College of Urban Development and Engineering

Department of Transport Planning & Management

Course: Fundamentals Of Transport Economics (TPM6031)

Regular Masters Program 2022 2nd year 1st Semester

Individual Assignment

On
Assessing The Pricing strategies in the transport system of Addis Ababa City
The Case Of Oricing Strategies In The Transport System Of Anbesa City Bus

Prepared By: Aklilu Tamirat - ID No. ECSU – 2101613

Submitted to: D/r Kassa Mogos

Jan, 2022

Addis Ababa, Ethiopia

Title/topic: Assessing the Pricing strategies in the transport system of Addis Ababa city
the case of Pricing strategies in the transport system of Anbesa city bus.

Case study: Institutions or associations Anbessa city bus enterprise

1. Introduction

One of the major mode of public transportation in the city is Anbessa bus. Thus, residents of
Addis Ababa have to face great inconveniences, as well as additional costs to the daily trips
to their destinations. Moreover, the insufficient finance for investment by the government
and the limited participation of the private sector in the service has also contributed for
deficiency of transport supply in the city. Public transportation significantly reduces the
number of cars on the road. This means less pollution from motor vehicle emissions. Fumes
produced by vehicles can lead to respiratory diseases. Few cars on the road mean a reduction
in the possibility of these dangerous diseases. Also it provide mobility, can shape land use
and development patterns, generate jobs and enable economic growth, and support public
policies regarding energy use, air quality and carbon emissions.

Transportation fee the expense/cost of stuff that you move from one place to other and it is often
passes costumes. Transportation fare is the fee paid by a passenger for use of a public
transportation like rails, bus and taxi. etc. Addis Ababa is one of the fastest growing cities in the
world, yet is constrained by poor accessibility of city bus services.

Reliable and affordable daily transport is currently just a dream for the majority of the population
who walk or use over-crowded mini-buses to and from work and school and to reach friends and
family. Many more inter-connected modes of affordable, safe, women and children friendly as
well as all-inclusive transport must be implemented to allow all residents in Addis access to the
opportunities and services that are necessary for a better quality of life.

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 2. Type and Nature of the transport pricing strategy of Anbassa city bus enterprise

Control of fares, Anbessa’s access to subsidy and public investment act as a barrier to any new
market entry. However, there is no reason why commercial bus services, operating at a fare
above that of the subsidized services, shouldn’t be encouraged. Existing instruments do not
provide for the control of operators or of owners’ associations. Anbessa operates 93 routes. Most
are radial routes to the central business and commercial areas of the city. The current bus routing
and scheduling plan for Anbessa is prepared internally by the company. The Enterprise currently
transports 730,500 commuters daily for a relatively cheap price, supported by a subsidy from the
Addis Ababa City Administration. The Enterprise currently transports 600,000 commuters daily
for a relatively cheaper fares, with a subsidy from the Addis Ababa City Administration. And
giving transportation services for a very low price. For example, a trip that can cost 3.50 Br
through other transport providers is 1.50 Br. A dedicated fleet replacement and maintenance
program that would provide improvement to an acceptable level will demand, not only a
significant budget allocation, but also commitment of the regulators and other government
bodies (city and federal government) and recruitment of skilled professionals and supporting
technology (Dagnachew, 2007). The bus serves the ten sub-cities of Addis Ababa and
neighboring Oromia towns adjacent to the city via 18 routes. Despite this large number of town
administrations with a vested interest in to the service, no financial support exists to maintain the
enterprise or look after the transit stations and shelters, (Tsegaye, 2015). The city bus has only
four terminals projecting from the city to the sub-cities and the Oromia towns within a 40 km
radius. Compared with the size of the city and surrounding Oromia towns, the number of existing
bus terminals, planning and operation are inadequate (Tsegaye, 2015). A further issue
exacerbating this problem is that the installation and management of Anbessa bus terminals in
the Oromia towns lacks ownership.

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Therefor Anbassa city bus enterprise fallows subsidy-based or Value-based Pricing strategy
which is set in accordance with customer perceptions about the value of the service/product

Currently the fixed and flat fare is implemented in the network system, even though different
routes have different fares. Implementing the fares differentiated by distance and time-of-day
could improve the company' s financial position. Since the government subsidy is decreasing
year by year, the enterprise is looking for cost recovery mechanism.

3. History and current status of Anbessa City Bus enterprise

The Anbessa City Bus started as a share company founded in 1945 and owned by Emperor Haile
Selassie and members of the royal family, before it was nationalized in 1974. It came to be a
public enterprise only after it was re-established in 1994. Anbessa was originally a private
enterprise holding an exclusive franchise for the provision of passenger transport services in the
city, but was nationalized in 1974. The federal government now owns the company, but its
operations are financially supported by the city. The Government of the Netherlands provided
DAF TB2100 buses and support twice through a grant. A first batch of 266 buses came between
December 1995 and October 1997, a second batch of 150 buses was delivered around 2003. In
the year 2013, Anbessa celebrated its 70th year anniversary, having been the first public
transportation service to arrive in Addis Ababa in 1943. The company has lived through a wide
range of changes in Ethiopia's capital city and now has a service that pleases many of its regular
[Link] has recently begun to acquire buses assembled locally by the Metal & Engineering
Corporation, a newly established military industrial complex of the Ethiopian government. It has
included in its fleet more than 500 of these locally assembled buses known as Bishoftu Buses,
which bear the town's name where the assembly plant is located. Anbessa only operates in Addis
Ababa and special zones of Oromia Regional State. Currently, there are around 1000 city buses
under the enterprise. The enterprise also operates 93 routes in and around the capital Addis
Ababa. Each bus has a capacity for 100 passengers (30 seated and 70 standing).

These buses cover a collective distance of 54,000 km daily and provide their services to 1.5
million people, as indicated in the 2006/07 to 2010/11 five year strategic document of the City
Administration. Anbessa has recently performs the key specific activities include the following:

 Ensuring provision of an efficient and economical transport system;

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  Ensuring that passenger transport services are safe and reliable;
 Ensuring that vehicles comply with government specifications, and are roadworthy;
 Performing or overseeing the issue of operators’ and drivers’ licenses, and of vehicle
inspection certifi cates;
 Monitoring passenger and freight tariffs on major routes;
 Maintaining vehicle fleet data;

4. How transport service price/rate is actually being set? (fare levels and structures)

Control of fares, Anbessa’s access to subsidy and public investment act as a barrier to any new
market entry. However, there is no reason why commercial bus services, operating at a fare
above that of the subsidized services, shouldn’t be encouraged. Existing instruments do not
provide for the control of operators or of owners’ associations.

Anbessa only operates in Addis Ababa and special zones of Oromia Regional State. Currently,
there are around 1000 city buses under the enterprise. Different regimes exist for the setting of
fares on the Anbessa buses. In 2009 the Anbassa bus fare from Addis to Debre Zeit cost Birr
3.80 per passenger at a cost of Birr 0.085 per km. Anbassa bus fares are fixed by the company,
but kept as low as possible to make bus transport available to all. Baoth the operational and
financial performances of the enterprise, as compared to the standard, are relatively low in most
of the performance measuring parameters. In the case of operational performance, the enterprise
has experienced low operational performance.

Fare Affordability Studies indicate that 20 per cent of the population of Addis Ababa is still too
poor to afford the standard bus fare (Dagnachew, 2007). In contrast, the stakeholders believe that
the fare of Anbessa city bus is affordable to the lower and middle-income group of the users that
allows them to transit long distances between two corners of the city and neighboring towns. One
of them mentioned, “The fare is affordable to the lower class category of the users.” The bus
service has a system of flat fares for the route with a range varying according to distance, owing

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to the continued willingness of the city government to subsidize the services, in an atmosphere
where fares have long been frozen (Kassahun, 2007; Kumar and Barrett, 2008).

The affordability and long distance coverage of Anbessa is the principal means to connect the
low-income users living on the outskirts of the city to the city centre. On the other hand,
concession is an incentive arrangement to encourage the less privileged groups of the community
such as students, pensioners and people with disabilities to use the available public transport.
(Carruthers et al., 2005). There is no literature or firsthand information indicating that Anbessa
bus has a fare arrangement for different social groups demanding fare concessions, nor was this
mentioned by the stakeholders during the interviews.

Therefore Any new market entry is hampered by the control of fares, Anbessa's access to
subsidies, and public investment. However, there is no reason why commercial bus services,
which charge a higher cost than subsidized ones, should not be promoted. Existing instruments
do not provide for operator or owner's association control.

5. Objective and guidelines of pricing

Anbessa is required to act in a commercial manner, but does not have the freedom to set its own
tariffs. Because it is not profit oriented but it guided by the break-even principles to make
normal profit. It’s price includes all costs, including variable and fixed costs in which neither
makes a loss or profit.

These have effectively been frozen since 1992. The city and national governments have
provided financial and capital support to ensure both its continuing operation and its expansion
to meet growing demand. A subsidy is paid for each passenger carried. However, this subsidy is
being progressively reduced, and the city is committed to its eventual elimination.

Anbessa is unable to make adequate provision for the replacement of its assets from its
operational cash flow, and its business expansion has almost been entirely externally funded.

6. Factors Affecting Pricing of Anbassa city bus enterprise

Factors that Affects Pricing of Anbassa city bus enterprise are the absence of an up-to-date
structure in the enterprise, shortage of finance, and the reduction of subsidy from government are
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the biggest challenge for service improvement. Lack of well-defined performance parameters to
evaluate the operational efficiency of Anbassa city bus enterprise is also a constraint for
development.

With its large bus fleet, Anbassa City Bus Enterprise dominates conventional bus service in
Addis Ababa. Anbassa is legally bound to operate in a commercial manner, but it lacks the
freedom to set fares. These have effectively been frozen since 1992 in the interests of keeping
transit affordable for citizens, a priority of the city government. As a consequence of the fare
freeze, the municipal and national governments have provided financial support for operations
and expansion. In general, a shortage of skilled staff, a lack of proper facilities and ineffective
management, an absence of rationale for pricing, the instability of demand.

Using the data different operational and financial performance analysis was made. With regard to
operational performances fleet utilization. Whereas in the case of financial performances, a much
better measure of the actual utilization of buses which are: profit earned, ratio of cost to revenue,
revenue to labor cost, revenue to fuel cost, revenue to spare parts and revenue to labor cost are
assessed. The comparisons are mad in two approaches to assess the performances of the
transportation system of ACBSE. This is either by comparing with standards or by measuring
and assessing the relative efficiencies if no standards are available.

7. Opportunities and Challenges- Incentive of Subsidies and Political Considerations

Anbassa city bus service enterprise is subsidy-based, transport fare level and fare structure are
in need of Incentive of Subsidies and Political Considerations. As noted, Anbassa fares are
subsidized by the city government, although the level of subsidy has dropped in recent years.
The subsidy is presently 0.10 Birr per trip; the total amount paid is based on records of numbers
of tickets sold. Fares on Anbassa buses are collected by conductors. Paper tickets are used, with
different colors for inward and outward journeys. Ten-trip tickets are also issued. Because tickets
are not sold to passengers before the bus’s arrival, at busy times buses may wait several minutes
as passengers’ board and buy their tickets. And because many passengers must stand it is
common practice for conductors to collect fares from passengers through the bus window before
they board the bus.

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The absence of an up-to-date structure in the enterprise, shortage of finance, and the reduction of
subsidy from government are the biggest challenge for service improvement. Lack of well-
defined performance parameters to evaluate the operational efficiency of the bus company is also
a constraint for development.

From the view of political angel Anbassa buses are subsidized and governed by the prime
responsibility for control and regulation of road transport is the Transport Authority , formerly
named the Road Transport Authority until its remit was widened . The core role of the
Authority’s is to promote an efficient and equitable transport system. Functions and
responsibilities are fully set out in Proclamation No 468/2005. The Authority’s functions are
essentially regulatory, and thus distinct from the overall policy and planning functions of MoTC.

Anbessa was originally a private enterprise holding an exclusive franchise for the provision of
passenger transport services in the city, but was nationalized in 1974. The federal government
now owns the company, but its operations are financially supported by the city.

In 2000 the Ethiopian Privatization Agency earmarked Anbessa for divestiture. In preparation for
this, financial due diligence was carried out by external auditors and a number of
recommendations were made.

Again from a political standpoint, the Addis Ababa anbassa city bus has only been partially
implemented, causing the business to be encumbered. Furthermore, due to severe financial
constraints, the Anbessa City Bus Service Enterprise has been unable to replace outdated buses
with new ones, limiting the quality and scope of its service. The transfer of the enterprise's
accountability to the city administration is being seen as a strategic procedure to rejuvenate the
enterprise's operational capability, even though additional funding requirements remain a critical
issue. However, many factors influence the accessibility of the Ababa Anbassa City Bus Service
Enterprise, including reliability, resource availability and management, stakeholder coordination
and community engagement, private sector involvement, and the transparency and
accountability.

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 Referances:

 Australasian journal of regional studies, vol. 23, no. 1, 2017 accessibility of anbessa city bus
service in addis ababa, ethiopia: an analysis of stakeholder’s opinions
 Anbessa bus to launch new quality transport solution published on june 09, 2013
[ vol 13 ,no 684]
 Integrating anbessa city bus with addis ababa light rail transit: case of merkato terminal
 Evaluation of bus routes performance in the city of addis ababa using stochastic frontier
model article in infrastructure planning review · september 2007
 Performance analysis on public bus transport of the city of addis ababa article ·
december 2013
 An assessment of problems and challenges of transportation and assignment practices:
the case of addis ababa anbessa city bus enterprise
 Ethiopia transportation system improvement project (transip) february 2016

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