There is one simple thing we expect from public transport: if people need a route, it should be available. In the morning, for example, when people need to get to work. During the day, it should run to the hospital or the Administrative Services Centre. In the evening, people need to get home.

However, if public transport is left to operate solely according to market forces, a problem arises: operators want to make a profit, so they are primarily interested in routes with enough passengers.

But what can be done when travelling to remote towns and villages, particularly in frontline regions, is unprofitable due to low passenger numbers yet critically important?

The Ministry of Recovery, Infrastructure and Transport of Ukraine has drawn up two draft laws on public service obligations (PSOs) for rail and bus passenger transport precisely for such cases.

This mechanism has proven effective in practice across Europe, with many countries using it to cover the difference between social and market fares or the operating costs of loss-making suburban, intercity and regional rail and bus routes, funded by the state.

The principle is simple: the state or community decides which transport services to provide, commissions them from a transport operator, and reimburses the costs of fulfilling this obligation.

This approach is fundamentally different from simply giving the transport operator a subsidy or covering these costs through other sources of revenue.

The community purchases a service, rather than subsidising the transport operator

Imagine that a community needs a bus route from a village to the district centre.

The route needs to run every day, but there are not enough passengers to make it profitable. This raises the question: “Who would want to work on it?” Within the framework of the PSO, however, the question is phrased differently: “How much does a necessary service cost?”

This is particularly relevant now, as security risks mean rail passengers must complete their journey by bus. In such cases, the community, regional administration or state determines the route, number of services, vehicle requirements, timetable, inclusivity and other quality standards.

The operator then undertakes to provide this service and receives payment per kilometre, rather than per passenger, for the work carried out – in the case of a PSO.

A transport operator should never receive less money simply because there were few passengers on a socially important route today.

After all, the task of a transport operator under a PSO is not to seek out passengers in order to recoup the cost of the journey, but to provide the transport service commissioned by the state or community.

How does a PSO work in Europe?

Let me repeat once more: PSO is not a Ukrainian innovation. The compensation mechanism forms part of the European public transport system. EU Regulation No. 1370/2007 establishes the rules governing the organisation and financing of general interest passenger transport services by bus, tram, metro and rail. This regulation allows public authorities to define transport services according to the needs of the population, and to compensate operators for fulfilling their obligations.

Germany is one of the most telling examples.

There, regional authorities commission specific volumes of regional passenger transport from rail operators. This is measured, in particular, in “train-kilometres” in official statistics.

Sweden has used competitive tendering procedures for regional rail transport for decades. This demonstrates how the state can remain responsible for a transport service without necessarily providing it itself. The state sets the rules and defines the requirements. Businesses then compete for the contract. Passengers receive the service.

What will this mean for Ukrainians?

Ukraine needs precisely this change in approach. We must stop viewing passenger transport purely in terms of whether the operator is making a profit on a given route.

Instead, we should ask: “What transport services do people need, and how can we provide them most effectively?”

Under the new system, the community or another competent authority should determine transport needs:

• which routes are required;
• how many trips there should be;
• at what time;
• what type of transport is required;
• what safety and accessibility requirements apply;
• what quality standards the operator must meet.

This would be followed by a tender or another mechanism for selecting an operator, as provided for by law.

For example, if a community commissions ten trips per day on a 50-kilometre route, the contract must clearly state the volume of transport services that the operator is required to provide, as well as the compensation payable to them.

Even if there were 100 passengers on Monday and only 50 on Tuesday, the bus would still have to run the route. This is precisely why payment should not be linked to ticket sales.

This enables transport to be planned as a community service, rather than merely as a list of commercial routes.

However, a PSO does not guarantee funding of any amount

There is another key point here. A PSO does not mean that the operator simply receives money from the budget. In fact, the more clearly the service is defined, the easier it is to monitor exactly what the state is paying for.

What does the passenger ultimately get?

The most important thing is predictability. People need to know that transport will be available regardless, without it depending on whether it is profitable for the operator to run the route. This model has been used in Europe for many years. For Ukraine, this is not just about European integration or meeting the requirements of the Ukraine Facility Plan.

It is about how we spend public funds and what we get in return. We must transition from a model of “helping the transport operator survive” to a model of “purchasing the transport service that people need and demanding that it is delivered to a high standard”.

The focus of the system should not be on the transport operator or the bus. It should be on the person who needs to reach their destination in a predictable, safe and comfortable manner.

The column reflects the opinion of its author only. The author is responsible for ensuring the accuracy of the information. The views expressed in the column may not coincide with those of the editorial staff of the Decentralisation Portal.