizations. Their only alternative was martyrdom.
The Consejo Superior agreed that bus operators in Santiago had to present a united front against
the threat of external competition, and convened an urgent general assembly. Several trade
association leaders described how such assemblies typically worked: "A bus owner with
aspirations to become leader would grab the microphone and ask the current leaders of his
organization whether or not they were capable of standing up to government abuse. Normally,
the assembly would clap and shout in agreement, and thus the next speaker would feel
633 (Thomas, Alan. Personal interview. 15 June, 2012)
634 (Pinto, Juan. Personal interview. 27 July, 2012)
635 Ibid.
245
encouraged. He would say 'Mr. Leader, grow a pair!636'. By the the time it was the turn of that
leader to speak, he would normally need to show he had a pair by asking 'Do you want to
paralyze the city?' And everyone would respond, yes!"637 On this occasion, the assembly took
place in a large theater in Santiago, and every speech was predictably more incendiary than the
previous one. Roughly 600 people were present. "We explained what had happened with the
Metrobnis, and warned that if we allowed the government to continue, we would be next!",
recalls Cristiin, the son of Demetrio Marinakis.638 "The consensus was that we needed to derail
this project and stop the tendering processes for good. Nobody opposed that", recalls Armando
Huerta -then leader of the FGDTS639 .
Discussions, however, centered on exactly how far to take the protest. Some passionately
advocated barricading major intersections, causing a city-wide traffic collapse.640 Others felt
withholding service for a day or two would suffice to force the government back to the table.
Luis Willumsen, a consultant working for the AGMTP, recalls that there were essentially two
camps represented in the assembly: "One that wanted to launch total war, even bringing down
the government if that was what it took to force the government to back down, led by Demetrio
Marinakis. Another group was willing to find a workable accommodation, but only as long as
entry to the market by external competitors was forbidden, led by Manuel Navarrete."641 The
more radical group carried the day, and preparations for the protests began immediately.
Members of every transport trade association in Santiago were pressured to participate, and only
a few organizations that had already decided to embrace the PTUS -mostly those affiliated to
Juan Pinto's Federaci6n Siglo XXI- refused.642 Rumors of the coming standoff reached the
636 The actual quote is "tiene usted los pantalones?" (do you have the pants?)
637 This quote is from Juan Pinto, but a similar story was offered by Demetrio and Cristian Marinakis.
638 (Marinakis, CristiAn. Personal interview. 20 June, 2012)
639 (Huerta, Armando. Personal interview. 18 july, 2012)
640 "Some bus owners were not only willing to withdraw their vehicles from service, but also advocated preventing other
bus owners from working. They were ready to blockade terminals of any bus organization unwilling to join the
protest." (Panza, Orlando. Personal interview). Another trade association leader, who asked to withhold his name, mentioned
"I know some leaders who even planned on dumping gravel and construction material at the doors of subway stations."
641 (Willumsen, Luis. Personal interview. 20 June, 2012). His description is consistent with Demetrio Marinakis' own
framing: "Within the gremio we had two wings. One, the strongest led by myself, and another one, led by my friend Manuel
Navarrete, who along a few other leaders galloped toward 'empresarizaci6n'."
642 As explained by Sim6n Dosque, "this was our opportunity to demonstrate that not every bus owner organization was
equal, and that at least ours were willing to sit on the table and discuss changes that were reasonable" (Personal interview. 15
june, 2012).
246
Santiago, Part III
MOPTT, and authorities learned that the plan was to blockade 50 intersections on the morning of
Monday, August 12, 2002. A protest of that scale had not taken place in Santiago since the
Allende years. Guillermo Diaz tried to talk down the trade association leaders, and in fact met
several times with Demetrio Marinakis seeking to defuse the protest. However, positions were
too far apart to reach a compromise, 643 and perhaps more importantly, trade association leaders
were now bound by an assembly vote. 644 Their own position within the trade would suffer if they
were perceived as too willing to negotiate.
"We knew they would go on strike", recalls former Minister Etcheberry, "but never did
we imagine that they would attempt to blockade the whole city. President Lagos was furious". A
response task-force was installed at La Moneda, led by President Lagos himself. The Minister of
the Interior, the Intendent of Santiago, the General commanding the Carabineros, as well as
MOPTT officials Etcheberry, Correa and Diaz were present. Once it was clear the protest would
happen, chilean authorities understood that this was a show of force. "We concluded that it was
imperative to defeat them at their own game, employing force -always within the law, but with
force nonetheless." 645 The government issued an unusually harsh warning. Not only would the
contracts of bus operators participating in a blockade be declared void and their vehicles
confiscated, but Law 12.927 would be invoked. This Law, "of the internal security of the state,"
was used frequently during the Pinochet Regime but rarely invoked since the return of
democracy 646. It empowered Chilean authorities to request courts to expedite or obviate due
process when dealing with threats to "public order." People convicted under this law not only
643 According to Guillermo Diaz, "the last encounters took place the sunday prior to the protest. I met Demetrio Marinakis
on 9 am, and then again at 2 pm. His position was quite unyielding: only if we cancelled the Metrobns contracts and
suspended the larger tendering project, they would refrain from barricading streets. Neither were a possibility" (Personal
interview. 4 August, 2012).
644 Marinakis' account stresses that the government tried to get assurances that the protest would not include blockading
streets: "Guillermo Diaz wanted me to go on record, on a government sponsored television broadcast ("cadena nacional "),
asking members of my organization not to blockade streets. Members would not block streets if I asked them not to, but if I
did such thing, my position within the gremio would suffer. I had to maneuver" (Personal interview. 12 july, 2012).
645 (Etcheberry, Javier. Personal interview. 17 July, 2012)
646 Despite numerous strikes and social conflicts taking place in Chile throughout the 90s, Concertaci6n governments rarely
invoked this Law. The only case known to the author took place under President Aylwin, and employed against members of
the Mapuche tribe, who seized land illegaly. 141 mapuche indians were convicted and deprived of their political rights.
247
face prison, but are also stripped of their political rights, such as taking on leadership positions in
government or social organizations -like trade associations.
A city hostage: Turning a crisis into an opportunity
Authorities knew that the transport trade associations were about to make a critical
strategic mistake. This interest group was already grossly unpopular among the general public,
and blockading the streets would only diminish their position and empower authorities to
decidedly move forward with the PTUS. As Correa explained, "this conflict was an opportunity
for us. The full benefits of our proposed reform would take years to really materialize, and our
ability to implement changes would inevitably weaken in the process. By choosing to engage in
an all or nothing war, the micrero leaders gave us the invaluable chance to break the backbone of
the gremio early."64 7
Seeking to take full advantage, authorities designed a three pronged strategy. First,
government spokesmen filled the airwaves informing the public of what was happening. "We
were calling television stations, giving as many interviews as possible. Our aim was to gear
public opinion decisively against the leaders of micrero organizations", recalls Etcheberry.648
Consistent with Correa's strategy during the early nineties, the Chilean government wanted to
ensure that when the battle line over the PTUS was drawn, the public took the side of the
government. Second, authorities assembled a team to expeditiously free any blockaded
intersections, and to provide alternative transportation to the public. For the former, military and
carabineros were placed in high alert, and a fleet of tow trucks hired (many brought in from
CODELCO, the state owned copper mining company). The plan was to tow the buses, and to
retain them for several days, to ensure owners suffered financially. Authorities realized that many
bus operators lived day to day, and knew that keeping their vehicles off the streets would weaken
their resolve. For the later, metro authorities prepared a contingency plan, and MOPTT officials
lobbied visible dissidents of the Consejo Superior, such as Juan Pinto, to ensure they kept buses
running. And third, authorities actively sought evidence usable in court linking Consejo Superior
leaders to the organization of the blockade, since applying the Law of Internal Security against
rank and file bus owners and drivers would only dilute responsibility and not have the intended
647 (Correa, Germdn Personal interview. 13 June, 2012)
648 (Etcheberry, Javier. Personal interview. 17 July, 2012)
248
Santiago, Part III
effect. Fortunately for authorities, a little luck and some malice led Demetrio Marinakis to give a
self incriminating interview on the Sunday prior to the protest.64 9
And so events unravelled. Demetrio Marinakis shared with the author how he
experienced those critical hours: "My own son led the blockade of Americo Vespucio. 650 He
deployed 200-300 buses to key intersections at 4 of the morning. I began to get nervous, what
would happen if someone died during the process? They would surely hang us at the Plaza de
Armas... however I could not call them off. If I called them off I would appear as the biggest
traitor to the gremio!"65 1 On the morning of Monday, August 12, hundreds of buses barricaded
the main streets of Santiago. A map published by El Mercurio (next page) details the location of
45 intersections blockaded, including five sites that featured skirmishes with police, and two
more where tires were burnt. One of the largest concentrations of buses took place at the
intersection of Americo Vespucio and Santa Rosa, two of the most important thoroughfares in the
city (pictures next page). The city collapsed. According to press reports, approximately 40%
santiaguinos missed work that day. 50% of the students of middle schools and 25% of the
students from elementary schools missed classes. Businesses experienced 20 to 30% lower sales.
The subway system experienced 42% higher ridership. Bus organizations not participating in the
strike were unable to provide sufficient mobility alternatives. Juan Pinto recalls, "On that
morning the entrance of many of our terminals were blocked with their buses. We operated on
that day, but only with the few vehicles we were able to put out. Our bus routes were full of
rocks and "miguelitos" (nails used to pinch tires)."6 5 2
On that chaotic morning, santiaguinos read the interview where Marinakis confirmed that
the leaders of the Consejo Superior de Transporte had planned the protest.653 He explained they
649 Guillermo Diaz called Demetrio Marinakis on the phone, Sunday at 7 pm. During that call, Diaz told Marinakis that the
president had agreed to spare him of any legal difficulties resulting from the protests. "I told him this would be a token of
appreciation, since he had been the only micrero leader available to speak with us prior to the protest... I knew Marinakis
would not appreciate this, as such special treatment would make him look bad within his organization. The strategy worked.
Later that night, during halftime of a professional soccer match attended by Marinakis, a reporter approached him for an
interview. Marinakis reacted as I had anticipated; Not only did he acknowledge that he was fully aware of the protest that
was taking place the next day, but confirmed publicly that he was organizing it!" (Personal interview. 4 August, 2012).
650 This is the city's ring road.
651 (Marinakis, Demetrio. Personal interview 12 july, 2012)
652 (Pinto, Juan. Personal interview. 27 July, 2012)
653 El Mercurio, "Marinakis estima 2 dias minimo de paralizaci6n", August 12, 2002
249
were reacting to the "shameful" tendering process of the Metrobins, awarded "to spanish firms
that only existed in paper, lacking vehicles." Marinakis went on to detail that the the strike would
last "at least 48 hours, perhaps more," and confirmed that participating buses were affiliated to
trade associations with membership in the Consejo Superior -which he presided. This was
exactly the evidence that the government needed. That day ended with 675 drivers detained and
663 buses confiscated, and with an official request submitted to the court by Intendent of the City
of Santiago Marcelo Trivelli, to apply the Law of Interior Security to the leaders of the Consejo
Superior de Transporte: Demetrio Marinakis (AGMTP), Manuel Navarrete (AGMTP), Armando
Huerta (FGDTS), Orlando Panza (Federacion Santiago) and Marcel Antoine (Metrobn'ses).
The tone of protest organizers radically changed by early Monday afternoon. Armando
Huerta offered a press conference on behalf of the Consejo, informing that the second day of the
strike would not feature blockaded streets, and stressing that "the Consejo is open to talks with
authorities, seeking a way to solve this conflict." However, for authorities the time for talking
was over. President Lagos made that abundantly clear:"What we observed today is absolutely
unacceptable. I can say to my friends from the transportation industry, that all the weight of the
law will fall upon them. This is a serious country and you can't play around with Chile or with
its institutions... As president of Chile, I owe myself to 15 million people, and I will not accept
blackmail from a few. 654" By 8:55 pm on Tuesday, Marinakis, Huerta and Navarrete had been
detained. Antoine and Panza would soon follow suit.
The outcome of the protest was the complete opposite of what bus operators expected.
The chilean authorities emerged united and empowered, with an implicit political mandate to
fully implement the PTUS. In President Lagos own words, "this outcome represents the biggest
victory we've had yet, as I believe that today we are closer to convince everyone that
implementing this transportation plan is possible." 655 Public opinion was certainly enraged, and
united against the transport trade associations.656 Perhaps if they had limited the protest to
paralyzing services they would have kept some social standing, but by blockading the city, trade
654 El Mercurio, "Lagos endurece la mano y pide detenci6n de dirigentes microbuseros," August 13, 2002.
655 El Mercurio, "Lagos declara victoria del Gobierno," August 14, 2002.
656 An editorial published in La Tercera on August 13 summarizes the tone of public discourse in Santiago in the aftermath
of the protest: "Since the 70s, the gremio has frequently relied on its ability to paralyze the city as a pressure tool, and as a
result authorities avoid conflict with bus operators. This time, however, La Moneda cannot allow itself to be cornered. Once
and for all, our authorities should act firmly and decisively, not to attack the gremio, but to make it participate in a plan that
this city needs with extreme urgency".
250
Santiago, Part III
associations succeeded in uniting most chileans against them, and raised the costs for any
potential ally to voice support for their cause. Marinakis and the more radical bus operators
hoped that their detainment would turn them into martyrs, and that the strike would carry on
while they were being processed. Quite dramatically, Marinakis allowed himself to be
photographed raising his cuffed hands in defiance, so that members could appreciate that he was
biting the bullet on their behalf. However, the unity of the Consejo Superior -and the
commitment of its members to the protest- began to whither down as soon as the leaders were
detained.
The ranking micrero leaders faced the possibility of serving up to five years in jail, and
this by itself was sufficient reason for most cartel members to rethink whether sparring with
authorities made sense. Now detained, and with the resolve of the government to carry out the
PTUS clearly demonstrated, the incompatibilities of their role as gremialistas -representing
members- and their role as empresarios -representing themselves- became more evident than
ever. The reflections of Orlando Panza are quite telling: "The protest was a noble action. We
were fighting for the jobs of our members, 3,500 microbus owners. But it was a mistake... I
realized that night in jail that I was defending legless horses. I needed to get out and prepare a
bid... that night I asked Navarrete and Marinakis not to request my support anymore. I told them
that as soon as we left jail, I was on my own."657 In the streets, individual bus owners also broke
ranks and resumed service. Most were not prepared financially for a prolonged standoff. "Our
people had financial difficulties", explains Huerta, "and their debtors chose that time to cash in,
believing that we would be in jail for a long time. It was a catastrophe". "The problem was not
only that we were in jail, but that they legally impeded us from carrying on as trade association
leaders. That was a master move by the Government." 658 Cristiin Marinakis agrees with this
account: "our leaders were deprived of their decision making power, and were compelled to talk
to authorities. In these conversations they agreed to the tendering process, and their only
alternative for their survival became preparing a bid." 659
657 (Panza, Orlando. Personal interview. 19 july, 2012). Armando Huerta shared similar feelings: "There was a systematic
campaign against us in radio, newspapers, television. They stigmatized us in such way that the press treated us as
criminals... It was so bad that for a long time my oldest daughter wanted to conceal at school that I was a micrero. We were
stigmatized as leaders, devastated anemically" (Personal interview. 18 july, 2012).
658 (Huerta, Armando. Personal interview. 18 july, 2012)
659 (Marinakis, Cristidn. Personal interview. 20 June, 2012)
251
With bus services in Santiago soon reestablished, with the highest ranking leaders of the
cartel debilitated and incarcerated, and with public opinion decisively supporting authorities, the
path seemed cleared for reforms to swiftly move forward. Experts called on the government to
"capitalize on victory", taking advantage of this window of opportunity to "force operators to
compete with chilean and foreign firms." 660 However, even in the face of such propitious
circumstances, Chilean authorities could not move forward without striking some kind of
inclusive deal.
From forcing to fostering state capacity: Inventing a transition
Advisors close to Lagos -such as Matias de la Fuente (chair of the bicentennial
commission and personal friend), Jaime Ravinet (Housing Minister) and Fernando Bustamante
(Director of the Metro)- lobbied intensely in favor of leveraging this opportunity to do away with
the loathed micreros. In fact, they advocated in favor of a 35-year, city-wide concession contract
to SACYR, a private Spanish consortium that had informally pledged to replace buses with light
rail if awarded a monopoly. This proposal would linger in the background for the coming
months, but both Correa and Etcheberry were highly skeptical that it would work.661 In fact,
Etcheberry was not even sure reputable, well financed bus companies could be attracted to the
Chilean market without committing the government to significant revenue guarantees. After all,
the Metrobnis experiment had produced only mixed evidence, the city-wide bus tendering bases
were still being studied, and he did not yet have any formal participation commitments from
larger firms. Minister Etcheberry was a technocrat, but he had a good sense of political and
financial feasibility constraints. He realized that the participation of incumbent operators was
needed. As he put it, "I did not believe those who wanted to replace existing operators with new,
modern firms, that would magically do everything right... We wanted a transition to modernity,
but I was certain this would take many years. Why? 1) Because this was a complex system, and
it would be close to impossible to have everything working right from the get go; 2) because our
country had already made an investment in the existing buses, and many of these vehicles were
quite new, and 3) because there was a large number of able drivers working in the old system...
660 El Mercurio, "Expertos piden capitalizar la victoria," August 16, 2002.
661 This plan was not officially cancelled until March 2003, when a formal proposal by SACYR was deemed "poor and
disappointing" by Chilean authorities. See (La Nacion, "Gobierno rechaza plan de transporte paralelo de la empresa espafiola
SACYR," April 1, 2002).
252
Santiago, Part III
Bus blockades in Santiago, August 12, 2002
(Source: El Mercurio, August 13, 2002)
253
to keep costs manageable, we needed their participation. Furthermore, 4) there was a political,
humanitarian consideration. We could not simply tell everyone to take their buses and go
home." 662 This point was stressed by Hector Moya, one of the few voices that came out in
support of the trade associations amidst the strike. The trade association leaders represented
thousands of members who employed thousands of workers and owed millions to banks and
vehicle manufacturers on their many buses. "They couldn't simply bum and disappear them. We
had to work together to invent a transition."663
In the aftermath of the protest, with the micrero leaders still in jail, Correa held a series of
meetings with individual bus owners, trying to assuage their fears. "During the nineties, the
micrero leaders limited the direct communication I could have with individual bus owners. I was
never able to defeat that barrier, and was forced to use them as intermediaries. But when they
were in jail, lower ranking leaders got nervous, and began to approach me directly. It was
through these conversations that the hold of leaders over their bases was significantly
diminished." 664 During these encounters, Correa conveyed MOPTT's message that the proposed
reforms were neither unfair nor did they mean automatic displacement. He assured that bus
owners that had invested in newer vehicles in the previous tenders would remain authorized to
operate until their vehicle's life cycle was completed, and that any trade association that
professionalized its operations and transitioned into a formal transportation company, could
conceivably remain in the new system. With the key trade association leaders incarcerated and
deprived of their political rights, Hector Moya became the official spokesman for private bus
operators. In those critical days, Moya made the rounds to every major news outlet, "with the
only message that could work in our favor at that time. I said that the government was destroying
a group of small business owners in Chile, and that any transition needed to ensure there was
room for them." Members of congress with longstanding linkages to the bus cartel, finally began
to lobby authorities on behalf of incumbent bus operators. The costs to do so were no longer as
high, since the discussion had evolved away from whether or not the reform would happen, and
concentrated instead on the details of how it would. Both sides, public and private, were
662 (Etcheberry, Javier. Personal interview. 17 July, 2012)
663 (Moya, Hector. Personal interview. 21 june, 2012). Sim6n Dosque has a similar explanation for the softening up of
government. "Authorities had to recognize that we had made an investment. Replacing us and our vehicles would be very
costly. We had responsibilities to the banks, to suppliers. They wouldn't only harm the individual bus owners, but everyone
behind them. They had to reserve at least a part of the new system for the old operators."
664 (Correa, German Personal interview. 13 June, 2012)
254
Santiago, Part III
gradually and perhaps naturally softening up their initial positions, and preparing for a negotiated
transition.
Still in prison, trade association leaders and authorities negotiated the terms under which
the new bus contracts would be tendered. While specific details would continue to be refined,
authorities made several commitments such as not to penalize bids that included older bus fleets,
not to require more expensive "clean-technology buses" that ran on electricity or natural gas, and
to keep the required level of capitalization manageable. Moya recalls that the government wanted
to require firms submitting bids to demonstrate US $50 million dollars in capital. "We closed at
US $15 million dollars. We negotiated multiple similar changes so that small businessmen could
find room in the new system." 665 A timeline that allowed existing operators to transition their
organizations into firms, raise capital, and prepare their bids was also agreed. A pre-qualifying
period would be open until July 2003, and the tendering bases would not be available until
September.666 New contracts would not be awarded until sometime 2004, and existing contracts
would be extended until this process culminated. Apparently, the fate of imprisoned micrero
leaders was also among the items negotiated. "The Government softened its grip on the
prisoners. Despite my efforts, application of the Law of Internal Security was-not withdrawn, but
I was assured that authorities would not pursue convictions aggressively," recalls Moya.667
Notably, all five imprisoned trade association leaders were freed soon after an agreement to
support the tender was reached. While months later they would be convicted, their 3-year prison
sentence was commuted for monthly appearances to court. And, notably, government authorities
continued to recognize Manuel Navarrete and Demetrio Marinakis as valid intermediaries with
the AGMTP, despite formally losing their formal posts and their political rights as a result of the
application of the Law of Internal Security.668
665 (Moya, Hector. Personal interview. 21 june, 2012)
666 This timeline would be revised periodically in the coming months. The final version of the tendering bases would not be
available until early 2004.
667 (Moya, Hector. Personal interview. 21 june, 2012)
668 Trade association leaders were stripped of their political rights, and could no longer act as part of the formal leadership
of their organizations. However, since authorities were not interested in enforcing this, a workable loophole was found. To
comply with the court sentence, the AGMPT's assembly appointed in October 2003 figure-heads to the top posts, and
deposed Navarrete and Marinakis to subordinate managerial positions. From these positions, they continued to lead the
organization informally.
255
The interests of trade association workers -perhaps the group that stood to lose the most
from the PTUS- went unrepresented throughout this process. This is perhaps a testament to the
weakness of the organized labor movement in Chile, a full decade after the return of democracy.
In 1992, when the first negotiated bus route tender took place, authorities pledged to compensate
not only bus owners but also bus drivers and trade association workers made redundant. Such
pledge was fully forgotten in the subsequent tenders of 1994 and 1998, perhaps as a way to
minimize the costs of the transition to the government. It was yet to be seen what was the attitude
of the first socialist presidential administration toward this group, whose claims appeared
unarticulated or marginalized at this point. Nonetheless, the headline published in La Tercera on
October 25, 2002 summarizes this round of discussions quite well: "Requirements to micreros
softened to ensure success of the Transportation Plan." Even in the face of an apparently
absolute, unquestionable victory of the government over the cartel, the Chilean government
found it necessary and even desirable to adopt a fostering attitude toward the trade associations.
The leaders of these organizations had come to the same conclusion. In January 2003, the leaders
of the Consejo Superior de Transporte signed a letter addressed to Minister Etcheberry. In this
document, the trade vowed to participate in the upcoming tendering process, and announced the
hiring of Steer Davies Gleave, a world class transport consultancy, to advise them during their
transition from trade associations to firms and to help prepare their bids. The tone was not merely
apologetic. To move forward, the trade requested "specifics on the transportation plan advocated
by authorities".669
Creating Transantiago, a system where (almost) everybody would fit
Faced with this critical juncture, SECTRA worked hard to detail a system that made
technical sense but that also fit, in the words of its top official at the time, "within alternatives
deemed politically feasible by authorities."670 Studies commissioned by SECTRA -many
available since the 90s- had suggested that the existing point to point route network could be
radically improved by substituting it with a trunk and feeder design. If MOPTT was able to
ensure (1) optimized bus routes and frequencies, (2) the use of larger vehicles in the main
corridors, and (3) the addition of infrastructure such as dedicated busways and stations, it was
theoretically possible to deliver better service with a smaller number of buses. The number of
trips requiring transfers would increase, but the model employed predicted that the disutility to
669 La Tercera, "Micreros se rinden y solicitan al gobiemo precisar avances del plan de transporte," February 3, 2003.
670 (Malbran, Henry. Personal interview with Matias Fernandez, 7 April 2012)
256
Santiago, Part III
most passengers from changing to another bus or to the subway could be compensated with
faster, more comfortable trips.
However, two constraints influenced the design of the routes and the size of the fleets
eventually recommended by SECTRA, and both worked in favor of the interests of existing
operators. First, authorities wanted a system with operations fully financed through the fare box,
without demanding significant fare increases or requiring public subsidy. After all, as Guillermo
Diaz aptly put it, "a Concertaci6n government could not increase the cost of bus transit to the
general public."671 The second constraint was in part related to the first. Authorities wanted a
system that took advantage of existing buses, phasing them out only as they aged. This constraint
had a technical justification. On the one hand, the bus fleet was not tremendously old -especially
after considering that many vehicles had already been replaced as a result of the tendering
process of the nineties-. On the other, purchasing an entire fleet of new buses was neither
practical (since likely suppliers in South America did not have capacity to produce the required
number of buses within the desired timeframe) nor advisable (since the resulting fleet would age
at the same time). "The president wanted the whole package. He wanted to deliver a modem
system but also to make everybody happy, charging the same fare but giving drivers a fixed
salary and eliminating incentives for fighting over passengers. He wanted it all", recalls
Etcheberry.672
Such apparently contradicting imperatives influenced the design of the tendering bases:
They had to be sufficiently demanding to ensure that the resulting operators were bound to
deliver a significantly improved standard of service, but sufficiently accommodating to allow the
participation of incumbent operators and keep costs down. By August 2003, the Chilean
authorities decided to structure the new system around 5 trunk and 10 feeder area-based business
units, all of which would be competitively tendered.673 The subway would be integrated to the
system as one more "trunk unit", further reducing the amount of buses needed. By this time,
Chilean planners were paying close attention to the success of Transmilenio, the BRT system
implemented in Bogota, Colombia. Drawing from that experience, they decided to pay operators
671 (Diaz, Guillermo. Personal interview. 4 August, 2012)
672 (Etcheberry, Javier. Personal interview. 17 July, 2012)
673 Approximately 65% of the expected passenger demand "pie" was concentrated in the trunk units, and the rest distributed
among the feeder services.
257
based on vehicle-kilometers, rather than paying them per passenger, an approach that promised
to eliminate curbside competition. Perhaps to make a clear connection to what was already
perceived as a resounding colombian success, they also decided to name the emerging system
Transantiago.
To meet the political and economic constraints of the project, Chilean authorities crafted
the rules of the tender so that new entrants would be primarily attracted to only a few of the
business units supposedly in play, while firms created by trade associations had advantages
competing for the rest. Etcheberry concedes: "only in two of the trunk units did we offer long
term contracts and required high quality (new and large) buses and large capitals. For the rest of
the trunk units and for all of the feeder units we encouraged existing operators to create new
companies and to bid using existing fleets." 674 To be sure, the two business units where
authorities promoted participation of new entrants included Santiago's transit "crown's jewels".
One of them ("trunk 2") included the profitable north-south Santa Rosa corridor, while the other
("trunk 4") would serve the east-west Alameda corridor, running in front of the Presidential
Palace of La Moneda. Nonetheless, crafting a tendering system that -at least for the short term-
continued to favor existing operators was a notable concession to the trade associations. In many
ways, it was a shrewd way to balance state and market logics previously disputing control over
the design of the emerging system, as part of a "winner take all" fight. Perhaps such approach
was unavoidable: "A system that relied only on new buses essentially meant duplicating the
fare", explains Guillermo Diaz, "so we calculated how many of the existing buses fit our
standards, and established the number of still needed new buses as the fleet requirement of the
business units that were geared toward new entrants." 675
New buses immediately in, old buses gradually out
Requirements to bid for business units "reserved" for large new entrants (trunks 2 and 4)
differed significantly from the requirements to bid for units "reserved" to the trade associations
(trunks 1, 3 and 5 and all feeder units). According to government plans, operators that won
contracts for the prized trunks 2 and 4 would need to invest in large fleets of new, superior
standard, buses. In contrast, winners of the trunks 1, 3 and 5 would not only be allowed to
operate with used buses, but in fact would be required to begin operations with a combined fleet
674 (Etcheberry, Javier. Personal interview. 17 July, 2012)
675 (Diaz, Guillermo. Personal interview. 4 August, 2012)
258
Santiago, Part III
almost as large as the current authorized fleet servicing all of the city (totaling 6,818 buses). 67 6 In
other words, old buses displaced from units "reserved" for firms such as Connex and ALSA,
would be redistributed in the rest of the city. Excess used buses in the trunks "reserved" for the
trade associations would then be gradually decommissioned, over the course of a year long
"transition period," until reaching the optimized used bus fleet size estimated by SECTRA of
only 2,714. The process implied a complex, and carefully studied choreography, designed to
minimize conflict with affected bus owners.
Table 3.1 Bus substitution schedule, as contemplated by MT Tauthorities in August 2005
Stage Duration +/- Used Buses +1- New Buses Total Fleet
Before project >7,279 0 >7,279
Pre-transition period -461 6,818 0 0 6,818
I-A Oct/05-Jan/06 0 6,818 1211 1211 8,029
Transition I-B Jan/06-Apr/06 -731 6,087 147 1358 7,445
Period I-C Apr/06-Jul/06 -845 5,242 422 1780 7,022
11 Jul/06-Oct/06 0 5,242 0 1780 7,022
Full implementation Oct 26, 2006 -2,528 2,714 0 1780 4,494
Source: Author, based on documents shared by former Coordinator of Transantiago
As shown in the table 3.1, operators of trunks 2 and 4 would introduce a first batch of
1,211 new, superior standard buses in the day of the launch of the transition period, allowing the
Lagos administration to demonstrate a conspicuous, noticeable service improvement to the
public. Roughly every three months after that date ("stages IA, IB, IC and II") used buses would
be retired and trunk units 1, 3 and 5 would shrink geographically, with the affected routes
absorbed into trunks 2 and 4, and with their services overtaken with additional new buses
brought in. While still painful, making the fleet size adjustments required in trunks 1, 3 and 5
was obviously easiest for firms created by incumbent trade associations, since out of the 6,818
buses required to start roughly 2,000 were models 1993 and 1994, due to exit the system anyway
676 This number does not consider roughly 1200 buses older than 12 years that were still operating in the streets and were
due to exit for obsolescence. Regulations in Santiago, in place since the tender of 1998, established 12 years as the maximum
age of buses offering service in the city.
259
for obsolescence by the end of the transition period.677 In other words, the number of additional
buses they would need to retire was only 2,000, to reach the optimized bus fleet required by
SECTRA by the end of the transition period. In contrast, new entrants wanting to bid for units
"reserved" to the trade associations, would need to assemble a full fleet of 6,818 used buses (who
would supply them?), and be prepared to retire 4,104 of these buses from service in a within one
year (how would it be economical to run them for such a short period of time?) Such design
deliberately made participation unpractical and uneconomical to anyone not currently operating
buses in the streets of Santiago. In contrast, existing operators could draw from their existing bus
fleet to bid, retiring their oldest vehicles as scheduled in accordance to existing regulations, and
taking time to figure out on their own how to manage the rest of the required fleet adjustment.
Capital required to bid for each type of business units also varied. The rules required
firms operating trunks 2 and 4 to have a minimum subscribed capital of 500,000 UF, (aprox. US
$12.1 million).67 8 In contrast, the minimum capital established for firms operating units
"reserved" to the trade associations was only 90,000 UF (aprox. US $2.1 million). Similarly, the
duration of contracts was scaled. The contracts offered lasted thirteen years for Units 2 and 4,
five years for Units 1 and 5 (extended automatically to thirteen if fleets were fully renovated
before the end of the contracts) and only two years for Unit 3 (with no automatic extension
possible). According to Juan Carlos Mufnoz, advisor to Minister Etcheberry at the time, the
rationale driving this design was avoiding a situation in which all of the contracts would be due
for re-tender at the same time.679 However, the variability in the duration of the contracts also
strengthened signals sent to potential investors about which units promised more stability and
higher returns. In short, if the authorities forced the trade associations into accepting the
677 Part of the reason why there were so many buses close to the allowable vehicle age limit was that bus operators had
stopped renovating their fleets, as they realized that their pennanence in the system was increasingly in jeopardy. I thank
Juan Carlos Muftoz for alerting me of this point.
678 The Unidad de Fomento (UF) is a unit of account used in Chile. The exchange rate between the UF and the CHL peso is
constantly adjusted to inflation so that the real value of the Unidad de Fomento remains constant. In 2003, 1 UF = Ch
$17,000 = US $24
679 Mufioz, Juan Carlos. Personal interview 20 July, 2012.
260
Santiago, Part III
tendering process, they designed the tendering bases to foster a politically and economically
feasible transition.680
A transparent (and perhaps desirable) case of picking winners
Anyone reading the tendering bases understood the message: The government preferred
new entrants operate trunk units 2 and 4, and consortiums formed by existing operators to
operate the rest of the tendered units. Etcheberry demonstrates the extent to which market and
state logics had merged. "We had to offer a way for existing operators to insert themselves in the
new system," but at the same time, "we were clear that a change as important as the one we
needed could not be done exclusively with them." 681 The division of both types of trunk units
allowed the Chilean government to get both efficiency and accountability, while avoiding (or
managing) both the financial and the political costs of the transition. Officials implementing the
project understood the enabling features of this dual combination. On the one hand, the official in
charge of the technical soundness of the project at SECTRA came to acknowledge the state's
political imperative. As he put it, "the Concertaci6n government was still fearful that the old
operators -the Marinakis, the Navarretes- could derail or complicate the project. For this reason
three trunk lines were essentially reserved for them, so that they wouldn't complicate matters and
get on board". 8 2 But at the same time, the official in charge of day to day negotiations with
private operators, MOPTT's Guillermo Diaz, highlighted the economic imperative: "We knew
that attracting new people to all units would be hard, since there was so much uncertainty about
real passenger demand. It made sense to bring in new investors only to those corridors where we
felt comfortable about guaranteeing passenger loads," and later adds, "we knew that the more
680 This was of course deliberate, as acknowledged by the advisor to Minister Etcheberry in charge of developing the
buisness model for each contract unit:"We expected that only foreign firms would be able to enter trunks 2 and 4, as only
they could raise the required capital investment, and expected that in trunks 1, 3 and 5 and in the feeder bus units we would
have national firms, as it would be impossible for foreigners to have used buses in such quantities, if only because no local
operator would be willing to rent vehicles to them." (Name withheld. Personal interview with Matias Fernindez, 11 April,
2012).
681 (Etcheberry, Javier. Personal interview. 17 July, 2012)
682 (Name withheld. Personal interview with Matias Fernindez, 7 April 2012). Some of the trade association leaders
interviewed insisted that this political sensibility initially extended to workers, if only to reduce the costs of the transition for
participating bus owners. According to Demetrio Marinakis, "Manuel Navarrete made agreements with Etcheberry, including
financial support to pay for the severance packages of our drivers, which we were forced to fire" (Personal interview. 12 july,
2012). This proposal was even be referenced in some of the planning documents reviewed in the course of this research, but
apparently were not carried out, perhaps highlighting the absence of drivers at the negotiating table.
261
new buses we inserted to the system, the more pressure we would face maintaining the fare. The
only way of containing the fare was to maintain a mix". 683
Few would believe that the the technocratic, market oriented Etcheberry had in fact
established terms that decidedly favored trade associations 684, but in fact such terms were
probably the most efficient way to keep the PTUS viable. To be sure, the strategy was not
universally accepted. Even German Correa expressed hesitations, which perhaps contributed to
his ousting in March 2003.685 According to Correa, "the moment I left Etcheberry reestablished
the micrero leaders as intermediaries, and welcomed them back to the table. The model changed
toward a clientelistic scheme, a suit tailored to micrero leaders designed to ensure Navarrete and
the rest would survive." In a way, this was the same critique Correa had directed during the
nineties against Irueta and Hohmann, his successors at the MTT. However, things were different
now. Keeping the trade associations at the table had not negated or co-opted MOPTT's efforts to
enhance state capacity. This time, their participation made the project viable.
The threat of (limited) external competition was credible, but at the same time MOPTT
offered (limited) guarantees of permanence to those who cooperated. Plans to implement
Transantiago were nothing akin to a "big bang," at least with regards to the transition of the bus
operator industry. The MOPTT sought a gradual process in which firms, potentially but not
necessarily owned by former trade association members, would replace the trade associations.
Only those that performed well would survive over time. As Etcheberry emphasized, "we never
guaranteed that (existing operators) would remain in the long term, as any new contracts would
eventually expire... In fact, the possibility remained that 100% of the system would eventually
end up in the hands of foreign or "modern" operators, and that traditional micreros would
disappear. But we realized that this possibility could only emerge little by little." 86 After Correa
resigned, the inter-ministerial commission overseeing the PTUS met on April 23, 2003 to
683 (Diaz, Guillermo. Personal interview. 4 August, 2012)
684 Perhaps this reputation acted as the enabling variable for Etcheberry, shielding him from accusations of corruption in
crafting rules that benefited either trade associations or international conglomerates.
685 To be sure, tensions between Correa and Etcheberry had been brewing long before, partly triggered by Correa's lack of
formal powers over transportation policy, and by Etcheberry's lack of political authority over Correa. Critics also point to a
growing in-satisfaction within Etcheberry's closer circle about the slow progress achieved by Correa, particularly as the
project moved from planning to implementation. Aldo Signorelli took over as Coordinador General, but the role of this
position in the future would be lower key.
686 (Etcheberry, Javier. Personal interview. 17 July, 2012)
262
Santiago, Part III
formally name the upcoming system "Transantiago," and to stress the project was moving
forward as planned. However, the first version of the tendering bases was not approved and
published until January 2004. Between those two dates, a simultaneous process took place. On
the one hand, trade association leaders worked to rapidly transform their organizations into firms
-this time for real-, and to capitalize these firms in preparation for a bid. On the other, the
government aggressively reached out to large transportation companies, inviting them to
participate in the upcoming tendering process.
Promoting Transantiago abroad, defending it at home
Once the bases were available, Minister Etcheberry led a series of international missions
to explain the rules of the game and elicit interest on the upcoming tender. He personally traveled
to Italy, France, Spain, England, Germany, Denmark and Sweden, meeting with board members
of internationally renowned transport operation and bus manufacturing corporations. Guillermo
Diaz made additional trips to Colombia, Brasil and Argentina with the same purpose. Gibrin
Harcha and Rodrigo Urzna visited Singapore, South Korea and Japan. It was a very aggressive
promotion of the project, designed to convey the message that the reform process was already
underway. Etcheberry remembers his talking points during these trips: "What I explained to
foreign firms was our long term vision. While they could start by operating only two trunk units,
contracts for the other business units would have a short duration and soon be re-tendered, and
thus foreign companies were told that they could eventually expand their presence." 687 As we
have seen, the message had a slightly different emphasis at home, where authorities stressed that
trade associations could compete under equal footing, and even have preference, by adapting
their business to the new rules determined by the transportation ministry. Despite the hype
surrounding bus reform in Chile, international reception to the tender announcement was
lukewarm.688 According to Alberto Urquiza, "the operator companies that attended meetings with
Etcheberry during his trips to Europe were mostly us (Veolia, from France) and ALSA from
Spain. The rest were suppliers of equipment, but not operators. The British firms are horrified
about South America and there were no serious operators from Germany." 689 The story was
687 (Etcheberry, Javier. Personal interview. 17 July, 2012)
688 As described by Guillermo Diaz: "The level of incredulity was high, and few believed us" (Personal interview. 4 August,
2012)
689 (Urquiza, Alberto. Personal interview. I1 July, 2012)
263
similar with bus manufacturers. Mercedes Benz was not receptive, an attitude that probably
reflected its investment with the status quo as the preferred supplier to traditional bus operators
in Chile. "Volvo and Scania came on board only after we aggressively sold the project to them",
says Guillermo Diaz.690
During these international missions, investors stressed that despite government claims,
Transantiago remained a very risky investment. It required a significant capital investment on
terminals and buses, and investors were not convinced the choreographed exit of trade
associations would happen as planned. Perhaps more than demanding a competitive process,
these companies demanded assurances of state intervention. They feared that displaced operators
would sabotage their vehicles, block access to the labor market or simply continue to operate
their routes. Further, potential investors were particularly worried with the possibility that project
champions had overemphasized passenger ridership estimates. What if SECTRA's calculations
were wrong and more buses were actually required? "Potential bidders and banks demanded the
inclusion of financial guarantees. They pointed out that this was a profound reform, and that
without State guarantees operation would not be feasible.""691 However, the MOPTT was not in
condition to offer such alternative. The "highway concession model" had preconditioned the
PTUS to private financing. After all, the country continued to build highways financed by tolls,
and the Metro had secured the loans to build line 4 backed with future fare revenues. Why
couldn't the buses be financed in a similar fashion? The Finance Ministry kept Etcheberry from
making promises the government did not want to keep, and so Transantiago went back to the
drawing board. As the MOPTT official in charge of designing the contracts explains, "my team
was charged with redesigning the bases so that even though no financial guarantees coming from
the government budget were directly incorporated to the contract, risks to new operators were
minimized."692 Transantiago needed the participation of these operators. Otherwise, what would
be different between this process and the previous ones during the nineties? Transantiago was
back in a corner. Carlos Acha, manager of ALSA, put the issue succinctly in an interview
published in Santiago: "We will be part of Transantiago only if the new bases are attractive. We
690 (Diaz, Guillermo. Personal interview. 4 August, 2012)
691 (MOPTT official. Name withheld. Personal interview with Matias Fernandez, 11 April, 2012)
692 (Ibid.)
264
Santiago, Part III
still don't know what will happen. Expectation exists in Spain, but we will only participate if the
bases fit our interests. Otherwise we will abstain."693
The need to redesign the tendering rules was compounded by an additional, local,
problem. Fernando Bustamante, director of the Metro, threatened with withdrawing from
Transantiago. We should recall here that before leaving office Pinochet granted autonomy to the
subway, establishing it as a limited corporation. This autonomy had enabled Metro authorities to
adjust its fare structure and its service supply to balance its budget, even when doing so resulted
in severely underutilized capacity. Integration with the bus system promised to increase Metro's
passenger flows, but it could also disrupt its much heralded financial equilibrium. At that point,
Metro fully financed its operations with passenger fares, and had successfully refinanced its
capital debt by raising cash from the private sector using long term bonds. This refinancing
expanded the company's borrowing capacity to the point that it was now able to self-finance
30% of the cost of its new capital investments, such as the construction of Line 4.694 Bustamante
feared that fare integration with the bus system would jeopardize the financial stability of the
company, constrain its ability to implement its longer term expansion program, and void the
covenants agreed with banks and bondholders. According to a close aide to Bustamante, "the
people planning Transantiago didn't have money to pay for coffee, while we were raising our
own cash. They advocated integration to the Metro, so that they could use us to raise the money
needed for Transantiago. This was not possible, and discussions over this issue put Correa and
Bustamante at odds."695
Beyond any legal complication, much of Metro's hesitation came from doubting that
Transantiago could increase passenger loads of the subway in the proportion predicted by
SECTRA. If these estimates were wrong, implementation would not result in the expected
additional vehicle kilometers for the subway (which was still operating under capacity), and thus
would not yield revenues sufficient to cover expected increases to its operational costs. This
outcome -under Bustamante's assessment- meant that his trains would subsidize the city's buses.
And perhaps more importantly, politics played a part. We should recall that from the start,
693 El Mercurio, "Inversionistas espafioles: Transantiago siembra inquietud", 24, June, 2004.
694 (Metro de Santiago 2007 p. 14)
695 (Name withheld. Personal interview with Matias FernAndez, 4 April 2012)
265
Bustamante had supported an alternative to the PTUS that emphasized rail over buses. He had
later been an advocate for the SACYR option, and to much frustration from Correa and
Etcheberry, continued to push for subway extensions in spite of ongoing Transantiago planning.
Unsurprisingly, Bustamante did not cherish the idea of becoming merely "one more trunk unit"
of Transantiago, and had successfully leveraged his personal access to the president (they were
close friends696) and the legal autonomy of the Metro to operate independently of the MOPTT
and the PTUS.
To protect his company, he began to lobby against the financial integration of buses and
trains, joined potential bidders demanding a business model that minimized risk to
Transantiago's operators, asked for a revenue sharing formula that increased Metro's share, and
pledged for a commitment from the Finance Ministry that the State would increase public
financing to the Metro's capital expansion program. He adamantly insisted on redesigning the
proposed bus route network to prevent buses from running over existing metro lines, unless
metro capacity was exceeded. To accommodate Bustamante, private bus operators would have to
be paid less, fares would need to increase, or an operational subsidy would be required. Neither
alternatives were palatable. According to Etcheberry, "the face-off with Bustamante was really a
power struggle. He resented losing control, making Metro an appendix of Transantiago." 697 This
conflict dominated public and private discussions on Transantiago during 2004, and was only
solved when Etcheberry threatened to resign unless President Lagos forced Bustamante to step
down from the ministerial commission overseeing on PTUS. 698
Rethinking the business model to appease risk-averse private investors
MTT authorities negotiated the terms of the 1992, 1994 and 1998 bus route-contracts
with the prospective operators of the time -the trade associations- to ensure their participation.
The imperative to do this had not changed, except now the MOPTT was trying to ensure the
participation of a new cadre of prospective investors, the large private conglomerates, and
indirectly, the Metro. Dozens of firns bought the tender bases published in January 2004, and the
Chilean government received 1,200 questions in return, in addition to those posed directly by
696 Fernando Bustamante led the national oil company, ENAP, under President Allende, and had gone into exile after being
detained and tortured during the military coup. According to various sources, he is one of President Lagos closest personal
friends.
697 (Etcheberry, Javier. Personal interview. 17 July, 2012)
698 Ibid.
266
Santiago, Part III
Metro and by the large conglomerates visited by Minister Etcheberry directly. This back and
forth -compounded with the previous cycle of conflict and compromise with the trade
associations- had taken Transantiago way off schedule. The first half of the Lagos administration
had certainly made an impact in Santiago. He had inaugurated extensions to Metro lines 2 and 5,
broken ground on the construction of line 4, and announced the construction of a network of
tolled urban highways. Yet the buses, the most heavily used mode of transportation in the city,
and the most patronized by the poorest santiaguinos, remained unchanged under the eyes of the
public, even after the highly publicized strike of August 2002. Lagos personally reviewed the
changes to the new bases and mad suggestions designed to elicit more market interest.699 These
changes were formalized by Etcheberry on May, 2004,700 and included:
A new basis to calculate payment to operators (both bus and metro). Instead of
compensating them for vehicle/kilometers, the basis for the calculation would be payment per
passenger. This change seemed anathema to the original plans -which explicitly tried to
minimize the incentive to race for passengers- and was partly adopted to benefit the subway,
which was expected to transport more passengers than bus operators.
A new formula to determine monthly compensation to operators, designed to yield
more stable and predictable revenue flows. The basis of this formula was a "referential demand"
established for each business unit tendered, to which monthly payments would be pegged. In the
case that actual ridership in any given month was lower than the referential demand, the price
paid to operators per passenger would automatically increase to close the deficit. Similarly, in the
event that ridership surpassed demand estimates, the payment per passenger would be
automatically lowered. In fact, a deviation of 10% in actual demand implied only a 1% revenue
699 Sources interviewed for this project suggested that President Lagos insisted particularly on changing the incentive
structure considered in the contracts, a suggestion that led to abandoning vehicle kilometers as the basis of compensation for
operators. However, the president wishes were only partially adopted, as the planners working under Etcheberry established
the formula described in point B below.
700 Javier Etcheberry held a press conference, making the following statement: "The Transantiago Ministerial Committee
has analyzed the observations and consultations made by participants to the bus operator tender. We received 1,200 questions
from 36 firms, out of 72 that bought the bases. Most of the questions have to do with the amount and reach of guarantees,
schedule of implementation, cost structure, route design, payment to operators, among others. These consultations led us to
make changes such as paying operators depending on the amount of passengers transported"
267
change. This formula was added to facilitate the negotiations of prospective operators with
banks, and was expected to result in better financing conditions on the purchase of buses. But
perhaps more importantly, the new formula significantly reduced the risk shouldered by
operators, as it implied that revenues to operators could never be lower than 75% of initial
government estimates.
The creation of a "technical reserve fund", designed to stabilize the price of the fare
over time. Operators would contribute to this fund with a lump sum payment, due at the start of
operations. When bidding, interested firms would not only need to reveal the amount of money
they would be willing to accept as payment per passenger, but also the amount they would
contribute to this reserve fund. This change would later lead existing operators to claim that the
tendering process had really become "an auction", and worked to further segregate the trunk
unites "reserved" for existing operators from the trunk units "reserved" to new entrants.
A new implementation schedule for the project. Deadline to submit bids was
postponed from June to September 2004, and contracts would not be awarded until January
2005. The start of the transition period, marked by the arrival of the new buses for trunk units 2
and 4, was pushed back to August 2005, while "full implementation" -meaning fare integration
with the subway, route reorganization and complete phaseout of excess buses in the rest of the
network- would not take place until August 2006. Such schedule design had an obvious political
rationale. Despite the slow progress, new buses would be running in La Alameda during
President Lagos presidential tenure and before the elections to choose his successor.
Industry transition within the transport trade associations
The international "road show" reinvigorated opposition to Transantiago within the trade
associations. In a public statement, Armando Huerta declared that "this process appears to be a
readily served table, not for chilean businessmen, but for foreigners. The requirements to bid are
so stringent that most individual operators will end up out exiting the system, lacking sufficient
capital to remain." 01 Even transport operators receptive to reform, such as Juan Pinto and Sim6n
Dosque, reacted negatively to the intense international promotion of the project. "We made it
701 La Tercera, Dirigentes Microbuseros presentan recurso contra Plan Transantiago, March 20, 2004
268
Santiago, Part III
clear that we disliked what was happening, and certainly had hard conversations with the
authority about this strategy, which clearly seemed designed to leave us out."702
This time, however, the path of action chosen by the trade association leaders differed
significantly to the standoff of 2002. Calls to organize a new strike -registered in the press at
various moments between March and May 2004- failed due to low adhesion. A proposal to
sabotage the tender by no submitting bids, advocated by Demetrio Marinakis and Armando
Huerta, also received little support. Instead, most trade association leaders spent their time and
energy preparing for changes they now understood as inevitable. While Chilean transport
authorities courted international operators, trade associations went through a cathartic process to
transform themselves into firms, raise capital, and prepare their bids. Such transformation was
anything but painless. "We did not care if they retained their members as stockholders, or if they
enlisted a partner that would control most of the stock", recalls Etcheberry. "Implementing
Transantiago was sufficiently complex and risky for us to also worry about how the micreros
transitioned their organizations." 703
Official registries established that there were 7,279 buses serving the streets of Santiago
at the time, operating under contracts awarded in the previous tender of 1998. A few hundred of
these buses were older than 12 years, immediately due to exit the system for obsolescence. The
remaining 6,818 buses were owned by 2,872 individuals.704 This bus fleet was approximately
distributed approximately as follows 7 05: 3,500 AGMPT buses (led by Manuel Navarrete and
Demetrio Marinakis), 1,250 Federacion Siglo XXI buses (led by Juan Pinto), 1,000 FGDTS
buses (led by Jorge G6mez and Armando Huerta), 660 Federaci6n Santiago buses (led by
Orlando Panza) and 400 buses affiliated with a plethora of smaller and independent trade
associations. The leaders of the larger groups prepared for the tendering process in similar
fashion to the 90s. They created shell companies to abide with requirements established in the
tendering bases, and attempted to organize their bids to minimize competition among
themselves. In most cases, capital required to bid was met by transferring real estate owned by
702 (Dosque, Sim6n. Personal interview. 15 june, 2012). A similar point was made by Juan Pinto (Personal interview. 27
July, 2012).
703 This framing is a key difference to the approach chosen in Mexico City.
704 These figures are from MOPTT documents, shared by Isabel Guzman.
705 These figures are from MOPTT documents, shared by Isabel Guzmdn, and confirmed from interviews with operators.
269
the trade associations to these firms, and by imposing additional monthly contributions to
individual members. No additional investment was necessary to bid for business units not
requiring a fleet of new buses. In contrast, the tendering bases did require firms bidding for trunk
units 2 and 4 to be better capitalized: They would need to be able to purchase new, superior
standard vehicles, and given the expected competition for these units, they would need to
strengthen their bids by committing larger amounts of money to the technical reserve fund. This
does not mean that the trade associations were willing to give up on these units without a fight.
To be competitive in trunks 2 and 4, the micrero leaders sought and obtained investment pledges
from longstanding or aspiring suppliers to the gremio, such as Kaufmann (the local distributor of
Mercedes), Copec, Shell, and Esso. "Volvo was the most audacious", recalls Juan Pinto, "It was
so anxious to take over Mercedes' market, that its representatives met with most micrero leaders,
encouraging them to bid and committing to front the money if necessary, as long as we bought
their buses." 706
Two points are key to understand the transition taking place within the trade associations.
First, most individual bus owners did not obtain stock in the companies created to bid. Rather
than individuals, the typical case was that the trade association owned the stock. Second,
individual bus owners retained ownership over their vehicles. To comply with the requirement of
having centralized administration of the bus fleet, the new firms rented the old buses from their
owners, and became the formal employer of drivers. This mechanism assuaged members' fears
that the corporatization process would affect their ability to benefit directly from their vehicle, or
that they would lose their voice in the governance of the company. However, given the lack of
accountability prevalent in the trade associations, this process also implied that control over the
new firms remained in the hands of a few, longstanding leaders, and perhaps more importantly,
that the permanence of individual owners in the business would be tied to the life of specific
vehicles. The disadvantages of this outcome were probably first evident to the owners of the 461
buses models older than 1993, set to exit the system before the start of the transition period.
Owners that were not close to leaders of their organizations were not offered the opportunity to
replace these vehicles with newer models, a decision that instantly left those of them that did not
already own another bus out of the system.
706 (Pinto, Juan. Personal interview. 27 July, 2012)
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Santiago, Part III
However, few of the remaining individual operators seemed to realize that this design
placed them at significant risk. In fact, 1,938 buses were models 1993 and 1994 -and 689 of
these were the property of single-bus owners.707 In the case of the AGMTP, "things happened
pretty quickly", recalls Cristiin Marinakis. "We held assemblies in which people made speeches,
we clapped, and everybody left thinking they owned the new firm. Nothing was documented in
paper, although the initial capital of those firms came from contributions exacted from individual
members. They would each pay Ch $60,000 (US $100) and later $100,000 (US $166) every
month;7 08 this money was never recognized as a contribution from the individual member, but
accounted on behalf of the trade association." 709 According to Hector Moya, "Roughly a year
before the tender, Manuel Navarrete instructed the leaders of the trade associations (affiliated to
the AGMTP) to extract contributions from individual members, telling them that the money was
needed to create the new firms. However, when the time came, they agreed that it would be the
presidents of the trade associations that would be the real stockholders, and not the individual
members. Short story: they betrayed the little guys."7 10 While there was probably some debate
within each trade association, this transition process progressed smoothly. The 2002 blockade
significantly weakened the leaders that previously opposed corporatization ("empresarizaci6n")
efforts, such as Demetrio Marinakis at the AGMTP and Armando Huerta at the FGDTS.
Furthermore, what was proposed did not seem tremendously risky or different: Individual
members assumed that by making financial contributions to the new firms they were acquiring
control and ownership of the new company and purchasing the right to remain in the system after
the implementation of Transantiago. Further, members felt protected since nobody questioned at
that point their right to manage and extract direct profits from their buses.
The fact that the tendering bases contemplated a one-year transition period certainly
helped minimize tension, as no major immediate changes were required outside of trunk units 2
and 4. At least during this period, cash would continue to be accepted onboard as fare payment,
which meant that each bus owner retained direct control over its own revenues. Routes also
remained without change during this time, meaning that bus owners did not need to worry about
707 These figures are from MOPTT documents, shared by Isabel GuzmAn.
708 Conversion using the December 2003 exchange rate (US $1=Ch $602.90)
709 (Marinakis, Cristidn. Personal interview. 20 June, 2012)
710 (Moya, Hector. Personal interview. 21 june, 2012)
271
relocating to new terminals, or about changing their day to day operations. While on paper it
would be the firm controlling operations, in reality the transition period implied business as usual
for existing operators. Perhaps most importantly, allowable fleet sizes were designed to mirror
the number of buses needed to operate the old network of services -at least at the beginning-,
which helped leaders postpone difficult discussions about whose buses would eventually need to
be decommissioned. While it was abundantly clear that many buses would need to be
decommissioned once the transition period ended, savvy micrero leaders explained to members
(correctly, by the way) that SECTRA had grossly underestimated the fleet sizes required to offer
the desired level of service. For this reason, they argued that the number of buses forced out of
the system would in the end be much lower than expected, and that the owners of the older buses
would have the chance to replace them with newer units.
In any case, participation in these firms seemed to be the only viable alternative for
individual bus operators to remain in the market. As a former bus owner, who asked to remain
unnamed explained: "We could not be sure if Manuel Navarrete was guiding us to jump from a
cliff, if he was delivering our heads on a platter, or if he was actually protecting us. We were
sheep, merely following." Over the course of 2003 and 2004, the AGMTP created four firms:
Buses La Capital, Buses Gran Santiago, Buses Metropolitana and Buses Hueie'n, all led by
Manuel Navarrete. Similarly, Juan Pinto's Federaci6n Siglo XXI created Comercial Nuevo
Milenio, Transportes La Montafia and Transporte y Comercial Los Halcones de Tuilahuen. Jorge
G6mez replaced Armando Huerta as the leading figure of the FGDTS, creating a company called
Servicio de Transporte de Personas. Orlando Panza and his Federaci6n Santiago chose to partner
with Hector Moya, who promised to help them raise sufficient capital to bid. The result of this
alliance was the creation of a company called Su Bus.
Trade association leaders: From gremialistas to empresarios
The leaders of the strongest trade associations met frequently through this period. Their
discussions had two objectives: First, to maintain a united front, if only to ensure that no local
operator offered their buses to potential new entrants -a crucial measure to effectively
encapsulate external competition to trunk units 2 and 4. Second, coordinating their bids to
minimize competition and respect existing territorial boundaries as much as possible.71' Such
711 According to Jaime Sdnchez, this agreement was promoted by the team of consultants advising Manuel Navarrete
(Personal interview. 23 July, 2012)
272
Santiago, Part III
mutual defense strategy seemed similar to their reaction to the tender processes of the 90s.
Navarrete (AGMTP), G6mez (FGDTS) and Pinto (Siglo XXI) did come to a preliminary
agreement to protect their mutual interests. According to Juan Pinto, "once we were threatened
by international investors, I met with Navarrete and G6mez to decide what to do. Jorge had his
routes and terminals in Pefialo6n, so we decided he should retain that sector. My stronghold was
in Maipn', and so that area would be reserved to my organization. We allocated the whole city in
this way, making agreements about what areas should be controlled by whom."712
The full terms of this negotiation were not disclosed to the author. However, several
sources confirmed that the the agreement implied that only firms created by the AGMTP could
bid for trunk units 1 and 3 (initially requiring 1,082 and 711 buses)713 , as well as for feeder units
3, 5, 8 and 9 (requiring a total of 1,477 buses). Pinto's Federaci6n Siglo XXI would bid for trunk
unit 5 (requiring 1,300 buses), and for feeder units 6 and 7 (requiring 898 buses). Jorge G6mez
agreed to limit his participation to feeder units 1, 2 and 4 (requiring 793 buses).1 Since trunks 2
and 4 were likely to attract external competitors, they were considered fair game to anybody able
to raise the capital necessary to bid, although the participating trade association leaders agreed to
give notice to the others before making a final decision. This agreement to coordinate bids -
probably known and tolerated by authorities- actually worked in favor of the reform. First, it
practically guaranteed that all service zones would be covered, a desirable outcome that was
nowhere near guaranteed. And secondly, if this delicate balance was maintained, the three largest
and most powerful bus operator organizations in Santiago would remain in the system, with most
of their fleets at least initially included, even iftrunks 2 and 4 were effectively awarded to
foreign firms. As a result, the leaders controlling the new finns became invested in the success of
the reform.
However, the cartel was no longer as united as it had been in the nineties, nor were their
leaders acting as gremialistas. Orlando Panza, leader of the smaller Federaci6n Santiago,
712 (Pinto, Juan. Personal interview. 27 July, 2012)
713 These figures obtained from the powerpoint presentation made by Isabel GuzmAn to the congressional commission
reviewing the implementation of Transantiago (Camara de Diputados 2007), and from the author's interview with Jaime
Sinchez (Personal interview. 23 July, 2012)
714 The tenth feeder unit was not deemed attractive by the gremio, and in fact was eventually cancelled after no bids were
submitted for it.
273
announced he and his partners -he no longer referred to them as "members"- were preparing a
bid with Hector Moya, and that they would take their chances with an uncoordinated bid. This
insubordination was minor, compared to what would come next. In mid 2004, Jorge G6mez
approached Carlos Rios, a colombian entrepreneur with stock in Express del Futuro, one of the
finns operating buses in Bogota's Transmilenio system. 715 Express del Futuro's representatives
had previously met with MOPTT authorities, and were seriously considering participation in
Transantiago. A partnership with a local operator such as G6mez seemed almost a natural
strategy for Express. After all, this company had originally included a few hundred colombian
bus operators as stockholders, and thus had significant experience managing similar
transitions.716 In fact, executives from Express del Futuro believed that this expertise gave them
an edge over likely european competitors. G6mez suggested a partnership to bid for either trunk
2 or 4. However, it soon became clear that a joint venture with Gomez' FGDTS would only be
beneficial to Express in trunks requiring used buses, since this was the main asset that G6mez
brought to the table. Eventually Express del Futuro ' stockholders concluded that their company
did not require partners to enter Chile, and decided to bid for both trunks 2 and 4 without local
partners. However, Carlos Rios -acting independently from his colombian partners- continued in
conversations with Jorge G6mez, now exploring a separate bid for trunk 1, which supposedly
was reserved exclusively to the AGMPT. While G6mez eventually withdrew from this venture -
probably due to pressures within the gremio- Rios came out of the discussions with G6mez
convinced that winning a trunk "reserved" for local operators was indeed feasible.
Carlos Rios realized that the leaders of the gremio were neither united, nor being entirely
frank to individual members of their organization. Many individual chilean bus owners would
inevitably exit the system, despite contributing funds and committing their vehicles to the firms
created by the gremio. Once the new contracts were awarded, allowable fleet sizes would shrink
rapidly, and a significant number of individual bus owners would be forced to exit, left without
stock in the new firms and without the right to exploit their buses. This information had not been
shared by all rank and file bus owners. Rios realized that once this was known, some bus owners
would be willing to break ranks and hear an alternative proposal. Once talks with G6mez broke
off, Rios recruited visible dissidents of the gremio -such as Jaime Sanchez, the local entrepreneur
715 Express del Futuro operated one of the three trunk units, as well as two of the four feeder bus business units of Bogota's
celebrated Transmilenio.
716 For more details on the history of firms that operate Transmilenio, see (Ardila 2004 p. 366-368).
274
Santiago, Part III
who had previously won three contracts to operate the Metrobn's, only to sell his company for
lack of financing. On behalf of Rios, Sinchez and other intermediaries enlisted lower ranking
micrero leaders, trying to get their support. "I worked with the colombians from the beginning",
recalls Sanchez, "my job was finding the buses, securing land for terminals, everything." 717
While it was not clear that Rios would enlist the buses required to bid for trunk 1, the
mere possibility injected significant tension to the process, previously unexpected. Interestingly,
the market forces that for so long authorities had tried to inject into the system were now threaten
to create unwanted instability. If the AGMTP lost trunk 1, the largest local bus operator
organization in Chile would be practically left out of Transantiago. News of offers made to
individual bus owners quickly reached Manuel Navarrete. Once he realized that a foreign firm
was seriously considering a bid for a trunk "reserved" to the AGMPT, he sought assurances from
the transportation minister. "I remember Navarrete complaining", recalls Etcheberry, "but my
commitment had only been that existing operators would find space to participate in
Transantiago, including that corridor, not that the AGMTP would control that corridor. It is not
the same thing. Navarrete misunderstood."7 18
Disheartened by Etcheberry's response, Navarrete foresaw what would happen if Buses
La Capital, the firm created by the AGMTP to bid for trunk 1, lost this critical contract. Even if
they won trunk 3 (the smallest trunk unit tendered) and the four feeder-bus services informally
earmarked for the AGMTP, his organization would not retain sufficient slots to initially
accommodate all of the members. Furthermore, the contract for Trunk 3 had a duration of only
two years, which implied that even after winning this contract, the long term permanence of the
AGMTP in the system was no longer assured. Navarrete was fully aware that such dire outcome
did not only imply losing significant market share, but was sure to spark a major internal revolt,
rendering him powerless to control the newly created firms. The likely entrance of the
colombians to trunk 1 led Navarrete to renegotiate his previous agreement with Juan Pinto.
According to Pinto, "Manuel asked my permission to bid with Buses Metropolitana for trunk 5,
as a hedge in case the offer presented by my Halcones de Tulahuen was disqualified."7 1 9 To get
717 (Sanchez, Jaime. Personal interview. 23 July, 2012)
718 (Etcheberry, Javier. Personal interview. 17 July, 2012)
719 (Pinto, Juan. Personal interview. 27 July, 2012)
275
Pinto's buy in, Navarrete offered him with stock in Buses Metropolitana.720 This was an
attractive proposition since Metropolitana was also bidding for one feeder unit, and seemed
harmless since Navarrete pledged that his bid would not improve the conditions offered by
Halcones. However, once Pinto agreed, Navarrete intensely lobbied his contacts within the
Chilean government, above and beyond the MOPTT, threatening with backing Demetrio
Marinakis' call to fully boycott the tender process. If the government would not prevent the
colombians from successfully competing in Trunk 1, Navarrete wanted Pinto to be disqualified in
Trunk 5.
Regulatory reform in political context: Government as juggling
Negotiations with both international and local groups forced authorities to walk a tight
line. On the one hand, the promoters of Transantiago needed to ensure that the tendering process
attracted several high quality bids for trunks units 2 and 4, and at least one viable offer for the
rest of the units tendered. On the other, they felt obligated to minimize conflict with incumbent
operators, both to ensure their participation and to contain opposition to the project. According to
Luis Willumsen, a Steer Davies consultant working for the AGMTP, "these negotiations became
at the end about maintaining the reputation of the government. Public officials had talked so
much about the fantastic results that would come out of the implementation of Transantiago, that
they were forced to actually make it happen. And, to make Transantiago happen, they had to
offer very favorable conditions to those considering a bid amidst high degree of uncertainty." 72 1
These favorable conditions did not only include the previously described adjustments to
the tendering bases, but also last minute concessions to local groups, partly motivated by Manuel
Navarrete's desperate lobbying efforts on behalf of the AGMPT. Such changes, formalized
November 25, 2004 -only one month before bids were due- caused significant discomfort among
firms interested in entering Santiago's public transit market for the first time. According to Jaime
Sinchez, who was now working for Carlos Rios, "the number of buses required to bid for trunks
1 and 5 suddenly increased from the original 1,200 to approximately 1,800, a change designed to
make our entry to these units even more difficult". 722 Suddenly, the colombian needed to enlist
600 additional buses to bid. Other changes, included perhaps to appease local groups such as the
720 Pinto argues that the agreement was that he would own 50% of the stock of Buses Metropolitana. However, official
documentation register that Pinto's participation was only 8.44%.
721 (Willumsen, Luis. Personal interview. 20 June, 2012).
722 (Sanchez, Jaime. Personal interview. 23 July, 2012)
276
Santiago, Part III
one headed by Moya, were later summarized by Jean Luis Soulas, International Director of
Connex, as "the exclusion of any qualitative assessment from the criteria formally used to
adjudicate contracts". 723
Why was the government suddenly so worried about ensuring that Manuel Navarrete and
the AGMPT, and not the colombians, retained trunk 1? Again, the political context of the country
offers clues. The 2005 presidential elections were looming near, and despite Lagos' popularity,
polls placed the candidate from the right-leaning parties ahead. Intra-Concertaci6n politics were
running wild. In fact, on September 29, 2004, Lagos announced the resignation of both his
defense minister, socialist Michelle Bachelet, and of his foreign relations minister, DC member
Soledad Alvear, so they could campaign for the incoming primary. They were the two viable
Concertaci6n candidates for the presidential election set to take place in March 2005. Given that
the AGMPT was the largest bus operator trade association in Santiago, its exclusion or inclusion
from Transantiago represented the difference between going through the electoral year (primary,
first round and potentially second round presidential elections) with renewed protests and
perhaps with paralyzed services or with shiny new Transantiago buses running in the streets.
"The government was worried about the permanence of incumbent operators", recalls Juan Pinto.
"Minister (of the Interior) Insulza was the point person in this, trying, as a good negotiator, to
ensure that all parties affected retained something. And this is more or less what actually
happened at the end."724
As year 2004 came to a close, high ranking authorities from the Chilean government
were finally certain of both containing conflict and attracting experienced operators to
Transantiago. The international promotion efforts spearheaded by Minister Etcheberry and Under
Minister Guillermo Diaz finally paid off, as five foreign bus operator groups -ALSA and
AVANZA from Spain, Connex (now Veolia) from France, and Fanalca and Express del Futuro
from Colombia- committed to participate. While still informal, these commitments were
immediately disclosed to the media in an effort to build up the credibility of the reform. Chilean
authorities also felt assured by the likely participation of Jose Yuraszeck, the pinochetista-turned-
723 El Mercurio, "Franceses molestos con Chile", Jan 23, 2005.
724 (Pinto, Juan. Personal interview. 27 July, 2012)
277
wealthy-businessman that had previously purchased Red Bus from Jaime Sanchez, 7 2 and who
had since expressed an interest on competing for one or several of the business units of
Transantiago. Yuraszeck's participation was encouraged, as it gave significant coverage to the
project in Congress. In fact a source interviewed for this research -then a high ranking official at
MOPTT- disclosed that feeder unit number one had been expressly "tailored" for Yuraszeck's
Red Bus. As this source put it, "we wanted to make a gesture to the political right, since Mr.
Yurazceck had close ties to the UDI (the right-leaning political party in opposition to the
Concertaci6n). Feeder one required the same number of buses operated by Red Bus for
Metrobn6s. He hoped that this gesture would convey to them that the project was moving forward
and that they would be included. This helped keep the peace with an important wing of the UDI."
Hector Moya -who played a curious role as a "new entrant" who had close ties to the trade
associations-, was certain to participate as well. In addition to his partnership with Orlando Panza
and the members of Federaci6n Santiago -that only targeted one or two feeder units- Moya
partnered with Korean investor Kim Chang Sun and created a second firm designed to bid for the
highly desired trunk unit 2. Neither Moya nor Mr. Chang Sun had any experience whatsoever
operating public transportation services, hence the previously mentioned critiques by Connex's
Jean Luis Soulas.
On the other hand, the trade associations were unlikely to pull out at the last minute. After
all, the tendering bases had been designed to facilitate the permanence of firms owned by
incumbent operators, and authorities had been receptive to the concerns of the key trade
association leaders, like Navarrete and Pinto. The stronger operator organizations had already
invested significant resources in the preparation of their bids and in the creation of their new
firms, and many of their leaders were convinced that the benefits of participation far outweighed
the risks of opposing Transantiago. As the December 21st deadline to submit bids approached,
even the smaller, independent bus operator groups in Santiago signaled to authorities their
intention to participate in the tender, even if only competing for the feeder units. With little more
than year to go before the end of the Lagos administration, Transantiago was finally happening.
725 The operation was purportedly for $9 million dollars, with the deal closed sometime in december, 2002. El Mostrador,
"El Zar se sube a las micros", January 24, 2003.
278
Santiago, Part III
52 bids: A competitive tender process?
In the end, twenty-five different companies submitted a combined total of 52 bids,
expressing interest for 14 of the 15 Transantiago bus operation contracts. The five trunk units
tendered attracted 21 of the 52 bids, while the the 1 0 feeder units attracted the rest. The only
business unit that failed to attract a bid was feeder unit number 10, which was so small that could
be cancelled without creating problems to the system as a whole. Such market response, in an
industry long dominated by a cartel, was heralded in the press as an "unexpected success", and as
a "demonstration of the decision of the government to move competition away from the streets
and into the tendering process". 726 Such praises are certainly well deserved, but they mistakenly
emphasize competition as the outcome of the tender, when it was rather enhancing state capacity
to change the regulatory framework of service. In fact, on close analysis, the number of bids
overstates how competitive this process really was.
Ten of the twenty-five firms that submitted a bid were in fact controlled by the leaders of
3 local operator groups: the AGMTP, the Federaci6n Siglo XXI and the FGDTS. As previously
discussed, these three groups coordinated their bids with each other. Five additional participating
firms had origins in smaller, independent trade associations, that lacked financial backing to be
competitive outside of the the smaller feeder units.727 Furthermore, the firms with roots in the
trade associations mostly stayed clear of trunk units 2 and 4. Out of thirty-two bids submitted by
firms with roots in a trade association, only two attempted to retain Transantiago's "crown
jewels": Navarrete's AGMTP submitted a bid for trunk 2, while Pinto's Federaci6n Siglo XXI
bid for trunk 4. The distribution of the thirty-two bids submitted by trade association groups,
shown in figure 3.7, also suggests that the informal agreement between the leaders of the three
strongest micrero organizations survived. While the MOPTT did receive more than one bid for
every unit tendered, the firms created by the AGMTP, the Federaci6n Siglo XXI and the FGDTS
never competed against each other. The only exception of this was trunk 5, where the
participation of both the AGMTP and Federaci6n Siglo XXI was previously agreed and
negotiated between Manuel Navarrete and Juan Pinto.
726 El Mercurio, "Inesperado 6xito en licitaci6n de Transantiago", Dec 22, 2005.
727 These five firms were: TurMaipo Futuro, Lider, TransAraucarias, Unitrans and Transciudad Uno.
279
Figure 3.7 Bids received and winners of the tendering process to select Transantiago trunk unit operators
TRUNK UNIT TENDERS
> 0
-o ?' 40;
00
09
'~ 5 i'J -
sa~ ago
Con ~ ~ 1 ansns g
Als/
'O~epm ube
Aiv~nza
- bid won
bid made
As expected by the Chilean authorities, "true" competition mostly concentrated in "crown
jewel" trunk units 2 and 4. These attracted eight and six bids respectively, with only one of the
bids received for each of these units submitted by firms created by trade association groups.
Comparatively, the MOPTT received two bids for trunk unit 1, three bids for trunk unit 3, and
two bids for trunk unit 5. Only one out of these seven offerings made for trunk units that required
a large number of used buses (e.g. "reserved" to trade association groups) came from a "new
entrant": Alsacia, the firm created by colombian investor Carlos Rios. Notably, the french,
spanish and colombian transport conglomerates -Connex, Alsa, Avanza, Fanalca and Express-,
bid exclusively for "crown jewel" trunks 2 and 4. Neither of these conglomerates submitted a
single bid for the rest of the trunk units nor for any of the feeder units offered. Politically
connected local "new entrants" (Yuraszeck's Red Bus and Moya's SuBus) were an exception. In
280
V 601
LU
z
M
0
-0
Cl)
0)
Santiago, Part III
addition to bidding for either trunks 2 or 4, they presented bids for some of the feeder units as
well.
This distribution of bids demonstrated the feasibility of achieving the desired mix of
existing operators and new entrants. As expected, "new entrants" competed fiercely for
Transantiago's crown jewels, while the strongest micrero organizations could count of retaining a
significant share of the system. The only outstanding obstacle to a "peaceful" industry transition
came from the fact that Carlos Rios followed his original intuition and challenged the AGMTP
with a bid for trunk 1. The appetite of the market threatened to disrupt a carefully tailored
equilibrium. If Alsacia's bid was successful, the number of existing bus operators immediately
displaced by the implementation of Transantiago would be much larger than originally expected.
Rios's move was as risky for him as it was problematic for authorities. As one advisor to
Etcheberry explained: "Nobody expected Alsacia's participation. At least for the transition
period, his company would be forced to find and rent buses from existing operators, and the
vehicles available would surely be of the worst quality. He would need to hire people for short
term periods, and let them go soon after. Carlos Rios was savvy as a fox, but he was certainly
taking on a big problem."728
Choosing private partners to improve bus services in Santiago
The tendering bases established a two-pronged decision mechanism to award
Transantiago's contracts. First, authorities would review the "technical offers" submitted by
participants, including proof of legal constitution and financial backing, a statement of the firn's
business model, and a broad description of the bus fleet intended for service. Notably, no proof
of having secured the required vehicles -either through purchase orders or signed leases- was
required at this point. Only offers deemed "technically suitable" would carry on to the second
phase of evaluation, a review of the "economic offers" presumably centered around the amount
of money that operators were willing to charge the system as payment per passenger. The bases
stipulated that this amount had to fall within a range. In theory, the "lower limit ensured that the
offer was serious" and "the upper limit was such that system costs remained under control." 729
However, this range was in fact quite narrow -in some cases as narrow as 3 chilean pesos-, so
728 (Mufioz, Juan Carlos. Personal interview 20 July, 2012)
729 (Mufioz and Molina 2009 p. 310)
281
ties were extremely likely and therefore the importance of this variable marginal. In practice, the
key deciding factors would be the amount of money committed as (1) a direct contribution to the
system's technical reserve and as (2) benefits for workers. This mechanism implied that the
"technical offers" were evaluated in a simple "pass/fail" manner. Beyond completing a checklist
of formal requirements, the tender was decided essentially as an auction. This strategy was
deliberately chosen to avoid post-tender conflict, as final decisions would be based on a simple
figure, leaving no room open to interpretation. According to Guillermo Diaz, "we feared that our
decisions would be questioned as either favoring the entry of new players or enabling the
Figure 3.8 Bids received and winners of the tendering process to select Transantiago feeder unit
operators
FEEDER UNIT TENDERS
o 0f
o
- dde Persona
Comnercial NuLevo Milenio3, Wederacicon Sjgto Xtj
4,s C .
A8 A9 P1
- bid won
bid made
282
Santiago, Part III
permanence of the traditional operators. So, if you look at the decision rules, you'll see that there
is a first stage, simply determining whether or not minimal requirements are satisfied, and then
we move on to price. The system was designed so that immediately after data was entered to the
system, tenderers would see who won on a screen."73 0
While this mechanism did convey a visage of transparency to the contract award process,
it also had two critical consequences in trunk 1, the contest where Carlos Rios' Alsacia
unexpectedly disputed a unit "reserved" to a firm created by trade associations. First, it lowered
the barrier of entry significantly. Used vehicle-owners could wait and see if Alsacia won the
contract, before deciding to lease their vehicles to this company. This was critical, since
individual bus owners would certainly be more inclined to break rank with their organization
leaders if Alsacia could guarantee it had already won the contract. Second, this mechanism gave
an advantage to bids from players with better access to credit -usually the "new entrants," since
they would be better able to commit larger amounts to the technical reserve fund. Using the
technical reserve fund as a deciding factor, allowed authorities to dissuade trade associations
from participating in the "crown jewel" units 2 and 4. However, this instrument worked both
ways, and now gave an undesired advantage to Alsacia in trunk 1.
On December 30, 2004, MOPTT officials announced which firms survived the technical
evaluation stage, and proceeded to open the remaining economic offers with the bidding parties
present. The "Crown jewel" contracts were awarded first. The winner of Trunk 2 was Su Bus
Chile -the firm organized by Hector Moya with Mr. Kim. Their lack of experience in the sector
was not taken into account, as their unprecedented commitment to contribute US $60 million
dollars to the technical reserve fund7 3 1, and their promise to pay the highest salaries to their
workers fit the government's decision criteria. Authorities awarded Trunk 4 to Express de
730 (Diaz, Guillermo. Personal interview. 4 August, 2012). Juan Carlos Muiioz (from MOPTT) and Diego Molina (from
SECTRA) confirmed this point in a later journal article: "The rationale for this approach was the many political and
technical risks posed by Transantiago, which involved a total redesign of the system for the entire city using procedures
never before employed in Chile. Furthermore, the process had been heavily resisted by the incumbent operators who,
although very experienced in running bus services, had little experience with formal techniques of business management. It
was felt that they would simply not trust a method that made assignments via a "black box" (Mufioz and Molina 2009 p.
311).
731 The participation of the well known Hector Moya as president of Su Bus Chile had an additional, politically convenient,
side effect. While at the time of the decision Mr. Kim owned 100% of the stock of Su Bus Chile, the press celebrated that "a
chilean company" had won.
283
Santiago (50% owned by Express del Futuro and 50% owned by the Rios Family). This
colombian firm committed US $50 million dollars to win. With these decisions, the european
conglomerates Connex, Alsa and Avanza, were left out of Transantiago. Alberto Urquiza
remembers how this outcome surprised them: "When we (Connex) learned that the colombians
had offered US $50 million, we thought they were crazy. The margin was ridiculous. We had
offered US $9 million versus their US $50, and had hoped that our technical proposal would
carry some weight. It didn't. We simply could not believe it."732 Etcheberry also remembers the
reaction of those on the losing side of the process. "The french were furious. They wanted us to
give them points for their operational experience, but doing so would be tremendously
complicated. After all, who had more experience than Santiago's existing trade association
groups? Navarrete and Marinakis wanted us to include local experience as a requirement as well,
and so depending on how experience is framed I could be benefiting one group or the other. I
could not do that."733
With the highly contested trunks 2 and 4 awarded, attention shifted to trunk units that
accepted used buses. As expected, the AGMTP won the contract to operate trunk 3. However,
before opening the envelopes for trunk 5, the authorities informed Juan Pinto that the bid
submitted on behalf of his Federaci6n Siglo XXI had been disqualified at the "technical" stage,
leaving the AGMTP as the only surviving group with a bid for this trunk. This decision was
justified under a legal technicality: Pinto's company, Halcones de Tulahudn, had not issued stock
in the manner prescribed in the tender. When interviewed, Mr. Pinto shared his own
interpretation of the decision: "I am convinced that we were eliminated in trunk 5 for a different
reason. The authorities never imagined that the colombians would also bid for trunk 1, leaving
the AGMTP with a very small share of the market. The ensuing conflict could certainly cause the
city to explode in flames. Thus, the decision (to disqualify us) was similar to a game of pool.
Trunk number 1 was reserved for the AGMTP, but when the colombians stepped in with millions
of dollars, they pushed the AGMTP out and into trunk 5, affecting us. Authorities said, "let's take
Juan out", and awarded trunk 5 to the AGMTP."734 If in fact such calculations played a role in the
decision, Mr. Pinto was certainly compensated later. After all, he was not completely displaced.
Not only would his organization go on to win two of the largest feeder units, but given his
732 (Urquiza, Alberto. Personal interview. 11 July, 2012)
733 (Etcheberry, Javier. Personal interview. 17 July, 2012)
734 (Pinto, Juan. Personal interview. 27 July, 2012)
284
Santiago, Part III
previous negotiation with Navarrete, he personally emerged from the Transantiago tender as a
significant stockholder of Buses Metropolitana, the firm that did win trunk 5.
Awarding trunk 5 to the AGMTP certainly served as an useful escape valve, since Alsacia
easily outbid incumbent operators in the competition for trunk 1. His offer to contribute $18.4
million dollars 735 to the technical reserve fund was several times larger than the offer submitted
by the AGMTP. 736 And, since Rios was not required to demonstrate having the 1,800 used buses
required to begin operations, there was no argument to deny him this contract. This of course did
not mean that the trade associations were willing to graciously relinquish trunk 1 without a fight.
Figure 3.9 Summary of participants and winners of the tendering
process to select Transantiago trunk unit operators
TRUNK UNIT TENDERS
ACCEPTS ONLY
Trunk 20
A CC EP
Trunk 1
NEW B U SES
G DF
aLIi0W
s USED BUSES
00
0 0 0
* wanning bid - flew entran
o wnning bid - Incumbent operator
735 The offer was 615,010 unidades defomento (UF)
736 The exact amount offered by the AGMPT's Buses La Capital was not disclosed to the author. However, the bid
submitted on behalf of the AGMTP for trunk 5 -a business unit roughly of the same size- committed only US $2.2 million to
the technical reserve fund.
285
According to Guillermo Diaz, calls to war appeared the the minute the decision was announced:
"Navarrete walked towards Rios, and spoke quite aggressively to him, despite being in
our presence and surrounded by journalists. He basically warned Rios that he would never get his
hands on the gremio's buses."737
The MOPTT awarded feeder units days later, with results that helped ease some of the
mounting tension (shown in figure 3.10). With the exception of feeder unit 1 -awarded to
Yuraszeck's Red Bus- most of the pending contracts were awarded to firms created by the
strongest former micrero organizations: The FGDTS, the AGMTP and the Federaci6n Siglo XXI
each won 2 feeder contracts. Two firms owned by smaller trade associations -Unitrans and
Transaraucarias- were awarded one feeder unit each. In fact, the only large trade association
organization that lost despite submitting a bid was Orlando Panza's Federaci6n Santiago, a result
probably related with his reluctance to coordinate bids with the gremio. 38
By accident or design, firms with roots in the trade associations retained most of the
business units of Transantiago, with their relative size and power apparently acknowledged by
the chilean authorities. Nonetheless, a race between the colombians and the AGMTP to enlist
used buses to their official fleets had certainly begun. After all Alsacia -the firm created by
Carlos Rios- risked losing its contract if unable to secure the required number of used buses by
August 26, 2005. Manuel Navarrete minced no words when speaking about this possibility in an
interview: "I have the buses, and logically will not make them available to them."?3
Fighting over old buses, waiting for new buses
With Transantiago's bus operating contracts signed, the reforms long promised by
President Lagos and described in the PTUS seemed more feasible than ever. A public statement
by Sonia Tschorne, recently appointed by Lagos as minister of housing, sums up the
administration's message to the Chilean people: "Transantiago is equity. With this system people
will get safety, dignity and quality for a similar or even lower fare than they pay today."740
737 (Diaz, Guillermo. Personal interview. 4 August, 2012)
738 Orlando Panza and some of his partners did retain stock in the firm created by Hector Moya to bid for trunk 2. However,
their participation was marginal, less than 5% in total.
739 El Mercurio, "Transantiago se queda en manos de chilenos", January 7, 2005.
740 (Rivera 2008 p. 26)
286
Santiago, Part III
Figure 3.10 Summary of participants and winners of the tendering process to select
Transantiago feeder unit operators
FEEDER UNIT TENDERS
0
SI
AE-
.2
3
A E
A4
I
A 9
5
A 0
I*winning bid - uncoongdnated I small trade uions
0 winnig bid - coordlabd bidu I cais
According to the contract terms, new operators would take over the system on August 26,
2005, beginning the one-year transition period. Starting on this date the firms holding contracts
to operate trunks 2 and 4 would introduce new buses to the streets of Santiago, gradually taking
over the existing routes in their assigned territories. The buses previously serving those routes -
presumably enlisted as part of the fleets of another Transantiago operator- would be reassigned to
a route elsewhere in the city, or decommissioned. By August 27, 2006, authorities expected the
new Transantiago operators to be fully in control of their areas, operating with either a completed
fleet of new buses (in trunks 2 and 4), or with a significantly reduced number of used buses (in
the rest of the system). Such transition assumed almost flawless execution and choreographed
collaboration from all parties involved, with authorities freed to focus on pending elements of the
project, such as (1) selecting the financial administrator for Transantiago (in charge of collecting
287
fares and distributing revenues among operators), (2) establishing a user information and fleet
control system, and (3) building infrastructure (such as stations and dedicated corridors). Instead,
what ensued was a very conflictive period, characterized by bureaucratic turmoil, low intensity
war between new and incumbent operators, and widespread confusion on the part of individual
bus owners and drivers.
With the tendering process closed, Minister Javier Etcheberry resigned. His exit was
caused by a political crisis developing at the same time as the Transantiago contracting decisions,
and related to the Concertaci6n's unstable internal politics. On November 18, 2004 a bridge
collapsed over the Loncomillas River in the south of the country, resulting in four vehicles
damaged and passengers injured. The congressman from that district publicly blamed MOPTT,
accused Etcheberry of receiving payoffs from multinational construction companies, and stated
that "the Concertaci6n can't build bridges that fall." This congressman was Pablo Lorenzini, a
DC member also serving as president of the House of Representatives. Members of both the PS
and the PPD in the House defended MOPTT, while a faction of DC congressmen broadened their
critiques of the Lagos administration. The leaders of both parties worked hard to reduce the
tension, and to maintain the Concertaci6n united. The president of the DC asked Lorenzini to
resign from his post as president of the Congress741, and Minister of the Interior Insulza invited
Etcheberry to leave his post as minister.742 While politically instrumental, this resignation could
not have come at a worse time for Transantiago. President Lagos' administration was entering its
last stretch, and new Minister Jaime Estdvez (PS)743 was not privy to the long and complicated
negotiation process that had allowed the tendering process to progress successfully. In fact, the
new minister surprisingly sacked most of Etcheberry's advisory team, leaving the MOPTT ill
equipped to keep the ball rolling. With so many pieces moving and with little time to spare, a
renewed effort to resist the bus reform process took place.
Nowhere was this more evident than in trunk 1. With their contract on hand, envoys from
Alsacia approached lower ranking leaders of the trade associations, hoping to negotiate a deal to
lease or purchase their vehicles, or their peaceful withdrawal from areas allocated to this
741 El Mercurio, "El Gobierno no persona dichos de Lorenzini," January 5, 2005.
742 (Etcheberry, Javier. Personal interview. 17 July, 2012)
743 Jaime Estdvez is an economist, exiled during the military regime, and for a time lived in Mexico where he worked as
advisor to President Luis Echeverria. He joined the PPD and became a congressman in 1989, before switching parties to the
PS. He remained a congressman until Lagos appointed him Chair of Banco Estado, a position held until arriving at MOPTT.
288
Santiago, Part III
company. Alsacia found significant resistance. On the one hand, most of the lower level trade
association leaders controlling routes within trunk 1 saw little reason to negotiate. While it was
mathematically impossible for all of their vehicles to be included as part of the other operators'
fleets, they staunchly believed that their permanence in the system was assured. After all, many
had contributed financially to their trade association, paying dues supposedly used to capitalize
firms used to bid, and the AGMTP had indeed won trunks 3 and 5. On the other hand, these
lower ranking leaders had been instructed by their superiors not to yield control over "their"
routes, as the trade association organizations still hoped to reclaim them. Such scenario was
indeed possible, as the rules stipulated that recently awarded contracts could be cancelled if the
new companies failed to assemble the required fleet of used buses. Edgar Macallister, one of the
managers for Alsacia during this period, recalls the difficulties faced. "The contract would say
that a particular route now belonged to us. So, we approached the leader of the organization
serving such route, informing him that by the end of August he could no longer operate it.
Usually he did not believe us. He would check in with higher ranking micrero leaders, and come
back convinced that we were mistaken, resolved not to allow us into his route."74 Attempts to
reach out to bus owners directly was difficult also. Jaime Sanchez recalls, "I would be at their
terminals at sunrise, trying to engage and convince them that their exit from the system was
inevitable. I told them that they could have a better outcome, a more dignified and profitable
exit, by joining us in Alsacia rather than Navarrete... however they were evidently pressured,
threatened."745
With Alsacia's ability to assemble the required fleet of 1,800 used buses increasingly in
question, a second problem landed on Minister Estevez' desk. Su Bus Chile, the company that
won trunk 2, came close to backing out from its commitment to deliver the required new buses.
In addition to 550 D9 articulated buses from Volvo, Su Bus Chile had included in its bid 110 D7
natural gas-fueled buses bought from Daewoo, a Korean company. This was a critical element of
the deal for Mr. Kim, as he planned to become Daewoo's representative in Latin America, using
Transantiago as springboard to countries like Peru and Bolivia. However, the chilean authorities
decided that relying on natural gas as fuel source would threaten the stability of the fares, and
asked Su Bus Chile to switch to oil-fueled vehicles. This requirement led Mr. Kim to pull out of
744 (Macallister, Edgar. Personal interview. 23 July, 2012)
745 (Sdnchez, Jaime. Personal interview. 23 July, 2012)
289
the project soon after the contracts had been awarded, leaving Hector Moya with a Transantiago
contract but insufficient financial backing.
Helping "new entrants" survive
Neither Alsacia nor Su Bus Chile were able to solve their problems by the stipulated
deadline of February 14, 2005, and were fined by the MOPTT. In public, the chilean authorities
took a hard line against both operators, with the press even documenting high level meetings
between Manuel Navarrete and Minister of the Interior Jose Manuel Insulza, supposedly
exploring the possibility of canceling the contracts for trunks 1 and 2, and re-awarding them to
the AGMTP.7 46 Guillermo Diaz, who stayed on as Under Minister of Transportation, declared to
the press, "we understand they (Alsacia and SuBus) face a market difficulty, but (the
government) will not take charge solving it."747 However, the Chilean government did play an
active role to prevent the premature demise of its new private partners. The alternatives, either
re-tendering or allowing trade associations to take over these services, were not at all palatable.
"The government did not want Su Bus to fail, and told me in every tone possible that they
wanted my company to remain", recalls Hector Moya. "I had been negotiating a sale with Carlos
Rios, and had even agreed a price, but I realized that such sale troubled authorities, presumably
due to the resulting market concentration." 748 In fact, in March Hector Moya successfully sold
45% of Su Bus stock to Fanalca, a colombian consortium that had previously submitted an
unsuccessful bid for that trunk unit. The rest of the stock was distributed among Andres de
Carcer, Volvo's distributor in Chile, and a few local investors, including Hector Moya. A
marginal percentage (less than 5%) was retained by 42 of the original 600 members of Orlando
Panza's Federaci6n Santiago. This was not the market sorting itself out. MOPTT authorities
helped Moya find suitable investors. "We actively sought out a suitable partner for that
concession contract", recalls Guillermo Diaz, "if a forensic analysis was possible for that deal,
you would find my fingerprints". 49 The inclusion of Fanalca satisfied the banks, clearing the
remaining obstacles for Su Bus Chile to finance its promised fleet of new buses, of course sold
by Volvo.
746 La Tercera, Insulza se refine con lider micrero para buscar salida a crisis de Transantiago", March 31, 2005
747 La Tercera, "Peligra inicio de Plan Transantiago por graves problemas de operadores". March 7, 2005
748 (Moya, Hector. Personal interview. 21 June, 2012)
749 (Diaz, Guillermo. Personal interview. 4 August, 2012)
290
Santiago, Part III
Similarly, authorities played an important role helping Alsacia enlist the required number
of used buses. To end the confusion about whose buses were authorized to remain in the new
system, Guillermo Diaz published all vehicle lists submitted by operators ahead of the deadlines.
As he put it, "I made this decision since used buses not included in any list were effectively freed
up. Navarrete attempted to delay sharing the list of his fleets to maintain support, but we did not
allow this to go on."750 In addition, MOPTT authorized the "loan" of new buses purchased by
Express -the winner of trunk 4- to Alsacia, reducing its urgent need to strike a deal with
incumbent operators. According to the agreed contracts Alsacia was obligated to begin
operations of trunk 1 with 1,800 buses, and to reduce this number to only 587 by the end of the
transition period. Meanwhile, Express had committed to introduce approximately 200 new buses
to trunk 4 every four months, until reaching a fleet of 606 new buses by the end of the transition
period. With authorization from the Chilean authorities, the colombians decided that they would
front load the purchase of all of the new vehicles they would need to retain by the end of the
transition period in both trunk units. They purchased 1,193 new Volvo buses (the 606 needed by
Express for trunk 4, and the 587 needed by Alsacia for trunk 1), introducing all of them to
Santiago on day one of the transition period. Their strategy was to operate most of these vehicles
on behalf of Alsacia in trunk 1, only moving them to Express and trunk 4 as required by the
schedule.
"The government authorized us to shift buses from one trunk unit to the other, reducing
our used bus deficit to roughly 700 vehicles... (the micrero organizations) believed we actually
had to enlist 1,800 used buses to our fleet, while in fact we needed many less," recalls Edgar
Macallister.751 Most of the remaining deficit of used buses was closed in May, after striking a
deal with Orlando Panza incidentally brokered by H6ctor Moya. Most of the buses owned by
members of Panza's Federaci6n Santiago were essentially redundant, as their bid for a feeder
unit prepared by this organization in conjunction with Moya failed, and since Su Bus Chile did
not require (nor want) any used buses to operate trunk 4. Orlando Panza's organization agreed to
operate 540 used buses on behalf of Alsacia during the transition period, essentially killing any
remaining hope harbored within the gremio that the colombians would be forced out of trunk 1
of Transantiago. The explanation offered by Orlando Panza to his former peers is quite telling. "I
750 (Diaz, Guillermo. Personal interview. 4 August, 2012)
751 (Macallister, Edgar. Personal interview. 23 July, 2012)
291
met with Manuel Navarrete, who was my friend and with whom I had spent time in jail, and
reminded him that I was now a businessman." 752
Partly to give Alsacia, Express and Subus more time to assemble their required fleets,
Minister Estdvez announced the postponement of the start of the transition period, from August
27 to October 22. This decision certainly widened the rift with the leaders of the micrero
organizations, who hoped those contracts would be cancelled. Navarrete, Huerta and G6mez,
publicly threatened authorities with "walking out" from the project. While they would not go as
far as canceling their participation in Transantiago, the micrero leaders did employ every strategy
available to derail implementation or at least to reduce its support among the public. During the
months before the formal start of the transition period, the micrero leaders challenged the
contracts awarded to Alsacia in court, lobbied congressmen -particularly from the right leaning
parties RN and UDI, and from the DC-, and even reduced the number of buses running in the
streets during peak hours to create public discomfort.75 While some buses were due to exit the
system due to obsolescence, the micrero organizations deliberatively took out many more than
immediately required, blaming resulting delays and on-board congestion on the "poor planning"
conducted at the MOPTT. Demetrio Marinakis, previously ostracized, successfully organized an
assembly that drew 600 trade association members and drivers, demanding subsidies to
compensate owners for vehicles made redundant, and to pay severances to redundant drivers and
trade association workers. Notably, participating in this assembly were Senator Adolfo Zaldivar,
president of the DC, as well as congressmen Carlos Olivares (DC), Patricio Hales (PPD),
Carmen Ibanez (RN) and Ivan Moreira (UDI). Zaldfvar's speech was not only a declaration of
war against the project, but a chance used to take a jab at Lagos: "Somebody needs to take
responsibility for the consequences (of implementing Transantiago). These consequences should
not be paid for by users, nor workers, nor operators: They have to be paid by those that
irresponsibly have managed this transition in a way that has us at the brink of a severe crisis in
Transantiago, as well as in other arenas of the national economy". 7'
While authorities sparred with bus operators, other components of the project progressed
slowly. In April, 2005, the transportation ministry awarded a consortium of four banks (Banco
Estado, Banco de Chile, BCI and Santander Santiago) and two technology suppliers (Sonda and
752 (Panza, Orlando. Personal interview. 19 July, 2012)
753 El Mercurio, "Transportistas arriesgan cobro de boletas si dejan Transantiago", June 7, 2005.
754 El Mercurio, "Adolfo Zaldivar sigue desafiando a Lagos," July 16, 2005.
292
Santiago, Part III
CMR Fallabella) a 12-year contract to operate as Transantiago's financial administrator (AFT).
The AFT would be charged with implementing a single integrated fare payment mechanism
using a magnetic fare card, a network of card recharging points, and a clearing system for
making revenue payments to the bus operators. 75 The technological and logistical challenge
faced by the AFT was immense. A second competitive tender took place to select the operator of
Transantiago's information system (SIAUT). The SIAUT would be charged with implementing
the user and fleet management information technology (GPS, on-board computers, passenger
counters, voice communication systems connecting buses to a base station, etc.) In this case, no
suitable bidders responded by the deadline, forcing the transportation ministry to declare this
tender deserted, and to allocate some of these responsibilities to the AFT.
Helping solve the problems faced by new entrants, while at the same time identifying,
deactivating, and reacting to pressures from trade associations certainly distracted officials from
the technical aspects of the implementation of Transantiago, such as overseeing progress on the
AFT and the SIAUT. Etcheberry had inserted a transition period into Transantiago's
implementation plan not only to satisfy the political agenda of Lagos and the Concertaci6n, but
also to phase-in the entry and exit of buses, to test the new fare collection and fleet control
systems, and to build infrastructure. According to Etcheberry, however, "the schedule was not
kept. All important topics suffered postponements." 756
755 (Muftoz and de Grange 2010)
756 (Etcheberry, Javier. Personal interview. 17 July, 2012)
293
Figure 3.11 Anti-Transantiago campaign.
Sign reads: The government will leave more than 40,000
Chileans jobless with Transantiago.
Source: La Segunda, September 7, 2005.
Keeping micreros happy: A mitigation plan (not implemented)
The elections to replace Lagos were scheduled for December 11, 2005, and a new
administration would be sworn in on March 11, 2006. Despite risking problems in other
components of the plan, the president made clear that he wanted the new buses running before
the election, and most of the older vehicles out of the system before the new administration
began. Lagos did not want to end his period without tangible, conspicuous proof that the PTUS
was not only about expensive tolled highways used mostly by auto owners, and subway
construction projects that would only impact a small share of trips, but about improving the level
of transport service across the city, especially for the poorest. Furthermore, Lagos wanted to
deactivate the critics of his administration, both in and out of the Concertaci6n. Estevez' mandate
was to ensure that these wishes were fulfilled, but these objective were endangered by renewed
conflict with trade associations. Authorities were well aware that the leaders of these
organizations could drag their feet or mobilize individual vehicle-owners and drivers against the
project, causing critical delays. In addition, participation by existing operators had already been
established as necessary for the success of the project. If they were to walk out of the project
months before the elections, Transantiago would be at risk, and Lagos would have little to show
294
Santiago, Part III
for his administration's efforts. Once more, Chilean authorities faced a political imperative to
lower the tension with the transport trade associations.
Perhaps for this reason, Minister Estevez sought to balance the hard line embodied by
Guillermo Diaz, who at the time was running operatives in the streets to document the service
boycott by incumbent operators. While Diaz would continue to play a mayor role in the project
as Under Secretary of Transportation, Estdvez recruited Jaime Pizarro as advisor and Isabel
Guzman as Coordinator of Transantiago. Both Pizarro and Guzmin had previously worked under
Estevez at Banco Estado, and had no experience whatsoever in the transportation sector.
However, they were not appointed to run the emerging system, but to ensure that the transition
periodprogressed smoothly. "Minister Estevez invited me to his team with a very clear
objetive," recalls Mrs Guzman, "he wanted me to design a proposal to mitigate the social impact
of the implementation of Transantiago on the disappearing transport micro-enterprises".757 The
previous experience of Guzmin and Pizarro running the small enterprise program at Banco
Estado, gave them knowledge necessary to address at least this dimension of Transantiago's
challenges. Their task, framed by Guzmin, was "lowering the level of tension between
traditional operators and new operators."758 Guzmin reached out to the micrero leaders, and
succeeded in bringing them back to the negotiation table. She identified several of their concerns,
and explored ways the Chilean government could address them. The proposal put together by
Guzman and Pizarro included three elements, costing an estimated US $56 million to the Chilean
government.759 Their proposal included:
A "specialized economic reconversion plan", to aid the insertion of displaced drivers,
administrative workers and bus owners into other economic activity. This plan comprised of
state-financed loans and training programs.
Development of a market for decommissioned buses. While the chilean government
did not offer to buy old buses or to directly compensate its owners -like Correa had done in the
90s- it did offer help to sell the vehicles. According to the plan, the chilean government would
757 (Guzman, Isabel. Personal interview. 26 July, 2012)
758 Ibid.
759 This figure and information based on documentation shared by Isabel Guzman with the author.
295
coordinate the export of displaced buses to Peru and Paraguay, and/or their relocation to
secondary chilean cities like Antofagasta and Temuco.
Compensation for costs associated with the transition. Among the most sensible items
discussed was government subsidies to bus owners to cover social security back payments and
severance packages owed to the approximately 12,500 bus drivers. While an organization of
drivers had emerged and attempted to articulate claims7 60, this element of the plan was less a
consideration to them than to the vehicle-owners and to the firms created by trade associations.
The Chilean law stipulated that these workers could not be hired by the new firms, until their
former employers fully paid their obligations, and bus owners claimed having no money to pay.
While there were voices within the gremio that demanded even more support, 761 such
peace offering did not go unnoticed. During the course of these negotaitions, the AGMTP
withdrew its legal action against the contract awarded to Trunk 1, and many micrero leaders
became more cooperative.762 The tone certainly changed. Manuel Navarrete, for example,
declared publicly that they were committed "to working closely with the minister in ensuring
that the transition to Transantiago causes minimal problems". 763 For Estevez, this was the return
of the "route of collaboration." However instrumental, this mitigation plan never moved past the
planning stage. On the one hand, it required a significant budgetary commitment from the
Chilean Government, and the Finance Ministry made clear that no additional funding was
available. On the other, Estevez found significant opposition within his Ministry. Officials that
had experienced the longer history of the negotiations that led to Transantiago, and who believed
that the trade associations had already gotten much out of previous rounds, frowned on the
"softer" approach advocated by Estevez. "This was a conflict, an evolving conflict", explains
Guillermo Diaz, "we could not afford to show weakness. Furthermore, remember who we were
760 This organization was the Consejo de Defensa de Trabajadores de Transporte (CODETT). It organized a few assemblies
and attempted to stage protests against Transantiago, but was never considered an important actor by authorities.
761 For example, Armando Huerta reasoned: "I had buses models 2002, which I bought with the expectation that they would
remain in service until 2012. However, the government forced them out and left me without a job. At the very least, I
deserve to be compensated".
762 Of course, it also helped that Guillermo Diaz successfully documented and publicly exposed micrero organizations
withholding service.
763 La Segunda, "El Gobierno reubicani micros en regiones of fuera de Chile", September 8, 2005.
296
Santiago, Part III
dealing with. Any money allocated for small bus owners would end up capitalized by their
leaders."764
The interest of bus operators on Guzman's plan waned as they realized she had little
power, despite constant public endorsements by Estevez. According to Mr. Juan Pinto, "she was
like the mother that embraced us and consoled us, but gave us little real solutions. She would
listen to us with great concern, but those talks never translated into anything tangible."765
Guzmdn resigned December 2005. However, by that date the new buses were arriving in
Santiago and new operators were taking over their awarded areas. Regardless of what would
happen next, Lagos could be credited with launching Transantiago, and this would probably
influence the election.
"Todo Cambia": The Transition Period begins
New buses began arriving to Santiago in July and August 2005. Their trek from Volvo's
manufacturing facility in Curitiba, Brazil into Argentina and crossing the Andes into Chile, was
closely followed by the chilean press. The public saw images of the green and white articulated
buses leaving the factory, crossing the snowy mountaintops, and finally making a triumphant
entry to Santiago (figure 3.12). Government ads saturated the airwaves showing the new
vehicles. Quite tellingly, the music and lyrics chosen for these ads were based on a famous song
by Mercedes Sosa, titled "Todo Cambia", "Everything Changes." 766
On October 21, 2005, Lagos inaugurated Transantiago's transition period making a proud
statement: "This is the start of the greatest process of public transportation modernization ever
realized in Chile."767 Starting that day, 1,181 new buses added by Alsacia, Express and Su Bus
Chile paraded through the streets of Santiago. On November 29, Lagos also inaugurated the
Autopista Vespucio Sur, a 23 kilometer tolled urban highway, and pledged to finish the 29
764 (Diaz, Guillermo. Personal interview. 4 August, 2012)
765 (Pinto, Juan. Personal interview. 27 July, 2012)
766 This ad is available in youtube: lttp://wvw.youtube.comN/watch?v=9wpiHN9axt4
767 (Rivera 2008 p. 27)
297
Figure 3.12 Imported Transantiago buses cross the Andes
"The new face of transport- These
machines, along with other 12-meter
long units, will be tasked with
transporting santiaguinos starting
October 22, when the first stage of Plan
Transantiago begins."
Source: El Mercurio.
kilometer Autopista Vesupucio Norte by the end of the term. One day later, on November 30,
Lagos put in operation the first 18.6 kilometers of subway line 4, as well as further extensions to
lines 2 and 5. He promised that subway construction would continue for the next few months,
and that by the end of his term the subway network of Santiago would reach 78.1 kilometers,
doubling the size it had when he was sworn in. This blitz of events were certainly timed to
maximize political impact: The presidential campaigns in Chile were starting. After years of
debate and discussion about public transportation reform, Chileans widely understood
Transantiago as a signature project of the Concertaci6n. The comfort of the new buses, the speed
of cars on the highways, and the added reach of the subway could only help the candidate from
the governing coalition.7 68
Everything seemed to be going well for Lagos. His preferred successor clinched the
presidential candidacy for the Concertaci6n since May. The DC split up into two groups, partly
over differences regarding what attitude to take regarding his administration's policies. Soledad
Alvear, former Minister of Foreign Relations and leader of Lagos' supporters in the DC,
narrowly defeated Senator Adolfo Zaldivar and his group of government critics, becoming the
768 The number of buses added is taken from the minute of the 35st Meeting of the Ministerial Committee overseeing
Transantiago, dated October 24, 2005.
298
Santiago, Part III
standard bearer for the christian democrats. The process divided the DC, and Michelle Bachelet,
favorite of the PS and PDD, became the Concertacidn's candidate. She would go on to face a
divided opposition in the presidential election held December 11, since the right leaning UDI and
RN ran separate candidates. Bachelet won a landslide victory: 45.9% for the Concertaci6n vs
25.4% for RN's Sebastian Piuera and 23.23% for UDI's Joaquin Lavin (23.23%). Nonetheless,
the Concertaci6n failed to get 50% of the vote and so on January 11th, 2006, Bachelet would face
a united opposition.
While politically well-timed, the start of operation of Transantiago's new buses was not
devoid from problems. The contracts specified that during the transition period operators would
maintain the same circuitous and convoluted routes that existed in Santiago. These routes had
been designed for much smaller vehicles, and covered under-maintained streets that certainly
took a toll on Volvo's articulated and low-floored buses. In fact, there were several points in the
city where the operation of the new buses was physically impossible, and last minute
adjustments to existing routes had to be urgently implemented. 769 Moreover, recently hired
drivers had had little time to accustom themselves to the new vehicles, impacting their
performance. It did not help that the Lagos administration decided to leave the construction of
the infrastructure originally considered in the PTUS to his successor, claiming budget
constraints. As previously mentioned, the PTUS had considered 284 kilometers of segregated
busways, running along 10 main avenues. Of these, 23 kilometers of busways were in
construction (Avenida Pajaritos and Avenida Grecia), and a partially segregated lane was
implemented on La Alameda, but the rest of the busway projects were cancelled or postponed.
Similarly, only 12 of the 35 transfer stations were built, and these lacked a pre-paid zone to speed
up transfers.770 Such was the apparent flaw of the "highway concession model" applied to bus
services: The private sector could pay for buses, perhaps even for some infrastructure, such as
the Pajaritos busways and the only intermodal transfer station finally built, but not for much
769 One event summarized the type of problems facing the new entrants: One of the new buses got stuck when crossing
under the emblematic Alameda, using an underpass (Bandera-San Diego). The bus was 12 inches too tall to fit.
770 (Morande and Doila 2007; Muiioz and de Grange 2010). Without these implements, most of the performance potential
of the new vehicles went to waste. For example, without pre-paid boarding stations, it made no sense to have buses with
multiple doors. All passengers would still be forced to board through the front door, where the driver could ensure that they
actually paid their fares.
299
more. The new administration would have to decide how (and if) to finance the rest of the stops,
signage, exclusive corridors, stations, supposedly required by the end of the transition period.
But most importantly, the operators running new buses found staunch competition from
incumbent operators that refused to relinquish their routes. The transition period was designed in
such way that the operation of used buses remained mostly unchanged. Property and control over
these vehicles continued to be dispersed, and centralized operations was still not required. 731
used buses were scheduled to exit the system in January (phase IB of the transition period).
However, existing operators were in no hurry to comply, and for obvious reasons authorities
were not too keen on enforcing this requirement before the January 11th runoff election. As a
result, the first months of the transition period were characterized by a significant oversupply of
buses: In addition to buses unaccounted in formal tallies, 6,818 used buses and 1,211 new buses
operated simultaneously.
While users appreciated increased frequencies, the oversupply of buses caused significant
congestion and financial loss to operators. The colombians in particular were livid, claiming that
their revenues were 20% lower than projected. Carlos Rios sued the trade associations in court,
and demanded that authorities take action protecting his exclusive rights over trunk 1. In an
interview, dated only three days before the presidential election, Rios asserted: "We understand
that Transantiago is in a maturing process. We would like the speed and intensity of response
from the government to be faster and deeper. We want them to supervise the streets with more
efficiency, and that fines imposed become truly dissuasive. If the retiring of the old buses does
not happen, oversupply of service will become a ticking bomb.7 7 1" Before long, new and old
buses were racing on the streets, engaging in all-too-known curbside competition for passengers.
An editorial published at El Mercurio sums up was happening: "(New bus') conductors have
adopted several of traits of their yellow-bus colleagues, stepping on the gas and keeping cash for
themselves. If these practices persist, the advantages promised by Transantiago could be gone
before full implementation is complete in October 2006."772 Perhaps "todo cambia" wasn't the
right song for the ads.
MOPTT authorities only reacted after Bachelet defeated Pifera (53.50% vs 46.50%) in
the January 11th election. 551 used buses, 180 less than anticipated, were forced to retire on
771 El Mercurio, "Sobreoferta de buses es una bomba de tiempo", January 8, 2006.
772 El Mercurio, "Transantiago en Riesgo", January 3, 2006.
300
Santiago, Part III
January 20. On that date, 300 new buses were introduced to the fleets of new operators. 773 Part of
the reason for the slow progress retiring used buses was that many of the affected owners only
realized at this point that they were being driven out of the system, not only by government
planners and foreign firms, but also by their own leaders. In theory, vehicles closest to
obsolescence would be decommissioned first. However, the operating firms could freely decide
which vehicles to allow into their fleets, and a significant amount of discretion was employed.
The owners of buses who were closest to their organization leadership managed to keep their
older vehicles running, and replaced them for new ones closer to the end of the transition period.
In contrast, owners of newer buses who lacked such political connections within their
organizations -and who had long believed they would remain in the system- were booted out.
In addition, many of the used buses eligible to continue service had to be relocated to
areas controlled by the finn willing to include them in their fleet. This was the case of buses
previously working within trunk 1, unexpectedly lost to the colombians. Accommodating the
buses displaced from trunk 1 to other areas was highly traumatic. Bus owners did not want to
move out until receiving sufficient assurance that they had a new spot waiting for them. In
addition, drivers resisted relocation as it often forced them to accept long commutes from their
homes across the city. For these reasons, many among the affected were committed to stay on
their traditional routes as long as possible. Forcing them out would prove difficult, since the
absence of a centralized fleet control system made MOPTT monitoring difficult, and since on-
board cash collection guaranteed their financial independence. According to a report prepared by
Alsacia's management, "during the first phases of Plan Transantiago, the firm suffered from
diverse illicit activities of traditional operators, such as the cloning and invasion of our
routes."774 This company documented 140 "pirate" vehicles operating on trunk 1 routes without a
permit. Systemwide estimates placed the number of pirate buses at roughly 400.
On the last day of the Lagos Administration, several newspapers published a letter
addressed to Minister Estevez on behalf of Alsacia, Express and Su Bus Chile. The letter, signed
by Edgar Macallister, denounced the minister's latitude dealing with incumbent operators:
"Transantiago faces a profound crisis. The recent financial statements of the three concessionary
773 La Nacion, "Con 302 nuevos buses partio nueva etapa del Transantiago", January 21, 2006.
774(Inversiones Alsacia 2005 p. 12)
301
firms that have invested in the modernization of the public transportation system, demonstrate
that we've had to absorb significant loss, caused principally by the omissions, negligence and
faults of your Ministry."775 Estdvez also faced strong criticism within the Concertaci6n. Many
held him responsible for wasting valuable time allotted in the "transition period." According to
Juan Carlos Mufloz, "he left a ticking time bomb. When he left office, everything was delayed,
and nobody was prepared to manage the "big bang" implied in the full implementation stage." 776
These critiques may be well deserved. However, we must also acknowledge that minister
Estdvez successfully managed to keep conflict associated with the transition at a manageable
level. Incumbent operators no longer threatened to "walk out" of Transantiago, and the
substitution of older buses was gradually taking place.
775 El Mercurio, "Estdvez deja Transantiago en crisis", March 11, 2006.
776 (Muftoz, Juan Carlos. Personal interview 20 July, 2012)
302
Part IV. Transantiago's teething pains
Bachelet hops onto a moving bus
The complexities and tight schedule of Transantiago's implementation plan confronted
President Bachelet immediately after taking office in March, 2006. In theory, the transition
period would end October 22, 2006, giving her administration only a few months before the new,
optimized route grid, the new fare collection mechanism, the centralized information system, the
exit of excess used buses, and the completion of new infrastructure had to be completed. In the
eyes of the public, Lagos had already delivered, with the new buses serving as proof. However,
the financial and regulatory bases that would sustain Transantiago moving forward were far from
complete, and threatened to destroy the new system's credibility and public support. To
guarantee full attention to the task, the president divided the MOPTT once again into two
separate ministries. To head the Ministry of Transport and Telecommunications, she appointed
Sergio Espejo (DC) -a 38 year old lawyer with a public policy degree from Harvard. As new
Under Minister of Transport Bachelet appointed Danilo Nnfhez (PS), who briefly served as
Coordinator of Transantiago, and could guarantee some continuity from the Lagos
administration. The incoming team faced the burden of implementing a plan with wheels already
turning, facing tight deadlines and major hurdles at every stage.
First, the construction of required infrastructure was cancelled or delayed. Part of the
reason was that in the end, the urban highway and subway expansion projects under Lagos had
not been entirely privately financed with the promise of future tolls and fares. Forced to make a
choice, the previous administration had chosen to prioritize publicly funding these projects,
leaving Transantiago shortchanged. Bus infrastructure expectations had certainly tempered since
the original PTUS, but the problem was that models used to estimate Transantiago's bus fleet still
considered that at minimum, a 25 km network of exclusive busways, 70 kilometers of repaved
streets, 35 transfer stations, 2 large multimodal stations and 5,000 bus stops would be ready by
the end of the one year transition period.777 While some of these were already in the process of
being built, officials at the Ministry of Public Works acknowledged that "they could not possibly
be ready by October 22, 2006."1778 Missing these critical elements, average bus speeds in trunk
units could not realistically reach the speeds of 20-22 kms/hr estimated by SECTRA, in turn
777 (MOPTT 2004)
778 El Mercurio, "Operadores piden al Gobierno aplazar pagos, May 5, 2006.
303
making the number of buses agreed in the signed contracts insufficient to achieve the desired
level of service. This was profoundly consequential, as the models estimated that for every 10%
drop in the average speed, the fleet would need to increase by 10% to maintain capacity
constant.779 Who would pay for the additional fleet? If nothing was done, Transantiago would be
ill-positioned to deliver on its many promises. 780
Second, the system's financial administrator (AFT) was also lagging on its commitments.
The contract awarded to the consortium of banks and technology suppliers to run the AFT
required it to purchase the fare collection system used by Metro -the Metrovia,- and to adapt it to
serve all of Transantiago. According to the agreed schedule, the AFT should be ready to begin
the installation of fare validation equipment on every bus by June, 2006.781 However, not only
was the system not ready, but the AFT and the bus operators had not formally agreed on the
terms that would govern their relationship, such as the lease price for fare validation equipment
and related maintenance obligations.78 2 An external audit on the AFT, presented to Espejo in
April, suggested that it was unrealistic to expect full implementation of the new fare collection
system before June 2007, one year late.783
Third, the transportation ministry was yet to find a suitable contractor to install and
operate Transantiago's information system (SIAUT). As previously mentioned, the tendering
process to award this contract had been declared deserted under Minister Estevez. In theory, the
SIAUT would be in charge of Transantiago's fleet management system, supplying regulators
with critical information to ensure quality service. Organizing a new tender, awarding the
contract, and ensuring timely implementation of this information system seemed quite a
challenge considering only few months remained before the end of the transition period.
These challenges framed the conflict posed by new and old bus operators, who continued
battling for passengers in the streets of Santiago. Alsacia, Express and Su Bus Chile greeted the
new minister demanding firmness clearing out old buses from their areas. At the same time, trade
779 I thank Juan Carlos Munioz for raising this point.
780 The decision to postpone construction of critical bus infrastructure was later severely critiqued. Years later, the Minister
of Finance under Lagos was asked about the justification of this decision in an interview. His response was "rampant
ignorance."
781 The sources of income of the AFT were a commission (1.95%) for managing and distributing revenues, and the leasing
of validation equipment on board buses.
782 (Camara de Diputados 2007 p. 547)
783 La Tercera, "El Informe de Fundaci6n Chile que oblig6 a postergar el Plan Transantiago," May 15, 2006
304
Santiago, Part IV
associations continued to lobby authorities and congressmen, asking for postponements and
financial compensation to mitigate their loss. On March 30, weeks after taking office, the policy
of the new government became clear. Minister Espejo issued a statement, confirming the
Administration's commitment to the previously agreed bus retirement schedule. While initially
refusing to detail the number of buses required to leave the streets in order to make way for the
new suppliers, Espejo stressed that "whatever needs to happen at this stage of the plan, including
the retirement of buses, will happen." Similarly, he clarified that "we are not contemplating any
type of subsidies for anyone at this point."784
After intense negotiations with the trade association leaders, the MTT narrowed a list of
the 817 used buses required to exit on April 14. This action kept with the schedule of the
implementation plan, marking the beginning of stage IC (see previous table). But because many
of the individually affected bus owners were only then notified that their vehicles were included
in this list, authorities met significant resistance. To monitor and enforce compliance, the
Transport Ministry deployed 150 inspectors throughout the city,7 85 and warned operators that
surveillance of the streets would be "firm and permanent." In a way, the leaders of the transport
trade associations -now fully in their roles as empresarios rather than gremialistas- relied on the
state to boot their former peers out. The reaction of several affected bus owners was predictable.
As one of them declared in an interview, "we were told only two days in advance that my route
was out. I was not allowed time to see if I could insert my bus in a different route, or to find
work for my drivers. I have no idea what comes next, and I still need to pay for my bus."
Another one declared, "we feel deceived. We were told that since we owned newer models, we
would be relocated and incorporated to Transantiago, and now we don't know what to do. The
worst part is that we have new vehicles and they are useless." 786 The owners and drivers of the
220 newest buses declared redundant organized a protest on April 18, later dispersed by the
police. 787 "The selection of buses to be retired was conducted at random," cried one of the protest
organizers, "they took out 2004 models to make room for 1994 models." 788 However, there was
784 El Mercurio, "Transportes admite que deber6n retirarse micros amarillas," March 30, 2006.
785 La Nacion, "Fuerte fiscalizacion por retiro de micros," April 15, 2006.
786 La Nacion, "Choferes piden reinserci6n en nuevos recorridos en vez de finiquitos," April 18, 2006.
787 La Segunda, "Due'os y choferes de micros amarillas protestan en la Alameda contra el Transnatiago," April 19, 2006.
788 La Tercera, "Nueva Etapa del Transantiago debuta con protestas y atrasos para usuarios," April 18, 2006
305
no randomness involved. Trade association leaders were choosing who to keep and who to evict
from their new firms. Notably, however, the protest was directed at MTT officials, perceived as
making the final decision.
Figure 3.13 Owners and drivers of "yellow buses" protest against Transantiago
Source: La Segunda, April 19, 2006
Amidst the protests and confusion, quality of service suffered. Despite the fact that on
April 15th Alsacia, Express and Su Bus Chile added a final group of 250 new buses to their
fleets, the retirement of older buses caused service shortages in several areas of the city. Public
support for Transantiago began to slip, as the majority of santiaguinos ignored that critical pieces
of the plan -the fare collection system, the new route network and most infrastructure- were still
pending. Opposition parties represented in Congress raised the tone of their critique, with the
UDI and RN heading the charge calling Transantiago, "a mackerel sold as salmon" 789, and "one
of the most inexplicable whims of the Lagos Administration, sadly inherited and continued by
the current one. 79" Members of Espejo's team began to worry, as the implementation plan still
considered the exit of 2,503 additional used buses to achieve the desired, optimized fleet size of
4,494 buses. In addition to significant delay and increasing questions surrounding other elements
of the plan, officials felt they were walking a very thin line enforcing this schedule. On the one
hand, protests from displaced operators and affected users had grown at each of the previous bus
retirement stages. They could easily get out of hand if handled without care. On the other, getting
789 Ultimas Noticias, "Transantiago: Plan estrella de Lagos catalogado de jurel tipo salmon," May 4, 2006.
790 La Tercera, "Denuncian que Plan Transantiago no cumple con lo prometido" April 26, 2006
306
Santiago, Part IV
these buses out of the streets could prove to be a mistake. The resulting optimized fleet might be
insufficient to effectively serve the city.
All of these problems were significant on their own, but combined represented a
dangerous ticking bomb for the Concertaci6n. Knowledgeable individuals, such as German
Correa, began to voice concerns publicly. In an editorial, Mr. Correa called authorities to
"establish realistic timetables, preventing further disillusion among the public and increased
social and economic costs to those affected."791 For a moment, it seemed that the fate of
Transantiago under Bachelet might be no different than under Lagos. Just as the problems of
reforming the buses seemed to be at their worst, the subway company finished the construction
of line 4-A, a 7.7 kilometer extension to the system running on a route that the PTUS had
previously considered for a segregated busway. Amidst growing doubts about the MTT's
capacity to solve the many details plaguing Transantiago's transition period, President Bachelet
decided to postpone the launch by four months. Instead of launching a fully implemented
Transantiago on October 22, a new date was set for February 10, 2007.792
From finger-pointing in public to privately acknowledging blame
Minister Espejo announced President Bachelet's extend the transition period during a
meeting with members of the Transportation Commission of the Chilean House of
Representatives. At this meeting, held May 2, 2006, Espejo explained the postponement was
based on three principal reasons: First, that that his Ministry found that "significant obligations
of private operators of the system would not be ready, such as implementing the fare payment
mechanism, the fleet management system, establishing terminals, and training and hiring an
important number of drivers." Second, that "the public has not received sufficient information to
participate in a reform of this magnitude." And finally, that "Transantiago had to offer an answer
for workers in risk of losing their jobs as a consequence of this reform."793 In a later radio
address, an increasingly frustrated Espejo minced no words blaming private operators for the
791 La Tercera, "Desafios del Transantiago", April 23, 2006.
792 Scheduling the launch in February made a lot of sense, since it coincides with the chilean school vacation. As such, it is
the month of lowest passenger demand in the year. This would give authorities a full three weeks to address any unforeseen
problems before commuting patterns returned to normalcy in March.
793 La Nacion, "Postergan fase final del Transantiago," May 3, 2006.
307
delay, "it is them who should be offering explanations to the authorities for not keeping their
commitments." 794
All private operators involved in the emerging system reacted vigorously. The manager of
the AFT, Andres Navarro, declared publicly that his firm would be ready to operate the new
system on October 22, as previously agreed.795 Similarly, Alsacia, Express and Su Bus Chile
circulated statements claiming that their fleets were complete, that their terminals were fully
operational, that they had trained the required drivers, and that any delay unilaterally decreed by
the authorities placed them at risk of defaulting on their loans.796 Even trade association leaders
like Manuel Navarrete questioned the decision, despite his companies (Buses Metropolitana and
Buses Gran Santiago) still relied on drivers formally employed by individual bus owners,
operated terminals failing specifications, and resisted signing their contracts with the AFT.797 As
he stated, "the tendering bases establish October 21 as the start date, and this ought to be
respected. If this won't happen, a negotiation with the government is appropriate to determine
how they will compensate us for the delay".798
Private operators certainly deserved part of the blame. 799 However, beyond the rhetorical
facade shown to the public, new authorities acknowledged that the government shared much
responsibility. Administrative failure certainly diminishes state capacity. Not only was the
promised infrastructure far from ready, but there was a growing consensus that the Lagos
Administration had grossly underestimated the number of buses required to serve the city, for
both political and financial reasons. Blame admission was so evident, that the amended contracts
formalizing the postponement -signed July 2006- included terms highly favorable to operators.
Instead of punishing private operators with fines, the MTT financially compensated them for the
postponement and accepted delayed payment of contributions owed to the system's technical
794 Ultimas Noticias, "Ministro: Operadores deberan dar explicaciones por retraso de Transantiago," May 3, 2006,
795 El Mercurio, "Principal acusado replica que cumplira a tiempo," May 4, 2006
796 La Segunda, "Qui6n debe pagar el atraso del Transantiago?," May 3, 2006.
797 For example the firm created by the AGMPT to run trunk 5, Buses Metropolitana, did not sign its contract with the AFT
until June 26, 2006. This delay was partly caused by Navarrete refusing to accept liability over fare validators installed
before the end of the transition period, a powerful indication that the managers of this company felt they could not control
drivers, who were still employed by individual bus owners.
798 El Mercurio, "Transantiago aplazado por incumplimientos", May 3, 2006.
799 In fact, months later and after intense media scrutiny, Andres Navarro publiclt acknowledged that Minister Espejo had
been right all along, and that the AFT was not ready to start operations in October.
308
Santiago, Part IV
reserve fund, which we must recall, had been the critical variable to select winning bids. In the
case of Alsacia, for example, compensation for the postponement was set a 221,208 UF,
equivalent to 36% of its committed contribution to the reserve fund. Buses Metropolitana, one
of the firms controlled by the AGMTP, was compensated with 36,166 UF, equivalent to 50% of
its committed contribution. 00 Every bus operator was awarded compensation. Citing German
Correa as source, Briones suggests that the total amount awarded to operators as compensation
for the delayed launch was equivalent to US $30 million dollars. 801
The four-month delay certainly gave the government some leeway to address both
technical shortcomings and rising opposition to the project. For example, Minister Espejo
announced the creation of a "Unit of Labor Reinsertion" within his Ministry to help displaced
workers navigate the transition. Instead of heeding to the request from bus owners for subsidies
to pay drivers' severance packages and pending social security contributions, Espejo offered to
train and represent redundant drivers. Espejo explained publicly, "we are looking for support
mechanisms to reinsert this people to the labor market. We will be very strict with their former
employers to ensure that their severance packages are fully paid. If one of them does not deliver,
we will take the case to court." While not necessarily successful, the announcement had the
clear intention of signaling to Chilean workers that the government was on their side.
As part of the re-negotiation associated with the postponement, operators with roots in
the trade associations committed contractually to providing the MTT with "the list of vehicles
that will be included as part of their fleets in the full implementation stage, detailing them
individually and including their respective license plates."8 0 2 The fact that Minister Espejo lacked
this information -months after fonner Under Minister Diaz had first required it- suggests that the
leaders of trade associations continued to negotiate with individual members about whose buses
would finally be included. And perhaps more revealing of the internal tension that persisted
within the trade associations, trade association leaders conditioned this clause to postponing the
800 These figures were reported by these firms in official reports submitted to the Superintendencia de Valores y Seguros de
Chile.
801 (Briones 2009 p. 77)
802 (MTT 2006 p. 7)
309
pending exit of buses model 1994 until December 31, 2006, giving the potentially affected bus
owners more time to adjust to not being included. 3
Such last minute softening caused uneasiness among those in the political right that had
seen Transantiago with sympathy. We should recall that the project was not framed publicly as
mechanism for the state to enhance its capacity to govern the system, but rather to attract private
investment in a way similar to the highway concessions. The delays and frequent contract
revisions, as well as the considerations given to former trade associations, pointed to a project
poorly planned and executed, and to a government unable or unwilling to enforce contractual
terms. These critiques and hesitations partially explain why, in September 2006, the only new
entrant that had won a feeder unit of Transantiago decided to walk away from the system, even
before the transition period ended. Jose Yuraszeck and his partners decided to sell Red Bus to the
french company Veolia, which after losing its bid for a trunk unit finally gained entry to
Santiago's bus market. While Minister Espejo claimed that the sale of Red Bus to a well known
french company was testament of Transantiago's proven market viability, the low price agreed
indicates a different story.8 04 In a later interview, Yuraszeck disclosed some of the reasons
leading to his unexpected exit only months before Transantiago reached full implementation.
"We lost most of our investment... We had thought that we were entering a serious project, and
realized we were not... Contracts were not respected, yellow buses imposed their terms on the
government, and twisted the original spirit of the refonn." 805
Questions remained, however, about what to do with "excess" buses after the launch date.
The implementation plan established that approximately 2,500 used buses still needed to be
decommissioned to reach the desired fleet size. 1,400 of these buses would leave by the end of
the year, since they were model 1994. However, a surplus of 1,100 buses would still remain.
Should these buses be forced out by the end of the transition period, as previously agreed?
Navarrete and Pinto certainly lobbied authorities to cancel any further decommission of used
buses, arguing that it was increasingly clear that they would be needed to efficiently serve the
803 (Buses Metropolitana 2007 p. 92)
804 Sources privy to the deal told the author that Yurazceck sold his company for approximately US $1 million, after paying
US $9 million to acquire it from Jaime Sanchez. This is, of course, unconfirmed.
805 La Tercera, "Yuraszeck acusa que el Transantiago estA desfinanciado con la tarifa actual," March 3, 2007.
310
Santiago, Part IV
public.806 According to Juan Pinto, "we told authorities, in every language possible, that they had
underestimated the required fleet. Our analyses showed that we could serve our routes with the
allotted buses, but only by making 100 passengers ride on the roofs! I showed our data to the
minister, but he would not believe us!"807 Perhaps to settle this question, Minister Espejo ordered
a belated round of new studies. The tendering bases had been originally based on a model
developed in 2003 by Fernandez y de Cea, a prestigious consultancy hired by SECTRA.808 In
later testimony to Congress, Joaquin de Cea explained that the estimates produced by his firm in
2003 yielded a required fleet of 5,160 buses, which increased to 5,600 after considering a reserve
fleet. However, this number was adjusted later by officials designing the bases, as part of a
deliberate effort to produce more attractive conditions for bidders, and thus to minimize impact
on the resulting fares. 809 This time around, the consultants were invited back to assess what
would happen if the fully implemented system was launched with the 4,494 buses that resulted
from the tender.
There was certainly new information available to update the models: Authorities now
knew the number and type of new buses effectively offered by new entrants, had a more realistic
assessment of the infrastructure that would be available by the time of the launch and were more
inclined to accept more conservative assumptions about likely travel speeds. Since the original
studies were conducted, authorities had adjusted the desired route network, adding roughly 200
changes in response to suggestions submitted by local authorities and operators. Furthermore, the
city had grown and changed, and consultants now had access to more recent travel demand
estimates. The preliminary results of this study, shared with the minister in the month of August,
were sobering. Average wait times, originally estimated at 4-5 minutes, would actually be 10-12
minutes. Average capacity utilization would be over 90% throughout the bus network. The
806 To be sure, these leaders were fighting over bus slots, not over the long term permanence of the members of their
organizations. Leaders knew that any used bus allowed in their fleets would eventually be replaced by a new bus owned
directly by their firms. In fact, Buses Metropolitana (trunk 5) signed a contract with Volvo on August 8, 2006, to purchase
500 new buses. These buses -scheduled to be delivered throughout late 2007 and 2008- would gradually replace used buses
owned by individual members of the AGMTP.
807 (Pinto, Juan. Personal interview. 27 July, 2012)
808 (Camara de Diputados 2007)
809 A source working at the MOPTT under Etcheberry confirmed that this was, in fact, deliberate. Part of the rationale was
that the fleet size could always be increased if insufficient. In contrast, asking private operators to shrink contractually-
agreed fleets would be more difficult. This point is also made in (Mufioz and de Grange 2010).
311
consultants concluded that attempting to operate Transantiago with only 4,494 buses would
"produce an unacceptable flow solution, which we will call non feasible or operationally
unviable, given the very high wait times that result from an insufficient fleet... the social cost
associated with this scenario is unacceptable, undoubtedly leaving users significantly worse off
compared to the current situation."810
Espejo presented this study to President Bachelet and shared it with several ministers, and
the administration scrambled to decide what to do. Upon reviewing potential impact, the
president of the subway company sent a letter (dated November 29th) to the inter-ministerial
commission overseeing Transantiago, warning that optimizing the bus fleet to the point
established in the contracts would "collapse the metro."811 A group of distinguished academics
also met with Espejo in December to warn him about the impending disaster, and to suggest
alternatives. Participants in this meeting recall much concern in the minister's close circle of
advisors about the readiness of both the AFT and the bus operators to move forward with the
launch. Nonetheless, Espejo resisted another postponement, partly because it put the government
at risk of protracted and expensive legal battles with bus operators seeking damages. Primed by
metro authorities, Ferndndez y de Cea evaluated mitigation alternatives to keep the launch date.
They made several suggestions, including the addition of "clone routes" -bus routes duplicating
existing metro lines-, and "express" routes -running limited-stop buses. Some of these measures
could certainly help, but the underlying conclusion was unavoidable: It was necessary to increase
the number of buses authorized to operate Transantiago.
Ready, set, contract renegotiation, go!
On January 3 rd, 2007, transportation authorities announced that 1,400 buses model 1994
had "started to exit the system." 812 On this occasion, however, there was a conspicuous absence
of protests. Later that month, Fernandez y de Cea presented their final report to Minister Espejo.
It estimated that Transantiago required a total of 5,900 buses: 5,600 operating in the streets, and
300 more available as reserve.813 With only weeks before the February 10th deadline, authorities
810 Fernandez y de Cea, "An6lisis de Escenarios de Disefio para Transantiago. Orden de trabajo 1, informe 2", cited in
Briones (2009 p. 77), and discussed in Quijada et al (2007).
811 Letter also cited in (Briones 2009 p. 77)
812 El Mercurio, "Transantiago retira 1,400 buses antiguos", January 3, 2007.
813 This number was offered by Mr. Enrique FernAndez (from Fernndez y de Cea) during a later testimony to Congress
(Camara de Diputados 2007 p. 90)
312
Santiago, Part IV
acknowledged they needed 1,405 buses in addition to the 4,494 required in the current contracts.
The problem was not only logistical, but also legal and financial. Who would supply and operate
the new buses? How would the system pay for them? Who would equip these buses with the
required fare validating devices? And, what did the adjustment mean given existing contracts?
The minister reached out to bus operators, informing they urgently needed to increase the
size of their bus fleets. As expected, Alsacia, Express and Subus Chile resisted the change, as any
additional investment significantly altered their cost calculations. With their contracts on hand,
these operators seemed to have all the leverage they needed. Some of them pointed out that the
additional buses were only required because authorities had not kept their end of the bargain. "A
lot of things had been promised that were not ready," recalls Edgar Macallister, "they needed the
extra buses to correct the lack of infrastructure." 814 In response, the transportation minister
insisted that the missing network of exclusive corridors and transfer stations would be in place
by mid 2007, and that the need for additional buses was simply a temporary contingency.
Negotiations about the "extra" buses continued until the last possible minute. In fact, revised
contracts -"designed with the central objective of increasing the number of buses that would
deliver service"815- were signed on February 9 th, 2007, only one day before the formal launch.
The agreed amendments included a formula to estimate the additional number of buses required
from each operator. This formula increased the total number of buses required in the system from
4,494 to 5,622. Resistance was such, that not only did the new figure fail to include the 300
"reserve" buses recommended by Fernindez y de Cea, but the contracts carefully noted that extra
buses "would be incorporated in a transitory manner." In fact, the language used in the contract
clauses suggests that any bus could complement existing fleets: "Requisites about bus
ownership, terminals, average vehicle age and emissions, will only be verified and enforced
when and if the Ministry establishes their permanent incorporation to the fleet."816
In other words, the state backtracked on its regulatory posturing and faced reality: The
extra buses would need to come from the fleets of trade associations, supposedly in the course of
being optimized. New entrants were given no incentive to purchase new vehicles to comply with
814 (Macallister, Edgar. Personal interview. 23 July, 2012)
815 Minister Espejo, in his later testimony to Congress (Camara de Diputados 2007 p. 552)
816 (MTT 2007 p. 4-5)
313
the new requirement. According to Minister Espejo, "given the characteristics of the market,
(operators) could not have have new buses by February l0th. Asking them to produce them
would have been impossible, reckless, and was not what we needed to do."817 Once again, a
strategy to contain financial costs, facilitate implementability and mitigate displacement led to
rules that nudged new entrants into leasing used buses from the local market. Nobody seemed to
remember the fact that enlisting used buses to the fleets of operators serving trunks 2 and 4 had
been expressly forbidden in the tendering bases. Hector Moya describes the scenario faced by Su
Bus Chile in trunk 2: "The government called me sometime in november-december 2006 to tell
me they needed more buses. They created a very complex situation because we had our trained
drivers and new buses ready to go, with high quality terminals. How was I supposed to cram in
three hundred additional used buses, with drivers I had never met before? It was a tragedy. I
could control my buses, but the additional ones were incontrollable." 818 To be sure, the best
vehicles were no longer available. The micrero organizations had long cherry picked the best
buses for their own fleets, leaving behind units highly prone to mechanical failure, or owned by
problematic operators. Furthermore, finding and enlisting the required buses would prove to be a
complex, time consuming, endeavor. For this reason, authorities informally authorized operators
incorporate the "extra" buses gradually. Relying on a longstanding regulation that allowed bus
operators to run smaller fleets during holiday periods, the MTT allowed operators to begin
operations in February with only 70% of their supposedly available bus fleet, with the rest not
required until March.819 Authorities expected that the lagged entry of the extra buses would
produce no problems, as indeed the launch was scheduled to take place amidst a Chilean holiday
period, when passenger demand is at its lowest.
Alsacia and Express eventually closed their bus deficit, mostly by renewing and
extending lease contracts previously signed with members of Orlando Panza's organization. "We
filled those slots with the people that had accompanied us from the beginning," recalls
Macallister.820 Su Bus Chile used an intermediary to surreptitiously negotiate vehicle leases with
817 (Camara de Diputados 2007 p. 557)
818 (Moya, Hector. Personal interview. 21 June, 2012)
819 This agreement is not contained in the contracts. However, it was mentioned during Minister Espejo's testimony in
Congress (Camara de Diputados 2007).
820 (Macallister, Edgar. Personal interview. 23 July, 2012)
314
Santiago, Part IV
disaffected members of the AGMPT.82 1 Neither of these companies attempted to directly operate
the used vehicles. Instead, they simply agreed to pay bus owners a fixed monthly sum to run
vehicles on their behalf. While new entrants struggled, representatives of firms with roots in the
trade associations celebrated. The expansion of the authorized fleet significantly defused internal
pressure threatening their leaders. The previous months had been brutal for individual bus
owners, with significant in-fighting taking place to determine whose buses would be forced out
at each stage, and whose buses would work for the full term of the concession contracts.
"Members were ready to put their buses away. It was easy to call them back, inviting them to
join our fleets. In fact, almost all of the buses originally affiliated with my organization found
accommodation in Transantiago," recalls Juan Pinto.822
However, enlisting the vehicles was only part of the problem. The AFT had not
considered the additional validators now required, nor the time it would take to install them.
And, in addition to the missing validation equipment, MTT planners now estimated that the
implementation of the GPS system in all buses would not be complete until August 2007. Faced
with this problem, authorities inserted language to the revised contracts authorizing operators to
run "buses not totally equipped"8 23 for the first three months after the launch. Once again, the
government was forced to soften regulations to facilitate implementation. Even so, this was
easier said than done because not knowing how many passengers used the unequipped buses, nor
how many buses were on the streets and how many kilometers they served, authorities had no
capacity to know how much to pay operators. To address this complication -and probably to
sway operators into accepting the last minute contractual amendments- Minister Espejo agreed to
modify the compensation scheme for operators. Readers may recall that the tendering bases
established that compensation to operators would be calculated by multiplying a previously
agreed price per passenger (PPT) by the proportion of a referential demand actually observed.
The revised contracts now established that (1) the PPT would be increased to account for the
extra buses, and (2) that for the period spanning February 10 to May 5, the compensation
formula would consider 100% of the referential demand.
821 Curiously, a firm called Transpalito owned by former under minister Guillermo Diaz served as this intermediary. While
there was nothing illegal in his participation, his involvement would later trigger a media scandal.
822 (Pinto, Juan. Personal interview. 27 July, 2012)
823 (MTT 2007 p. 6)
315
In essence this implied that operators took on no additional financial risk for covering the
recently found bus deficit.824 In fact, for the first months following the much heralded launch, all
bus operators in Santiago would be paid whether or not they put out their buses, and regardless
of their service performance. Some operators took this as a valuable gesture from authorities,
aimed at building a trusting partnership that should be reciprocated. Many others, however,
simply identified an enormous opportunity to milk the nascent system. 825
10-F
"But when the new system came into force on February 10th, the result was chaos."
The Economist, February 15, 2007.
In the weeks prior to the February 10 th launch date, santiaguinos were bombarded with
television ads featuring national soccer superstar Ivan "Bam-Bam" Zambrano. In these ads,
Zamorano boarded Transantiago buses and walked through stations while saying, "we will be
there for you, you won't be alone. We will work as a team to introduce you to Transantiago: The
new routes, their new chromatics, the new payment system, and many other changes that
together will improve our trips." In one of the ads Zamorano explained that feeder bus units
would only run within a specific geographical area of the city, identifiable by color. He calmly
explained that to travel across different areas, users would need to transfer to a trunk route, with
buses painted green and white. In another ad, he showed the public how to read the color-coded
system maps and how to use "Bip", the new fare card supplied by the AFT.826 The MTT
distributed millions of flyers detailing this information in the streets. It printed two million maps,
and mailed a "Transantiago Informative Guide" to thousands of homes. A toll free number and
an informational website were established to manage questions. Fare cards were available at
subway stations since January, and approximately 800 buses had begun piloting them.827 MTT
also recruited and trained a team of 700 "monitors" and 400 public officials to give information
824 In fact, a report submitted by Alsacia to its stockholders described that the amendments to the contract signed Feburary
9th "established a mechanism to regulate the increase of the fleet during the beginning of the regime stage, including its
associated payment" (Inversiones Alsacia 2008, emphasis added).
825 One of the interviewed bus operators described a meeting in which several leaders of firms holding a Transantiago
contract discussed the impact of the changes to the compensation scheme. Both of these points of view were represented,
with one participant saying "good. At last we are going to win."
826 Several of Zamorano's ads are still online. Interested readers could try the following links: http://wwwyoutube.com/
watch?v=U9Msxt6rpuo and http://www.youtube.com/watch?v=XCuMZKFyONI
827 El Mercurio, "800 buses aceptaran desde el 1 de enero tarjetas Bip y Multivia," December 26, 2006.
316
Santiago, Part IV
to the public and to report contingencies after the launch, conducting two drills to identify
potential problems. 828 Indeed, the Chilean government spent significant resources to improve the
public's experience during "10-F," the code name given to Transantiago's launch date. 82 9
Minister Espejo even seemed convinced that the glaring execution problems he had
encountered upon taking office had finally been bridged, and that the last minute conditions
negotiated with bus operators, "were adequate to minimize the impact on the public of the
transition from one system to another." In his own testimony to Congress, Espejo declared he
828 In later testimony to Congress, Danilo Nninfez explained that an inter-ministerial commission worked around the clock
for several weeks prior to the launch. The team included local authorities, police, metro and personnel from several national
ministries. In addition to coordinating the communication campaign, this group conducted a thorough review of "problem
spots", and generated a detailed action plan to mitigate potential traffic and safety risks (Camara de Diputados 2007).
829 To be sure, all of this effort was very top-down. Few resources were spent actually contacting users to understand their
concerns and answer their questions.
317
was convinced that "authorities could speedily solve any difficulties encountered."8 30 Reality
would prove him wrong.
On the morning of 10-F, millions of
Santiaguinos woke up to find a completely new
route network and a new fare payment system.
Accustomed to hailing their old bus in the
corner of their houses, they discovered that
now they needed to walk several blocks to find
a suitable stop. The route map was complex,
despite is intuitive color scheme, and it took
some time for people to figure it out. After
years of only exceptionally taking more than
one bus to reach their final destinations, they
found that with Transantiago most trips
required one or two transfers. 1 They no longer
had to pay an additional fare for taking a
second bus, but the transfer experience was a
nightmare. The infrequent buses and the long
Figure 3.15 New route map, with the warning: "Planqueues greeting passengers at the transfer pOints your trip"
negated any gains in travel time promised by the
new trunk routes.832
830 (Camara de Diputados 2007 p. 556)
831 Prior to Transantiago only 7% of public transit trips in Santiago required a transfer (bus-bus or bus-metro) (Gomez Lobo
2012). After implementation of the new system, half of the trips required one transfer, and 7% of the trips required two
transfers (Muftoz and de Grange 2010 p. 389).
832 Stated in technical terms: "The need to transfer aggravates the variance or volatility of the total travel time, defined as
the sum of the separate in-vehicle and at-stop times for each stage of a trip since the passenger must wait more than once.
These waiting times have been very volatile due to the lack of a headway control system." (Muhoz and de Grange 2010 p.
380)
318
Santiago, Part IV
Figure 3.16 Iv~n Zamorano promoting the
new payment system
"In every bus and Metro of Transantiago you'll be
able to use your bip! card. You top it off with money
and
travel with it in all of Transantiago
Use it, it is easier, safer and convenient"
The fare card was also a big source of problems and confusion. Despite claims that the
AFT had successfully activated 5 million bip! cards, 833 many passengers showed up without one,
and initially could not board. Secondly, there were many buses in which the validators did not
work properly -it was estimated that 55% of them charged the wrong fare83 4- or even lacked
validator all together. And finally, there were few places available to charge the card. The AFT
had done a miserable job installing the charging network. As the phone banks became clogged
with complaints, authorities decided to stop charging fares to users and ordered operators to offer
free service until February 15 *835
Many of these problems were initially attributed to "teething pains." In fact, the tone in
the media remained initially positive, as suggested by the frame selected by the editors of El
Mercurio to illustrate their front page on the day following the launch, shown in figure 3.17.
However, the situation only worsened. One of the bus operator companies reported months later
to its shareholders: "The first weeks were chaotic. The public, disconcerted, strongly rejected the
833 Minister Espejo made this point in later testimony to Congress (Camara de Diputados 2007 p. 555).
834 (Mufioz and de Grange 2010 p. 380)
835 According to Gomez Lobo (2007 p. 9), the cost of this decision was offset by fines imposed on the AFT. However, it
also contributed to a culture of fare evasion, as passengers felt entitled to withhold payment until the serviec improved to the
level promised.
319
Figure 3.17 Santiago, on the Sunday after the launch of the new system
mobs at bus stops
and at the metro,
insufficient routes,
areas without bus
coverage, lack of
buses, absence of
control. Problems
multiplied."8 3 6 On
Monday, February
12, thousands of
workers waiting for
a bus to get to work
accumulated at
stops. Unable to
reach their LAAAMDE0RJ t AP#0NT WANWYOSPUtS DETRmANnlACA.- f
destinations, Caption: "La Alameda, east to west, before and after Transantiago - The new transport plan
increasing numbers begins to show its positive side, with clearer and less noisy avenues and streets. You can see
this in these two photographs. The picture on the left was taken some time ago, and the one on
of passengers the right was taken yesterday from the same spot in La Alameda. The difference is notorious".
flocked to the Source: El Mercurio, February 11, 2007
subway. On
February 2 0th, still
during the holiday period, the subway registered the highest ridership in its history.837 As more
and more santiaguinos returned to their normal routine, the system all but collapsed. Buses did
not meet the offered frequencies, people agglomerated at stops, travel times went through the
roof, taxi fares increased and even more people resorted to the Metro. Authorities were forced to
open the Metro one hour earlier, and to implement crowd control measures at stations. At its
worst point, 31 stations had to be closed down for several minutes during the daily peak hour
836 (Su Bus Chile 2007)
837 La Tercera, "Metro rompe record historico de passageros", February 21, 2007. We must note however, that this outcome
was somewhat expected. People tend to take the fastest route to their destination, and after the integration of buses and metro
in Santiago the fastest route to most destinations included at least one trip-leg by metro. However, the confusion surrounding
the launch certainly concentrated more people in the stations than anticipated by Metro authorities.
320
system. There were
Santiago, Part IV
rush. 38 Protests against the new system emerged across several neighborhoods, some of them
featuring the blockade of major streets. 39 An account that made its way to the pages of The
Economist clearly conveys the feeling of despair overwhelming many commuters: "On one
evening, stranded passengers commandeered two buses going in a different direction to take
them home."84
Adding to the disillusion, many of the buses running on the streets were none other than
the old "micros amarillas" newly painted. Of course, none of these old buses had been shown in
Zamorano's ads, and thus dismissed as a fraud by the public. One newspaper dubbed these
vehicles "enchulados" ("pimped up") -taking a cue from an american television show called
"pimp my ride". The name stuck and its use in a derogatory sense became widespread.
Even the cherished "Bam Barn" Zamorano became target of the public's wrath. Frustrated
by being harassed in the street by disgruntled Transantiago users, he offered a press conference
to clarify that he was not the Minister of Transportation. 84 1 All of this may appear as a rather
typical story of a predictably tough transition to a new transportation system, but the capacity of
the state to implement its policies was also at play. After several years negotiating this transition,
the government presumably had more professional counterparts, more enforceable regulations,
and more institutional capacity to deliver on its promise of better service. The time to use those
instruments had arrived. But before we discuss how the Bachelet administration leveraged this
capacity, we must first take a step back, and analyze what happened during that launch date, not
from the perspective of the rightfully disgruntled users, but from the point of view of regulators,
and bus operators.
838 This point was raised by Minister Cort zar during his testimony to Congress (Camara de Diputados 2007 p. 578).
839 El Mercurio, "Transantiago debe estar afinado en Marzo", February 21, 2007.
840 (Transport heaven and hell: First commandeer your bus 2007)
841 "I am not the Minister of Transportation. I would love to take on the task, to solve the many things that need solving." El
Mercurio, "Zamorano: Hay personas que tienen una responsabilidad mayor, yo no soy el ministro", February 16, 2007.
321
Figure 3.18 Transantiago, on the Monday after launch
r
In the caption: "During yesterday morning, a mob waiting for buses that would take them to
work, overflowed beyond the sidewalks and was forced to agglomerate in the street, forcing
police to -with difficulty- reestablish order"
Source: El Mercurio, February 12, 2007
Boycott or incompetence?
Exact data was unavailable given the failure of the AFT to install GPS systems on all
buses, but authorities knew that there was an insufficient number of buses in the streets. "One
thing was certain: supply was insufficient to cover demand. Bus stops were overcrowded,
passengers fought their way into available buses, waiting and travel times increased and there
was a large degree of dissatisfaction with the new system." 842 Had SECTRA's models been
wrong, or were operators withholding available buses? Perhaps both? Part of the initial deficit is
explained by the rule that allowed operators to utilize a reduced number of vehicles during the
holiday period. This rule, established since the 1998 contracts, allowed operators to lower the
frequency of their buses to 40% of the maximum frequencies established in the contracts. This
helped contain costs, and balance the supply of buses with the lower passenger demand during
summers.8 43 However, a reduced fleet had already been considered in the operational plans
submitted to the MTT, and the lack of service observed in the streets was much worse than
842 (Gomez Lobo and Briones 2013 p. 21)
843 (Paredes, Sanchez, and Sanhueza 2001)
322
Santiago, Part IV
anticipated. Furthermore, the holiday ended, and the number of buses did not increase
significantly as a result. What was happening?
The lack of buses during the months immediately following the February launch is likely
explained by the difficulty faced by bus operators negotiating leases with potentially displaced
vehicle-owners. Paradoxically, a reform that had been partly based on the premise of eliminating
excess supply of buses to improve service, had come full circle to needing to reinsert those buses
into the system to deliver on its promise. The explanation for this is available as a footnote,8 4 4
but suffice to say here that these buses had become a highly valued commodity in this market.
Given the mandated last minute increase to the required size of bus fleets, roughly every bus
from the previous system with a vehicle age of 12 years or less could find accommodation in the
new system. So, rather than protesting their eviction, their owners were taking their time
choosing whose fleet to join. According to Carlos Roman (both a member of the AGMTP and an
administrator in Buses Metropolitana), "the buses that seemed destined to exit the system -those
whose owners hadn't been able to add to an operator's fleet- began to reappear. The operators
began to approach them, trying even to buy their old vehicles, but even those were scarce."845
Surely these owners were trying to get the best deal possible.
However, registering a vehicle is not the same to putting it in operation. While the above
may explain the delay registering buses, there seemed to be something else in play. In fact, data
from the buses that did have GPS installed -tracked since March- reveal an interesting pattern.
The number of buses actually operating remained practically static at 4,600 vehicles between
844 According to the MTT, on February IOth, 2007, operators had only registered 4,849 buses into their fleets. This number
increased slowly in the coming months: 5,049 in March; 5,303 in April. In fact, a fleet larger than contractually required (of
5,622 buses) would not be registered at the MTT until May. New entrants had incorporated a total of 1,733 new buses to
their fleets during the transition period. Since no new buses were added to the fleet in the months following Transantiago's
launch, we can assume that out of the 4,489 buses registered by the February launch, 2,756 (6 1%) were used buses from the
old system ("enchulados"). We know the transition began in 2006 with 6,659 used buses from the "old system" (Comite de
Ministros para el Transporte Urbano de Santiago 2005). Furthermore, after accounting for the 2,756 used buses registered on
the day of the launch and for the approximate number of buses retired due to obsoleteness in the various stages of the
transition period (551 in March 2006, 817 in April/06 and 1400 in January/07), we can estimate that on February 2007 only
1,135 eligible used buses were still available in the market. In other words, used buses became a sought after commodity in a
market of operators desperately needing to fill up 1,133 used bus slots to deliver the 5,622 buses required by the Ministry.
845 (Romdn, Carlos. Personal interview. 6 July, 2012)
323
Table 3.2 New and used buses in Transantiago's registered fleets (Oct 2005-Sep 2007)
Sta e Date Used Buses Difference New Buses Difference otal Fleet
IA Oct-05 6,659 0 1181 1181 7,840
Transition IB Jan-06 6,108 -551 1483 302 7,591
Period IC Apr-06 5 291 -817 1733 250 024
H Aug-06 5,291 0 1733 0 7024
Jan-07 3,891 -1,400 1733 0 5,624
Feb-07 2,756 -1,135 1733 0 4,489
Mar-07 3,316 560 1733 0 5,049
Apr-07 3,570 254 1733 0 5,303
Full implementation May-07 3,734 164 1733 0 5,467
Jun-07 3,981 247 1733 0 5,714
Jul-07 4,067 86 1733 0 5,800
Aug-07 4,147 80 1733 0 5,880
Sep-07 4214 67 1733 0 5,947
Source: Author; based on minutes from the
Comite de Ministros para el Transporte Urbano de Santiago
March and August 2007, despite a much larger number of buses had effectively been register
ed.846 How could this be possible, if the AFT was constantly equipping more buses with GPS?
There were two possibly concurring explanations: Bus operators did not want to run them, to
maximize profits (sabotage?) or they could not put them in the streets, given the implicit
managerial challenge (incompetence?). On the one hand, operators surely responded to the
incentives included in the contracts. Given that the latest amendments established that operators
would be paid practically the same amount regardless of performance -at least during the first
three months of service-, several of them probably sabotaged their own operations, withholding
buses or shortening their routes to reduce costs. 847 On the other, it is also likely that were unable
to efficiently manage their large fleets of buses. We must remember that while the contracts had
been awarded in 2005, the transition from a trade association to a firm was only really completed
at this stage. Since being a savvy leader of a trade association with hundreds of members does
not necessarily provide the skills needed to manage a fleet of more than 1,000 buses, it is quite
likely that at least some operators failed miserably at putting their buses on the street.
846 This point also taken from Silvio Albarrin's presentation. A detailed graph showing this is added at a later section.
847 In fact, Transport Ministry sources interviewed for this project recall filming buses coming out of terminals, and
returning after circling around a few blocks.
324
Santiago, Part IV
Minister Espejo attributed the bus deficit to power politics. "There was a fundamental
breach of the contracts", he testified in Congress, "I am referring directly to the bus operators
that kept their buses off the streets." 848 Danilo Nnez came to a similar conclusion. "When we
saw the streets at 8 am, we felt that the numbers did not match, that we had been deceived,
because that buses that were supposed to be in the street were not there." A large team of officials
from the MTT was deployed to terminals and major streets to physically document compliance.
"On the 10, 12, 14 and 15th of February, we could see that the buses existed at the terminals, but
not all of them were going out", 849 concluded Nn'hez. Operators apparently gamed attempts to
document the sabotage. A high ranking official at SECTRA recalls: "Our team went to the streets
to observe what was happening. We checked the terminals, and buses indeed started coming out
at the required frequency. However, these buses would turn back after five blocks, instead of
completing their route... it did not matter to them if service was good or bad. They did not earn
money for good service." 850
With this evidence, the MTT fined seven of the ten bus operator companies in the days
following 10-F. The worst performing were, by far, Buses Metropolitana and Buses Gran
Santiago, controlled by Manuel Navarrete and the AGMTP. After announcing the fines, Minister
Espejo warned that "firms that fail to deliver the pre-agreed services, will face every contractual
and legal consequence available." 851 However in reality the threats from the MTT carried little
practical weight. The contracts clearly stated that if fines imposed on an operator surpassed a
relatively low threshold (6,000 UF in one year), the contract would be automatically cancelled.
Such outcome was probably as damaging to the authorities as it was to operators. In the event of
a cancelled contract, who would take over service? Any re-tendering process would take a long
time to implement, and neither the Chilean law nor the current contracts allowed the government
to directly take over the routes of a failing operator. Operators knew and exploited this.
"Navarrete is an intelligent guy, and he realized that he would be paid anyway," explained
Guillermo Diaz 5 2 . "This was a fantastic period for the AGMTP and its firms. They got
848 (Camara de Diputados 2007 p. 558)
849 (Ibid. p. 569-571)
850 (Name withheld. Personal interview with Matias FernAndez, 7 April 2012).
851 El Mercurio, Ministerio de Transporte aplica nuevas multas contra operadores del Transantiago", March 3, 2007.
852 (Diaz, Guillermo. Personal interview. 4 August, 2012)
325
tremendous profit for the services they actually delivered," recalls Si6n Dosque.853 As it will
become clear later, the sabotage hypothesis indeed partly explains the lack of buses running on
the streets. However, at least for the first weeks, poor management was also in play.
In addition to the new routes, the new color scheme and the new fare collection
mechanism, a more profound change took place with the launch of Transantiago on February
10th: The business model of the trade associations became impractical. While the trade
associations had formally transitioned into the firms now holding contracts, the reality was that
during the transition period bus owners continued to manage their own business, hire their own
drivers, maintain their own buses and control their own revenues. Once the system was fully
implemented, however, firm "managers" were finally required to manage. The most important
change was that with the implementation of the new fare collection system, revenues now flowed
down from the AFT to the firm, and then to drivers as salaries and to bus owners for rent of their
vehicles. Previously, money flowed up from the passengers to the drivers, who then delivered
daily revenues to the bus owners, and who in turn paid member dues to the trade associations.
With this change, the previously unbreakable link between a bus owner and his vehicle was
finally severed. With control over the checkbook, managers could make and enforce
(presumably) more efficient decisions.
While this outcome had long been awaited by the planners at the MTT, it created
significant operational problems. "All of those huevones that used to be trade association leaders
became managers overnight," explained Cristiain Marinakis. "And the skill set needed to be
successful in one role is incompatible with the skill set required to be successful in the other".85 4
Edgar Macallister seems to confirm this: "They had spent so much of their time negotiating who
could stay and who had to go, than when the time came to start they were not full prepared." 855
To be sure, many of these leaders had never directly managed a large fleet of buses, nor dealt
with a large number of employees. When interviewed the day after the launch, Manuel Navarrete
illustrated one of the many transitional challenges faced within his organization: "We had
operative problems. Workers were accustomed to have their terminals close to their homes, and
853 (Dosque, Sim6n. Personal interview. 15 june, 2012)
854 (Marinakis, Cristian. Personal interview. 20 June, 2012)
855 (Macallister, Edgar. Personal interview. 23 July, 2012)
326
Santiago, Part IV
now they need to commute to start the day. This is why not all of our buses went out."856 Drivers
complained that they could no longer take the buses home, and due to their new commutes
reported late to work. Unsurprisingly, the transition from fragmented to consolidated managerial
responsibility came accompanied with a new labor relations dynamic. In fact, in the days
following the launch of Transantiago, several bus operators faced strikes from bus drivers, a
tremendously rare occurrence under the trade associations.85 Furthermore, maintaining a fleet of
old used buses was no easy task, particularly with centralized management and maintenance.
After years of ownership, a bus owner developed detailed knowledge about a particular vehicle.
Once the transition occurred much of this knowledge was lost. Carlos Romaln, explained why
this was important: "In the old system you would own a bus model X, and be ready with model
X spare parts. You knew what worked and what didn't. It was simple. Now we had a hundred
different models, and couldn't possibly stock sufficient spares. These buses had experienced so
many modifications over the years, that any repair was a great expedition for our mechanics. The
time to repair vehicles was long, and the percentage of buses out for repairs was huge." 858
Completing the transition from gremialista to empresario: Why some trade
associations unions thrived as firms and not others
Buses Metropolitana and Buses Gran Santiago, the two firms with roots in the AGMPT
negotiated leases with the owners of the vehicles. Vehicle-Owners accepted to relinquish control
over their buses, in exchange for a fixed monthly payment. The lease price was established using
the bus owner's monthly profit as reference, and so many felt satisfied. This strategy made a lot
of political sense. With this action, Manuel Navarrete was able to push many of the members of
the AGMTP away from the management of the firm. With no reason to interact among
themselves, threatening coalitions of bus owners could no longer plot against him. However, de-
linking bus owners from their bus, and giving them a fixed amount was a profoundly flawed
management decision. After all, these bus owners had long learned to "game the system".
Germin Correa recalls talking with Navarrete amidst the launch crisis. He came out convinced
that the sabotage hypothesis could only partially explain the outcome. "When I was minister (in
856 El Mercurio, "Navarrete niega boicot y responsabiliza a choferes por fallas en debut de Transantiago", February 11,
2007.
857 El Mercurio, "Transantiago: Choferes deponen paro tras acuerdo con Manuel Navarrete", February 21, 2007.
858 (Roman, Carlos. Personal interview. 6 July, 2012)
327
the 90s) and ordered technical revisions, owners would "pimp up" their buses before the test:
Change the motor, put on new tires, do a quick paint job etc. They would add and remove pieces
at their convenience. Now they were doing the same to Navarrete. If they owned two buses, they
would take the best parts to pimp up one vehicle and rent it elsewhere, and rent the useless one to
Navarrete." 85 9 Sim6n Dosque concurs: "You must understand that when a bus owner is told that
he will lose control over his bus, he stops caring about properly maintaining it. If he can replace
its good tires for older ones he'll do it. I don't think Navarrete sabotaged the system. What he did
was make a bad administrative decision." 860
Not all of the firms with roots in the trade associations replicated Navarrete's flawed
lease model. In fact, Juan Pinto was adamant about not severing the linkage between bus owners
and vehicles. His firm -Comercial Nuevo Milenio, in charge of two feeder services- implemented
a hybrid model, in which bus owners would be paid only if their vehicles worked. The firm
would run the central administration, hire the drivers, provide infrastructure and pay for
insurance, but the bus owner would still be responsible of maintaining his unit. Instead of a fixed
rent, Pinto paid bus owners using a formula based on two variables: Age of the vehicle -to
compensate them for their previous investment-, and number of kilometers served -creating an
incentive for owners to take good care of their vehicles. As Pinto explained: "I placed my bet on
the bus owners. The bus owners had fixed their own vehicles for their whole life. They had
driven them, and fixed them. They knew the buses, knew their tricks, and could keep them
running for less money. Navarrete bet on himself. He took away the buses from their owners,
created a large service depot, and named another trade association leader to run it... This
difference is the key to my success and their failure. Navarrete paid Ch $700,000 pesos (US
$1,339 dollars) regardless of what happened. Others paid Ch $500,000 (US $956). Instead, we
paid a variable figure. A bus owner could get Ch $1 million (US $1,912) -sometimes Ch
$750,000, sometimes Ch $500,000. With us, earnings are tied to how much the bus actually
operates." 861
859 (Correa, Germdn Personal interview. 13 June, 2012, emphasis added)
860 (Dosque, Sim6n. Personal interview. 15 june, 2012). Perhaps Navarrete himself came to this realization. Acting as
General Manager of Buses Gran Santiago, Navarrete placed on March 12, 2007, an order to purchase 162 used buses from
Inversiones Metalpar. Curiously, Navarrete resigned as General Manager of Buses Gran Santiago only 15 days after such a
large purchase, fueling critiques that he had obtained a personal commission on the sale.
861 (Pinto, Juan. Personal interview. 27 July, 2012). Conversion to US $ added by author, using the August 2007 exchange
rates (US $1=Ch $522.92).
328
Santiago, Part IV
Both Navarrete and Pinto knew that in the long run, their firms would purchase new
vehicles, making the need to lease vehicles from their former peers unnecessary. They had no
qualms about this, as they were no longer gremialistas, but empresarios. However, there are
good businessmen and bad, and only Pinto realized that to survive and thrive he needed to
implement a business model that took advantage of the best features of the "old system." In any
case, deliberatively or not, the worst performing operators of Transantiago took advantage of the
favorable conditions inserted in the contracts. The stable flow of revenues guaranteed during the
first months of operation served as a temporary buffer, hiding the managerial incompetence of
some of their leaders. The limited and spotty operation of the technological platform installed by
the AFT left authorities with little capacity to monitor service. However, this could not go on
forever. Not only was the system as a whole losing money, but Transantiago had become a major
political crisis for the Bachelet administration.
329
Part V. State capacity: Reestablishing discipline under
constraints
"Given the storm we faced, the period from
March to August felt like a century"
- Ren6 Coriazar
A system in crisis
President Bachelet saw her popularity plummet following the dreadful implementation of
Transantiago. As shown in the graph below, between December 2006 and March 2007, her
approval ratings fell almost 10 percentage points, and this downward trend would continue for
most of 2007.862 The problems associated with Transantiago's implementation were undoubtedly
Figure 3.19 Tracking poll question: Regardless of your party affiliation, do you approve or
disapprove of President Bachelet?
- % Aprueba 2006 2007 2008
- %_Desaprueba
862 (Admark-Gf 21)
41 31.
86 ( 32008)
330
Source: (Adimark-Gf 2010)
to blame. Not only was rejection to the Bachelet administration overwhelmingly concentrated in
the metropolitan area of Santiago, but only 15.3% Chileans nationwide approved her team's
handling of Transantiago.863 Espejo had been chosen to lead the MTT for his combination of
862 (Adimark-GfK 2010)
863 (AdImark-Gfl 2008)
330
Santiago, Part V
management skills and partisan credentials. His task was to keep the implementation plan on
track and to retain political support for the project, especially within the Concertaci6n. He failed
on both accounts, and unsurprisingly, the president sacked him on March 27, 2007.
To be sure, Espejo had to deal with inertias triggered before his time, and tried to make
the best out of the situation. He was sufficiently pragmatic not to enforce contractual terms that
would only lead to a continuous string of delays or to the failure of the system. To maintain the
implementation schedule he extended deadlines, postponed bus retirement schedules, lowered
fleet standards, and re-negotiated contracts in ways that benefited operators significantly. In fact,
the short term objective of launching the system on 10-F was only achieved because he was
flexible. However the regulatory concessions afforded to the private operators soon came back to
haunt the minister. By allowing the AFT to postpone installation of GPS equipment, he
relinquished his ability to monitor the system effectively. By allowing bus operators to include
older vehicles in their fleets, he negatively affected their performance. By agreeing to pay
operators a guaranteed amount, he eliminated their incentives to put the buses out. As the
negative consequences of these decisions accumulated, his position as minister became
unsustainable.
Furthermore, Transantiago became a political bombshell. Beyond the expected critiques
from the political right, it was precisely at the DC, Espejo's party, where questions were most
poignant. DC Senators Adolfo and Andres Zaldivar found the proof they were looking for to
extend to Bachelet critiques they had long directed at Lagos. They were not mincing words.
According to Andres Zaldivar, "Transantiago is this country's worst experience implementing
public policies and dealing with the private sector. It was a decision ill taken, ill structured, ill
organized and ill calculated, and represents the worst of mistakes, not only in the government of
Michelle Bachelet, but of all Concertaci6n governments."8 64 It may seem overstated to call a
public transit system the worst policy ever experienced in Chile, particularly considering this
country's troubled history, but such was in fact the negative disposition of thousands, perhaps
millions of Chileans toward Transantiago. Bachelet needed somebody else to step in and
reestablish discipline and credibility.
864 El Mercurio, "Andrds Zaldivar: El Transantiago es el peor error de todos los gobiernos de la Concertacion," May 9,
2007.
331
To replace Espejo, President Bachelet appointed Rend Cortizar (DC), an economist with
a PhD from MIT who had previously served as labor minister under President Aylwin. Minister
Cortizar faced what seemed an impossible task. He needed to rapidly improve the level of
service experienced by the public on the streets, while at the same time stopping what was
rapidly becoming un unsustainable financial deficit in the system. Both objectives -seemingly at
odds with each other- needed to be achieved in a conspicuous manner, and in a very short period
of time. Cortazar tasked a group of 12 distinguished academics with elaborating a diagnosis and
an action plan, 865 and soon became convinced that the system would not survive for long without
on the one hand making significant changes to the rules of the game and on the other, enhancing
the ability of the state to pay for the level of service it wanted. As an irony, what shocked
Cortizar the most was not that there were few buses in the streets, but that there were so many,
given the prevailing incentives. 866 Cortizar committed to "normalize" Transantiago by
December, and announced publicly he would resign if unable to deliver.
Cortazar met with the stockholders of the AFT and warned them that their concession
would be revoked if they failed to deliver a usable, workable, GPS system that allowed him to
closely monitor service. They committed to a new schedule: The GPS system would be in place
by May 2007. In the interim, Cortizar would attempt to change the operator's contracts, and get
them to agree on a compensation mechanism that tied their revenues to performance. Cortizar
also decided that many more buses were needed to deliver the expected level of service.
Arguments about the theoretical feasibility of providing good service with an optimized fleet did
not apply with thousands of santiaguinos close to rioting. Given the demonstrated performance
of operators and the missing infrastructure, users would not perceive notorious improvements
unless bus operators behaved a little more like the old trade associations, flooding their routes
with vehicles. For this reason, Cortdzar set out to increase the required fleet from the previously
agreed 5,622 buses to 6,400 by the end of the 2007.867 However this brought him back to the
need to change the contracts, since operators would not make this investment in new buses
willingly.
865 This report is (Coeymans J.E et al. 2008). For a summary of its contents, see (Muiioz and de Grange 2010).
866 Several sources recalled hearing this phrase from Cortazar.
867 It is unclear to the author how Cortazar came to this number, but the figure was used constantly as a target during this
period.
332
Santiago, Part V
Changing the rules was just as urgent as finding more money. Fare revenues were already
insufficient to cover the cost of operations and the deficit was growing -US $14 million in
March, US $30 million in April.868 Further, the purchase and operation of the additional buses
was expected to impact the system's finances. Transantiago's financial deficit was such that a
fare increase or a paralysis of service was unavoidable by early May. Given the political context
that surrounded the project, either outcome would practically kill Transantiago, and perhaps even
the ability of the Concertaci6n to win future elections. According to Cortitzar, "we were not
willing to raise the fares, as doing so implied a gigantic social and political risk. The option of
raising the fares was a bomb sure to explode." 869 In fact, Cortilzar fully discarded this alternative,
announcing publicly that fares would remain frozen at Ch $380 (US $0.73) until the quality of
system improved. The only alternative left to fund operations and pay for the new buses was to
publicly subsidize Transantiago. However, obtaining congressional approval for such subsidy
promised to be a protracted political battle, and Cortizar had no time to spare. Even if able to get
the required votes, his team estimated the process would take three months, at minimum.
A subsidy law that paid bills and empowered regulators
Operators reacted to rumors of a likely contract renegotiation with disbelief. They had
already agreed to several changes, and were still struggling to add the previously required buses
to their fleets. Since the remaining stock of used vehicles in Santiago was barely sufficient to
cover the previous fleet expansion, any additional buses implied a significant investment in new
vehicles. In an interview televised on April 11th, Jorge Beyi, a former trade association leader
managing Buses Gran Santiago, summarized a widespread opinion among operators: "How can
we be expected to sign a new contract knowing that the changes affect us negatively? I won't
sign it. I don't think any of the other nine operators will either."870 For several weeks, Cortaizar
tried to sensitize operators, telling them that the alternative of not changing the contracts was the
public commandeering their buses or setting them on fire. Such was the frustration of the public
on the ground. However, bus operators knew that the government had publicly taken ownership
of Transantiago, and that it could not allow the system to fail. To convince operators to
renegotiate the contracts, Cortizar had to raise the stakes. To force them back to the table, the
868 (Mardones 2008)
869 (Cortazar, Rend. Personal Interview. 21 July, 2012)
870 El Mercurio, "Empresas de Navarrete amenazan con no firmar nuevos contratos de Transantiago," April 11, 2007
333
MTT promoted new legislation easing the practical difficulties of canceling contracts. If
approved, Minister Cortizar would be empowered to appoint a third party as "provisional
administrator" of a cancelled contract, until a new tender was properly organized. Lacking this
mechanism, former Minister Espejo had been cornered into tolerating bad performance.
The fight in Congress over the subsidy was just as complex. While the Concertaci6n had
a majority in both the House of Representatives and in the Senate, the vote could be lost due to
insurgent DC members like Senator Adolfo Zaldivar. Furthermore, all it would take for the
opposition parties UDI and RN to seal the fate of Transantiago would be to filibuster the bill for
a few months and corner the government into increasing fares. To hedge against this later option,
the MTT was forced into walking on very thin ice. As Cortizar explained, "we had to creatively
explore new formulas, and discovered that we could incur in debt. The most viable option was
the Metro, which had easy access to the financial system. Metro could postpone one of their
outstanding payments, and float us the money needed to operate while Congress approved the
subsidy."87 1 Predictably, the Metro resisted. As you have read, tension between Metro and MTT
authorities had a long history, but this time it was too costly for the government to split the
difference. The president of the Metro resigned, revealingly over "differences with the Board
regarding matters of transcendental importance for the company."8 72 To be sure the Metro had no
legal powers to act as a bank, making this financial operation borderline illegal. However,
Cortizar made the case that authorizing this "loan" was fact in Metro's own interest: "what was
plan b? Collapsing the system? I had no more money available. Payments to bus operators would
stop, operators would retire their vehicles, Metro would be inundated by passengers, and the
system would be finished."8 73 On May 9, the board of the subway company approved the terms
of a new contract with the AFT and the transportation ministry: Metro would postpone for 90-
days the reception of US $80 million owed to this company from its share of the fare collected
by Transantiago. This decision, widely critiqued when ventilated in the media, provided
Transantiago with oxygen to survive until the subsidy law was approved by Congress.874
871 (Ibid.)
872 El Mercurio Online, May 4, 2007.
873 (Cortdzar, Rend. Personal Interview. 21 July, 2012)
874 For a critical look at the complexities of this loan -and of its potential illegality- please refer to (Buchheister and Soto
2010 p. 156-159).
334
Santiago, Part V
Getting the necessary votes to secure the subsidy was nonetheless difficult. Not only was
the opposition united against it, but high ranking figures from the Concertaci6n voiced doubts. In
fact, former President Frei Ruiz-Tagle, then serving as president of the Senate, even publicly
floated a plan to cancel all the existing bus operator contracts, and to instead "temporarily
nationalize" the system. 875 The political climate that surrounded the decision can be summarized
by a single fact: President Bachelet felt compelled to use the first couple of minutes of her first
"state of the country" speech -on May 21, 2007- to address the flaws of Transantiago. Facing not
only members of Congress, but also a nationwide audience watching on TV, Bachelet began by
apologizing: "Our capital had a dangerous and polluting public transit system. It required
profound changes and the decision was made to face this challenge. However things were badly
done. This reform has been a bad and frustrating experience for the vast majority of santiaguinos,
especially for the poorest. You have all the right to be angry and anguished. I understand your
indignation and impotence. There were failures in the system's design and in its implementation.
There was a massive failure to deliver from actors that had to guarantee the system's operation.
Adequate tools to supervise and enforce service were lacking." In her speech, Bachelet called
Congress to approve both the "provisional administrator" figure and the subsidy law promoted
by Cortizar. "We need Congress to support us, since we need resources to make the changes that
need to take place, to fix the things that went wrong in the launching stage." 876
In June, Congress authorized a US $290 million "stabilization fund" for Transantiago,
enough to cover the system's estimated deficit until December 2007.877 In the lower Chamber the
project received 63 votes in favor, 48 abstentions and 3 votes against. At the Senate, it received
20 votes in favor and 18 against, including the vote of DC Senator Adolfo Zaldivar.878 Albeit
barely, the Concertaci6n stood united behind the government. Such outcome was only possible
after adding to the bill a "mirror fund" that allocated at least an equivalent amount of money to
investments outside of Santiago's Metropolitan Region -which eventually brought the total cost
of the bill to US $605 million-, and after the government agreed to the creation of a
875 El Mercurio, "Frei insiste en necesidad de estatizar el Transantiago," September 8, 2007.
876 (Bachelet 2007)
877 (Ley 20.206 Chile)
878 In addition to Zaldivar, Senators from the UDI and RN voted against the subsidy.
335
Congressional Commission8 79 to investigate the problems surrounding the planning and
implementation of Transantiago. 80 This stabilization fund provided only temporary relief, but
the key point is that its usefulness to the minister was not only financial. Cortizar used it as
leverage to negotiate longer lasting contractual changes with bus operators. In fact, Article 4 of
the Law established that the subsidy money would only be available after a contract regeneration
process was completed to the satisfaction of the Minister of Transportation. Cortaizar recalls how
this was a game changing move: "The law did not specify which changes were needed, only that
amended contracts needed to be signed. I met with operators and told them the decision was
simple. We needed new contracts and they could not access the subsidy money without them.
Without the subsidy money, their revenues would fall by half."881
Inducing cooperation from private counterparts
The changes to the contracts sought by the MTT had the purpose of increasing the size of
Transantiago's bus fleet, while simultaneously forcing operators to improve their performance.
We must recall that the contract negotiated by Minister Espejo one day before the system's
launch on February 10th, 2007 established that the extra buses added to the fleet (increasing the
required fleet from 4,494 to 5,622 buses), "would be incorporated in a transitory manner." Five
months later, the new clauses advocated by Cortizar proposed to not only permanently
incorporate these buses, but to require operators to supply an additional fleet (from 5,622 to the
targeted 6,400 buses). Cortizar presented operators with two options to comply: Purchasing the
new buses, or adding used buses (e.g. buses that did not meet the "requisites about bus
ownership, terminals, average age of vehicles and emissions" established in the tendering bases).
"In consideration of the larger investment required 8 2", operators contributing new buses would
become eligible for either a contract extension, or an adjustment to the price paid per passenger
(PPT). The minister also offered to postpone scheduled contributions to the technical reserve
fund for up to 12 months. These incentives were designed to enable operators to finance the new
units in favorable conditions. In contrast, operators choosing to rely on used buses would not be
eligible for any of the prior inducements. In fact, meeting the fleet increment requirements with
879 The author used this Commission's final report as a source for this research (Camara de Diputados 2007). For a detailed
analysis of the testimonies presented to this Commission see (Quijada et al. 2007).
880 (Mardones 2008)
881 (CortAzar, Ren& Personal Interview. 21 July, 2012)
882 Quoted sentences in this section are taken from the renegotiated contracts.
336
Santiago, Part V
used buses came with a serious disadvantage. They would be allowed to run only as an "auxiliary
fleet" in routes showing "transitory operation problems", and would therefore not be considered
for adjustments to the PPT. In other words, operators would not be able to finance this "auxiliary
fleet" by charging a more expensive payment for each passenger using their buses.
The second proposed amendment had to do with the compensation formula. We must
recall that contracts signed on February 2007 practically eliminated incentives for bus operators
to run their buses. As a result of the delay implementing fare validators and GPS technology on
the buses, the AFT could not monitor how many passengers boarded each bus, nor how many
buses were in the streets, and therefore had no way of determining how much to pay bus
operators. To salvage this situation, the MTT practically fixed payment for the first months of
operation at 100% of the estimated passenger demand in each contract area. As we have seen,
operators exploited this, deliberatively or not. By August, however, the AFT had finally installed
GPS in most buses, and while the system still could not report the exact locations of each bus, it
could report the number of buses from each company running at any given time. To exploit this
data, the new contract now proposed by Minister Cortizar introduced an index (the ICPH: indice
de cumplimiento deplazas-hora) that compared the number of buses actually running with the
number of buses required in the operator's approved operational program. Cortizar proposed
incorporating this index -a percentage- to the bus company's compensation formula: The amount
owed to operators would be the product of this percentage by the theoretical revenue. While far
from perfect,8 8 3 this compliance indicator made tremendous difference: If an operator ran only
half of its buses, it would only earn half of its expected revenues.88 4
Minister Corti'zar was significantly well placed to secure agreement on the new contracts.
Despite the unfavorable terms proposed by the MTT, these companies could not survive
financially without access to the subsidized share of their revenues. Further, operators realized
that without the contractual changes Congress would not authorize another subsidy, putting all of
their investment at risk. And finally, no operator was willing to have an adversarial confrontation
with the authorities at such critical time. Money and rules converged as mutually reinforcing
instruments for the governance of public transit in Santiago. Operators not only had to come to
883 For example, the technology did not allow authorities to dissagregate the performance of operators at a route level.
884 For a detailed description of how this index is estimated, and about the technical challenges it posed, please refer to
(Beltrdn, Gschwender, and Palma 2013).
337
the negotiating table, but faced powerful incentives to remain at this table, and cooperate with
Cortizar, who held the key to their long term survival.
To be sure, protracted negotiations took place. However, 10 of the 14 bus operators
signed the contracts in August, and the last of the four holdouts signed in November, after
securing financing for the new buses required.885 Cortizar publicly promised to deliver a fleet of
6,400 buses by December 2007. This implied adding 778 buses to the fleet required at the time
of the launch. The new contracts, most of them signed in August, included commitments to
deliver 411 new buses by December 3 1st, distributed as shown in table 3.3.886 The contracts
suggest that Buses Metropolitana (trunk 5) and Buses Gran Santiago (trunk 3) -firms controlled
by the AGMPT and Manuel Navarrete- did not commit any new buses. However, this is probably
due to the fact that the first of these fins had already placed a purchase order for 500 new buses,
300 of which were scheduled to be delivered before the end of the year.887 If we consider these
buses in our calculations, Cortizar was on track to achieving his target. Nonetheless, the new
buses would take time to be manufactured and delivered, and Cortizar urgently needed to
demonstrate progress. For this reason, he authorized inter-urban buses to enter the city and run
local services. This infringed upon the exclusivity afforded by the contracts to Transantiago's
operators, but apparently none of them challenged the decision. 888 During the following months
300 to 350 inter urban buses complemented Transantiago's services and relieved some of the
pressure.
However, the most notable feature of the new contracts would not be the additional
buses, but the application of the ICPH. According to an aide of Minister Cortizar who asked to
withhold his name, "most of the firms run by former micrero leaders signed their death sentence
with this contract. It is not that they didn't want to perform well, but they simply couldn't. They
lacked the organizational structure and the management system required to meet the new
885 The operator resisting the most was Su Bus Chile (trunk 2). The additional investment required for new buses forced this
company to refinance its prior debt, and the banks conditioned their backing to colombian Fanalca becoming the majority
shareholder. Hector Moya tried to avoid this, and was a militant opponent to Cortizar's contracts. However, after a month
and a half of not receiving the subsidized portion of the revenues, Moya capitulated and signed.
886 Numbers reported as mentioned in the contracts.
887 Buses Metropolitana originally negotiated this purchase from Volvo. However, in November 2006 this order was
cancelled and a new one placed at Daimler Chrysler (Mercedes Benz buses).
888 This was partly due to the fact that these inter urban buses were only authorized to offer limited stop "super express"
services running on the city's urban highway network. Neither were they allowed to carry standing passengers.
338
Santiago, Part V
standards." This perspective was shared by
Carlos Roma'n, who lived through this period Buses added to Transantiago's bus fleet as a result ofcontract renegotiation, August 2007
working for Buses Metropolitana: "the new Bus operator Number of buses
index generated some break-downs, and it company added to the fleet
was very difficult to stabilize the Trunk I )Alsacia 25Trunk 2 ISu Bus Chile 96
administration of such a large company with Trunk 3 jGran Santiago 0
Trunk 4 Express 85
people lacking sufficient experience." 889 Want Trunk 5 Buses Metropolitana 0
Total 20
it or not, all bus companies in the system had
a sudden urgency to address their Feeder 1 Red Bus Urbano 25
Feeder 2 j STP 20
management shortcomings, to put their buses Feeder 3 jUnitrans 30
Feeder 4 ISTP 25
back into operation, to discipline their Feeder 5 1Buses Gran Santiago 25
Feeder 6CmrcaNv.Meno 3drivers... to improve their performance, just Feeder 7 Comercial Nvo. Milenio 15Fedr71Comercial Nyc. Milenio 20
like the government wanted. GPS data Feeder 8 1Buses Gran Santiago 25
Feeder 9 ITransaraucarias 20
suggests that since the February launch, the I Total 20
number of buses actually in the streets had Systm Total 411
remained practically static at 4,600. The Source: Busoperator contracts,
graph below shows the dramatic Coocinac"6n Transantiago
improvement after transport authorities
applied the ICPH, starting in August 2007. Literally the next day, the system detected 200
additional buses circulating in the streets, and this number would increase consistently in the
coming months, until reaching a peak of 5,816 buses in December.
Such powerful response had its roots on the financial penalty imposed on
underperforming operators. Unfortunately, not all the operators had the managerial capacity to
adjust successfully. As you can see in figure 3.21, taken from the work of (Beltrin, Gschwender,
and Palma 2013), the pain inflicted by the new contracts on the worst performing operators was
very significant. The lowest ICPH registered by an operator in August 2007 was 70%, and this
number would not vary significantly until alnost a year later. This means that for a prolonged
period of time, the worst performing operators of Transantiago (Buses Metropolitana and Buses
Gran Santiago, the firms corresponding to the trade associations affiliated to the AGMPT) lost 30
889 (RomAn, Carlos. Personal interview. 6 July, 2012)
339
Figure 3.20 Number of Transantiago buses circulating in the streets (2007)
5.600
5400
5.200
5000
4.800
4.600 -
Source: Coordinaci6n Transantiago
to 35% of their monthly revenues for not being able to put its buses on the street. In fact, the
sharp decrease in the minimum ICPH registered in the graph during the first months of 2009 is
explained by major problems at Buses Gran Santiago -a company that in this period registered an
ICPH of less than 45%. This performance eventually led to the cancellation of its contract. 90
A lot of the undeserved windfall revenues accumulated by Navarrete's firms during the
first months of operation evaporated during this period. Both Buses Metropolitana and Buses
Gran Santiago had tremendous fixed costs, as they had been governed in similar fashion than the
AGMTP. A former high-ranking administrator of Buses Metropolitana described the scene at the
time in this company. "Salaries were paid using checks payable to the bearer. There must have
been 400 drivers registered that didn't really exist. There was a lot of money never paid to bus
owners for their vehicle leases. They would show up expecting to collect their Ch $600,000 (US
$1,150), and leave with only Ch $300,000 (US $575). There was little in the form of serious
accounting."
To be sure, not only firms with roots in the trade associations suffered with the
applications of Cortaizar's indicators. After all, every operator's fleet had grown considerably,
and all of them had enlisted older and more unreliable vehicles. For example, Hector Moya
890 (Beltran, Gschwender, and Palma 2013)
340
Santiago, Part V
Figure 3.21 Evolution of the average ICPH registered by Transantiago bus operators.
100,000/0 . ............ ... ..
95,00%
90.00%
85,00%
80,00% 1,i
75,09/6
'.A i
65,0 0%i S g
real4h ipc nS Bu Cile.s "Cr 6a exetd hs bsstohvtesm
85.00% ' I 8
1I 9
WA M..Max Aveta"
Source: Beltr~n, Gschwender, and Palma 2013, based on data from Coordinaci6n
Transantiago.
recalls the impact on Su Bus Chile. "Cortatzar expected those buses to have the same
performance than our new vehicles. He said, 'contracts are contracts!'. I replied, 'But mister
minister, enlisting them was a favor to you! How do you expect buses run by drivers we have
trained for two years to compare well with drivers that are not really my employees, that don't
listen to me, that do what they want?' He shut me off by saying that we got paid to enlist them,
that there was no favor there. And so it was, we were severely punished for operating very bad
buses."8 9 1 However, Moya had not alternative but to budge and accelerate as much as possible
the substitution of the buses that harmed his company's performance, which probably explains
why Su Bus Chile was the operator that committed to adding the most new vehicles (96) after
signing Cortizar's new contract.
To everyone's surprise, one of the best performing operators was Comercial Nuevo
Milenio, the firm created by Juan Pinto's Federaci6n Siglo XXI. Cortizar recalls, "we had some
firms that were essentially a group of bus operators that had never before worked together and
that hoped to make everything work out, and we had Juan Pinto, who is in fact a good
businessman. His track record was even better than for example the colombian firms,
891 (Moya, Hector. Personal interview. 21 June, 2012)
341
outperforming them in all of the indicators we tracked."8 92 However, it was more than that. Over
a period of decades, perhaps beginning with the tendering processes of the nineties, Pinto and his
partners embraced "empresarizaci6n," not as a threat but as a challenge. For a long time, their
exploration had been cautious, and only adopted half heartedly. However, when Pinto and his
partners created a shell company to bid for a route contract in 1992 and 1994, when they agreed
to have a company and not individuals own 10% of the buses in 1998, when they seriously
explored bidding for a Metrobids contract in 2002, when they parted ways with the AGMPT and
refrained from participating in the strike of August 2002, when they bid and won two
Transantiago feeder contracts in 2005, and when they figured out how to manage a fleet of used
buses owned by former partners and still turn a profit, they were gradually becoming the type of
private partners that a minister like Cortizar desperately needed. Indeed, one of the most
important outcomes of this round of contractual adjustments, is that it finally enabled the
authority to clearly distinguish who among the former trade association leaders that remained as
participants in Transantiago had successfully transitioned away from a culture of gremialistas
seeking to extract rents, to a culture of empresarios interested in providing efficient services to
the public.
Undeniable, albeit still insufficient progress
To be sure, the 5,816 buses detected by the GPS system in December 2007 were not the
6,400 promised by Cortizar,8 93 but the gap was probably smaller than apparent. Some buses still
operated without a functioning GPS system and went unaccounted, and the figure does not take
into consideration 350 inter-urban buses added while the new buses arrived. For the first time in
several months, someone seemed to be taking charge of the crisis, and users perceived the
services of Transantiago as finally improving. Cortizar had proof to back up the perception, He
had hired the Catholic University of Chile to monitor waiting times at 44 critical stops. In June,
this study estimated 21% of passengers waited more than 10 minutes for their bus and that 4.4%
waited more than 20 minutes. By September, only 11% waited more than 10 minutes and 2.1%
waited more than 20 minutes.894
892 (Cortizar, Rend. Personal Interview. 21 July, 2012)
893 A possible explanation is that several operators, such as Express, failed to deliver their buses by the agreed December 31
deadline. However, these buses had effectively been purchased and would be added to the fleet in 2008.
894 (Camara de Diputados 2007 p. 584-585)
342
Santiago, Part V
Of course, these results were not only due to the additional number of buses running in
the streets. The Bachelet administration had finally made a point of delivering infrastructure,
despite the significant financial constraints faced by the system. In 2007, the number of roofed
stops throughout the city increased from 3,013 to 8,626. Eighty special stops where passengers
could pay before boarding buses -"zonas pagas"- were built throughout the city. A network of
126 kilometers of bus priority lanes and public transport exclusive streets ("pista solo bus" and
"vias exlusivas") was either in advanced planning or in construction stages.895 While public
opinion remained decidedly critical about Transantiago, the crisis seemed to be reaching a
turning point, and polls began registering positive feedback.
Figure 3.22 Tracking poll: Do you approve or disapprove of the way Michelle Bachelet
and her team are handling Transantiago?
35
% ueba
30
25.4
25-
20r A r- 2s,
17.2
15.3 314.4
Is- 13.0 1.
10
?Mr-07 Abr-07 May-07 Jun-07 Jul-7 Ago-07 Sep-07 Oct.07 Nov-07 C)Ic-07 Cne-OS feb-OS Mar-0S
Source: (Adimark-GfK 2008)
While encouraging, polling numbers also demonstrated that the vast majority of the
population still disapproved of Transantiago. To be sure, the system was still far from doing well.
For all its worth, the ICPH had limited usefulness. It registered number of buses on the street as a
proxy of quality of service. However, it is quite possible to deliver dismal service with a large
895 These figures were presented by Cortazar at (Comite de Ministros para el Transporte Urbano de Santiago 2007)
343
fleet of of badly managed vehicles. What people really demanded was frequent, predictable and
reliable service in the specific routes of their daily commute. For this reason, planners working
under Cortizar began working on a new set of indicators that would allow them to monitor
operator's performance at a fine-grained level. This demanded enhancing the technological
platform provided by the AFT, and would require -again- protracted negotiations with operators
to get them to accept any new performance measures.
The public also resented walking long distances to stops and having to transfer before
reaching the final destination of their trips. Both of these features were part of the trunk and
feeder rationale that had predetermined the design of the new route grid, and would not be as
straightforward to address as the bus deficit. To be sure, the MTT added 50 new routes, and
increased the number of kilometers in Transantiago's route network (from 6,502 kms in February
to 7,907 kms in September), but the public demanded more accessibility. The problem was that
any modifications to the routes had to be negotiated with operators, who often stood to lose
financially from the decision. As we may recall, their contracts grated them a degree of
exclusivity. Furthermore, desired changes often required an operator to "invade" with its buses
the area awarded to a different operator, or extending the route of a feeder bus into a major
destination, such as downtown, decreasing the appeal of trunk lines. The challenge was to strike
a balance that on the one hand enhanced the supply of services experienced by the public, but on
the other avoided falling back to the era of deregulation, when buses competing for passengers
congested streets and put people at risk, while also making operation marginally profitable.
Cortizar sought to address this problem by creating a compensation mechanism that would
ensure that every operator received its fair share.
Neither of these efforts to establish new performance standards and to soften the rigidity
of the route network would make headway until late 2008, but a virtuous cycle seemed to be
emerging. The subsidized share of the fare gave the MTT bargaining power to change the rules
so that it could forcefully implement changes that addressed the public's concerns. Then, the
incipient results brought by of these changes provided a legitimate argument vis a vis Congress
to maintain this source of leverage, and vis a vis the operators to accept further changes to the
rules. Similarly, operators realized that their long term survival depended on the long term
survival of Transantiago. As such, they had an incentive to cooperate with Cortizar finding
demonstrable evidence of service improvements that would then allow him to get an extension to
the subsidy from Congress. All of these "tweaks" required time to yield results, and time was
344
Santiago, Part V
running out. Members of Congress remained outspoken and critical of the system. As the month
of December loomed near, former President Frei Ruiz-Tagle insisted on his "temporary
nationalization" idea, and the members of the UDI and RN filled the airwaves critiquing the
Concertaci6n's management of Transantiago, with some of them even clamoring for a return of
the "micros amarillas." It would take a very small number of Concertacion votes switching sides
to make a new subsidy bill fail. This preoccupied Cortilzar significantly, as he knew that once
operators adjusted to the renegotiated contracts -adding more buses and putting them in the
street- the monthly financial deficit run by Transantiago (already at approximately US $40
million every month) would inevitably grow. There was not way around a basic fact: Improving
the standards of service required more money. Since the Bachelet Administration was committed
not to increase fares, a contentious, politically charged, national debate about the desirability of
permanently subsidizing public transportation in Santiago loomed near.
Transantiago, standing at a cliff
President Bachelet's budget proposal for fiscal year 2008 included US $145 million to
subsidize Transantiago until the month of April. Cortaizar defended this line item in Congress,
arguing that progress was already taking place, and that the system needed more time for the full
benefits of the contract renegotiation to become evident. As he explained to congressmen, "we
are asking for resources only to gain the time required to, during the month of April, present you
with another bill that allows long term analysis of the structure and financing of the system." 896
In what was a public slap-on-the-face, the lower Chamber awarded only US $2 dollars to help
fund the system. The government lowered its expectations, and submitted an amended proposal
in the Senate, now asking for only US $90 million, but this bill was defeated as well. "It was a
jibe; a message for Cortaizar to get rid of the shitty system he had on the streets", recalls a former
aide to the minister. Members from the Alianzapor Chile -the coalition formed by the UDI and
the RN- were of course expected to vote this way. Municipal elections were scheduled for
October 2008, and the presidential elections would take place in 2009. The Alianza clearly stood
to reap tremendous political benefits if Transantiago ended up a failure, or better yet, it the
Bachelet administration had to increase fares only months before santiaguinos went to the polls.
However, the Concertaci6n also lost the votes of Senators Fernando Flores and Adolfo Zaldivar
896 Legislative record of Law 20.232, pg. 714.
345
and from five members of the House, all from the DC.89 7 Senator Zaldivar -the long-standing
ally of the trade association leaders- made the position of this insurgent group clear:
"(Transantiago) won't be fixed with more money, nor with better management. The design of
Transantiago went against the essence of a transport system, even against our own culture. It
needs major surgery. We need to return to the old routes." 898 He was picking up on talking points
long used by the gretnialistas of the trade association system: With all its flaws, the yellow buses
met "the essence" of transportation, i.e. getting people where they needed to go, even if it did so
while ignoring costs imposed on society, such as congestion, pollution and safety externalities.
To make matters worse, on December 13, 2007 the Congressional Commission
investigating Transantiago -created as part of the deal to get approval for the first stabilization
fund- voted a critical report.899 While the Commission exculpated President Bachelet from direct
responsibility, it accused President Lagos of unnecessarily accelerating the implementation of
Transantiago before all wrinkles were ironed to reap political benefits. Lagos found no
alternative but to issue a public statement dated December 19th, "recognizing, with pain", that
the system caused "harm, annoyances and suffering to many people, particularly the poorest, to
whom I offer my sincerest apologies."900 Former Ministers Etcheberry, Estevez and Espejo, the
bus operators, the AFT, as well as two dozen officials involved in the planning and
implementation of the various stages of Transantiago were also publicly reprimanded for their
participation. Perhaps as political payback, on December 27th the leadership of the DC accused
Senator Zaldivar of "constituting a pact with the Alianza" to harm the Concertaci6n and its
government, and expelled him as member of the party.901 A few days later, five of the twenty one
Members of the House affiliated to the DC quit in solidarity.902 Combined with the previous
897 (Mardones 2008)
898 Legislative record of Law 20.232, pg. 796-7
899 (Camara de Diputados 2007)
900 Lagos' legacy was profoundly affected by Transantiago. In his autobiography published 2012, he wrote that "my first
regret is that we were unable to do more" to improve the public transportation system of Santiago. As he put it, his
administration tried to "make it more humane for those who rely on public transportation for their daily survival... but along
the way, the program stalled." (Lagos Escobar 2012 p. 243). The audio recording of the apology is available from: http://
www.cooperativa.cl/ricardo-lagos-pidio-disculpas-a-los-mas-afectados-por-transantiago/prontus nots/
2007-12-19/183012.html.
901 El Mercurio, "Tras 40 aflos de militancia, Zaldivar es expulsado de la DC," December 27, 2007.
902 The congressmen that quit were Alejandra Sepnlveda, Jaime Mulet, Carlos Olivares, Pedro Araya and Eduardo Diaz. In
their 5 page statement, they denounced "the blind support" offered by the leaders of the DC to "corrupt and politically
corrosive actions" like Transantiago.
346
Santiago, Part V
resignation of congressman Esteban Valenzuela over the "culture of corruption" prevalent the
PPD, this event had the tremendous political implication of depriving the Concertaci6n from a
majority of the votes in the House of Representatives. 03
Amidst this turmoil, Minister Rene Cortizar offered his resignation to President Bachelet,
arguing that the system was still far from acceptable. Bachelet refused to let go Cortizar, and
instead commended him publicly for his efforts. He returned to the MTT decided to continue the
work carried out during 2007: Tightening official control over bus operators, while at the same
time finding ways to finance the system without resorting to fare increases. Just like months
earlier, the MTT had no alternative but to explore "creative" financial mechanisms to resolve the
short term financial shortfall. To go around Congress, the AFT negotiated a US $160 million
dollar loan with the state owned Banco Estado. While the debtor was formally a private
company, the Chilean Economic Development Agency (CORFO) underwrote the loan, making
the decision questionable at best. If the AFT failed to pay back, the state would be liable for
funds that Congress had previously denied. "We were certainly at the limit, making all possible
operations to ensure the system did not collapse, within the law of course", emphasizes
Cortizar.904 This does not mean that the Bachelet Administration gave up hope about obtaining a
formal subsidy for Transantiago from Congress. In fact, the Bachelet Administration sent a new
budget proposal to Congress on May 6th, 2008, offering a sensible argument for a permanent
subsidy.905
At the time, all basic-education students attending publicly subsidized schools used the
public transit system for free, and higher level students with family income under a
predetermined threshold, were eligible to travel at 50 to 66% of the cost of regular fares.900 This
system had been in place for a long time, but the government had never compensated bus
operators for the discounted fares. 907 In practice, this meant that all of the users of the system -
903 The House of Representatives (Cdmara de Diputados) in Chile has 120 seats. The 2005 elections yield 65 members for
the Concertaci6n (21 DC, 20 PPD, 15 PS, 9 other), 54 for the Alianza por Chile (33 UDI, 19 RN, 2 other) and 1 independent.
904 (Cortazar, Ren& Personal Interview. 21 July, 2012)
905 For the full text of the bill see (Csmara de Diputados de Chile 2008)
906 (Libertad y Desarrollo 2008)
907 The system actually benefited trade association leaders. As previously mentioned, they sold the carnet required for
students to obtain this discount, creating a source of revenues for their organizations (or for themselves).
347
even the poorest- ended up cross subsidizing the discounted fares for students. To end this
inequity, President Bachelet argued that Congress should allocate a permanent subsidy to
compensate Chilean public transit operators for revenues lost as a consequence of a public policy
that benefited students. Of course, Transantiago bus operators included. The bill proposed the
creation of a US $420 million fund, renewable every year, for this purpose. Half of this amount
was for Santiago, and half for the regions. The bill also allocated a "transitory" subsidy of US
$135 million for Transantiago during each of the years 2009, 2010 and 2011. To make this bill
palatable for congressmen representing districts outside of the metropolitan region, a "mirror"
fund for the same amount was included to fund transportation infrastructure and to finance cash-
for-clunkers ("chatarrizacidn") bus retirement programs across Chilean cities. According to
Cortizar, this was the "definite solution" he had promised to permanently solve the financing
deficit of Transantiago. Predictably, the project became engulfed in protracted debates in
Congress, and a definite vote on the matter would not come until months later.
Clearly, the "definite solution" to Transantiago's deficit was not within immediate reach.
While Congress debated, Transantiago seemed stuck in a negative spiral. Frustrated users
abandoned Transantiago for other modes, and many others felt entitled to evade fares, which
resulted in lower revenues that projected.908 There were Senators -like Pablo Longueira (UDI)-
who publicly defended the "right" to withhold payment for bad service. 909 To attract passengers
back into the system (or to convince them to pay), it seemed necessary to run more buses more
frequently over longer routes. However, all of these measures implied more costs, which were
not recouped because unsatisfied passengers either refrained from using the system or evaded
fares. To make matters worse, the US $160 million loan obtained from Banco Estado would be
fully spent by April 2008. Once more, Transantiago stood at a fiscal cliff.
908 In fact, passenger crowding inside buses was such that it was often physically impossible to pay.
909 I thank Juan Carlos Mufioz for suggesting this point.
348
Santiago, Part V
Figure 3.23 Monthly operational deficit of Transantiago ($US, millions)
ORafi uillmmdfe dldbml
40,S
I n m a lit a S 0 i a a d 1 1 in a n
Source: El Mercurio
Anticipating yet another congressional rebuff, Minister Cortizar and Finance Minister
Andr6s Velasco traveled to Washington, DC on March 1 9th, to meet with high ranking officials of
the Inter American Development Bank (IADB). During his one day trip, Cortizar petitioned for a
US $400 million loan to fund operations of the system over 2008, making the case that approval
would "inject resources to the system during a transition period in which measures are being
taken that will allow long-term operational sustainability and financial equilibrium. 910" For the
IADB it was certainly unusual to loan money for a project with a negative cash flow, and
Transantiago had already been operating on a deficit for over a year.911 Nonetheless, bank
officials reviewing the case offered a sympathetic assessment, and approved this loan on April
28th.912 To be sure, the Bachelet administration was under no illusion that it was possible (or
desirable) to operate Transantiago without a permanent public subsidy. The financial projections
presented by the MTT to the IADB as part of the loan petition estimated that Transantiago's
yearly deficit could be cut only to approximately half the 2008 level. In fact, the base financial
projection prepared by the MTT assumed that at the very least the yearly subsidy would remain
at US $185 million, and this considering gradually increasing fares, reducing fare evasion, re-
910 This text is from the letter addressed by Rene Cortdzar to IADB President Luis Alberto Moreno, dated June 8, 2007.
Letter available at: http://www.dpm.ob.cl/descargas/BID/9.pdf
911 (Rubin 2010 p. 27)
912 According to the loan's Environmental and Social Management Report prepared by IADB officials as part of the
approval process, "the Government of Chile has clearly identified the issues and is in the process of implementing a
comprehensive plan to improve the System's operating and financial performance" (Inter-American Development Bank
2008 p. 3).
349
attracting passengers lost to other modes, and lowering payments to bus operators through future
re-tendering.
The loan approved by the IADB allocated US $390 million to the AFT, "to fund a portion
of the System's operating expenses in 2008", and US $10 million to be executed directly by the
Ministry of Transportation for the "institutional strengthening of the system's management". 913
It is unclear why the IADB approved this loan. High ringed international politics may have
played a role. However, news of the suddenly available financing couldn't have arrived at a
better time: During mid 2008 the international price of diesel increased significantly, which
combined with a fare still frozen at Ch $380 (US $0.81) triggered a notorious increase in the
system's monthly deficit. In fact, Transantiago was in such bad financial shape, that it couldn't
afford to wait until the IADB completed its own bureaucratic protocol to clear the first
disbursement of funds. The IADB loan would not be formally signed until June 8th, and Cortdzar
Figure 3.24 Base case projections submitted by the Ministry of Transportation the to the
IADB ($US, million)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Operatmg RCvenuC, 871 1017 1114 1182 1215 1241 1262 1283 1305 1328 1354 1384 1414 1445 1476 1509 1542
Operating Expenses
Operators 889 906 897 898 910 892 914 938 962 977 960 989 1019 1050 1082 115 1150
Metro 352 360 362 365 372 379 385 392 399 406 414 423 433 442 452 462 473
AFT 109 134 143 145 147 150 153 155 158 161 164 167 171 175 178 182 186
SIAUT 5 5 5 5 5 6 6 6 6 6 6 6 6 6 7 7 7
Toal 1355 1405 1407 1414 1435 1426 1458 1490 1524 1549 1544 1586 1629 1674 1720 1767 1816
Net Operating Cash Flow -483 -389 -293 -231 -220 -185 -196 -207 -219 -222 -190 -203 -216 -229 -243 -258 -274
Source: IADB-Chile loan agreement (Inter-American Development Bank 2008 p. 126)
needed the money immediately. For this reason, planners at both the finance and transportation
ministries crafted a mechanism similar to the one previously implemented with the Metro. On
May 2 8th, the AFT issued bus operators 60-day promissory notes (pagards) instead of paying
them with money. Bus operators were instructed to use these promissory notes to purchase diesel
913 IABD, "Chile-Transantiago (CHL-L 1052) Environmental and Social Management Report (ESMR)". April, 2008.
350
Santiago, Part V
from the national petroleum company -ENAP-. Once the IADB became available, the AFT
would repay the total amount owed to ENAP. 914
Cortaizar reflects on the use of these "creative" mechanisms: "Those were very dramatic
moments, meaning that we were always standing at a cliff. If any measure failed, the mechanism
with the Metro, the deal with CORFO, the IADB loan, the strategy with ENAP... if any of them
didn't work, the system was finished, the city was paralyzed. The common dramatic element
throughout all that time was that the alternative we faced was falling to the precipice."915 While
certainly not a comfortable position, this permanent brinkmanship may have protected and
enhanced the leverage available to the MTT in its negotiations with private bus operators.
Cortilzar hoped to use the lifeline afforded by the IADB to test and adjust a set of tighter control
measures on bus operators, to expand the network of bus priority lanes in the system, and to
negotiate another round of adjustments to the contracts. Some of these efforts were already in
progress, but the political battle associated with Transantiago's finances certainly contributed to
aligning the goals of bus operators with the goals of government authorities, making the whole
process paradoxically cooperative.
On June 2 6 th, a group of 13 Senators from the Alianzapor Chile -roughly one quarter of
the full Senate- challenged the constitutionality of the IADB loan in court. The Senators argued
that the Bachelet administration overstepped its powers, taking a loan ultimately underwritten by
the state without proper congressional approval. After a divided vote announced on September
2th, the court sided with the Alianza Senators and ruled the loan unconstitutional. 916 On
September 11, Congress reacted by approving the creation of yet another Investigative
Commission, this time "to analyze, study and investigate presumed irregularities occurring in the
soliciting, processing and concretion of the loan bestowed on Transantiago by the IADB, at the
request of the Government of Chile."917 This result put the Concertaci6n in a terrible bind.
914 This mechanism was confirmed by the General Manager of the AFT during later testimony to Congress (Camara de
Diputados 2009 p. 45). The total amount covered in the promisory notes was Ch $9,619 million pesos (US $20.5 million
dollars).
915 (Cortizar, Rene. Personal Interview. 21 July, 2012)
916 In fact, the formal sentence of the Constitutional Court is dated on September 30th, 2008. However, the potential effect
of the decision was so calamitous, that President Bachelet requested the Magistrates to anticipate the direction of their
decision, which they did on September 2.
917 (Camara de Diputados 2009 p. 1)
351
Transantiago had already spent US $288 million from the IADB loan, and according to the
MTT's own assessment, the system had funding only "for 20 additional days." 918 But to further
complicate matters, municipal elections were scheduled to take place on October 26, raising the
stakes of any decision. Rather than paralyzing service or increasing fares, the Bachelet
administration pulled the last trick from its sleeve: Declaring Transantiago a "public calamity."
But before describing what this meant precisely, we must first analyze how bus operators in
Santiago adjusted in 2008 to the oversight afforded to Minister Cortizar by the new contracts.
The end of the gremio
The unrelenting application of discounts since August 2007 to the revenue stream of
underperforming bus operators proved brutal. The four Transantiago contracts operated by the
two companies created by the AGMPT 919 had significant difficulties adjusting. We have
previously acknowledged that the dismal performance of these firms may have been originally
caused by some of its leaders attempting to milk the system, exploiting a compensation formula
that offered no incentives to put buses on the street. However, the fact that these companies
failed to put the required number of buses in the street after losing between 12 and 40% of their
expected revenues on a bi-weekly basis for over six months confirms that something more than
mischief was in play. As one of the sources interviewed for this research concluded, "if this was
Navarrete's business model, then it was a very bad business model."
The situation at both Buses Gran Santiago and Buses Metropolitana was dire. Most of
their fleets were composed of older model buses, leased from their owners and operated and
maintained directly by Navarrete's partners and friends. "Stuff was being robbed from inside
their own socks and trousers... everybody felt they owned the firm, and at the same time that
nobody did."9 20 The operational problems caused by this arrangement resulted in abysmal ICPH
results. In January 2008 Buses Gran Santiago, running a fleet entirely composed by leased used
vehicles, 921 registered ICPH scores that deprived it from 36% of its expected revenues in trunk
918 Cortszar himself offered the 20-day estimate during a discussion of the subsidy law in Congress. Historia de la Ley
20.378, pg 231. Available at http://www.leychile.cl/Consulta/script/getHLidNorma=1005871
919 Buses Gran Santiago (feeder units 5 and 8; and trunk unit 3) and Buses Metropolitana (trunk unit 5)
920 (Pinto, Juan. Personal interview. 27 July, 2012)
921 Buses Gran Santiago had committed to deliver 50 new buses by December 31, 2007. However, it had been incapable to
deliver. While its managers placed a purchase order at Mercedes Benz (Comercial Kaufmann), the contract established that
buses would not arrive until April 10, 2008.
352
Santiago, Part V
unit 3, of 37% in feeder unit 8 and of 20% in feeder unit 5.922 Only recently had Buses
Metropolitana begun to improve from similar levels of performance, probably as a result of the
arrival of 270 of the 500 new buses purchased from Mercedes Benz in mid 2007. The rest of the
new buses were scheduled to arrive, 25 to 30 at a time, in a monthly basis. However, it was
probably too late. Both companies extinguished their cash reserves, and the payments from the
AFT, after the ICPH discounts, were insufficient to cover their operational costs. The companies
could not pay the salaries of its employees nor the lease of its vehicles. One consultant working
for Navarrete at that time, who asked to withhold his name, abandoned ongoing projects
"because there was too much internal conflict." La Naci6n reported that "since January, the
small entrepreneurs that rent their 'pimped up' machines to Metropolitana and to Gran Santiago
have not received their payments, and will ask the court to financially intervene the firm."923 The
scene on the ground was probably much less civilized. As a public official then working at the
Coordinaci6n Transantiago told the author, "bus owners had to go in and steal their own vehicles,
even using their fists to get them back."
Manuel Navarrete was smart enough to know that his position was unsustainable. He
realized that the government needed to demonstrate to the public and to Congress its willingness
to use a firm hand dealing with underperforming operators. Further, Navarrete and had already
experienced firsthand -jailed and socially stigmatized in the aftermath of the bus blockade of
2002- what it was like to play the role of culprit. He knew that the value of both Buses Gran
Santiago and Buses Metropolitana was quickly eroding, and that their stock would be worthless
soon. He no longer commanded the respect of the members of his organization, nor was he able
to benefit financially from leading them. He was 62 years old, and decided to step down and sell.
In February, only one year after the launch of Transantiago, Navarrete resigned as president of
the board of both companies, and soon after sold most of the stock he controlled directly or
through his closest partners. While the exact amount that resulted from these sales is impossible
to know, a source privy to the deal and close to Navarrete told the author "it was monstrous, he
got much more than it was worth." Over the next several months, Jorge G6mez and his partners
from the FGDTS acquired approximately 80% of Buses Gran Santiago and roughly 20% of
922 This data was made available to the author by the Coordinaci6n Transantiago.
923 La Nacion, Navarrete renuncia a la Presidencia de Buses Metropolitana y BGS, March 7, 2008.
353
Buses Metropolitana. 924 Juan Pinto increased his personal stake in Buses Metropolitana to
approximately 29%,925 and with his partners at Comercial Nuevo Milenio bought 22% more,
obtaining majority control. Juan Pinto explained how he consolidated the stock of Buses
Metropolitana: "I hired one of the old lawyers working at the AGMTP, who knew everyone, and
sent him to visit former trade association leaders owning dispersed stock. Many had minuscule
shares, and I sometimes had to pay double the price." 926 As part of the purchase, Juan Pinto also
acquired the headquarter building of the AGMTP in Catedral 1712.
Both Pinto and G6mez had profound roots in the trade associations, but by now were
aware that to survive and thrive in the industry they needed to adjust to the new reality. Upon
assuming control of Buses Metropolitana, Juan Pinto cleared house. He brought in new
administrators -with himself as General Manager- appointed a new board, and implemented the
lease model previously implemented at Comercial Nuevo Milenio, making vehicle-owners
responsible of their maintenance and paying them according on their vehicle's performance.
Jorge G6mez also brought in new people and adjusted the operations at Buses Gran Santiago. He
had a different (and less successful) business model than Pinto, and in fact kept leasing the used
buses from Navarrete's former partners, albeit paying them significantly lower rents. The
anticipated arrival of 50 new buses in April, previously purchased by Navarrete, also helped
Buses Gran Santiago significantly. Regardless of the managerial differences between Pinto and
G6mez, the most important change they embodied was that bus owners still leasing their vehicles
to these companies no longer felt entitled to ownership. Many bus owners finally realized that
their ties to the company would only last until their vehicle became obsolete, or until the owners
of the company purchased a bus to replace it. The required expansions to the bus fleet mandated
by the MTT certainly extended the usefulness of used buses, granting their owners with an extra
two or three years to recoup their investment. However, this period was rapidly coming to a
close.
Pinto describes how the exit of the small bus owners took place, at least in firms under
his leadership: "I had to deal with that rough period, but I conducted it well, with respect and
924 G6mez would later sell half of his participation in Buses Metropolitana to Juan Pinto.
925 As you may recall, after a negotiation with Manuel Navarrete to coordinate bids for the tender, Juan Pinto retained 8% of
Buses Metropolitana. The 29% takes into account owned by Pinto directly and through participation in Mejores Tiempos
Limitada and Halcones de Tulahudn. The information presented in this paragraph is based on official reports presented to the
Superintendencia de Valores, adjusted on account of conversations with some of the parties involved.
926 (Pinto, Juan. Personal interview. 27 July, 2012)
354
Santiago, Part V
affection. Each time 30 new buses arrived, I had to take 36 old buses out. We would do a full
tune up of the leased vehicle, and pay an extra month to the owner. He would thank us and sign a
release form, and then we would part ways. We wanted colleagues that had accompanied us to go
happy, but they were not shareholders. The firm was no longer owned by the trade association.
Navarrete, the guy who had really owned the firm -and who had owned the trade association too-
no longer did."927 While not as dramatic, this paradigm shift affected all bus companies that had
roots in the trade associations. The tightened regulation implemented by Cortalzar forced those
still clinging to a gremialista mindset to either evolve or exit the market. By the second half of
2008, an ICPH lower than 0.90 was truly rare, and in some cases the companies with roots in the
trade associations that had survived outperformed the colombian and the french companies.
In fact, the ICPH had stabilized to such extent, that it was no longer very useful to the
MTT. The index was refined in July 2008, to ensure that it only counted buses with actual
passengers on board (using data collected from fare cards). However, clearly more direct and fine
grained indicators were needed to ensure continuously improving service levels. By mid 2008,
the available technology enabled regulators to "follow" each of the buses as they completed their
routes. Using a technique called "triadas", regulators defined 3 points along every bus route. The
system produced a time stamp when a bus crossed each of the three points, enabling authorities
not only to count the number of vehicles in the street, but also to simulate tracking them. With
this data, they could evaluate whether of not operators performed according to the approved
operational program. 928 This technological breakthrough soon spawned a second generation of
performance standards: the frequency compliance index (ICF, indice de cumplimiento de la
frecuencia), and the regularity compliance index (ICR, indice de cumplimiento de ]a
regularidad). The ICF measured the percentage of programmed trips that were effectively
satisfied in every route. The ICR evaluated the extent to which operators maintained a stable
headway between their buses, i.e. measuring their reliability. Both of these measures were
important to detect operators who artificially bumped up their ICPH by running empty buses at
927 (Pinto, Juan. Personal interview 27 July, 2012)
928 (Beltrdn, Gschwender, and Palma 2013)
355
night, who were neglected complicated or distant routes, or that strategically held behind buses
behind to allow ridership to accumulate. 929
The use of these indicators was not defined in the contracts. Further, operators not only
distrusted the "triada" method, but did not want to risk further discounts to their compensation
calculation formulas. From their perspective, the rules of the game had already strayed too far
from the structure contained in the tendering bases that supported their contracts. They had
already -willingly- taken a hit to support the cause of Transantiago: buying more buses and
accepting the ICPH. For this reason, the ICF and the ICR were initially employed only with
demonstrative purposes. The average frequency indicator (ICF) registered in August 2008 was
0.67, and the average regularity indicator (ICR) was 0.72, but these measures had no
consequence on the operator's bottom line. In part pressured by a political context where support
for the subsidy law debated in Congress came conditioned on delivering more accountable bus
operators, and perhaps to save face for the IADB loan mishap, Cortaizar tried to persuade
operators to accept the new indicators voluntarily, for the well of the system. Not much was
accomplished. However, when the financial crisis finally caught up with Transantiago, the
minister found the card he needed to play to effectively push his new program forward.
A calamitous blessing: The 'Constitutional 2%'
In the days following the vote in which the court declared unconstitutional the IADB's
US $400 million loan to Transantiago, President Bachelet weighed her alternatives. Municipal
elections were scheduled in a few weeks, and the race to elect her successor in 2009 had
practically begun. It was clear that Transantiago would be a dominating campaign item.
Allowing the system to come to a full stop would confirm not only that Lagos had planned a
major reform poorly, but also that the highly publicized efforts of her own administration to "fix"
the system had failed. Keeping the fares frozen had at least tempered the ire of the public.
Radically increasing them now would not only push more passengers away from the system, but
would probably negate the limited but consistent progress achieved in the public opinion arena.
Congress was less likely than ever to approve funds for Transantiago, particularly after the
Concertaci6n lost its slim congressional majority with the resignation of Zaldivar's supporters
from the DC. Furthermore, congressmen and senators seemed more interested in pointing fingers
929 For a technical description of how data is collected and how these indicators are derived, please refer to (Beltran,
Gschwender, and Palma 2013).
356
Santiago, Part V
over the IADB fiasco, than in giving a fair consideration to the bill she had submitted since May
for a permanent subsidy. In fact, the rumor was that congressmen from the Alianza por Chile, in
tandem with the DC faction led by Adolfo Zaldivar, was inclined to approving only another Ch
$1,000 (US $2) for Transantiago, repeating the insult from the previous year. Under these
circumstances, Bachelet found no better option than declaring Transantiago a public calamity by
invoking the "Constitutional 2%."
Article 32, Fraction 20 of the Chilean Constitution establishes that: "The president of the
republic has special powers to... mediating a signature from all cabinet ministers, decree
payments not authorized by Law, to respond to needs that cannot be put off derived from public
calamities, external aggression, internal commotion, grave harm or danger to national security or
the depletion of resources destined to maintain services that cannot be paralyzed without serious
harm to the country. The total amount of payments made with these purposes will not exceed 2%
of the total amount of expenses included in the Budget Law... The ministers or public officials
who authorize expenses that contravene what is here stipulated will be personally responsible for
reimbursement, and guilty of the crime of malversation of public funds."
This rather obscure article had not been invoked since 1985, when President Pinochet
used it to fund emergency services after a major earthquake. It made not only the president, but
all of her ministers personally liable. The eligible categories defined in Article 32 are so broadly
defined that any use of this money could easily end up disputed in court. However, President
Bachelet's legal counsel concluded that the emergency faced by Transantiago tightly fit within
the scope of Constitutional Law. All other alternatives had been exhausted. Resources had been
depleted, and a service that cannot be paralyzed without causing significant harm to the country
was certainly in risk. In fact, the legal team quickly dug up precedents. At least two previous
Chilean presidents had relied on the "Constitutional 2%" to keep public transit running. President
Gonzalez Videla used it in 1952 to "deliver a sum to the Sindicato Profesional de Duehos de
Autobuses de Santiago, as an incentive to offer public transit services in the country." The
turbulence during President Salvador Allende's tenure is demonstrated by the fact that he felt
compelled to use this option seven times: "to solve problems of privately owned public
transit" (1971, 1972, 1973); "to solve problems of internal commotion caused by privately
owned public transit" (1972); "to pay pending subsidies to drivers and entrepreneurs of the urban
public transport industry" (1972); "to overcome problems derived from the internal commotion
357
of the services of collective transport" (1973), and "to solve internal commotion, derived from a
conflict between drivers and owners of microbuses and taxi buses"(1973). 930 To be sure, nobody
thought that the crisis faced by President Bachelet was comparable to the crises confronting
President Allende's in the years prior to the military coup, but using this discretionary funds to
keep public transit running was not unheard of.
On September 5, 2008, the eighteen ministers of President Bachelet's cabinet convened in
the Presidential Palace of La Moneda. 931 "The president signed, all the ministers signed, the
scene was a major liturgy, tremendously dramatic since the ministers were liable with their own
patrimony, a very Wagnerian thing," recalls Cortizar.932 On September 10, the Minister of
Finance presented Congress with Emergency Decree 1178, authorizing the use of up to Ch
$453,705 million pesos (US $856 million dollars) for "making the necessary expenses to ensure
the continuity of service and the functioning of the City of Santiago's public transportation
system." 933
Using public subsidies to force regulatory compliance
"The 2% was politically bad for us, terrible, but at the same time
it gave us an opportunity to be much more rigorous."
-Ren6 Cort6zar.
Both Minister Cortazar and Minister of Finance Andres Velasco painstakingly studied the
Constitution to avoid legal challenges to their use of the 2% emergency fund. They could not get
creative with these funds. Every peso spent needed to "ensure the continuity of service and the
functioning of the City of Santiago's public transportation system." For example, the Bachelet
administration could not draw from this fund to repay the IADB for the US $288 million dollars
already spent from the loan. This debt -now unconstitutional- remained in legal limbo for quite a
long time.934 The fund could not pay for building infrastructure either, as these investments could
930 For a full list of President Allende's emergency decrees see (Biblioteca del Congreso Nacional de Chile 2012)
931 El Mercurio, "Gobierno anuncia aplicacion del 2% constitucional para financiar el Transnantiago", September 5, 2008.
932 (Cortdzar, Rend. Personal Interview. 21 July, 2012)
933 (Decreto de Emergencia 1178 para atender los gastos necesarios para asegurar la continuidad del servicio y el
funcionamiento del sistema de transporte piblico de la Ciudad de Santiago). Conversion to US $ using the September 2008
exchange rate (US $1=Ch $530.17)
934 Interest from this loan was paid from the fare box, and the principal remained unpaid until Congress authorized a special
purpose appropiation in late 2009.
358
Santiago, Part V
be postponed, nor pay for future services of bus operators, as these would be included in next
year's Budget Law. In the course of exploring valid uses for the emergency fund, Cortaizar
realized the fund could be used as leverage. "Since the Constitution stipulated that funds from
the 2% were 'to maintain services that cannot be paralyzed', we interpreted that we could draw
from them only to pay those operators that effectively maintained service. We wouldn't use the
money simply to cover an inefficient operator's deficit. To access these funds, this firm needed to
maintain services".9 35 The MTT decided it needed an indicator to assess whose services were
maintained and whose were not. Unsurprisingly, the indicators chosen by Cortitzar were the
frequency and regularity indices he had been trying to enforce.
With money available at his disposal, Minister Cortilzar changed the tone of his rhetoric
significantly. His power to regulate services had clearly increased. Both in private conversations
and in public appearances, he taunted with canceling the contracts of underperforming operators.
Of course the government needed to demonstrate firmness, particularly after the Bachelet
Administration had bent itself backwards to inject public money into a highly disliked system.
However, Cortitzar now casually inserted comments about "frequency" and "regularity" when
describing operator's performance, and pointed fingers towards those lagging behind precisely in
these metrics. For example on September 26, only a few weeks after the decree authorizing the
2% was signed, he declared in an interview: "Operators not meeting our demands are risking
possible cancellation of their contracts... The government will be very strict ensuring that signed
contracts are observed, and we have told them that since they now have the bus fleet and have
the basic tool to control regularity, it is their responsibility to observe the contract." 936
Days later, Cortilzar signaled his requests should be taken seriously. In late September,
the transportation ministry captured the attention of every Transantiago operator by canceling a
contract for the first time. Buses Gran Santiago -previously owned by Manuel Navarrete and
now controlled by Jorge G6mez- lost its right to operate feeder unit 5. This decision was
formally based on the existing contract: the Ministry argued that Gran Santiago accumulated
7,790 UF in fines in one year, exceeding the 6,000 UF threshold established in the contracts. 937
935 (Cortazar, Rend. Personal Interview. 21 July, 2012)
936 El Mercurio, Ministerio de Transporte: Empresa Buses Gran Santiago, la peor evaluada", September 26, 2008 (emphasis
added).
937 MTT, Resolucion Exenta 2660/2008.
359
Jorge G6mez issued an statement on behalf of this company declaring their surprise for the
decision, disputing the MTT's sudden interest on a previously unenforced rule, and pointing to
undeniable improvements achieved in the ICPH since purchasing the company from the
AGMPT.938 However, Cortizar was looking neither at the accumulated fines nor at the ICPH.
For all practical matters, he was barely looking at the contract. The message to the rest of the
operators was clear. When it came to assessing performance, the MTT would consider first and
foremost the frequency and regularity indices, precisely the measures in which Buses Gran
Santiago performed the worst. When asked about this, Cortizar reflected: "Perhaps we should
have done this much earlier, but in mid 2008 we decided to take a shot at an operator. Doing so
was absolutely indispensable to improve the service standard. I would not have dared to do this
in September 2007, since I didn't have anybody ready to take over.939 In 2007 shooting an
operator would've been tantamount to shooting the government and the system. But things were
different in 2008."
However empowering, the MTT regulators knew they should only resort to canceling
contracts in exceptional circumstances. Buses Gran Santiago certainly fit the bill, at least in
feeder unit 5. Jorge G6mez had concentrated the most battered buses in that particular unit, and
his managerial team was probably overstretched. They oversaw not only the three business units
operated by Buses Gran Santiago, but also the two feeder units operated by STP, the firm created
by Gomez and the FGDTS. Performance suffered as a result, and it showed. Nonetheless the
MTT required softer, more manageable penalties to make a positive impact on service levels.
Cortizar needed a way to nudge operators into delivering better service without going to the
extreme of canceling their contracts. This is where the flexible interpretation of the
Constitutional 2% expanded the margin of action available the Cortizar. He announced to
operators that the MTT would use the regularity and frequency indices to measure which
transport services were maintained. Arguing he could not legally pay for services that were not
effectively maintained, he also announced that the MTT would withhold payments according to a
"discount" schedule. "We changed the rules of the game again, although this time unilaterally. I
938 Gomez' statement read: "we ignore which contractual failing was used to make the decision, considering this feeder unit
has only received fines for 420 UF in the last year, and not the 6,000 UF required." Radio Cooperativa, "Operador Gran
Santiago se declar6 'sorprendido' por el fin de su concesi6n", September 28, 2008.
939 He meant that the Ministry could not legally appoint a provisional administrator in 2007, but could in 2008.
360
Santiago, Part V
issued a resolution and simply informed them that this is the discount formula." 940 On October
18, the Ministry of Transportation published Exempt Resolution 1985.941 Table 3.4 shown in
this page summarizes the schedule of revenue discounts that would be applied as a result of
regularity and frequency performance assessed at the route level.
After threatening operator's bottom line,
the average evening peak frequency index Per-service penalty schedule applied on the basis of
frequency (ICF) and regularity (ICR) indices (US$)
(ICF)942 increased from 0.67 in August to 0.80
in November 2008. Similarly, the average 0 U o Unk s0 for ICF lower than 90%
p r u i 0 Up to US$ 4750 for ICF between 90% and 95%evening peak regularity index (ICR)943 ICF for feeder services
o Up to US$ 4750 for ICF lower than 90%
improved from 0.72 in August to 0.79 in 0 Up to US$ 2380 for ICF between 90% and 95%
a ICR
November. This was significant, noticeable 0Up to US 9500 for ICR lower than 80% for a service-period
Noveber Ths wa sinifcant noiceblewith less than 20 buses programmed per hour
o Up to US$ 4750 for ICR lower than 80% for a service-period
improvement. However as you can see from the with 20 or more buses programmed per hour
o Up to US$ 4750 for ICR between 80% and 90% for a service-
schedule, all firms with routes operating at period with less than 20 buses programmed per hour
o Up to US$ 2380 for ICR between 80% and 90% for a service-
period with 20 or more buses programmed per hour
average levels of ICR and ICF were penalized. 0 Each company could recover up to 50% of the ICR reductions
applied, if the average ICR of all their services was above 90%
On November 10th, the transportation ministry in the same two weeks period
applied the first round of discounts, orce: B r"n" Gs"h"der" a""d Pa"ma 2013
corresponding to services rendered during the
last two weeks of October.944 The results on operator's bottom lines are shown in Table 3.5
below.
The bus operators did not remain passive, particularly after realizing that extra-
contractual "discounts" assessed in only two weeks of service had resul (ted in US $1.4 million
withheld from their paychecks. Seven operators legally challenged Minister Cortizar's Exempt
940 (Cortdzar, Ren& Personal Interview. 21 July, 2012)
941 MTT. Resoluci6n Exenta No. 1985/2008
942 The ICF is estimated as the percentage of programmed bus-trips effectively satisfied.
943 The ICR is estimated as the coefficient of variation (CV) of the headways observed in period p for servicej, transformed
into a 0 to 1 index.
944 La Tercera, "Gobierno Descuenta $700 millones a operadores del Transantiago por mala frecuencia y regularidad",
November 10, 2008. Note that this newsstory reported not data for Buses Gran Santiago, that still operated feeder unit 8 and
trunk unit 3. I suspect this is related to the fact that the contract for feeder 5 war so recently cancelled. However, in posterior
applications of the discounts, BGS was certainly affected, to the point that it was among the firms challenging Resolucion
Exenta 1985 in court.
361
Resolution 1985 at the Appellate Court of Santiago, arguing that it negated the framework for
compensation established in their contracts. For example, Buses Metropolitana, explained to its
stockholders that "the new compliance indices are set unilaterally, and were not included in the
tendering bases, nor in the concession contract" . Surely the bad experience with the IADB
loan -and the possibility of a court limiting the MTT's 'creativity'- was on the back of everyone's
mind. The court ruling on this matter would not come until late in 2009, leaving Transantiago at
risk of eventually being forced to return
the discounted money to the operators. Penalties applied to Transantiago bus operators in the last two
weeks of October 2008 based on their performance on
To be sure, the ICR and the ICF frequency and regularity indices (US$)
are far from perfect, and Cortitzar could Bus operator Revenue
certainly push too hard. For example, company discounts
Sim6n Dosque, recalls that "with these Trunk 1 Asacia $190,790
Trunk 2 Su Bus Chile $345,045
extremely perverse indices, (the Trunk 3 Buses Gran Santiago I
Trunk 4 Express $308,511
Ministry) began to cock some operators, Trunk 5 Buses Metropolitana $101,484
placing their financial stability at risk Total $945,829
and eventually leading them to Feeder1 Red Bus Urbano $69,009
Feeders 2 and 4 STP $154,446
bankruptcy. The trouble is that the Feeder 3 Unitrans $36,534
Feeder 5 and 8 Buses Gran Santiago I
indices' thresholds are, in some cases, Feeder 6 and 7 Comercial Nvo. Milenio $125,840
impossible to meet, and scores depend a Feeder9 ITransaraucarias $24,356Total $410,185
lot on the street or zone that has the
System Total $1,356,014
service". 94 6 Despite the tension (and
Source: La Tercera, "Gobierno Descuenta $700 millones a operadores del
potential abuse), it is notable that at this Transantiago por mala frecuencia y regularidad", November 10, 2008
point of the history of public transport
reform in Santiago, such conflicts are
more likely to be resolved in court than through strikes. Despite its flaws, the continued
enforcement of the ICR and the ICF through revenue discounts was an effective way to
positively influence the behavior of bus operators. Particularly in the months immediately
following the application of the discounts, the system registered dramatic improvement in these
indicators -as demonstrated by figure 3.25.
945 (Buses Metropolitana 2008)
946 (Dosque, Sim6n. Personal interview. 15 june, 2012).
362
Santiago, Part V
In the four months following the president's signature of Emergency Decree 1178, the
MTT spent Ch $187,323 million (aprox. US $300 million) from the Constitutional 2% to finance
operations of Transantiago. This did not fully contain the electoral progress made by the Alianza
por Chile, particularly in Santiago, as this coalition won 9 out of the 14 mayorships in dispute in
the Metropolitan Region. For the first time, this coalition of the right leaning parties UDI and RN
Evolution of the average frequency (ICF) and regularity (ICR) indices in peak periods of weekdays (ICF shown left)
oa -' ---- -- ~
Source: BeltrAn, Gsch wonder, and Palma 2013
topped the Concertaci6n in nationwide number of votes, and seemed well posed to dispute the
presidency. Furthermore, once the budget-year ended, this financial faucet closed down. The
national budget approved by Congress for year 2009 repeated the insult of the previous year by
authorizing only Ch $2,000 (US $3.10) for Transantiago,947 and while the House of
Representatives finally approved the permanent subsidy law, the Senate continued to hold this
bill hostage in a legislative labyrinth. Cornered, the Chilean Government finally conceded that a
fare increase was unavoidable. Cortizar declared that it would be necessary, "at some point in
2009, to start a gradual and moderate process of normalization with respect to fares." 948
However, the good news was that even in the face of never ending budgetary uncertainty and
947 In fact, the Ch $2,000 were distributed in two line items of Ch $1000. The first line item is contained in the Partida 19,
Capitulo 01, Programa 01, Subtitulo 24, item 01, asignaci6n 512; the second one in Subtitulo 32, item 04, asignacidn 002
of the Budget approved for 2009
948 El Mercurio, "Cortazar confirma alza 'gradual y moderada' de tarifas del Transantiago", December 18, 2009
363
---- ---------- 
- --- -- ------- -
0,4
IOAIK
permanent political scandal, the performance of the bus operators of Transantiago was
undeniably improving. Whatever Cortizar was doing seemed to be working. 949
Figure 3.26 Evolution of general perception of Transantiago
5.5 - -- - -- -- - - - - - - - - - - - -- . ... . . . . . . . . . . - -- - - - . -
4,7
4,5 4.2
4,1 40 42 4,0 423
4,0 4,9
3,7 317 3,7
3,5 .3,3-4.0 T-
%001~
Source: Beltran et al (2013), based on data from Transantiago-Collect
Above and beyond its role as a financial lifeboat, the Constitutional 2% fund became an
extra-contractual enforcement tool for Cortitzar. It certainly kept private operators at the table,
providing the Ministry with "an opportunity to be much more rigorous." 950 For this reason
alone, it was unsurprising that once it was clear that Congress would not approve funds for
Transantiago, Minister Cortazar confirmed publicly that a new Emergency Decree would be
signed by the president and her ministers in the first days of 2009. The Minister of Finance
presented Congress with Emergency Decree No. 1 on January 5. It contained the same
justification than its predecessor, stating that "the circumstances that motivated the (previous)
decree continue for year 2009, and since the financial deficit of the system persists, so does the
949 It is important to note that Rene Cortdzar was Minister of Transport for all Chile, with responsibility over other regions
and other types of transport infrastructure, such as ports and inter city highways, as well as oversight over
telecommunications. The fact that Transantiago dominated his agenda is a testimony to his commitment to solving this crisis,
but also proof of the institutional weakness of the emerging system.
950 (CortAzar, Rend. Personal Interview. 21 July, 2012)
364
Santiago, Part V
risk of grave danger for the population." 951 This time, perhaps to assuage fears that the
government was depleting money needed in case of a graver emergency, the decree appropriated
only up to 1% of the national budget: Ch $259,434 million (US $398 million dollars).952 The
Ministry also decreed a small fare increase; the first since the implementation of Transantiago.
Starting February, the cost of fares would be Ch $400 (US $0.61) instead of Ch $380 (US $0.58).
The cost of using the metro at peak hours would be Ch $460 (US $0.71) instead of Ch $420 (US
$0.64). The availability of funds -and of extra-contractual power over operators- further extended
the MTT's capacity to structure better transportation services.
Institutionalizing state capacity for leaner times
While it was clear that the subsidy and the fare increase, relieved the financial pressure
and provided the MTT with leverage over private bus operators, many of the changes made by
Cortitzar relied on extra-contractual power, which would not necessarily resist legal challenges or
changes in government. During the initial months of 2009, Cortitzar sought to institutionalize the
MTT's capacity to guarantee improved bus services. He crafted an entirely new contract to
reflect this, and would try to persuade operators to accept it voluntarily. The most important
changes proposed are described below:
Making operators more responsive to the MTT: In addition to establishing a formal
procedure to revise the operations plan of each firm every six months, the new contracts sought
to give the MTT a permanent ability to suggest service chages. The new contract included
clauses allowing the MTT to order operators to supply "transitory" services to deal with
contingencies, 95 3 to propose the creation of new routes, and to suggest the elimination or
modification of existing ones. Furthermore, the proposed contract defined a new performance
measure to assess average passenger loads (ICAP: indice de cargapromedio) on buses,
stipulating that when passenger loads fell outside of an ICAP range set between 60% and 95%,
the Ministry could order operators to modify the number of buses and the service frequencies
offered in that particular route.
951 (Decreto de Emergencia I para atender los gastos necesarios para asegurar la continuidad del servicio y el
funcionamiento del sistema de transporte publico de la Ciudad de Santiago)
952 The exchange rate in January 2009 was US $1=Ch $651.51
953 The Ministry could order these with only one day of anticipation and would be "mandatory for the Concessionaire as
long it has buses are available". They would be compensated with a 33% surcharge over the regular rate.
365
Shifting revenue risk to operators: The contract established that compensation for
operators would be estimated as the product of the payment for passenger (PPT) multiplied by a
weighted estimation of passenger demand, in which the referential demand would be valued at
65% and actual demand at 35% (previously valued at 90% and 10% respectively). While not
perfect, this represented an important improvement from previous contracts that allocated a
much larger weight to referential demand in order to lower the risk facing operators. In addition,
the new contracts updated the referential demand estimated for each business unit, from the
figures originally established in the tendering bases of 2003. Finally, the new contract outlined
mechanisms to adjust the PPT monthly, considering fluctuations in the cost of inputs and changes
in the number of bus-seats and kilometers actually supplied.
Formalizing extra-contractual performance standards: The contract incorporated the
discount schedule already applied to the compensation paid to operators. Not only did it retain
the ICPH, but it sought to give a contractual basis to discounts linked with regularity (ICR) and
frequency (ICF) indices applied since November 2008. The new contracts would relieve the
Ministry from relying on a dubious interpretation of rules governing the Constitutional 2% fund -
which in any case could not be expected to be available in later years.
Clarifying the process to evict underperforming operators: The proposed contract
reaffirmed the ability of the Ministry to cancel contracts, giving much more discretion to the
MTT over final decisions. In addition, it sought to facilitate application of fines, by incrementing
the threshold that triggers automatic cancellation of the contracts -from 6,000 UF to 20,000 UF-.
The Ministry would no longer have to withhold well-deserved fines in fear of causing a major
disruption of service.
Incentivizing renovation of the bus fleet: Finally, the new proposed contract
incorporated an incentive to renovate the existing fleet of buses. It stipulated that at the end of
the current contract, the new tendering bases would require the new winner to purchase the buses
added by the incumbent as part of a bus renovation program. The price would be the net present
value of the renovated fleet at the time of the start of the new contract. In other words, a
challenger willing to take over a contract would face a higher financial barrier of entry if the
current operator invested in newer buses, and even in the case of losing its contract, the current
operator faced no risk of losing its investment. Operators also had the choice of requesting a
"renovation installment" ("cuota de renovaci6n") up to 10% of the present value of the renovated
366
Santiago, Part V
fleet, to cover maintenance expenses. Money drawn as a "renovation installment" would then be
balanced out against the price that the bidders would need to pay for the buses.
Cortizar's push to get the new contracts accepted began as early as January 9, 2009.
Feeder unit 5 was vacant since the MTT cancelled the contract to Buses Gran Santiago. Cortizar
decided to award the new contract to a company called Las Araucarias. Its stockholders also
owned Transaraucaria, the firm responsible for feeder unit 9.954 This operator had never
registered an ICPH lower than 0.90, and had more or less delivered on its commitments and
stayed out of trouble with the authorities. Las Araucarias also had the advantage that feeder units
5 and 9 were geographically contiguous, allowing for efficiency gains. Awarding the contract to
them assumed an automatic reorganization of operations in the south of the city, with the benefit
of eliminating unnecessary transfers without affecting a third party.955 What was more important
for Cortizar, however, was that the owners of this company were willing to accept the new
contract in both feeder units. He would change the rules by choosing players willing to accept
them. Unsurprisingly, the new contract for feeder 9, held by Transaraucarias, was among the first
signed. Quite notably, Transaraucarias signed its new contract on May 8, 2009, several months
before the Appellate Court ruled on the legality of the discount schedule unilaterally imposed by
the MTT. By awarding this contract, Cortazar (1) strengthened a seemingly capable operator, (2)
formalized the discounts used to enforce regularity and frequency indices, and (3) began the
implementation of rules he desired for the whole system. In other words, he partnered with a
cooperative bus operator to enhance the system's capacity to deliver better service. The
opportunity to expand the MTT's desired regulatory framework to other operators came with the
scheduled re-tendering of trunk 3. The same strategy of changing the rules by changing the
players applied.
Re-tendering Trunk 3: An exercise of leveraging your assets
Readers may recall that Minister Etcheberry designed the contract award process in 2003
so that that different types of bus companies were attracted to different types of units. Etcheberry
954 Both were led by Adriana Troncoso, a trade association leader that had participated in the old system, but not affiliated
to the AGMTP or the FGDTS.
955 Feeder area 5 is identified in maps as Unit G, and Feeder area 9 is identified as H. The number and letter scheme to
identify units was changed over time, making consistent references difficult and confusing. What is important here is to note
that merging these two units provided no-transfer access from the south of the city to downtown.
367
wanted new buses in the "crown jewel" trunk units 2 and 4, and therefore set the duration of
these contracts to 13 years (156 months). Trunks 1 and 5 accepted used buses, and so their initial
duration was limited to only 48 months. 956 Trunk 3 also accepted used buses, but was of a
significantly smaller size, and a Metro extension was planned close to this area. For these
reasons the contract of trunk 3 was the shortest, only covering 24 months running since the
launch of the transition period on October 22, 2005. It was now 2009, and trunk 3 was overdue
for a re-tender to award a new contract.957 Cortizar was clear that whomever won the new
contract for trunk 3 would have to accept his new, more stringent, contractual design. But
perhaps more importantly, it is quite likely that the transportation ministry strategically used the
timing and rules of the contract award process to strengthen its negotiating position vis a vis the
rest of the operators, who of course aspired to expand their business in Santiago.
A new tender should have taken place before October 22, 2007. However, the contract of
of the incumbent Buses Gran Santiago was extended, and upon expiration, the MTT postponed a
decision for strategic reasons. The tendering bases, formally approved in February 2008, were in
fact not published until late October 2008.958 These bases were revised to address questions
from interested parties, and a final version was not formally approved until February 10, 2009.
Further, this critical document would not be available to potential bidders "until five business
days after the publication of the present approval notice".959 This publication curiously did not
happen until May 13, a full three months later. What this means in practice is that just as
Transantiago's bus operators challenged the application of the ICR and ICF discount schedule in
court, and perhaps even as they actively attempted to resist signing the proposed new contract,
Cortizar held over their heads a very tangible reason to make peace with the MTT. At the end,
the new contract for trunk 3 became Cortzar's carrot, held in front of all private operators in the
system, just as they chose whether they wanted to fight or to cooperate with the state.
The MTT designed these contract award rules in such way that it was very difficult for
outside parties to participate, and did not actively promote the entry of national and intemational
956 Albeit extendable to the full 156 months if their full fleet was composed of new buses.
957 The Ministry of Transportation had previously extended Buses Gran Sanatigo's trunk 3. Once this extension expired the
MTT split the unit in two: 40% of the services to be awarded without a tender to both Inversiones Alsacia (trunk 1) and to
Express (trunk 4) as compensation for lost ridership resulting from Metro line extensions (to Los Dominicos and to Plaza
Maipnl). The remaining 60% was to be tendered competitively as a single unit.
958 Ministerio de Transporte y Telecomunicaciones, Resolucion Exenta No. 15, October 27, 2008.
959 Ministerio de Transporte y Telecomunicaciones, Resolucion Exenta No. 37, May 13, 2008.
368
Santiago, Part V
investors, as Etcheberry had in 2003. This was not a reinvigorated call for external competition.
The rules clearly stipulated that to accredit the required "technical suitability," interested parties
had to either be a current Transantiago operator or demonstrate "having operated public
transportation fleets of at least 300 vehicles, for at least five years." As a result, six of the seven
bids received by the deadline (shown in table 3.6) were put together by firms already
participating as Transantiago operators. The only bid coming from an "outsider" was the one
presented by City Bus, a firm created by Jaime SaInchez, with a long history working with
Transantiago operators.
:ane
Company presenting bid Controlling group Previous Transantiagopresence
Transporte Urbano de Personas Inversiones Alsacia (Grupo Rios) Trunk 1
Su Bus Chile Su Bus Chile (Fanalca) Trunk 2
Veolia Transportes Chile Red Bus Urbano (Veolia) Feeder 1
Bicentenario Gestion M6vil Unitrans (former trade union) Feeder 3
Larco STP (Jorge G6mez and FGDTS) Trunk 3, Feeders 2, 4 and 8
Buses Vule Comercial Nvo. Milenio (Juan Pinto and Siglo XXI) Trunk 5, Feeders 6 and 7
City-Bus Urbano Jaime Sanchez and Argentinean investors No participation in Transantiago
Interestingly, three of the groups that did present a bid (Veolia, Siglo XXI and Unitrans)
agreed to modify the contracts governing the operations of their existing service areas, before the
new contract for trunk 3 was finally awarded on August 27. In fact, they agreed to Cortizar's
proposed contractual changes even before the Appellate Court ruled on July 1 that the MTT was
in fact entitled to legally discount operator's compensation using extra-contractual indicators. By
the time the court ruled, the issue was no longer as relevant. After accounting for the two
contracts signed by the Araucarias group, six of the nine feeder units and one of the five trunk
units voluntarily agreed to Cortaizar's requests and signed their new contract, perhaps as a
strategy to court the Ministry in anticipation of the decision over trunk 3.
To be sure, negotiations with all operators were prolonged and complicated, and the
MTT certainly conceded in some points. For example, it agreed that for a period of one year, ICR
and ICF estimations triggering discounts would not be drawn automatically from the system, but
from physical observations by Ministry inspectors deployed to randomly selected routes. In
369
practice, this lowered significantly Transantiago 2009 contract renegotiation: dates of contract signatures and contextual events
the amount of money that could
Operator/Event Date Bid for
actually be lost due to bad Feeder 5 Las Araucarias Jan 9, 2009 Nk
Feeder 1 Red Bus Urbano (Veolia) Apr 29, 2009 Yesperformance, and gave a window Feeder 9 Transaraucarias May 8, 2009 No
Feeder 3 Unitrans May 13, 2009 Yes
for operators to anticipate the Feeder 6 Comercial Nvo Milenio (Juan Pinto/SXXI) Jun 19, 2009 Yes
Feeder 7 Comercial Nvo Milenio (Juan Pinto/SXXI) Jun 19, 2009 Yes
financial threat implicit in these Trunk 5 Buses Metropolitana (Juan Pinto/SXX0) Jun 26, 2009 Yes
Appellate Court decision Jul 1, 2009
discounts. However, Cortalzar Senate approval of permanent subsidy law Aug 13, 2009Contract for trunk 3 awarded to Buses Vule (Juan Pinto/SXXI) Aug 26, 2009
successfully linked the negotiation Feeder 2 STP (Jorge G6mez/FGDTS) Nov 11,2009 YesFeeder 4 STP (Jorge G6mez/FGDTS) Nov 11,2009 Yes
of existing contracts with the SupreneCourtdecision Dec 1,2009
Presodential Elections, first round Dec 11, 2009
possibility of winning a new one. In Presidential Elections, second round Jan 11, 2010
Trunk 2 Su Bus Chile (Fanalca) Mar 5, 2010 Yes
what represents a fundamental Trunk 4 Express (Grupo Rios) Mar 5,2010 YesTrunk 1 Alsacia (Grupo Rios) - Yes
Feeder 8 Buses Gran Santiago ?
difference with the trade association New government sworn in Mar 11, 2010
system, the MTT was now
empowered to evict
underperforming operators without generating a major crisis -as proven with the example of
Buses Gran Santiago- and to use contract renegotiations as a tool to gradually guide private
operators to perform according to the Ministry's priorities. The Chilean government no longer
inherited private counterparts. It was now empowered to choose which private partners it wanted
to grow and which it wanted to evict.
Perhaps offering tentative proof of this, the MTT disqualified all bids for trunk 3 during
the technical analysis stage, except one. Only the envelope containing the economic proposal
submitted by Buses Vule was finally considered, leaving critics to note that perhaps the Ministry
accepted a higher-cost bid.960 At least five of the disqualified groups voiced their discomfort
publicly, calling the process "a joke."961 The Ministry unapologetically stood by its decision and
awarded the contract for 12 years to Juan Pinto's group, who would take over services starting
February 2010, becoming the largest operator in Transantiago. Notably, Pinto's other companies,
Buses Metropolitana and Comercial Nuevo Milenio, had played ball with the minister, and had
signed their new contracts before the decision of the court was known. It is impossible to know if
960 While it is true that the winning bid was not the cheapest PPT on the table, Cortazar argues that it still came at a 20%
lower price that what was paid to Buses Gran Santiago for that same unit. "We could live through the mistake of paying a
more expensive PPT, but not through the mistake of once more taking an operator incapable of producing results."
961 El Mercurio, "Cinco operadores del Transantiago cuestionan licitacidn del troncal 3", August 27, 2009.
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Santiago, Part V
Cortizar punished operators that postponed signing their new contracts until after the Appellate
Court ruling on the issue of the revenue discounts. Swords were certainly drawn. For the
colombian firms Su Bus (Fanalca), Express and Alsacia (Grupo Rios), the issue was so important
that they challenged the Appellate Court's ruling, taking the case to the Chilean Supreme Court,
and refusing to sign the new contracts until the matter was settled in December 2009. In fact, Su
Bus and Express did not sign the new contracts until March 5, 2010, once the new presidential
election had been settled and the new administration was only days away from taking office.
Inversiones Alsacia never agreed to Cortizar's new terms.
A few spokesmen of the losing companies went further in their critique. One disqualified
businessman told the author that Cortizar used this tender as a bargaining chip to ensure the
Senate passed Law 20.378, which included the long awaited "national subsidy for public and
remunerated passenger transport." According to this source -who of course asked to remain
anonymous,"Kaufnann, the firm distributing Mercedes Benz in Chile, was strongly connected to
the Alianza por Chile. The president of this company had even been a business partner of their
presidential candidate, Sebastian Pin-era-. The subsidy law was under intense discussion at that
time, and the price charged to Cortaizar in exchange for the support of the Alianza's Senators,
was delivering this contract to Pinto, who had committed to buy Mercedes' buses." To be sure,
the 400 new buses promised by Buses Vule were eventually bought from Mercedes Benz.
However this explanation is lacking from the simple fact that the Senate voted to approve Law
20.378 on August 13,962 before and not after Pinto's competitors were disqualified. But why then
did the Alianza por Chile all of a sudden support the subsidy bill for Transantiago, after being
consistently against it during the prior years?
The bill finally passed with 33 Senators voting in favor, one against (Adolfo Zaldivar)
and two abstaining. In the same session, the Senate authorized repayment of the US $288 million
dollars drawn from the IADB loan declared unconstitutional, 963 helping close an embarrassing
and painful chapter in the history of Transantiago. I have no reason to believe nor evidence to
suggest that horse-trading votes in Congress was the key factor determining the winner of the
tender for trunk 3. Pork had certainly been used in the past, for example when the government
962 La Tercera, "Senado aprueba subsidio para Transantiago de mis de US $3600 millones", August 13, 2009
963 While the law would still return to the Hose of Representatives, and not be approved until September 9, the most critical
roadblock preventing enactment had been surpassed.
371
authorized a mirror fund to court congressmen from districts outside of Santiago to support the
first stabilization fund for the system. However, at this point of the story, the financial emergency
of Transantiago had effectively passed, at least when analyzed from the immediate political
perspective of Bachelet and Cortizar. The presidential term was already in its final year, and the
Emergency Decree ensured sufficient financial coverage for the remaining months. Bachelet and
Cortizar could just as well carry the system with these funds until the end of the administration,
and allow the next government to deal with the difficulties of obtaining a new subsidy or
increasing fares. Instead, it was paradoxically the Senators of the Alianza who suddenly found a
powerful political incentive to approve this law. Their candidate for the presidency, Sebastian
Piniera, was showing a commanding lead in the polls,964 while the Concertaci6n was engulfed in
internal turmoil. Faced with a real possibility of winning the presidency in the December 2009
election, the UDI and the RN had to think hard about their approach to Transantiago. Even if
they chose to fully cancel the system, their administration would need time to design and
implement an alternative. What would happen in the meantime? Would it paralyze services, or
increase the fares? Either option promised to harm the popularity of the new government
significantly, even as it started its term. It is likely that these questions alone sealed the votes of
the Alianza in favor of the permanent subsidy for Transantiago.
Furthermore, in contrast to the previous contract award round, the MTT had a clear
measure to determine the "technical suitability" of bids. Interested parties with links to existing
Transantiago operators were assessed on the basis of their "average ICPH during the 6 months
prior to submitting the bid".965 The system had evolved to the point that it was no longer
necessary to compromise in technical capability in order to ensure a financially sound result. In
contrast to his predecessors, Cortizar could give himself the luxury of not auctioning the system
to the highest bidder. As he recalled, "I did not want a system that was so committed to the
financial balance, that it disregarded the technical risk of operation, particularly facing the future.
The 'Navarretes' could not participate, only those that met a technical minimum." Awarding the
964 The Candidacy of Sebastian Pifnera seemed highly likely at this point. The two leading parties of the Alianza -UDJ and
Renovaci6n Nacional -wanted him to run on his ticket. On the other hand, the Concertaci6n was deeply divided between
running under 70 year old former President Eduardo Frei and 39 year old Marco Enriquez Ominami. Partly as a result of this
division, polls taken as early as December 2008 showed a clear lead for Pifiera.
965 Ministerio de Transportes y Telecomunicaciones, Licitacion publica de uso de vias de la Ciudad de Santiago para la
prestacion de servicios urbanos de transporte publico remunerado de pasajeros mediante buses (Licitaci6n de Vias 2008), pg
15.
372
Santiago, Part V
new contract for trunk 3 to Juan Pinto's group probably did not help secure votes for the much
anticipated permanent subsidy law in the Senate. What is undeniable, however, is that the
decision served many other purposes: It allowed the Ministry to replace one of the worst
performing operators in the system (Gran Santiago) for one of the best. It allowed the minister to
accelerate the substitution of a fleet mostly composed by used buses for 400 new buses promised
by Vule. It reduced transfers and optimized costs, as trunk 3 operated mostly in the territory of
the two feeder units already controlled by Pinto. And, as an added bonus, the tendering process
allowed Corta'zar to successfully continue -as he put it- "forcing changes into their contracts." 966
A permanent subsidy for Transantiago, and the future of the system
The backbone of Law 20.378, Approved in August 2009, is the creation of a "permanent
subsidy", "destined to compensate for the lower prices paid by students using public
transportation." 967 The funds available yearly for this purpose amount to a maximum of Ch
$230,000 million (approximately US $460 million). To maintain fairness (and to please Senators
with constituencies outside of the capital) the Law established that this permanent fund would be
distributed equally between Santiago and the regions of the country. In the case of Santiago,
money is earmarked for "ensuring the financing of the public transit system," and "transferred
according to what the transport system requires, according to what the Ministry of Transport and
Telecommunications informs and projects." An elaborate set of rules was included to determine
how to distribute and spend the money in the regions.
The law also includes a "transitory subsidy" "for the public transit system of the City of
Santiago," and a "special contribution to the regional governments". Notably, the subsidy for
Transantiago -Ch $549,548 million (aprox. US $1,099 million)- was significantly lower than the
contribution for the regional governments -Ch $721,348 million (aprox. US $1,443 million)-,
perhaps reflecting the cost of getting support for a local project in a national legislative arena.
Furthermore, the money for Santiago would be available immediately, and diminish yearly
between 2009 and 2014, reflecting that it was designed to cover an urgent need, and hoping that
either fare increases or efficiency gains would make it unnecessary in the future. In contrast, the
966 (Cortazar, Rend. Personal Interview. 21 July, 2012)
967 (Article 1, Ley 20.378 Chile)
373
money for the regions would first be available in 2011, reflecting that many of these regions
needed time to decide how to spend the probably unexpected windfall.
Table 3.8 Public subsidy authorized for Transantiago, 2009-2014 (Ch $, millions)
2009 2010 2011 2012 2013 2014
Constitutional 1% fund 249,351 - - - - -
Permanent Subsidy - 115,000 115,000 115,000 115,000 115,000
Transitory Subsidy 156,684 216,988 133,349 29,641 9,283 3,654
Total 406,035 331,988 248,349 144,641 124,283 118,654
Source: Coordinaci6n Transantiago and (Ley 20.378 Chile)
And finally, Law 20.378 established a mechanism to raise fares, with the objective of
keeping this politically charged topic from threatening the financial sustainability of the system
in the future. An "expert panel" would determine monthly adjustments "to maintain the real
value" of fares in the system, and determine "the level of fares that allows financing the system
each year, given the amount of subsidy referred (in this law)." Fare increases determined by the
panel of experts could not be more than 5% per month, and it could not approve fare decreases as
long as the transitional subsidy persisted. To be sure, the Ministry retained the ability to change
the fare structure of the system and even to raise fares above the 5% in "extraordinary"
circumstances, but it could always defer to the experts for gradual adjustments.
All this sounded fine, but the Bachelet Administration would not appoint the Expert Panel
until January 29,%8 and in fact there would be no further fare increase until the next president
was sworn in. There was no urgent reason to do so, and perhaps more importantly, Chile was
going to the polls to elect a new president in December. Despite the profound problems and
challenges that still haunted Transantiago, the public was slowly but consistently improving its
opinion about the system.
As previously mentioned the Alianza had long resolved its candidacy in favor of former
Senator Sebastian Pinera (RN), a Harvard educated business tycoon who owned a national TV
channel and held stock in both the chilean flagship airline (LAN), and one of the chilean most
popular soccer clubs, the Colo Colo. Pifiera was running for president a second time, after being
968 The Minister of Transportation appoints the three panel members, selecting from candidates proposed by professional
associations and universities.
374
Santiago, Part V
defeated in the Alianza's primary election four years prior. This time, propitious circumstances
seemed to work on his favor. The Concertaci6n struggled too long deciding who should represent
them on the ballot. To the "left" of its party coalition, Former President Lagos announced he
would not run, and former Minister of the Interior Jose Manuel Insulza lost local support while
serving abroad as Secretary General of the Organization of American States (OEA). The only
heavyweight remaining in the race was former President Eduardo Frei Ruiz-Tagle, who argued
that it was the turn of the DC to lead the ticket. Frei won a primary election and became the
Concertacionista standard-bearer in April 2009, but his candidacy did not harbor support among
socialists, many of which eventually voted for 39 year old Marco Enriquez Ominami, a former
member of the PS running as an independent. The long period of the Concertaci6n in power -20
years and 4 presidential terms- had certainly taken its toll. Despite the profound economic
transformation experienced in this country, and the personal popularity of President Bachelet, the
public was willing to take a turn to the right. On December 11, 2009, Pifiera obtained 44% of the
vote, Frei 29.60% and Marco Enriquez 20%. The second round, held in March i1 2010,
validated this result: Pinera (51.6%) vs Frei (48.3%). The staunchest critics of Transantiago were
now in charge of running it.
Over the next four years, the Pifiera administration continued much of the work started by
Cortaizar, tightening contracts, enforcing performance standards, attempting to contain costs
while also maintaining standards of service. The electoral triumph of the Alianza por Chile did
not mean the end of Transantiago, as many critics predicted. In fact, by 2011 the Pifera
administration publicly advocated in favor of making the system's "transitory subsidy,"
permanent, while simultaneously negotiating further contractual changes with Transantiago's
operators. Beyond taking the system off of a permanent financial cliff, the permanent subsidy to
public transport in Santiago embodies the institutionalization of the MTT's leverage over private
transport operators. It is a powerful instrument to align the goals of public and private
stakeholders, allowing authorities to effectively represent previously unrepresented interests at
the table. When only the user pays the fare, issues like air pollution, congestion and accidents do
not enter into the operator's cost function and inevitably fall through the cracks. Only when
authorities are able to put incentives into the table, will their demands for more stringent rules
receive their fare share of attention. At least in the case of Santiago, it appears that the capacity
of the government to nudge the public transport system into advancing chosen policy goals has
375
been institutionalized. To be sure, private and public players continue to fight over money and
rules, but the capacity of the state to adjust the mix of money and rules to harbor a cooperative
relationship with its private counterparts has undeniably increased, and in the process, the
broader population of this city has benefited.
Case conclusion
In the course of 20 years, the governments of the Concertaci6n transitioned an atomized,
deregulated, private transport system into a more accountable, reliable, and gradually more
efficient Transantiago. In the process, the role of the state as planner and regulator of service was
reestablished and enhanced. Conflicts between private and public actors participating in this
system evolved from service stoppages to court battles, and from strikes to periodic contract re-
negotiations. The trade association system was gradually phased out, with the transition carefully
designed to minimize social dislocation associated with a reform of this magnitude. Not only did
potentially displaced bus owners had the chance to remain in the the system until their vehicles
became obsolete, but the rules in place actually allowed the best among them to adapt their
organizations and thrive in the new system. At the same time, the participation of the trade
associations in the transition allowed authorities to keep the financial and political costs of
reform in check. In these 20 years, the structure of the public transport industry in Santiago
changed dramatically, from a system operated by thousands of vehicle-owners organized in more
than a hundred trade associations governed by a cartel, into a handful of "modern" professional
transportation companies able to make larger investments and to make longer term decisions.
The business model of these companies is based on providing world class transport services to
Santiago, and not on extracting rents from individual bus owners. The line dividing the subway
and the bus systems gradually blurred, with both modes now complementing each other rather
than competing. Physical, operational and financial inter modal integration has resulted in faster,
more cost effective trips for santiaguinos, and in a more efficient use public resources.
Evidence is starting to emerge demonstrating how with a much smaller bus fleet than
comparable cities, Transantiago achieves faster and more predictable travel times. In fact, a
recent study sampling 400 public transit trips of similar lengths across six Latin American cities
found that they are on average faster and less variable in Santiago than in Guadalajara, Mexico
376
Santiago, Part V
City, Lima and Porto Alegre, and only comparable to Bogota.969 But in addition to meeting the
mobility needs of the public, Transantiago's fleet of buses is the less polluting, less congesting,
less dangerous and more accessible in any major Latin American city. By 2011, 90% of the fleet
was Euro III or higher, compared to 30% in 2006. As a result, pollutant emissions have sharply
declined. In that same period, C02 emissions fell 28%, NOx by 50%, and breathable particles
(MP) by 74%. In the old system there were no handicapped accessible vehicles, while 76% of
Transantiago's current fleet has low floors and ramps. In 2004 there were 118 people killed in
Santiago in accidents involving a public transport vehicle. By 2009, this number had dropped to
only 58.970 In other words, the ability of the Chilean government to address second-order
transportation challenges has undeniably increased throughout the City of Santiago.
This is not a story about miracle cures or silver bullets. Getting the actors that enabled
this reform to come to the table and to consider a different way of organizing their services was
undoubtedly a major challenge; a task that could only be advanced through a series of small steps
over a prolonged period of time, and perhaps facilitated by the legacy of 16 years of authoritarian
rule that profoundly weakened forces that in other cities have staunchly opposed similar efforts.
Similar to many other similar cities, the old system satisfied quite well the first-order goal of
public transportation: Transporting people to the places they need to go at an affordable price.
The fragmented, deregulated, artisanal private sector delivered on this goal without requiring
much public financing, and without tasking public officials with oversight responsibilities.
Expanding the capacity of the state in Santiago was thus a triple-sided challenge for authorities:
Forcing private operators to address second-order goals of public transportation, expanding
institutional capacity to monitor their performance, and finding alternative ways of compensating
them for their improvements. Each of these tasks is important but insufficient. It is through their
simultaneous development that the typically adversarial relationship linking private and public
actors in this industry, can transition into a cooperative joint effort, where each side pushes the
other into meeting its end of the bargain. The story of how this developing world city gained the
capacity to use transportation policy as a tool for urban planning is of course evolving. The
system still has many flaws, and will continue to be periodically challenged. However, one thing
969 The average speed in public transport in Santiago is 14.5 km/h, vs 13.8 km/hr in Mexico City. For the full report, see
(BRT-Across Latitudes and Cultures 2012)
970 All of these figures were provided by Raimundo Cruzat, who served as Coordinator of Transantiago in 2011.
377
is clear. This bold, ambitious, transformative reform process has the potential of inspiring
planners across the developing world, and to serve as proof that transforming urban transport in a
developmental context is a feasible and worthwhile goal.
378
Chapter 4: Conclusion
The two preceding case studies laid out in detail the complex challenges faced by public
authorities seeking to expand the transportation planning and regulatory capacities of their
governments amidst a context of scarce fiscal resources and weak institutions. Regardless of
different ideological and normative preferences held by government officials in Mexico City and
Santiago, the money and rules dilemma initially cornered both cities into tolerating a quasi-
informal, loosely-regulated and highly-fragmented private industry that was able and willing to
cover the mobility needs of the public without requiring high fares or public subsidies. Despite
the instrumentality of nurturing this industry structure, government action grew increasingly
constrained as a result, particularly as the focus shifted toward second-order concerns such as air
quality and congestion. The incumbent private transport operators lacked the technical
capabilities, the access to financing and the organizational strength required to pursue more
stringent service standards in a cost effective fashion. In an attempt to disrupt this equilibrium,
both cities attempted to "modernize" the incumbent private transport industry through the
introduction of disruptive transport innovations, such as BRT, heralded as tools to expand the
government's transportation planning and regulatory capacity. This conclusion seeks to step back
from the rich details of both cases and to outline the factors that explain why Santiago proved
more successful than Mexico City in meeting this goal.
Transportation planning capacity as a function of public-private collaboration
Our starting point for analysis is a resource-constrained and institutionally-weak state,
where the private sector already supplies the lion's share of transportation services with little
government direction. The challenge for public authorities in such a city is to extend the reach of
the state into what has practically become a private transaction, and to get suppliers to accept
regulation of services so as to achieve second-order goals. To be sure, the basic transaction that
underlies public transit services, i.e., paying a fare to a stranger to take you where you need to
go, can function well without much state involvement and in fact pre-dates the modern state. 971
971 The earliest documented reference to public transit is found in Greek funerary vases dated in the middle of the first
millennium BC. According to the story shown on the vases, later detailed by a many Greek authors, such as Aristophanes
and Virgil, a mythical ferryman named Charon would take recently departed souls across the river Styx to meet the god
Hades, in exchange for a fare. We do not know if the gods took the place of the state regulating the service, but the literary
references suggest that Charon was free to modify the fare or refuse service. See Grinsell 1957, 260-263.
379
Given that people need to move around the city to solve their basic needs, we can expect a
market for "first-order" transportation services to develop organically. The characteristics of the
services available in this market are of course established by suppliers seeking to maximize their
gains with negative collective impacts usually unaccounted and socially desirable features of
service undersupplied. This state can only gradually insert itself as mediator in this private
transaction, walking a very thin line: on the one hand demanding socially desirable service
standards and on the other ensuring that compliance with these standards does not render
services unaffordable. Striking this regulatory balance is difficult and often places governments
in the position of either subsidizing services to entice private-sector compliance or tolerating
lower service-standards to maintain transport alternatives affordable and available. As previously
described, this tension has on occasion led governments to directly take over the provision of
public transport services or to forcefully evict incumbent private operators unwilling or unable to
meet the expected standards. The cases included in this dissertation demonstrate how, once the
dust from conflict settles, the money and rules dilemma typically forces public and private
stakeholders to come back and repair their relationship. The reason is that weak states need the
cooperation of a vibrant private-sector to cover the "first-order" transportation needs of the
public, particularly in the context of resource constraints and rapid demographic, economic and
spatial urban growth. In this way, for example, the quest of Chilean authorities in 1968-1970 and
of Mexican authorities in 1978-9 to revamp the public transport industry drawing on strict
regulation, direct service provision and centralized government control soon proved financially
unsustainable, laying the groundwork for the arms-length approach that resulted in industry
deregulation in both cities during the eighties, which soon created its own set of problems. This
confirms that, as Gwilliam aptly suggested, the regulatory cycle in bus transportation "is never
complete."97 2 Thus, rather than refocusing on the long identified cyclical shifts between public
and private provision of services and strong and lax regulatory regimes, this thesis sought to
contribute to our understanding of how the state negotiates strategically (or not) with private
972 Gwilliam, 2008, 1192.
380
Conclusion
operators, particularly as it expands its policy aims beyond the basic task of managing
mobility.973
Seen jointly, the Santiago and Mexico City cases suggest that given a context of scarce
resources and weak institutions, public-private collaboration continues to be the key. These cases
also demonstrate, however, that, as the aims of this collaboration extend beyond mobility and
towards second-order goals, the public-private relationship grows significantly more demanding
and is more prone to conflict. The reason is that the pursuit of second-order goals requires private
operators to behave in ways they would not choose independently. It requires them to make
costly investments, to accept more intrusive government intervention, to optimize their
operations and to fundamentally revise their way of doing business. Governments need to be
much more proactive, not only to gain acceptance to its proposed reforms, but even to ensure that
private operators come to the table to discuss them constructively. In short, the cases studied in
this thesis suggest that public-private collaboration to pursue second-order transportation
planning goals is contingent on the willingness and need for both parties to come to the table in
order to safeguard their own relatively autonomous interests. Such propitious conditions do not
emerge spontaneously and need to be manufactured. They require the existence of a "table," an
institutionalized forum where public and private actors discuss terms and make binding
commitments, and through which trust, defined as the willingness to take increasing risks on
behalf of the reform project, and fear, defined as the awareness that non-collaboration is costly,
can materialize and develop. Among the factors that structure/condition/affect the state and the
private providers' willingness to come to this table to negotiate an outcome are the following:
Transparency of financial resources invested by the state The transition from a
deregulated to a regulated service modality and the extension of policy goals beyond mobility
come with costs attached. While it is impossible to generalize based on only two cases, the
973 The suggestion of looking at the evolving negotiations between public and private actors to understand transportation
policy is in fact rooted in the broader planning and policy literatures. In "Governing the Commons," Ostrom identifies two
general types of "metaphors" that policymakers propose as solutions to problems of collective action: Leviathan (everything
should come under central control), or privatization, warning us that both sides are "too sweeping in their claims" (Ostrom,
1990, 14) and that their effectiveness is both changing and context-dependent. As Kim persuasively argues, "problems in
planning do not originate in the false choice between state and market or public or private, they lie in the question of how to
negotiate such dualities" (Kim, 2011, 329).
381
evidence suggests that public authorities that expect these costs to be borne solely by the private
sector through efficiencies set themselves up for disillusion. Not only do these authorities come
to the table at a significant disadvantage, but, perhaps more importantly, they relinquish a major
source of leverage. To be sure, the cases presented in this thesis suggest that governments that
have access to public subsidies, authority over fare increases and/or access to low-cost financing
are able to elicit more cooperation from operators. And consequently, when loans, fare increases,
subsidies of other sources of financing made available to the private sector by government
authorities are transparently linked to the pursuit of second-order goals, public and private
operators find themselves needing to collaborate, if only to present the public paying higher fares
or the body authorizing the subsidies (such as Congress) with reasons to keep these financing
lines open in the future.
Technocratic capacity Similarly, moving away from artisanal service delivery requires
private operators to develop professional management skills, and government regulators to
develop bureaucratic capacity to monitor and enforce standards. This implies that in order to
jointly pursue second-order goals, both types of stakeholders need to acquire technical
capabilities that previously were not needed. Collaboration is contingent on the ability to speak
"a common language," of jointly identifying the metrics that are worth monitoring, and of
agreeing on the standards of success. The importance of technocratic capacity is most evident
when we consider the long run -i.e., not only the negotiation to implement a particular project
like a BRT corridor, but the permanent, everyday interactions taking place to monitor the extent
to which the objectives of such projects are in fact being met and to adjust performance
accordingly.
Degree of corporatization of the industry The roles of trade-association leaders and of
public transport entrepreneurs are often non-compatible. The former is supposedly charged with
representing the interests of members, while the later is concerned with increasing stockholder
profits. The more atomized vehicle ownership in the industry, the more difficulties faced by this
critical actor to make efficient, pragmatic, binding decisions. In other words, the degree of
corporatization of the industry determines the quality of the interlocutors participating in
discussions at the table and affects whether the reforms can be pursued city-wide or, rather,
382
Conclusion
limited to concrete, clearly-bounded projects where cooperation is assured. This does not mean
necessarily that transport-operator associations have to become corporate firms as a prerequisite
of collaboration. Rather, it means that, when leaders of the transport associations have authority
to make decisions on behalf of members, even if informal, collaboration is easier to establish.
Political embeddedness of the state with the incumbent operator industry Quasi-
informal transport operators develop linkages to the political regime governing the city. They are,
after all, an organized interest-group working in the context of a pluralist democracy. This
relationship can mediate the disposition to collaborate, and perhaps more importantly, limit the
autonomy of government to pursue disruptive reforms. The cases indeed suggest how alliances
between transport operators and government officials often had little to do with transport-related
concerns. One key example that we can highlight from the cases is how the close alliance of the
Mexican labor movement with the governing regime shaped the history of public transport in
Mexico City, creating a culture of political reciprocity between "informal" operators and the
state. In contrast, the destruction of the labor movement by the military regime in Chile crafted a
different path for the democratic governments that later pursued forceful strategies of reform.
Competitive context The depth of public private collaboration also depends on whether
or not there are alternative service suppliers interested in entering the market. That is, can
uncooperative or underperforming incumbent operators be replaced? The availability of well-
capitalized, professional and ready-to-go competitors certainly strengthens the position of public
authorities, who can only then credibly threaten operators with eviction. Similarly, conflict-
averse authorities may offer to shield operators from competitive pressure (and to assume the
resulting higher costs) as a way to entice their participation. Regardless of the intention to force
or to foster collaboration, the cases in this thesis suggest that authorities can deliberatively tweak
the conditions under negotiation to shape the competitive context.
Political context As mentioned, governments are not unitary bodies able to reach
internal consensus automatically. Just as the degree of corporatization influences the capacity of
private actors to make credible and efficient decisions, the political context influences the forces
383
that shape government authorities' attitude toward conflict or collaboration. Who are the
constituencies served by the public decision-makers in this particular case? Are they national or
local populations? Similarly, what is the degree of autonomy to make decisions relative to other
governing bodies? i.e., vis-A-vis other levels of government (city, state, national), other
administrative bodies (transport ministry, environment ministry, mayor's office, subway
company etc), other jurisdictions (metropolitan, neighboring municipalities, etc?). Finally, are
there critical junctures approaching, such as a change of administration or an election? The cases
reviewed in this dissertation clearly show how public transport reform is permanently embedded
in a political context that strongly influences the outcomes.
A key finding is that all of the previously noted factors that influence the likelihood of
public-private collaboration can be developed over time. There is a clear role for government
agency: authorities can extend the reach and aims of collaboration by cultivating propitious
contextual conditions. In other words, the willingness to take on increasing risks on behalf of the
reforms (i.e., trust) and the awareness that non-collaboration is costly (i.e., fear) are acquired
through experience. Collaboration begets collaboration. Once private stakeholders realize that
they have more to gain from participating in the reform efforts than from protecting the status
quo, then their relationship with public authorities becomes less adversarial and transactional.
This framing assumes that the capacity of public and private sector actors change over time,
simultaneously, as they adapt over the course of their negotiations, adjusting the prevailing
business model and modifying the structure and composition of their industry to meet more
stringent service demands. So, given all of the above, why was Santiago more successful than
Mexico City?
Contrasting planning capacity in Mexico City and Santiago
To highlight the differences, we begin by noting a few similarities. First, deregulated/
privatized public transportation only became a problem in need of a solution when authorities
switched their focus from first- to second-order transportation concerns, and this only happened
as these cities grew spatially, demographically and economically. In fact, the deregulated/
privatized public transportation system made a substantial, positive contribution to the transit
dependent public in both cities, offering ubiquitous, flexible service without requiring hard-to-
sustain subsidies or sophisticated oversight capabilities from the government. The incumbent
private operators of both cities extended the reach of government-run services, entered hard to
384
Conclusion
reach areas, and responded with relative ease to changes in service demand.974 They grew
ubiquitous precisely because they solved a real social need. Even when the quality of their
services lagged, the constituency of users actively demanding change and the interest of public
authorities to pursue reforms were systematically weak. It is not surprising that transit users did
not play an active role in the negotiations shaping the standards of service. To be sure, the public
mattered, indirectly limiting the choices available to governments sensible to opinion polls.
However, as long as the affordability and accessibility of transit services were maintained, i.e., as
long as private operators addressed first-order demands, unhappy users in both cities could be
classified in two groups: on the one hand were those who could afford an alternative means of
transportation and who typically preferred to express their dissatisfaction by choosing, in
Hirschmanian terms, "exit" over "voice." They switched to modal alternatives (such as a car)
instead of mobilizing politically to demand public transportation reform. On the other hand were
transit-captive people who, lacking options, tended to "resign themselves to inferior levels of
service if they have nothing with which to compare their experiences and have no basis for
thinking that they deserve any better."975
In the same vein, public officials seemed for a long time satisfied with an industry
structure that under-emphasized second-order concerns. After all, the cartel significantly
facilitated the jobs of planners and regulators by injecting a minimal level of rationality to the
system. Quasi-informal route associations conveniently determined the location of terminals,
decided on the frequency and dispatch of vehicles, monitored service, programed maintenance,
penalized underperforming drivers, maintained a registry of vehicles and conducted many other
important functions at no cost to governments. 976 It also enhanced the ability of local authorities
to pursue incremental reforms, as the hierarchical structure of bus-operator organizations
provided a relatively binding mechanism to make service-related compromises and to extract
commitments from thousands of industry participants.977 In addition, maintaining individual
974 As noted by Cervero and Golub, these transport operators "are consummate gap fillers": "They allow car-less,
disadvantaged individuals to reach jobs, buy and sell produce, and access medical care. They also enlarge labor-sheds,
expanding the supply of workers across many skill levels from which firms and factories can draw upon"(Cervero and
Golub, 2007, p. 456).
975 Lipsky, 1980, p. 53)
976 de Soto, 1989; Hernandez 2007.
977 For an example, see Davis, 1994, 141.
385
transport operators in the "grey area" of informality was occasionally useful as a tool for political
control, as the selective enforcement of rules allowed the state to govern the system by
occasionally and selectively leveraging its ability to choose winners and losers among vast
numbers of operators and associations.
Beyond direct benefits to users and public officials, there were important social
advantages to tolerating a quasi-informal and fragmented industry. This labor-intensive transport
industry offered a reliable source of employment to large numbers of low-skilled individuals in
the context of profound economic restructuring.978 Government authorities were certainly not
keen on meddling with the proven means by which the poor accessed employment and services,
especially given the uncertainty about the availability of an alternative that achieved the same
outcome while also preventing negative impacts, such as accident rates, congestion and air
pollution.979 In sum, maintaining the status quo and under-emphasizing second-order concerns
was for a long time a sensible policy in both Mexico City and Santiago, which manifested itself
through an instrumental partnership between public and private actors committed to maintaining
the status-quo, or to very slow, incremental change.
Both cases, however, also demonstrate how a hands-off approach to public-transport
planning and regulation becomes increasingly problematic as developing world cities grow and
develop. As both Mexico City and Santiago grew spatially, demographically and economically,
the travel needs of their surging populations changed dramatically. On the one hand, the spatial
characteristics of the expanding cities forced people to commute longer distances, 98 0 and the
growing spending capacity of their inhabitants was reflected in an increased number of trips.
Government efforts to directly provide public transport services, running buses and operating
subways, and to expand road infrastructure to accommodate increasing numbers of cars proved
prohibitively expensive and in any case insufficient to cover demand, with the result that the
informal transport network soon became not only a complement but the true backbone of urban
transportation services in both cities. This happened precisely as second-order concerns, such as
978 For example, see Rizzo, 2011. Figueroa (2005, 46) aptly noted how the public-transport industry employed individuals
displaced from their jobs as a result of trade liberalization policies adopted throughout Latin America in the 80s and 90s.
979 Gwilliam, 1997, 173.
980 For example, Escudero and Lerda (1996) estimated that in this period the average length of motor vehicle trips in
Santiago grew by an estimated 1.3% per year.
386
Conclusion
deteriorating air quality, increasing traffic congestion and surging accident rates became staple
features of how citizens experienced urban life.
Governments in both Mexico City and Santiago certainly tried to tighten the rules
governing the quality of privately supplied transit services, a change that put pressure on the
relationship with private operators, but these standards proved hard to enforce against the grain
of the economics of fragmented, deregulated service. As small-scale operators attempted to cut
costs, they under-maintained their vehicles and allowed vehicle fleets to age. Operators also
saved by not paying taxes and by overworking their drivers, keeping them outside of the social
security system. In other words, in order to maintain mobility affordable to users and profitable
to individual vehicle owners, private transport operators transferred many costs of their services
to society, or to future generations, with the implicit or explicit permission of planners and
regulators. This triggered a chain reaction: Bus operators abused their drivers, who in return
abused the vehicles and, most importantly, abused the users, not only by offering polluting,
congesting and unsafe services, but also by continuously exacting value from them: for example,
by retaining "change" or by altering the authorized fare.981 These incentives, combined with
weak regulatory capacity to enforce existing regulations, unsurprisingly resulted in a deeply-
engrained culture of "powerful drivers and meek passengers" (Tomic and Trumper 2005)
Just as rules became hard to enforce, injecting money into the system to facilitate the
pursuit of more ambitious policy aims became increasingly difficult. 982 In fact both cases in this
thesis demonstrate four interrelated ways in which the deregulated and fragmented industry
structure reduced the attractiveness of investing in the public transport system:
a. Lacking clear rules of the game, outside investors perceived higher risks and
refrained from entering the market.
981 See Navarro Benitez, 2005.
982The description of Schipper and Fulton certainly applies to Mexico City and Santiago: "there are often many independent
bus providers, often quite small, surviving on a day-to-day basis. These companies are not able to make major investments in
buses or bus systems. Companies often compete to provide service on the same routes, resulting in low bus-load factors,
poor service for customers, and general chaos on the streets" (Schipper and Fulton, 2002, 48).
387
b. Lacking a way to rationalize service supply, operators already competing in the
market remained barely profitable, not their organizations, but individual bus owners, and
were left with little money to reinvest.
c. Lacking acceptable levels of service quality, users resisted proposals to increase
fares and in fact felt justified in evading fares when possible.
d. Lacking a formal, accountable, consolidated private bus-operator administration,
government authorities were reluctant to direct public subsidies to this service, as this
money was likely to be wasted or appropriated as rents by leaders of bus-operator
organizations.
As public transit in both cites became balkanized and left to self-plan, self-finance and
self-regulate, the understanding of urban mobility as part of an integrated system that is useful
for deliberate, proactive urban planning was essentially lost. Not only did the public/regulated
modes (particularly the subway) face increasing competition from an expanding private/
unregulated system, 98 3 but it became increasingly difficult to link and coordinate transportation
with second-order policies relating to non-mobility concerns, such as land use planning, energy
consumption, air quality, equity, safety, congestion, noise, etc. For example, lacking an integrated
system, passengers in both cities were forced to pay a new fare after every transfer, which
implied that commuters traveling the longest distances, typically the poorest, ended up paying
significantly more. And no system remained in place to cross-subsidize unprofitable services,
resulting in excess bus capacity concentrated in a few highly-patronized corridors, leading to
congestion, and in spotty service in the less-patronized areas, leading to mobility deprivation.984
To be sure, even in this scenario of low funding and lax regulation, government
authorities and transport operators in both Mexico City and Santiago continued to negotiate over
the first-level function of the system. However, the inability to establish and enforce rules and to
raise and distribute resources seriously undermined the ability of policy makers to effectively
move the conversation toward more ambitious goals. Suggestions that operators must
"modernize," for example, by consolidating their operations around fewer and larger vehicles,
983 For example, Kim and Gallent, 1998, 91.
984 As summarized by Gwilliam, "because of the prevalence of externality and spill-over effects, unregulated private
behavior is very unlikely to coincide with any generally acceptable concept of the public good" (Gwilliam, 2008, 1192).
388
Conclusion
corporatizing the ownership structure of their organizations or redefining their routes and service
frequencies to achieve system-level and not vehicle-level objectives were initially met with
fierce resistance. In fact, the opposite tended to occur: "Traditional" bus-operator organizations
were frequently able to leverage their control over rules and money to entrench the status quo
and to expand their ability to extract rents. The reason was that a deeply-rooted business model
had in fact developed around this atomized industry structure. Drivers became the most
entrepreneurial actors in the system, attaining profits that varied according to their ability to
maximize the number of passengers boarding each vehicle. Fare revenues flowed up to vehicle
owners, and then to their associations and federations in the form of membership dues. As a
result, the most powerful actors in this chain, the leaders of the bus-operator associations, also
became the most conservative and risk-averse. They were the least interested in optimizing
services and, in fact, had an opposite incentive to expand their member rolls. Further, only major
events, such as a large and highly-publicized crash, resulted in the cancellation of a license or
contract. In both cities, bus licenses were informally sold or even inherited, without authorization
from the government, and bus license registries were grossly inaccurate. As a result, bus
operators developed a sense of entitlement to continue delivering public transit service. From
their perspective, they did not hold a license awarded and periodically ratified by the state, but an
unalienable right to continue to exploit routes that they owned.985
In this context, the conversation between government regulators and private transport
operators in both cities became circumscribed to bartering fare increases for marginal
improvements, and even these talks were conditioned on an implicit threat of paralyzing the city
through strikes. Rather than negotiating to expand state-planning capacity, transportation
authorities often came to the bargaining table seeking only to maintain the existing system. In
other words, while a crisis occasionally turned the system on its head, early discussions between
government authorities and private transport operators tended to be embedded in a permanent
and evolving process of negotiation over the first-order function of the system. These
negotiations had more transactional than transformative qualities, as the imperative to keep the
system running carried its own political economy. After all, "few governments can impose
(service) regulations and pricing. There are immediate apparent losers: private vehicle owners
985 To be sure, this behavior is not exclusive to cities of the global south. Holders of taxi medallions in many US cities
display a similar sense of entitlement.
389
and transit riders who face higher costs or more inconvenience. There are also apparent losers in
the longer term: transport operators and vehicle and fuel manufacturers, all of whom must adjust
their business practices" (Schipper 2002, 13). Clearly, the state was not omnipotent: its capacity
to execute or modify transportation policies fluctuated over time, varying as economic and
political conditions changed. Demanding higher-order goals at this negotiating table represented
a complex challenge for public authorities, even for those emerging from the authoritarian
regimes that governed Mexico and Chile during the seventies and eighties, since doing so
normally increased the financial and regulatory demands placed on the protagonists. At the same
time, pursuing these goals outside of this table, for example, by using legislation to mandate non-
negotiated service standards, was even more daunting, as it carried the risk of alienating
incumbent private operators and collapsing the system, meaning not only that the capacity to use
transport policy as a tool for sustainable urban planning would remain elusive, but also that the
capacity to deliver minimally acceptable transport services could be lost.
When transport authorities did reach further, demanding costly or threatening standards
of service that addressed "second-order" policy objectives, well organized transport operator
organizations left the table, mobilizing in protest and/or seeking "back doors" to the key
decision-makers able to force the conversation back to merely maintaining the status quo. There
was practically no cost to doing this, as the threat of eviction carried no credibility. Further,
governments are not unitary bodies, and transport operators exploited this to their advantage.
Higher level decision-makers, the mayors, the governors, the ministers of the interior, the
presidents, were often more interested in maintaining governance and political control of the city
and thus prioritized appeasement over disruptive change. When "second-order" policy reforms
did not figure high in the agenda of higher-ranking decision makers, transport officials found
little support from their own government peers, and ended up pressured by politically stronger
operators.
As rising public awareness over second order concerns such as air pollution and
congestion grew, however, authorities in Mexico and Chile during the late 1970s concluded that
forceful reforms were needed to reestablish authority in the sector. Interestingly, they
implemented diametrically opposite policies to obtain starkly similar results. The bet made by
Mexican authorities was in favor of more government intervention, establishing a publicly-run
monopoly provider of bus-services, with the aim of providing "a clean and efficient service,
operating at fixed stops, with good maintenance practices, an integrated fare policy, and well
390
Conclusion
defined routes and hierarchies" (Molinero 2000, quoted in Gakenheimer et al. 2002, 240).
Almost at the same time in Chile, the Pinochet regime placed a contrasting bet in favor of less
government intervention. Consistent with his free market ideology, Pinochet implemented a
series of measures to fully deregulate bus-services in Santiago, assuming that the forces of the
market could discipline private operators into providing better service.986 Paradoxically, the
consequences of such apparently contrasting strategies were roughly the same in both cities: an
explosion of the informal sector, the emergence of a fragmented private bus-industry and a
profound weakening of the state capacity to address second-order functions of transport
policy.987 What emerged in both Mexico City and Santiago was a temporary coexistence of
privatized, deregulated services that prioritized first-order goals and publicly-operated regulated
services that prioritized second-order goals. In the brief periods where resources were abundant,
authorities sought to expand the reach of the regulated network. Most of the time, however,
public authorities struggled to maintain the market-share of the surviving publicly-owned transit
companies, particularly the subway. This challenge alone crowded out other investments and
severely constrained local budgets, often requiring cities to take on substantial debt,988 as
happened in Mexico under President Lopez Portillo or in Chile during the early years of
986 Between 1979 and 1989 the public bus company, ETCE, was dispersed, any individual with a suitable vehicle allowed
to operate public transport services, and fares entirely deregulated.
987 In Mexico City, the publicly run AUP-Rl00 proved unable to sustain quality service at an acceptable cost, and its union
became as conflictive as the union of the defunct trolley company. By the time this public bus company was formally
declared bankrupt in 1995, public authorities in Mexico City had already welcomed a new wave of informal bus-operators
into the system, in what amounted to an implicit deregulation policy, of a scale similar to what was being experienced in
Santiago. In this period of deregulation, low-capacity vehicles flooded the public transport market and established
themselves as the principal mode of transport in both cities. According to 1994 official estimates, 23,247 microbuses and
22,749 combis and sedans offered transportation services in Mexico City's Federal District (Gakenheimer et al., 2002, p.
233). Micros and combis replaced buses as the main public-transport mode in Mexico City, surging from only 6% of total
trips in 1986 to 55% by 2000. In fact, the number of standard-size buses in the MCMA (mostly owned by AUP-R100)
shrunk from roughly 15,000 vehicles at the beginning of the 1980s to a little over 2,500 in 1998 (Zegras et al., 2000).
Notably, the mode-share of the subway decreased in this period, even as the Mexican government continued to invest
significant resources to expand its network. Santiago experienced a similar surge in the number of lower-capacity public
transport vehicles. Just as the Chilean government decommissioned the ETCE, the number of privately-owned buses
operating in the streets exploded from 4,760 in 1977 to a peak of 13,353 by 1991 (Paredes, Sanchez, and Sanhueza, 2001).
And while metro ridership in Santiago did increase in this period, the system's costly infrastructure remained under-utilized,
in 2000, the principal subway line in Santiago carried only 70% of its theoretical capacity at peak hours (Zegras and
Gakenheimer. 2000, 35).
988 See Ingram, 1998, 1025.
391
Pinochet. Over time, and irrespective of the stated policy goals of the government, the mode-
share of public/regulated mass-transit modes inevitably stagnated or shrunk, as public money
was far from enough to keep up with rising populations and sprawling city limits. In contrast, the
privatized/unregulated share of the public transit market continued to fill an expanding void.
This is not to imply that transport authorities were fully disempowered. Ananya Roy
(2009, 83) makes a useful distinction between unregulated systems and deregulated systems,
noting that "deregulation indicates a calculated informality, one that involves purposive action
and planning, and one where the seeming withdrawal of regulatory power creates a logic of
resource allocation, accumulation, and authority." Roy suggests that state actors may make a
studied choice to withdraw from providing and regulating crucial services, such as public
transport, and to allow entrepreneurs from the private sector to take over, but without entirely
foreclosing the option of re-entering the market or of unilaterally changing the rules.989 These
operators are thus left in a permanent grey area, which presumably puts them at a disadvantage if
an authority down the line is willing and able to muster the required support to intervene the
sector, i.e., to "put the tiger back into the cage," as noted by former Minister Correa. In other
words, the reach of regulation can be managed as a thermostat, expanding when fiscal resources
become available and contracting when they are not. Such rationale is in fact consistent with the
way both Mexico City and Santiago authorities rationalized their strategic approach to enhancing
planning-capacity. This may suggest that the apparently chaotic services found in many cities of
the developing world could be due to multi-faceted rationales, and not purely to the
incompetence of government officials.990 Cautious, pragmatic governments gauge the financial
and regulatory resources at their disposal, and attempt to leverage them in the pursuit of marginal
gains. While helpful when the sole objective is to maintain a minimal level of services, and
perhaps even to facilitate the governance of the city, such an ad hoc approach to negotiations is
not necessarily conducive to the type of deep, institutionalized, public-private collaboration that
can support comprehensive, ambitious transportation reforms amidst a context of resource
scarcity and weak institutions.
989 While such deregulation can be an explicit policy, as in Seoul, Korea and Santiago, Chile during the eighties, it also
occurs implicitly, as in Mexico City after the demise of Ruta 100, where informal operators, began to be "tolerated" by the
authorities (Islas Rivera, 2000, 315).
990 Perrow explored this issue in his study of the use of power in organizations. He alerts us of "the possibility that what we
see as incompetent performance or policy really reflects what some leaders wanted all along" (1979, 13).
392
Conclusion
When the democratically elected governments came into office in Santiago in 1990 and
in Mexico City in 1997, authorities found a deeply-engrained tradition of transactional
negotiations, limited mostly to mobility concerns. While authorities in both cities acknowledged
the importance (and need) to expand this collaboration to second-order concerns, the context was
not propitious for radical reform. Resources were scarce, particularly so in the case of Mexico
City, where authorities could no longer count on the periodic economic backing of the federal
government. Technocratic capabilities were low, especially in Chile, where the Transport
Ministry had long been hollowed by a dictatorship committed to a small government. In both
cities, the industry-structure was deeply atomized, albeit paradoxically the hierarchical, "cnpula"
structures developed under the PRI in Mexico and the strong federations of associations that
dominated service in Santiago initially suggested that the authorities could establish city-wide
policies by negotiating with a few individuals. Further, these governments marked the end of two
long regimes. As such, the incoming authorities were not deeply embedded with the incumbent
transport-industry, which presumably granted them a window of opportunity to be forceful
without hurting political allies. However, the broader political context was such that these
democratically-elected governments were not inclined to a public standoff with operators, and
the competitive context of the industry suggested that only the incumbent operators were
interested in this industry.
The Chilean tendering processes from the nineties reflect in fact a gradual strategy to
create the conditions for a more profound public-private collaboration. The case-study suggests
how during this period, the MOTT reasserted its authority while simultaneously empowering the
transport operator organizations. While later dismissed as timid, or worse yet, as the "legalization
of the cartel," the reforms pursued were non-threatening to individual vehicle-owners, and in fact
resulted in a significant round of subsidies to replace old vehicles with newer ones. Further, in
this period the Chilean government established a strong cadre of technocrats charged with re-
imagining urban transport in the city and commissioned several studies on how to "modernize"
the incumbent transport industry. In contrast, the policies pursued soon after democratization in
Mexico City complicated rather than enhanced the plausibility of collaboration. To begin,
authorities from the left-leaning PRD pulled the plug on the area-based contracts awarded by
their predecessors and reduced their scope to route-based contracts. This, combined with the
decision to disempower the "cipulas" as interlocutors to the government, seen as part of the PRI
393
electoral machine, reduced the likelihood of city-wide, binding agreements. SETRAVI lacked a
technically capable arm similar to Chile's SECTRA and remained more focused on negotiating
immediate conflicts rather than on producing a technically robust and financially-feasible vision
for the future. Further, resource constraints were such that the vehicle substitution program
championed by Cirdenas had only marginal impact.
By the year 2000, the structure of the transport industry was notably different in Mexico
and Santiago. While vehicle ownership was similarly atomized, in Santiago the leaders of the bus
operator federations concentrated immense power, while in Mexico City caipula leaders faced
dissidence in each individual route. To be sure, this implied that the incumbent transport industry
was significantly more cartelized in Santiago than in Mexico City. It also implied, however, that
conditions were more propitious for collaboration. The introduction of Metrobns and of
Transantiago as an idea generated resistance in both cities., In the case of Transantiago, however,
the critical task was disciplining the leaders of the cartel, whereas in Mexico it was about
mitigating potential harm to hundreds of individual vehicle-owners. This is a powerful reason
why Santiago was able to pursue city-wide reforms, whereas Mexico City has been limited to
select corridors. It also explains why, in the case of Santiago, the need to pay for collaboration
has decreased. For example, the tender process of 1992 resulted in vehicle-substitution subsidies
for US $14 million, whereas later reforms have no longer included financial payments for
individual vehicle-owners. In contrast, the financial model of each new Metrobnis corridor was
structured to yield guaranteed revenues, not for the firms as a whole, but for each individual
vehicle-owner-turned-stockholder.
Fear, the realization that non-collaboration is costly, is much more evident in Santiago
than in Mexico City. In fact, the subway-feeder contracts tendered in Santiago in 2002
demonstrated the willingness of authorities to evict incumbent operators not inclined to meet the
required standards. Further, the intense promotion of the Transantiago project among credible,
internationally-renowned competitors certainly influenced the competitive context. Instead,
incumbent bus associations from Mexico City continue to negotiate with authorities with the
premise that their "rights" over a particular route will be acknowledged and respected. While this
constraint was been recently relaxed, Mexico City has yet to organize a single competitive
process to choose its own operators. Trust, the willingness to incur in risks on behalf of the
reform project, seems paradoxically more established in Santiago than in Mexico City. In fact,
private operators of Transantiago accepted 19 contractual revisions between 2004 and 2012, with
394
Conclusion
most of the changes benefiting the government. This is perhaps associated with the fact that
Chilean authorities staked their personal prestige and even their personal patrimonies in order to
obtain the financing required to keep the project afloat. The use of the rare Constitutional 2%
provision to bypass congressional authorization to subsidize the system is testament of the
willingness of government authorities to incur risks. In contrast, the concession contracts of
Metrobnis operators become quite rigid once signed, and their most important premise, a
guaranteed level of profits for individual stockholders, remains in full force.
Another mediating factor explaining the different fates of Metrob-ds and Transantiago is
the fact that the project was championed by local authorities in Mexico City and by national
authorities in Santiago. This difference is of course a recent development, as only after
democratization did the role of the national government in local transport recede significantly in
the case of Mexico City, making the mayor and the local Transportation Ministry the key actors
currently shaping local transport policy. In contrast, the national government continues to be
overwhelmingly dominant in the case of Santiago, where the President and the national
Transportation Ministry remain the most visible protagonists on behalf of the state. National
authorities have broader constituencies and are therefore less concerned about the local political
fallout from service disruptions, or about the financial implications of a particular project. They
also have access to more sources of financing and thus tend to be capable of more "forceful"
strategies. In fact, we must recall that it was national authorities in Mexico City who made the
decision of forcefully municipalizing private bus operations and of establishing a publicly-run
bus company in 1981. Similarly, we should to acknowledge that attempting a reform process of
the scale of Transantiago in Mexico City would require a kind of metropolitan collaboration that
seems unimaginable today, given the competing jurisdictions of authorities in the Federal District
and in the dozens of municipalities that surround it.
Chile was more successful than Mexico City, because the actors that came to the table
previously safeguarded their own relatively autonomous interests, and created an environment
that was conducive to the pursuit of more ambitious goals. As a result of the reforms that began
in the nineties, the Chilean government emerged (1) more technically capable to monitor and
enforce standards, (2) better able to secure subsidies to entice private-sector collaboration and to
use as leverage subsequent negotiations and (3) more capable of making credible threats of
eviction to uncooperative or underperforming operators. Similarly, private operators, and more
395
explicitly the leaders of the incumbent transport operator associations, emerged (1) more
autonomous from individual vehicle owners, (2) less fearful of eviction (contingent on
participation) and (3) convinced of their capacity to obtain the required financing to modernize
their operations. This process was of course a long-term, complicated, and conflictual process
that was mediated and affected by a range of forces and conditions related to politics and to the
urban structure. As this process unfolded, however, the private transport industry of Santiago was
able to expel those members that were still committed to the "traditional" business model, and to
empower those predisposed to "modernize," while at the same time providing a malleable
transition-window and somewhat soft tendering rules to minimize as much as possible the
potential harm to individual vehicle-owners and to guarantee the permanence of most of the
incumbent operators in the new system.
Mexico City seems less successful, because previous negotiations actually endangered
the relatively autonomous interests of the participants at the table, particularly because the two
sets of forces,-public and private, were institutionally and politically allied/embedded in each
other. The reciprocal relationship of patronage and political support that emerged under the PRI
was certainly instrumental to maintaining extensive transit services across the city, but in fact
had little to do with transportation. As a result of the failed attempt to privatize services after the
demise of AUP-R100, and of the weakening of the PRI-networks, the democratic governments of
Mexico City found themselves unable to attract private investment into the industry and
surrounded by a profoundly fragmented and conflicted incumbent industry. Lacking money to
resuscitate the publicly-operated bus company and interlocutors able to make city-wide
commitments, authorities scaled down the ambitiousness of their aims, settling for intervening in
only one corridor at a time, deliberately structuring the business model of Metrobn's to avoid
conflict with potentially-affected operators, and leaving system-wide integration for better times.
The above should not suggest that Santiago is without its flaws. In fact, Transantiago
serves as a powerful proof that expanding planning and regulatory capacity to address "second-
order" goals implies costs that eventually make their way to the price of fares or to the amount of
public subsidies required to operate the system. In other words, there is no free lunch.
Interestingly, the fact that the desirability of these expenditures has been intensely debated in
Chile has in turn empowered regulators and created a shared sense of urgency at the table about
the need to continue to improve performance. In contrast, the still-manageable but certainly
growing subsidies required by Metrobiis are hidden in a black box and often spent at the expense
396
Conclusion
of the only publicly run BRT operator. As such, no political debate about the desirability of
public subsidies for Metrobnis is taking place in Mexico City, and thus public and private
stakeholders have neither a mandate nor a sense of urgency to improve the level of service.
Further, it is not clear what the future may hold. A pessimist could plausibly argue that
Transantiago is similar to Mexico City in 1981, when public transportation services in the city
were integrated under strict government control. Perhaps Transantiago's costs will continue to
increase, to the point that authorities are eventually forced to "tolerate" out-of-network services,
once more opening the door to loosely-regulated, quasi-informal services as a strategy to
navigate the money and rules dilemma. An optimist, however, could also make the case that
Mexico City today is reminiscent of Santiago in 1992, when the cautious first steps of a
tremendously ambitious transformation were initially taken. Perhaps current Mexico City
authorities will soon find a financially sustainable way to expand the regulatory model of
Metrobn's beyond the few corridors that are physically suited for BRT operations. Perhaps the
integration of the collective taxis, the Metrobis and the subway is not a far-fetched dream.
In concluding
While the basic task immediately facing transport authorities across the developing world
is certainly about enabling people to move efficiently from their origins to their destinations,
government planners and regulators can also strive to influence individual behavior and advance
social goals by reshaping the existing urban context and improving the transportation alternatives
available to the public. In principle at least, governments may actively use transportation-policy
to guide the direction and manner in which cities grow, to reduce the negative externalities
associated with individual transport-decisions, and to harness the positive spillovers presumably
associated with modal alternatives. In other words, transportation policy may be ambitiously
used as a tool for sustainable urban development. 991 However, pursuing these "second-order"
functions demands significant planning and regulatory capacity from government authorities.
While individuals may be capable of solving their transportation needs with little intervention
from the state, "second-order" functions of transport policy deal with "wicked" problems that are
difficult to define, contain an interconnected web of sub problems, and imply solutions that are
991 Sustainable development indicates an interest linked to improving human welfare, satisfying basic human needs,
protecting the environment and future generations, promoting social equity and encouraging civic participation in decision-
making (Lafferty and Meadowcroft, 2000, 19).
397
costly and uncertain to succeed.w2 This thesis has shown how tackling them effectively requires
sustaining multi-stakeholder engagement, commitment and coordination, while simultaneously
challenging the values and established patterns of behavior of many of the same stakeholders.
Further, the promised outcomes are composed mostly of intangible social benefits that the
private sector cannot easily monetize and that, in any case, are only likely to materialize in the
long-term. Only a capable state, sufficiently autonomous 993 to resolve collective action problems
and transcend individual interests, and sufficiently embedded in society to establish legitimate
priorities and enlist the committed collaboration of competent and qualified private sector
partners,9 4 can effectively use transportation policy as a tool for sustainable urban development.
While complex and daunting, the challenge of expanding transportation planning and regulatory
capacity in the cities of the global south remains a worthwhile and urgent pursuit.
992 For a discussion on "wicked problems" see Rittel and Webber, 1972; and Chrustie et al., 2010.
993 By autonomy, I refer to the ability of the state "to formulate and pursue goals that are not merely reflective of the
demands interests of social groups, classes or society" (Skocpol, 1985, 9).
994 The critical importance of combining state autonomy and state embeddedness to achieve effectiveness is a seminal
contribution of Peter Evans. As he put it, "only when embeddedness and autonomy are joined together can a state be called
developmental" (1995, 12).
398
Appendices
Appendix A. Public Subsidy to Transantiago under the
Concertaci6n
Public subsidy to maintain Transantlago operations
2007-2011 (CKL$, million)
Date Source Amount
Jul-07 Fiscal contribution Law No 20.206, 2007 52,000
Aug-07 Fiscal contribution Law No 20.206, 2007 21,000
Sep-07 Fiscal contribution Law No 20.206, 2007 23,000
Oct-07 Fiscal contribution Law No 20.206, 2007 12,000
Nov-07 Fiscal contribution Law No 20.206, 2007 33,400
Dec-07 Fiscal contribution Law No 20.206, 2007 9,400
Sep-08 Constitutional 2% Funds, 2008 33,900
Oct-08 Constitutional 2% Funds, 2008 50,621
Nov-08 Constitutional 2% Funds, 2008 53,682
Dec-08 Constitutional 2% Funds, 2008 49,120
Jan-09 Constitutional 1% Funds, 2009 30,934
Feb-09 Constitutional 1% Funds, 2009 21,622
Mar-09 Constitutional 1% Funds, 2009 24,860
Apr-09 Constitutional 1% Funds, 2009 32,836
May-09 Constitutional 1% Funds, 2009 36,367
Jun-09 Constitutional 1% Funds, 2009 32,580
Jul-09 Constitutional 1% Funds, 2009 32,860
Aug-09 Constitutional 1% Funds, 2009 37,290
Sep-09 Subsidy Funds Law No. 30.378 13,722
Oct-09 Subsidy Funds Law No. 30.378 59,756
Nov-09 Subsidy Funds Law No. 30.378 12,433
Dec-09 Subsidy Funds Law No. 30.378 60,745
Jan-10 Subsidy Funds Law No. 30.378 24,815
Feb-10 Subsidy Funds Law No. 30.378 10,911
Mar-10 Subsidy Funds Law No. 30.378 44,024
Total 813,880
US$ 1627.76
Source: Ministerio de Transportes
399
Appendix B. Public officials involved in the implementation of
Transantiago
President Minister of Transportation Under-Minister of Transportation Coordinator of Transantiago
German Correa, PS (Mar/1990-Sep/1992)
Patricio Aylwin, PDC (Mar/90-Mar94) Sergio Gonzdiez Tagle, POC (Mar/90-Mar/94)
German Molina, PPD (Sep/92-Mar/94
Narciso Irueta, PDC (Mar/94-Sep/96) Claudio Hohmann, PDC (Mar/94-Sep/96)
Eduardo Frei Ruiz-Tagle, PDC (Mar/94-
Mar/00)
Claudio Hohmann, PDC (Sep/96-Mar/00) Josi Andrks Wallis, ? (Sep/96-Mar/00)
Caros Cruz, PS (Mar/00-Jan/02) Patricio Tombolini, PRSD, Mar/00-Jun/02) j
German Correa, PS (Mar/02-Mar/03)
Ricardo Lagos, PPD (Mar/00-Mar/06) Javier Etcheberry, PPD (Jan/02-Jan/05)
Aldo Signoreili (Mar/03 - Apr/05)
Guillermo Diaz Silva, POC (Jun/02-Mar/06)
Rodrigo Urzud (Apr/05-Jug,/05)
Jaime Estevez (Jan/05-Mar/06) Isabel Guzman (Jun/05-3an/06)
Danilo Nutiez (JanJ06-Mar/06
Sergio Espejo, PDC (Mar/06-Mar/07) Fernando Promis (Mar/06-Aug/07)
Dandio Nuliez, ? (Mar/06-Jan/08)
Silvio Albarran (Aug/07 -Jan/08)
Michelle Bachelet, PS (Mar/06-Mar/10)
Rene Cortazar, PDC (Mar/07-Mar/10) Elinett Wolf, PS (Jan/08-Apr/08)
Marco Carmacii (Feb/OS-Mar/10)
Raul Erazo, PS (Jun/08-Mar/10)
Ana Laura Covarrublas (Mar/iD-Jul/lU)
Felipe Morande, independent (Mar/10-Jan/11)
Sebastian Pihera, RN (Mar/10- Gloria Mutt, Independent (Mar/10- Raimundo Cruzat (Jul/10-Oct/11)
Pedro Pablo Errazuriz, independent (Jan/11-)
Patricio Perez (Oct/11-
Concertaci6n: PDC- Partido Democrata Cristiano; PS- Partido Socialista; PPD- Partido por la Democracia' PRSD, Partido Radical Socialdemocrata
Alianza: RN-Renovacion Nacional
400
Appendix C. List of interviews in Mexico City
Positions held / Organization Case study Date
Herrera, Arturo
Bejos, Jos6 Miguel
Serrania, Florencia
Padilla, Jesfis
Lobo, Adriana
Gutirrez, Luis
Molinero, Angel R.
HernAndez, Mario
Serranfa, Florencia
NWflez, Felipe
Gonzmlez, Luz Elena
Ruiz, Luis
Villegas, Alejandro
Puchet, Rodrigo
Calder6n, Guillermo
Moreno, Arturo
Government official
Private sector
Government official
Transport operator
NGO
NGO
Government official; Consultant
Consultant
Government official
Transport operator
Government official
Government official
Government official; NGO
Government official
-Government official
Government official; Transport
operator
17 Hernindez, Javier Government official; consultant
Judrez, Encarnacion
Rend6n, No6
Rocha, Jorge
Padilla, Jes0s
G6mez, Nicolbs
Gonzlez Gal&n, Jos6
Herndndez, Agustin
SAnchez Escalante, Joss
L6pez, Enrique
Martinez, Federico
Garcia, Gonzalo
Coxteflica, Jorge
Sheinbaum, Claudia
Navarro, Bernardo
Barragfn, Magdaleno
Mejfa, Martin
Amador, Edgar
Transport operator
Transport operator
Government official
Transport operator
Transport operator
Transport operator
Transport operator
Transport operator
Transport operator
Transport operator
Transport operator
Government official
Government official
Government official
Transport operator
Government official
Government official
35 Blancas, Silvia Government official
36 Quiroga, Mauricio Government official
Fideicomiso Calidad en Vida
Finance Director, Metrobus
Mexico City Mar 18, 2011
Mexico City Mar 18, 2011
interview
Number
Name Stakehokler Type
401
Minister of Finance, Mexico City
Private investor
Director, STE; Director, STC-Metro
President, CISA; President, Ruta 2
Consultant; Director, Centro de Transporte Sustentable (CTS)
Director for Latin America; Embarq
Director of Planning and Regulation, SETRAVI
President, Confederaci6n Nacional de Transporte Urbano y
Suburbano de la Repiblica Mexicana
Director, STE; Director, STC-Metro
President, Ruta 3
Director, RTP
Director of Planning and Regulation, SETRAVI; Minister, SETRAVI
Director of Planning and Regulation, SETRAVI; Manager, Hewlett
Foundation
Advisor to the Director, Metrobus
Director, Metrobus
Program manager, SETRAVI; Operations director, CISA
Module manager, AUP-R100; Chair of the transport engineering
program UPIICSA
Ciipula leader "Nuevo Milenio"; Member of the board, COPSA
Leader ITEC - (Ruta 1 dissidence)
Operations Director, Metrobus
President, CISA; President, Ruta 2
Cfpula leader
Caipula leader
Cijpula leader
Ctipula leader
Operations manager, Ruta 110 (former SUTAUR-100)
Operations manager, CE4-17M (former SUTAUR-1i00)
Director of Metropolitan Transport, ADO/MIVSA
Technical-Operations Director, Metrobus
Minister, SMA
Chief of advisors to the Minister, SETRAVI
President, Ruta 88
Regulation Director, SETRAVI
Undersecretary of Economic Development, Secretary of Finance
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico city
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Mexico City
Jan 18, 2010
Jan 19, 2010
Jan 19, 2010
Oct 1, 2010
Jan 27, 2011
Jan 27, 2011
Feb 25, 2011
Feb 25, 2011
Feb 26, 2011
Feb 28, 2011
Feb 28, 2011
Mar 1, 2011
Mar 2, 2011
Mar 3, 2011
Mar 3, 2011
Mar 3, 2011
Mar 4, 2011
Mar 4, 2011
Mar 6, 2011
Mar 7, 2011
Mar 7, 2011
Mar 7. 2011
Mar 7, 2011
Mar 7, 2011
Mar 7, 2011
Mar 8, 2011
Mar 8, 2011
Mar 9, 2011
Mar 9, 2011
Mar 11, 2011
Mar 14,2011
Mar 14, 2011
Mar 17, 2011
Mar 18, 2011
Appendix D. List of interviews in Santiago
Positions held / Organization Case study Date
37
38
39
40
41
42
43
44
Name withheld*
Name withheld*
Name withheld*
Correa, German
Dosque, Sim6n
Thomas, Alan
Puga, Diego
Minteguiaga, Jorge
Willumsen, Luis
Marinakis, Cristitn
Moya, H4ctor
Roman, Carlos
Cruzat, Raimundo
Urquiza, Alberto
Marinakis, Demetrio
Nogales, Dominga
Etcheberry, Javier
Covarrubias, Ana Laura
Simonetti, Carolina
Huerta, Armando
Panza, Orlando
Mfiloz, Juan Carlos
Cortazar, Renii
MacAllister, Edgar
SAnchez L6pez, Jaime
Grjzman, Isabel
Pinto, Juan
64 Diaz, Guillermo Government official
Concessions department, MOPTT
Metro de Santiago
SECTRA
Minister MTT: Coordinator PTUS
Federaci6n Siglo XXI; Buses Metropolitana; Buses Vule
SECTRA
Finance Director, Transantiago
Steer Davies Gleave
Government official
Government official
Government official
Government official
Transport operator
Government official
Government official
Consultant/supplier to transport
operators
Consultant to transport operators
Transport operator
Transport operator
Transport operator
Government official
Transport operator
Transport operator
Transport operator
Government official
Government official
Government official
Transport operator
Transport operator
Government official/Academic
Government official
Transport operator
Transport operator
Government official
Transport operator
Under Minister of Transport, MOPTT
Interview
Number
Name Stakeholder Type
AGMPT
President, Su Bus Chile
AGMPT
Director, Transantiago,
Country manager, Veolia; General Manager Red Bus
President, Lnea Ovalle-Negrete; President, AGMPT
President, FGDTS
Minister, MOPTT
Director, Transantiago
Transantiago
President, FGDTS
President, Federaci6n Santiago
Advisor to the Minister, MOPTT; Professor, Catholic University
Minister, MTT
Manager, Inversiones Alsacia
Manager, Red Bus; Inversiones Alsacia
Coordinator, Transantiago
Treasurer and President, AGMPT; President, Federaci6n Siglo XXI;
President, Buses Metropolitana
402
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Santiago
Apr 9, 2012
Apr 4, 2012
Apr 7, 2012
Jun 13,2012
Jun 15, 2012
Jun 15, 2012
Jun 18, 2012
Jun 18, 2012
Jun 20, 2012
Jun 20,2012
Jun 21, 2012
Jul 6, 2012
Jul 9, 2012
Jul 11, 2012
Jul 12, 2012
Jul 13, 2012
Jul 17, 2012
Jul 18, 2012
Jul 18, 2012
Jul 18, 2012
Jul 19, 2012
Jul 20, 2012
Jul 21, 2012
Jul 23, 2012
Jul 23, 2012
Jul 26, 2012
Jul 27, 2012
Aug 4, 2012
Appendix E. Abbreviations
Abbreviation Meaning
ADB jAsian Development Bank
ADO lAutobuses de Oriente, SA (Eastern Buses)
AFT jAdministrador Financiero de Transantiago (Transantiago's Financial Administrator)
AGMTP IAsociaci6n Gremial Metropolitana de Transporte de Pasajeros (Metropolitan Passenger Transport Trade Union)
ALSA IAutom6viles Luarca, Sociedad An6nima (Luarca Automobiles, Limited)
AUP-R100 jAutotransportes Urbanos de Pasajeros - Ruta 100 (Urban Passenger Auto-transports, Route 100)
BARTSCE Bloque de Agrupaciones y Rutas de Taxistas (Block of Taxi Routes and Groups)
BRT Bus Rapid Transit
BRT Bus Rapid Transit
C4-17M Corredor Eje 4-17 de Marzo, SA (March 17, Eje 4 Corridor)
CAF Corporaci6n Andina de Fomento (Latin American Development Bank)
CAT Coalicion de Agrupaciones de Taxistas (Coalition of groups of taxis)
CGT jCoordinaci6n General de Transporte (General Coordination of Transport)
CGTr IConfederaci6n General de Trabajadores (General Confederation of Workers)
CISA jCorredor Insurgentes, SA (Insurgentes Corridor, Limited)
CNCF Constructora Nacional de Carros de Ferrocarril (National builder of railroad cars)
CNRT Confederacion Nacional Revolucionaria del Transporte
CODETT Consejo de Defensa de Trabajadores de Transporte (Council for the Defense of Transportation Workers)
COPSA lCorredor Oriente Poniente, SA (East-West Corridor, Limited)
CORFO Corporaci6n de Fomento a la Producci6n (Chilean Economic Development Agency)
COVITUR Comision de Vialidad y Transporte Urbano (Road and urban transport commission)
CROM Confederaci6n Regional de Obrero Mexicanos (Regional Confederation of Mexican Workers)
CTM Confederacion de Trabajadores de Mexico (Confederation of Workers of Mexico)
CTTSA Corredor Tacubaya Tepalcates, SA (Tacubaya-Tepalcates Corridor, Limited)
CUTAC Consejo Unificador de Taxistas (Taxi Driver Unifying Council)
DC Partido Dem6crata Cristiano (Christian Democrat Party)
DDF Departamento del Distrito Federal (Federal District Department)
DF Distrito Federal (Federal District)
ENAP Empresa Nacional de Petr6leo (National Oil Company)
ENTC Empresa Nacional de Transporte Colectivo (National Collective Transport Enterprise)
ENTC Empresa Nacional de Transportes Colectivos (National Collective Transport Enterprise)
ETCE Empresa de Transportes Colectivos del Estado (Collective Transport Enterprise of the State)
EZLN Ejrcito Zapatista de Liberaci6n Nacional (Zapatista Army of National Liberation)
FANALCA Fdbrica Nacional de Carrocerias, Colombia
FCT Federacion de Cooperativas de Taxistas (Federation of Taxi Driver Cooperatives)
FGDTS Federaci6n Gremial de Duefios de Taxi Buses de Santiago (Trade Union Federation of Taxi Bus Owners of
Santiago)
FMT Federacion de Taxistas de Mexico (Federation of Tax drivers of Mexico)
GEF Global Environmental Facility
GMT jGrupo Metropolitano de Transporte (Metropolitan Transport Group)
GTZ German Society for International Cooperation
IADB Interamerican Development Bank
IADB Inter-American Development Bank
ICA ngenieros Civiles Asociados (Civil Engineering Associates)
ICAP fndice de carga promedio (Average load index)
403
ICF Indice de cumplimiento de la frecuencia (Frequency compliance index)
ICPH Indice de cumplimiento de plazas-hora (Seat-hour compliance index)
ICR Indice de cumplimiento de la regularidad (Regularity compliance index)
ITDP Institute for Transportation and Development Policy
MCMA Mexico City Metropolitan Area
MIVSA Movilidad Integral de Vanguardia, SA
MOP Ministerio de Obras Publicas (Public Works Ministry)
MOPTT Ministerio de Obras P6blicas, Transporte y Telecomunicaciones (Ministry of Public Works, Transport and
Telecommunications)
MPI Movimiento Proletario Independiente (Independent Proletarian Movement)
MTT Ministerio de Transporte y Telecomunicaciones (Ministry of Transport and Telecommunications)
NAFTA North American Free Trade Agreement
PHRD jJapan Policy and Human Resources Development Fund
PPD Partido por la Democracia (Party for Democracy)
PPT Pago por pasajero transportado (Payment per transported passenger)
PRD Partido de la Revoluci6n DemocrAtica (Democratic Revolution Party)
PRI Partido Revolucionario Institucional (institutional Revolutionary Party)
PS Partido Socialista de Chile (Socialist Party of Chile)
PTUS Plan de Transporte Urbano para la Ciudad de Santiago 2000-2010 (2000-2010 City of Santiago Urban
Transportation Plan)
RECSA Rey Cuahut6moc, SA
RIT Rede Integrada de Transporte (Integrated transport network)
RN Renovaci6n Nacional (National Renewal)
SAJJ Sdnchez Armas Juan Jos,, SA
SARO Sistema Alimentador de la Red Ortogonal (Orthogonal Network Feeder System)
SECTRA Secretarla Interministerial de Planificaci6n de Transporte (inter-ministerial Transport Planning Secretariat)
SEFI Servicios Especiales de Frecuencia Intensiva (Intensive Frequency Special Services)
SETRAVI Secretaria de Transporte y Vialidad (Ministry of Transport and Traffic)
SIAUT Sistema de Informaci6n y Atenci6n al Usuario (Transantiago Information and attention to users system)
SMA jSecretaria del Medio Ambiente (Ministry of the Environment, Mexico City)
STC-Metro Sistema de Transporte Colectivo-Metro (Collective Transport System-Metro)
STE Servicio de Transportes Eldctricos (Electric Transport Service)
SUTAUR-100 Sindicato Unico de Trabajadores de Autotransportes Urbanos de Pasajeros-Ruta 100 (Unique Union of Urban
Passenger Auto-transport-Route 100 workers)
UDI Uni6n DemocrAtica Independiente (Independent Democratic Union)
UF Unidades de Fomento (Unit of account)
UP Unidad Popular (Popular Union)
VKM Vehicle-kilometer
WRI World Resources Institute
404
MeaningAbbreviation
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