By Jannis Koehn
Last spring, I visited Costa Rica for the first time after more than ten years. What I found most astounding was that the buses that took me through San José and across the country seemed to be the same old models I had seen back in 2000. Haven’t oil prices soared from $10-20 then to $90-110 today? Haven’t manufacturers developed modern fuel-efficient engines since? So why did operators not invest in more fuel-efficient buses? Costa Rica is proud of its 90% renewable power sector and successfully developed an image as a heaven for eco-tourism. Yet, the country’s public transport system lags these ambitions. Today, Costa Rica imports 15-20 million barrels of petroleum products annually, spending around $2-3 billion, and the air in San José is full of diesel soot. The paradox of old buses is a widespread phenomenon in the developing world – and, one could argue, even in some developed countries.
Pictures: Typical city bus (left) and relatively modern long-distance bus in Costa Rica
As an ordinary citizen, I cannot change government policy. But there may be scope for entrepreneurship, social or for-profit. On a lengthy bus trip to the country’s North, I started wondering what the economic rationale for bus operators was that prevented them from investing in new models, and I did some basic calculations. Factoring in basic variables such as annual mileage, fuel economy, diesel prices, bus prices and capital costs, I concluded that investing in more efficient buses would for many operators be economically favorable, at least for long distances. Given that most buses around were still old and inefficient, and unless diesel subsidies or import duties on buses distorted the market, operators may simply not have access to sufficient capital to buy new buses – that is where a startup, a bank or an international institution may help out.
For this article, I researched government policies and refined my assumptions, but the results did not change. Import duties on buses are negligible (<5%), and I did not find evidence for diesel subsidies despite prices of USD 5.00 per gallon. So, long distances more than for city routes, and with used rather than new buses, replacing old buses seems to make sense. Here are the results for different capital costs in one graph.
The underlying back-of-the-envelope calculations look as follows:
So, what can businesses and entrepreneurs do to enable Costa Rican bus operators to make investments that are economically and socially beneficial? As a bus manufacturer, one could provide leasing arrangement to alleviate upfront capital constraints. Volvo or Daimler might also partner with the World Bank or other development institutions to create a fund that bridges capital needs. As an entrepreneur, one may set up a small investment fund, or tap crowd-funding as a source of capital, and lease out the buses. As a Harvard student, one may engage HU’s Shuttle Service and encourage a renewal of buses on campus, recycling the current ones cheaply to Costa Rica. That would also solve another problem: Noisy buses that inhibit quality of sleep here in Cambridge.