Economic Contribution of Public Passenger Transport Organisations—An Application of EVAR Methodology

Abstract

Economic Value Added (EVAR) has immense potential for evaluating State Owned Enterprises as it provides an excellent methodology for capturing social and economic contributions of these organisations, instead of merely going by financial returns. If EVA is applied in private enterprises to correct accounting distortions, in public enterprises it can be applied to correct earnings distortions. In this paper we have attempted to extend the EVA Methodology to a State Passenger Road Transport Undertaking (SRTU) in India. This SRTU is relatively a better performing one on operational parameters though it is loss making. This paper captures the opportunity cost of the following three factors which make significant difference to their performance: 1. Loss of revenue from providing concessional fares to students. 2. Opportunity cost of providing services in interior rural areas. 3. Opportunity cost of providing unviable urban schedules. Motor Vehicle Tax is another factor considered. The analysis shows that EVA reflects better performance of SRTUs than accounting profits. The analysis also shows this SRTU has positive EVA under all alternatives for the six years considered, though it has been loss making according to accounting statements. EVA gives a valuable framework for inter and intra-organizational performance evaluation across SRTUs.