UNDP Training Module UNDP Training Module UNDP Training Module UNDP Training Module

Subject Subject Subject Subject ModuleModuleModuleModuleVolume 1 Volume 1 Volume 1 Volume 1 ---- Training ManualTraining ManualTraining ManualTraining Manual

FinancingFinancingFinancingFinancing, Fare Fixation, & , Fare Fixation, & , Fare Fixation, & , Fare Fixation, & FinancingFinancingFinancingFinancing, Fare Fixation, & , Fare Fixation, & , Fare Fixation, & , Fare Fixation, & Cost Benefit Analyses Cost Benefit Analyses Cost Benefit Analyses Cost Benefit Analyses

Section II - Subject Lecture Material

1

Objectives of the Module

• Understand investment needed in the urban transport sector

• Become familiarized with various sources of funding

• Understand the key issues involved in urban transport investment

• Highlight the various public financing schemes

• Become familiarized with the various sources of private sector

financing

• Understand the concept of Public Private Partnership• Understand the concept of Public Private Partnership

• Become familiarized with the concept of financing through

multilaterals

• Understand innovative financing mechanisms

• Understand the concepts involved in setting up fare

• Comprehend the need and process for fare revision

• Understand the concepts of Cost / Benefit analysis , Economic

analysis, and Financial analysis

• Become familiarized with the project preparation process2

What does this module notnotnotnot do

• Provide a panacea for all financing issues facing urban transport in

Indian cities

• Dive into in-depth financial analysis and theories, based on the

principles of finance / economics

• Advocate a particular type of project structuring

• Identify precise skill sets / ways forward for financing urban transport • Identify precise skill sets / ways forward for financing urban transport

projects

• Develop financing plans for any project

3

Who are the intended users of this module

• Policymakers

• Senior-level staff in national, state, and city governments, heading or

managing departments that work in transport and related areas such

as: motor vehicle licensing and regulation, land use and transport

planning, public transport provision (both government and private

operators), traffic management, pollution control, road safety, housing,

and urban poverty alleviation

• NGOs

• Media

4

HANDOUT 1: HANDOUT 1: HANDOUT 1: HANDOUT 1: URBAN TRANSPORT INVESTMENT & FINANCING URBAN TRANSPORT INVESTMENT & FINANCING – NEEDS & ISSUES

5

Rapid Urbanization: 100 Million to 200 Million in the last 20 years

6

. IIHS 2011. “Urban India 2011: Evidence”

Rapid Motorization

Pai, M. 2010. “India Urban Transport Indicators”

7

Road Fatalities

20041 Ischaemic heart disease

2 Cerebrovascular disease

3 Lower respiratory infections

4 Pulmonary disease

5 Diarrhoeal disease

20301 Ischaemic heart disease

2 Cerebrovascular disease

3 Pulmonary disease

4 Lower respiratory infections

5 TRAFFIC ACCIDENTS

Leading causes of premature death in the world:

5 Diarrhoeal disease

6 HIV / AIDS

7 Tuberculosis

8 Lung cancers

9 TRAFFIC ACCIDENTS

10 Low birth weight

5 TRAFFIC ACCIDENTS

6 Lung cancers

7 Diabetes

8 Hypertensive heart disease

9 Stomach cancer

19 HIV / AIDS

90% of traffic fatalities occur in low- and middle-income countries and

involve 70% of vulnerable users of the road8

Pedestrian (51%)Pedestrian (51%)Pedestrian (51%)Pedestrian (51%)

Road Traffic Scenario - Further evidence from Bangalore

0

100

200

0

100,000

200,000

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Road accident fatalities in IndiaFatalities

Fata

litie

s

Fata

litie

s /

Mill

ion

Po

pu

lati

on

Pedestrian activity at the time of fatality

Crossing the road

Walking on the

roadStanding on the

roadWorking on the

roadPlaying on the

road

9

India 2030 Mobility Scenarios: Total Energy Consumed by Mode

3

4

5

6

7

EJ

To

tal

De

liv

ere

d E

ne

rgy

Rail

Buses

3 Wheelers

2 Wheelers

Cars

0

1

2

1980 2000 2030: BAU 2030 Fuel

Eff.

2030:

TWW

2030: SUT 2030 Extra

Effort

EJ

To

tal

De

liv

ere

d E

ne

rgy

Schipper, Banerjee, and Ng (2009) Carbon Dioxide Emissions from Land Transport in

India: Scenarios of the Uncertain, TRR

10

Automobility

• Expanding road capacity is not a

solution to congestion

• Induced travel:

• 10% increase in lane kilometers in

California

9% increase in Vehicle Kilometers 9% increase in Vehicle Kilometers

Travel (VKT) within 4 yrs

Cervero, 1998

• 50-100% of the new capacity

created is absorbed by induced

traffic after 3 years

Noland and Len, 2000 11

Importance of Urban Transport

• Urban Transport is one of the most important and crucial sectors of

urban infrastructure and services.

• The importance of an efficient and effective transport system to

support and promote rational development of urban areas need hardly

be stressed.

• The National Commission on Urbanization (NCU) has noted that urban

transport is the single most important component instrumental in transport is the single most important component instrumental in

shaping urban development and urban living.

• While urban areas may be viewed as engines of growth, urban

transport is, figuratively and literally, the wheels of that engine.

Transportation is also critical for the economic growth of cities.

• Industry, trade, commerce, and other economic activities thrive in

areas where accessibility is high. 12

Key Transport Statistics

13

Investment Needs - Mckinsey Global Institute (2007)

• MGI has estimated a capital outlay of USD 1.182 trillion (about Rs 53

lakh crores) for the next 20 years to build up services in cities in India

to enable them to play their role in the desired economic growth of the

country.

• Mass rapid transit services and roads together require a major share

of the projected investment; more than half of the estimated capital

expenditure, i.e. USD 392 and 199 billion (Rs 17 & 9 lakh crores) expenditure, i.e. USD 392 and 199 billion (Rs 17 & 9 lakh crores)

respectively.

14

Investment Needs - High Powered Expert Committee

• The Committee commissioned by the Ministry of Urban Development

Government of India estimates a total expenditure of Rs 39,18,670 crores

on Indian urban infrastructure and services by 2031.

• Major expenditure on urban roads is: Rs 17,28,941 crores

• Urban transport is estimated to require Rs 4, 49,426 crores.

• In addition, traffic support infrastructure is estimated to require • In addition, traffic support infrastructure is estimated to require

Rs 97,985 crores, and street lighting Rs 18,580 crores.

15

Investment Comparison –MGI vs. HPEC

Study Study Study Study Total Total Total Total

Investment Investment Investment Investment

InvestmentInvestmentInvestmentInvestment

in Mass in Mass in Mass in Mass

Transit Transit Transit Transit

InvestmentInvestmentInvestmentInvestment

in Road in Road in Road in Road

Total Total Total Total in Urban in Urban in Urban in Urban

Transport Transport Transport Transport

Mckinsey Global

Institute (2007)

Rs 53 lakh

crs.17 lakh crs. 9 lakh crs. 26 lakh crs.

High Powered Expert Rs 39 lakh 5 lakh crs. 17 lakh crs. 22 lakh crs.

High Powered Expert

Committee (HPEC)

Rs 39 lakh

crs.5 lakh crs. 17 lakh crs. 22 lakh crs.

• HPEC’s total expenditure on roads and urban transport together out of

the total expenditure is about same order (as a percentage) as the

Mckinsey estimate.

• However, there is a major difference in the estimate for roads vis-a-vis

urban transport. 16

Key Issues affecting Investment in Urban Transportation

• High Capital and Operation Cost

• Long Gestation Period

• Project Viability

• User Charge

• Fare Revision • Fare Revision

• Cost Recovery

• Demand Risk

• Social Linkages

• Macro Economic Policies

17

Existing State Laws and Legal Frameworks Regarding Financing

• As per the present practice, the government makes budgetary allocations both in the revenue and the capital account.

• This is linked to the overall government budgeting and not necessarily to the needs of urban transport in a city and hence is seldom adequate.

• A policy on budgetary allocations, user charges, and tapping other sources of funds based on taxation of non-user beneficiaries, land sources of funds based on taxation of non-user beneficiaries, land development and vehicle taxation on the polluter-pays principle should be provided to the city.

• All cities should have formula-based funding from the central and state governments, and should leverage debt as well.

• Involvement of the private sector is a potential source for financing and managing urban transport services in the city.

• This source should be used for services that yield direct revenue to the private entrepreneur to recover his investment with commercial profit.

18

HANDOUT 2: HANDOUT 2: HANDOUT 2: HANDOUT 2: Financing Sources Financing Sources (Public, Private, and Public-Private Partnership)

19

Service Provision Options

Urban Transport Services

Public Agency:

Govt. creates assets &

provides services

Privatisation: Government

transfers entire sector

responsibility to the

private sector – which

then creates assets and

provides services

PPPs: Contracting of

Services - Government

creates assets and

contracts service

provision to private

sector

PPPs: Government

awards concession/

licence to private sector

for a fixed term under

which it creates assets

and provides services

provides services

20

Public Financing – 5 year Plans For For For For Urban Transport, 10 goals have been identified in the 12th Five Year Plan (FYP) Urban Transport, 10 goals have been identified in the 12th Five Year Plan (FYP) Urban Transport, 10 goals have been identified in the 12th Five Year Plan (FYP) Urban Transport, 10 goals have been identified in the 12th Five Year Plan (FYP)

1. To create an effective institutional and implementation framework that will manage the huge investments envisaged;

2. To build capacity of state and city officials and other stakeholders—today hardly any state or city has an urban transport professional on its roles;

3. To create facilities for walking and cycling in all 2 lac+ cities and state capitals—these are non-polluting modes that do not use fossil fuels and provide social equity;

4. To develop an upgraded cycle rickshaw as an integral part of the last mile connectivity for city- wide public transport networkscity- wide public transport networks

5. To augment public transport with part funding from the Government of India so as to:

a. Introduce organized city bus service as per Urban Bus Specifications issued by MoUDin all 2 lac+ cities and state capitals;

b. Add BRTS at 20 km/1 million population in 51 cities with population> 1 Million;

c. Add rail transit at 10 km/ million population,

d. Expand rail transit in existing mega cities i.e. 4 million +, at 10 km per/yr. i.e. 50 km in 12th FYP,

21

Public Financing – 5 year Plans

e. Provide suburban rail services in urban agglomerations with population > 4 million;

f. Improve and upgrade Intermediate Public Transport vehicles and services.

6. To improve accessibility and mobility in cities through:

a. Developing hierarchical road networks in newly developing areas

b. Completing 25 percent of major road networks in all 2 lac + cities with missing links including opening up of dead end roads for better utilization

c. Improving and maintaining road surface to the highest standards with good drainage c. Improving and maintaining road surface to the highest standards with good drainage

7. To provide grade-separated entries and by-passes for through traffic;

8. To improve road safety and security against vandalism, crime, and terrorism introduce a system of safety audit;

9. To use technology for multimodal integration, enforcement, and traffic management;

10. To promote innovation, research, and development in guided transport; and to support pilot projects with 100 percent funding from the Government of India.

22

Public Financing - investments under 12th FYP

• Rs. 3,88,308 crore is estimated to be required from all sources on

urban transport.

• Development of the street network as well including pedestrian and

bicycle facilities is Rs. 1,67,218 crores

• The projected investment in public transport is estimated at

Rs. 2,02,628 Crore.

23

State Budgets

• In the 11th FYP, of the total estimated investment, the states

accounted for a 32.6 % share

• Within state investment, the state budgetary support accounted for a

66.3% share, followed by a 23.6 % share from borrowings, while

internal generation contributed to only 10.1 % of the total investment

• 12th Central Finance Commission (CFC) made recommendations on

the measures needed to augment the Consolidated Fund of a state to the measures needed to augment the Consolidated Fund of a state to

supplement the resources of the panchayats and municipalities

• Rs. 20,000 crore for the panchayats and Rs. 5,000 crore for the

municipalities may be provided as grants-in-aid to augment the

Consolidated Fund of the states for the period 2005-10 to be

distributed with inter sate shares

24

Municipal Budgets

• The annual outlay in mega cities such as Delhi for the year 2012-13

indicates an outlay of Rs 3372 crores for the transport sector, which is

22 %of the total plan outlay.

• The temporal trends of outlays in the 9th , 10th, and 11th FYP period

of Delhi reveal that the total outlay increased from 15541.28 cr. in the

9th FYP to 23,000 cr in the 10th FYP and 45,000 cr. in the 11th FYP.

• The corresponding share on Transport was 20.3 percent, 23.7 • The corresponding share on Transport was 20.3 percent, 23.7

percent, and 33.9 percent respectively, exhibiting the increasing

importance of transport in the city’s overall development budget.

25

Central Schemes

• Jawaharlal Nehru National Urban Renewal Mission (JnNURM)

• Urban infrastructure Development Scheme for Small & Medium Towns

(UIDSSMT)

• Viability Gap Funding (VGF)

• Central Assistance for doing Technical Studies

26

Private Sector Financing

• There is an ongoing public policy debate in India on how to find the

necessary new investment as well as operations and maintenance on

the growing transport infrastructure needs.

• The GOI and many state governments are interested in broadening the

role of the private sector in transport infrastructure development with

a view to strengthening and expanding private financing.

• There are several key determinants of the viability of privately financed • There are several key determinants of the viability of privately financed

programmes, including the country regulatory and legal environment

and the resulting nature of the public private risk regime.

• The main sources of private sector financing in transport projects

include:

• Debts

• Equity27

Private Sector Financing – Debt

• Debt financing takes the form of loans that must be repaid over time,

usually with interest.

• Businesses can borrow money over the short term (less than one year)

or long term (more than one year).

• Debt financing offers businesses a tax advantage, because the

interest paid on loans is generally deductible.

• Debt funding to infrastructure projects is dominated by domestic

commercial banks

• Debt funding has been restricted by factors such as regulatory

uncertainties, rising domestic interest rates, etc.

28

Private Sector Financing – Equity

• Equity financing continues to be a vital source of investment for the

infrastructure sector.

• Given the under-developed state of the Indian debt market,

infrastructure developers have to rely quite a lot on equity subscription

to fulfil their capital requirements.

• While both the primary and secondary equity markets have taken a

hammering in the past year, private equity (PE) has remained a hammering in the past year, private equity (PE) has remained a

surprisingly buoyant source of funding.

• Equity investment with respect to infrastructure projects can be

divided into two types: (a) active (or ‘direct’) equity investors that seek

to participate in the management or operations of the project; and (b)

passive (or ‘portfolio’) equity investors that provide for only their funds.

29

Public Private Partnerships – PPP

• The Department of Economic Affairs, Government of India defines PPP as:

an arrangement between a government or statutory entity or government-

owned entity on one side and a private sector entity on the other, for the

provision of public assets and/or related services for public benefit,

through investments being made by and/or management undertaken by

the private sector entity for a specified period of time, where there is a

substantial risk sharing with the private sector, and the private sector

receives performance-linked payments that conform (or are benchmarked) receives performance-linked payments that conform (or are benchmarked)

to specified, pre-determined, and measurable performance standards.

• The ultimate accountability to users for the provision of these services

vests is with the public entity – even if delivery is by the private partner

30

Why do we need PPPs?• Fiscal reasons - inadequacy of resources with government (most common reason)

• By leveraging on committed government funding, it is possible to finance projects

of much larger magnitudes.

• Efficiency gains due to appropriate risk transfer, speedy decision making, and

flexibility of operations (better reason)

• Examples of private sector involvement in core sectors: airlines, telecom services,

oil refining -private sector is able to take on large projects, complex operations, and

can handle reasonable commercial risks attached to projects such as Design,

Financing, Construction, Operations, and Maintenance. Financing, Construction, Operations, and Maintenance.

• Risks that often affect projects implemented by the public sector - time overrun,

cost overrun, change of scope, inadequate designs, lower construction quality,

leakage of revenues, high maintenance costs – can be assumed by the private

player

• There is also incentive for the private party to use appropriate technology, develop

innovative design solutions, improve project management practices, install more

efficient revenue collection practices, and use a life cycle cost approach.

• Expected outcomes - value for money, expeditious implementation, and higher

quality of assets and services

31

Key Benefits

• Rigorous project preparation – since the focus shifts to developing bankable projects

• Delivery of a whole life solution – going beyond asset creation

• Focus shifts to service delivery – construction responsibility is integrated with O&M obligations and, together with appropriate quality monitoring and service delivery-linked payments, this could enhance the levels of service delivery

• It is possible to roll it into a program and have a time-bound implementation plan

• Can lead to better overall management of public services – transparency in prioritization, selection, and ongoing implementation

32

Pre-requisites

• The public entity should have the enabling authority to transfer its responsibility – enabling a legislative & policy framework as well as administrative order; the instrument of transfer is through a contract

• There is a significant transfer of responsibility to the private entity –usually including large financial investment obligations

• Payment to the private entity for services – directly by users or paid by the public entity

• These are conditional on achieving pre-specified levels of performance

• The nature of the relationship is usually long-term to derive maximum benefits

33

Features of PPPs - 1• Genuine risk transfer

• All risks pertaining to design, building, financing, and operation

transferred to the private entity as applicable

• Transfer of demand risk depends on the extent to which the private

sector can influence usage or on the monopoly characteristic of the

asset

• Output-Based Specifications

• Contracts specify the service outputs required rather than asset

configuration/mode of service delivery

• Emphasis on type of service & performance standards

• Incentive to deliver outputs using innovation in design, construction,

operation, and financing34

Features of PPPs - 2

• Whole life asset performance

• Private entity takes responsibility & assumes risk for the performance

of the asset and delivery of service over the long term

• Payment for Performance

• Revenue/ Payment to private entity is subject to performance in • Revenue/ Payment to private entity is subject to performance in

relation to specific & quantified criteria set out in the contract

35

Types of PPPs

• Financially free standing projects

• Role of public sector - planning, licensing & statutory approvals

• No financial support/ payment is made by government

• Revenues are by levy of user charges by private sector

• Examples: Toll Roads/ Bridges, Telecom services, Port projects

• Projects where Government procures services • Projects where Government procures services

• Private Sector is paid a fee (tipping fee), tariff (shadow toll) or

periodical charge (annuity) by Government for providing services

• The payment is made against performance

• There may be demand risk transfer – either in part or whole

• Example - Roads - annuity/ shadow tolls, power - under PPAs. In UK -

prisons, education, health services, defence-related services

• In both cases, the design, financing, construction, and O&M risks are fully

that of the private partner

36

Types of PPPs - 2

• Hybrid Structures – Combine the financially free-standing nature –

levy of a user charge – with payment by the public entity

• Payment could be as a viability gap subsidy or an annuity

payment

• Example – toll road project with either viability gap payment by

government or annuity payment-based road contract with tolling

rightsrights

37

PPP Options

BOT Concessions

Full Privatisation

Low High

Extent of private sector participation

Works and Service Contract

Management & Maintenance Contract

O&M Concessions

38

PPP Options

• Existing Assets, usually with refurbishment obligations

• Lease of assets

• Concessions (licenses)

• Management contracts of whole or significant parts of the undertaking

• New Assets

• OMT Concessions of assets newly built by the public sector

• Sale of a government-owned SPV after project implementation

• Design, Build, Operate, Transfer Concessions – most common form used in India

39

Concession Terminologies

• BOT - Build Operate Transfer

• BOOT - Build Own Operate Transfer

• BOO - Build Own Operate

• BOOST - Build Own Operate Share TransferBOOST - Build Own Operate Share Transfer

• BOLT - Build Own Lease Transfer

• DBFO - Design Build Finance Operate Transfer

• OMT - Operate Maintain Transfer

40

Stakeholder Expectations

• Sponsors/ Strategic Investors

• Project cash flows are reasonably predictable and sufficiently long term

• Stable policy/ regulatory framework

• Return – commensurate with the level of risk

• Lenders/ Other Financial Investors

• Adequate/ Secure cash flows to cover debt/ meet return expectations

• Contractual claim on cash flows for debt servicing• Contractual claim on cash flows for debt servicing

• Comfort in the event of termination

• Government/ Public Authority

• Asset built & operated/ maintained to specified standard – service of desired

order – public interest

• Transparent award of project to a suitable partner

• User

• Quality of service

• Affordable/ Reasonable cost

41

Contractual Framework

• All intentions are set out in a contract

• Concession Agreement - bundle of rights & obligations and

consequences in case of non-fulfillment

• Usually the only tangible security available

• Contracting parties : Government Agency – Concessioning Authority

and Private Party – Concessionaire and Private Party – Concessionaire

• Other parties – state government, lenders, suppliers of services

• A concession is a license – rights enjoyed for obligations performed

42

What a PPP is not & what it is

• PPP is not privatization or disinvestment

• PPP is not about borrowing money from the private sector

• PPP is more about creating a structure

• in which greater value for money is achieved for services

• through private sector innovation and management skills

• delivering significant improvement in service efficiency levels• delivering significant improvement in service efficiency levels

• This means that the public sector

• no longer builds roads, it purchases kilometers of maintained highway

• no longer builds prisons, it buys custodial services

• no longer operates ports but provides port services through world

class operators

• No longer builds power plants but purchases power 43

Partnership in Practice

• Partners, not adversaries – this is important given the background of

mistrust in conventional procurement

• Project should be key focus – “win-win” for both parties

• Independent agencies – Independent Engineer - useful during both

implementation and operationsimplementation and operations

• Government retains ultimate responsibility but uses the private sector to

deliver infrastructure services of specified standard

• Private Financing – can significantly leverage public funds

44

Investor Comforts & Incentives

• Fiscal Benefits - Tax holiday of 100% for 10 years in a block of 20 years

• Viability gap funding of up to 40% of the cost of the project – as a grant

• Foreign Direct Investment – 74% to 100% of the equity permitted

• Duty-free import of high capacity and modern construction equipment

• Long Concession periods – up to 30 years

45

PPP IN URBAN TRANSPORT PROJECTSCASE-STUDY OF INDORE CITY BUS SERVICE

PPP IN URBAN TRANSPORT PROJECTS

46

INDORE: A SNAP SHOT

Commercial capital of the Madhya Pradesh.

2.29 million population – 3.4% annual growth in past decade

The developed area is expected to grow from 11,000 ha (2001) to 35,650 ha by 2021 (Master Plan).

Registered vehicles have increased from 0.55 m in 2001 to 1.18 m in 2010 (10% per yr)

Share of private vehicles more than 82% in total registered vehicles.

Accidents have increased from 2617 in 2001 to 3473 in 2010 (3.2%) 47

BEFORE CITY BUS: UNORGANIZEDTRANSPORT IN INDORE

48

ABOUT AICTSL

Inception in 2006 with a seed capital of Rs. 5 million

Adopted the net-cost based PPP model of bus operations… widely

copied in other cities across India

Started with 37 buses with 4 operators.

Installed vehicle tracking systems on the entire fleet, which remains Installed vehicle tracking systems on the entire fleet, which remains

the best in the country to date.

Initiated the BRT project in Indore, which is in the final stage of

implementation.

Funding from JnNURM allowed modernizing the fleet with CNG buses

that have electronic displays and voice announcement systems.49

2006200620062006

PPP Model of Bus Operations

Public partners role:

Planning of routes

Inviting tenders for bus operations

Providing support infrastructure

Objective: Providing affordable

2009

Private operator responsibilities:

Owns, operates, and

maintains fleet

Collects fare from passengers

Pays premium to AICTSL for

right to operate on route

Objective: Providing affordable

& quality public transport

50

INDORE STATISTICS

Number of routes :: 16

Average route length :: 18 km

Number of bus stops :: 210

Fleet Size :: 122 buses

Operating frequency :: 8 minutes (min)

26 minutes (max)

Avg. daily ridership :: 112,000 pax

Avg. daily collection :: Rs. 5,35,000 /day

Ridership per bus :: 920 pax/bus

Avg. revenue per day :: Rs. 7,88,000 /day51

MODE SHIFT

Safety & Quality has helped attract Safety & Quality has helped attract Safety & Quality has helped attract Safety & Quality has helped attract

trips from trips from trips from trips from private travel modesprivate travel modesprivate travel modesprivate travel modes

52

Mode of Transport Passenger Km

Travelled

Modal Split

(PKT) Fatalities

[3]

Caused (2010)

Fatalities Per Travel

Kms

Private Vehicles 9.40 million 62.8 % 80 0.0233 /mill. Km.

PT – City Bus 0.64 million 4.29 % 0 0.0 /mill. Km.

PT – IPT 1.31 million 8.77 % 12 0.0251 /mill. Km.

Bicycle + Walk 2.91 million 19.4 % 0 0.0 /mill. Km.

Others 0.72 million 4.74 % 128 0.4871 /mill. Km.

TOTAL 14.98 mill. 100 % 220 0.0402 /mill. Km.

LIVES SAVED, EMISSIONS REDUCED

TOTAL 14.98 mill. 100 % 220 0.0402 /mill. Km.

Lives saved due to Indore City Bus :: 6 /year

(0.024 fatalities/mill PKT * 0.64 mill PKT per day * 365 days)

Hundreds of accidents avoided

CO2 Reduced:~5.5 ton/day 53

SYSTEM EXPANSION & ISSUES

Starting from 37 buses, AICTSL now operates a fleet of 122 buses.

City bus in Indore has a mode-share of 4.4%

The BRT launch will add 50 buses (mode-share > 6%)

However, to sustain growth, the mode-share of PT should increase to

40% or more.40% or more.

The CMP for Indore recommends having 750 city buses by 2015

54

CHALLENGES

CNG fuel prices have increased by 64% in 24 months, thus reducing

profitability to operators

AICTSL has limited financial resources (premium from operators,

advertising) for additional infrastructure

Passenger ridership per bus has increased only marginally, not

keeping pace with input costskeeping pace with input costs

Modernizing the system by way of better workshop infrastructure, Modernizing the system by way of better workshop infrastructure, Modernizing the system by way of better workshop infrastructure, Modernizing the system by way of better workshop infrastructure,

improved information for passengers, and customer service is necessary improved information for passengers, and customer service is necessary improved information for passengers, and customer service is necessary improved information for passengers, and customer service is necessary

for expanding the system.for expanding the system.for expanding the system.for expanding the system.

55

CASE STUDY OF INTER-STATE BUS TERMINUS (ISBT), DEHRADUN, UTTARAKHAND

PPP IN URBAN TRANSPORT PROJECTSDEHRADUN, UTTARAKHAND

56

ABOUT DEHRADUN

• Dehradun is the capital city of the newly formed State of Uttarakhand.

• It is located 236 km from New Delhi, and is one of the counter-magnets

(alternative centers of growth) to the NCR.

• As per the 2011 Census, the population is approx. 5.78 lakhs within the

municipality area, and approx. 7.14 lakhs within the urban agglomeration

area.

ww

w.e

mb

arq

ind

ia.o

rg

• Dehradun is a popular tourist and educational hub in north India

• While Dehradun has air and rail connectivity to some major cities, its

main inter-city mode of connectivity is buses. ww

w.e

mb

arq

ind

ia.o

rg

57

ABOUT THE PROJECT

• Buses are the predominant mode of inter-city transport, especially for

connectivity to and from New Delhi.

• Before the project, terminal facility was ad-hoc, with very few passenger

facilities. Bus handling capacity was also limited, and would not be able to

cater to the expanding demands on inter-city transport

• The Mussoorie Dehradun Development Authority (MDDA) envisaged the

development of a modern, state-of-the-art inter-city bus terminal with

ww

w.e

mb

arq

ind

ia.o

rg

development of a modern, state-of-the-art inter-city bus terminal with

ancillary facilities under PPP mode

• Feedback Ventures was appointed as project advisor for project

configuration, structuring, bid process, and award

ww

w.e

mb

arq

ind

ia.o

rg

58

PROJECT STRUCTURE SALIENT FEATURES

• Project envisaged as Integrated ISBT (Phase 1) and commercial-entertainment complex (Phase 2) to be developed under PPP. Stated as first of its kind in India

• The PPP configuration was Design, Finance, Build, Operate & maintain and Transfer (DFBOT)

• Concession period 20 years, extendable to 30 years

• Revenue to the Concessionaire is from:• Revenue to the Concessionaire is from:

• usage fees charged to the scheduled 750 buses per day

• lease rental from commercial-entertainment complex

• fees from other value-added services

• MDDA to receive an annuity payment from Concessionaire59

BID PROCESS

• 2 stage selection process: Request for Qualification (RFQ) and Request for

Proposal (RFP).

• Post RFQ, 13 bids were short-listed to participate in the RFP stage

• The RFP stage consisted of technical and financial criteria. The financial

criterion was Bidder offering highest annuity payment to MDDA

• RFP security as Bank Guarantee of Rs 25 lakhs was sought from all

ww

w.e

mb

arq

ind

ia.o

rg

• RFP security as Bank Guarantee of Rs 25 lakhs was sought from all

shortlisted bidders.

• Post evaluation of bids, Ramky Infrastructure Ltd was declared as

successful bidder ww

w.e

mb

arq

ind

ia.o

rg

60

PROJECT TIMELINE

• Pre-bid meeting: 25 April 2003

• Bid submission date: 10 June 2003

• Concession agreement signing date: 26 July 2003

• Construction began on 15 August 2003

• ISBT (Phase 1) begins operations on 3 June 2004

ww

w.e

mb

arq

ind

ia.o

rg

• ISBT (Phase 1) begins operations on 3 June 2004

ww

w.e

mb

arq

ind

ia.o

rg

61

BENEFITS TO THE CITY

• No expense borne by city for the development of this facility

• MDDA to receive guaranteed annual revenue of Rs 81 Lakhs (inflated 5% annually) from the lapse of the moratorium period onward, which would aggregate to approx Rs 19.16 crores over the entire concession period.

• Ultra Modern Bus Terminal with all modern facilities and amenities. Showcase project for the city

Dehradun city to have first Mall-cum-Multiplex Complex which will act as

ww

w.e

mb

arq

ind

ia.o

rg

• Dehradun city to have first Mall-cum-Multiplex Complex which will act as one of the finest leisure entertainment centers for residents of Dehradun and floating populace.

ww

w.e

mb

arq

ind

ia.o

rg

62

AREA STATEMENT

Head Area (sqm)

Built-up 10604

Platform 3315

Internal roads 33905

Idle parking 7902

Terminal parking (two-wheelers, cars, etc) 6250

ww

w.e

mb

arq

ind

ia.o

rg

Taxi stand 1712

Office parking area 840

Driver’s canteen and rest room 225

Toll booth 39

Bus bays (inter-city) 50

Bus bays (local) 10

Bus idle parking (inter-state) 36

Bus idle parking local 9

ww

w.e

mb

arq

ind

ia.o

rg

63

TOLL FEES FOR BUSES

TypeTypeTypeType Fee per tripFee per tripFee per tripFee per trip

< 4 hours< 4 hours< 4 hours< 4 hours > 4 hours, < 24 > 4 hours, < 24 > 4 hours, < 24 > 4 hours, < 24

hourshourshourshours

Interstate Buses (Long route – one trip in 24

hrs)

Rs 50 Rs 100

Interstate Buses (Short Route- two trips in 24 Rs 40 Rs 80

ww

w.e

mb

arq

ind

ia.o

rg

Interstate Buses (Short Route- two trips in 24

hrs)

Rs 40 Rs 80

Interstate Buses Near Dehradun Rs 30 Rs 60

Local Buses within city (any no.of trips in 2

Hrs.)

Flat Fee Rs. 50.00 Per Bus Per

Day

ww

w.e

mb

arq

ind

ia.o

rg

64

IMAGES

ww

w.e

mb

arq

ind

ia.o

rgw

ww

.em

ba

rqin

dia

.org

65

IMAGES

ww

w.e

mb

arq

ind

ia.o

rgw

ww

.em

ba

rqin

dia

.org

66

RECENT DEVELOPMENT

• Recently some issues have cropped up between MMDA and Ramky

over drainage

• Water-logging is leading to deterioration of some internal roads.

• Both parties are in negotiations to resolve this issue and take the

project forward

ww

w.e

mb

arq

ind

ia.o

rgw

ww

.em

ba

rqin

dia

.org

67

HANDOUT 3: HANDOUT 3: FINANCING THROUGH MULTILATERALS

68

MULTILATERAL DEVELOPMENT BANKS (MDBS)

• Multilateral development banks (MDBs) provide finance for investments in

human and physical capital that promote development.

• This is in broad terms the mandate of the World Bank (WB) and the three

regional development banks – the African Development Bank (AfDB), Asian

Development Bank (ADB) and Inter-American Development Bank (IADB) –

that were established between the late 1940s and the mid 1960s.

• MDBs assist in Urban Transport Funding through the following:• MDBs assist in Urban Transport Funding through the following:

• Loans

• Grants

• The Global Environment Facility (GEF)

• Clean Development Mechanism (CDM)69

LOANS

• Multilateral banks and bilateral public aid help to fund investments in transport systems but not in the operating of the systems.

• Soft loans, namely, loans with conditions which are more favorable than bank loans in terms of:

• duration: very long-term loans of 15, 20, and even 30 years;

• interest rates: bonus rates which are smaller than those on the banking market;market;

• grace periods given before the first installment

• The conditions of these loans vary according to the situation in the country; the most favorable treatment is given to the least developed countries.

• Typically, soft loans have extended grace periods in which only interest or service charges are due. They also offer longer amortization schedules and lower interest rates than conventional bank loans.

70

SOFT LOANS CHARACTERISTICS• Typically, soft loans will have one or more of the following characteristics:Soft

loans, namely, loans with conditions which are more favorable than bank loans

in terms of:

• A lower rate of interest. Some EU subsidised loans may charge less than

half the rate of a high street bank.

• A repayment holiday before you must start repaying

• Offering to act as a guarantor or otherwise arrange for a business loan • Offering to act as a guarantor or otherwise arrange for a business loan

without the need for you to provide security

Example: Delhi Metro Rail Corporation (DMRC) was set up with 50:50 equity

participation between the Government of India and the Delhi Government. The

project has been implemented in three phases with an outlay of approximately

Rs. 55,000 crore, 55% (approximately Rs. 30,000 crs) of which has come from

Japan Bank of International Cooperation (JBIC) as an inter- government loan

71

GRANTS - THE GLOBAL ENVIRONMENT FACILITY (GEF)

• The Global Environment Facility (GEF) was established in 1991 to provide

funding to assist developing countries in meeting the objectives of United

Nations Framework Convention on Climate Change (UNFCCC)

• It now serves as a financial mechanism of UNFCCC by funding projects

and programmes that protect the global environment

• GEF grants support projects related to biodiversity, climate change,

international waters, land degradation, the ozone layer, and persistent international waters, land degradation, the ozone layer, and persistent

organic pollutants

• There are three implementing agencies which manage GEF projects on

the ground - UNEP, UNDP, and World Bank.

72

GEF – SUSTAINABLE URBAN TRANSPORT PROJECT

• GoI has initiated the Sustainable Urban Transport Project with the support

of the Global Environment Facility (GEF).

• The total GEF grant proposed for the project is US$ 25 million, which will

be complemented with a grant of US$ 170 million from GOI, State

Governments, and Implementing Agencies (IA) along with US$ 105 million

co-financing from the World Bank.

• The project is to be implemented over a four-year period starting from • The project is to be implemented over a four-year period starting from

2010.

• Primary Stakeholders in this program are Ministry of Urban Development

(MoUD), Ministry of Environment and Forest (MoEF), UNDP, and the World

Bank. MoUD is the nodal agency for this program’s implementation

73

GRANTS - CLEAN DEVELOPMENT MECHANISM (CDM)

• A CDM program is one in which emissions reductions are achieved by multiple activities executed over time as a result of a government measure or private sector initiative. The basic characteristics of a CDM program are:

• It occurs as a result of a deliberate public sector measure (voluntary or mandatory), or a private sector initiative.

• It results in a multitude of dispersed activities that are induced by the program and would not occur but for the implementation of the program.

• The GHG reducing activities do not necessarily occur at the same time or in the same location.

• The type, size, and timing of the emission reducing activities induced by the program may not be known at the time of project registration. However, the types and sizes of the expected activities must be identifiable ex ante, attributable to the program, and verifiable ex post.

• The various activities under the CDM program are submitted to validation and registration through a single Project Design Document. 74

CDM – EXAMPLES

Transmilenio, Bogotá (BRT)

• A case of adoption of CDM is Transmilenio, Bogotá in Colombia, which is

the first BRT project to be successfully registered under CDM for carbon

credits.

• Credits are available for projects which have a clear plan to reduce

existing public transport capacities, either through scrapping, permit

restrictions, or other means, and replace them with a BRT system. restrictions, or other means, and replace them with a BRT system.

• Transmilenio will generate credits from the following sources:

• Improved fuel use efficiency

• Use of new large buses and scrapping old buses

• Mode switch due to availability of more efficient and attractive public

transport system 75

CDM – EXAMPLES Delhi Metro

• The Delhi Metro has been certified by the United Nations as the first metro rail-

based system in the world to get carbon credits for contributing to the fight

against climate change by helping to reduce pollution levels in the city by 6.3

lakh tons every year.

• The Delhi Metro has helped remove more than 91,000 vehicles from the roads

of Delhi daily.

• The organization has also earned carbon credits worth Rs 47 crore annually for

the next seven years. With nearly 20 lakh people taking the new age transport

system every day, the Metro has helped reduce pollution and emission of green

house gases, as it is a completely non-polluting and environmentally-friendly

system.

• DMRC has helped in reducing the emission of harmful gases into the city’s

atmosphere, and the United Nations body administering the Clean

Development Mechanism (CDM) under the Kyoto Protocol has certified that

DMRC has reduced emissions.

76

CASE STUDY OF INDORE BRTS PROJECT, INDORE, MADHYA PRADESH

MULTILATERAL SUPPORT IN TRANSPORT PROJECTS

MADHYA PRADESH

77

Binoy Mascarenhas

INDORE PUBLIC TRANSPORT HISTORY (1)

• Atal Indore City Transport Services Ltd (AICTSL) was established in Indore in

2005 with a paid-up capital of INR 25 lakhs.

• AICTSL did not have any other sources of government funding for public

transport services.

• City Bus operations started in 2006 with 37 buses

• Model of bus operations was Net-Cost• Model of bus operations was Net-Cost

• Private operators procured fleet at their own cost and paid a premium to

AICTSL

• Additionally, AICTSL generated revenue through advertisements on-bus

and issuance of bus passes

• Bus stops were constructed by IMC

• AICTSL provided depot facilities for city bus operations with the money

raised from route-premiums

78

INDORE PUBLIC TRANSPORT HISTORY (2)

• However, net cost model had its limitations

• It could not account for increase in fuel price hike and escalation

• Private operators have not been able to cope with increasing escalation

of costs

• Fare increases have immediate impact on ridership

• AICTSL had no real control over performance of operators

• Revenue generated through Net Cost model was not big enough to

allow AICTSL to fund further infrastructure development

• For BRTS, AICTSL / City sought other external sources of funding support

and different model of bus operations

79

PROJECT BACKGROUND: BRTS

Initiated 2007

Length of route 11.6 km

Road section 31.6 / 60 metres

System type Closed

Median stations

Stations 21Stations 21

Number of buses 50

Type of bus 12 m long with AC

900 mm Semi Low Floor

245 hp, BS III engine

Completion March 2013

Bus operations model Gross Cost 80

INITIAL ESTIMATE FOR CORRIDOR CONSTRUCTION

• GoI (JnNURM) approved cost: INR 98 Cr

• This included:

• Civil works of corridor

• Street lighting & Signage

• What was not included:

• Bus Stations

• Bus Procurement

• ITS/Traffic Signals

• Workshop/Control Centre

• PMC/Consulting Charges

49 Cr49 Cr49 Cr49 Cr

30 Cr30 Cr30 Cr30 Cr

19 Cr19 Cr19 Cr19 Cr

• PMC/Consulting Charges

81

TENDERED COST OF CORRIDOR CONSTRUCTION

• Cost after tender process: INR 121 Cr

• JnNURM does not cover for cost escalation

• Indore City bore additional INR 23 Cr

• City total became: INR 53 Cr

82

OTHER COSTS

• Fleet (50 X Buses): INR 30 Cr

• AICTSL’s share would be borne by bus operator

• Bus stations including automatic sliding doors: INR 18 Cr

• Cost borne by IMC

• Land worth approximately INR 250-300 Cr was given by people of Indore for the project in exchange for Transferable Development Rights

• Workshop-cum-Depot: INR 6.5 Cr

• Cost borne by AICTSL through loan approved by State

83

OTHER COSTS – INTELLIGENT TRANSPORT SYSTEMS (1)

• Initial cost estimate: INR 47 Cr (41 Cr – procurement + 6 Cr –

consulting and capacity building)

• Agreement was signed as per above funding share arrangement

• GoI recommended this funding to be streamed from overall

Additional Central Assistance (ACA) funding allocation to the State

• However, there was no money left under ACA for the state of MP84

OTHER COSTS – INTELLIGENT TRANSPORT SYSTEMS (2)

• Revised cost estimate: INR 23 Cr

• AFCS + AVLS + Control Center equipment: INR 15 Cr

• Traffic Signals: INR 7 Cr (State loan repayment + State grant + City)

• Control Center: INR 1 Cr

• This cost would be borne by AICTSL, through a loan from any • This cost would be borne by AICTSL, through a loan from any

appropriate agency

• State has approved this loan, and would pay 80% of the

repayments; rest 20% would be borne by AICTSL / City

85

OVERALL PROJECT COST BREAK-DOWN

ItemsItemsItemsItems GoIGoIGoIGoI GEFGEFGEFGEF StateStateStateState CityCityCityCity AICTSLAICTSLAICTSLAICTSL

Bus Bus Bus Bus

OperatorOperatorOperatorOperator

Item Item Item Item

TotalTotalTotalTotal

Corridor 49.00 - 19.00 53.00 - - 121.00

Stations - - - 18.00 - - 18.00

Fleet (Buses) 15.00 - 6.00 - - 9.00 30.00

Depot-cum-

Workshop - - 5.20 - 1.30 - 6.50Workshop - - 5.20 - 1.30 - 6.50

Control Center - - 0.80 - 0.20 - 1.00

ITS - 5.00 17.30 1.00 3.60 - 26.90

Technical

Assistance - 4.00 - - - - 4.00

Agency Total 64.00 9.00 48.30 72.00 5.10 9.00 207.40

86

INNOVATIONS IN PROJECT FINANCING

• All land acquisition done using Transfer of Develop Rights (TDR)

model – Savings to the tune of INR 250-300 Cr.

• Advertisement rights along entire corridor transferred to AICTSL from

IMC – Expected revenue to the tune of INR 5 Cr per annum

• Proposed share of Urban Transport Fund (UTF) tax being introduced

in Indore

• It was attempted to tender out the ITS project on Annuity model.

However, that did not attract many interested bidders.

87

LESSONS LEARNED

• Project planning and cost estimation is very critical in order to avoid

cost increase due to escalation and additions at a later stage

• Any funding initiative/agreement with multilateral banks must be first

approved by the State Finance Department

• It is important to accommodate and address the issue of increase in

input cost in net-cost bus operations model, as fare increases may not

always be practicalalways be practical

• If land acquisition costs are considered, project cost for Indore BRTS

would have doubled. However, TDR presented a great opportunity for

acquiring the requisite land without actual ‘cost’

• Policy support such as penalties for ticket-less travel, tax exemption of

fuel and revenue, etc. are very important for financial sustainability of

operations 88

HANDOUT 4: HANDOUT 4: INNOVATIVE FINANCING MECHANISM

89

NON-FARE BOX REVENUE POTENTIAL

Sl. Sl. Sl. Sl.

No.No.No.No. Project NameProject NameProject NameProject Name

FareboxFareboxFareboxFarebox

Revenue (%)Revenue (%)Revenue (%)Revenue (%)

Non Fare Box Non Fare Box Non Fare Box Non Fare Box

Revenue (%)Revenue (%)Revenue (%)Revenue (%)

1111 Singapore Metro 89 11

2222 Bangkok Metro 88 12

3333 London Metro 83 173333 London Metro 83 17

4444 Washington Metro 77 23

5555 New York Metro 70 30

6666 Hong Kong Metro 37 63

90

INNOVATIVE FINANCING MECHANISM

• The issue of urban transport financing has become increasingly prevalent in

recent years as costs of providing transport services have expanded more rapidly

than traditional revenue resources.

• The National Urban Transport Policy of April 2006 also emphasizes the innovative

use of land as a resource for financing public transport projects.

• MP LAD Scheme Description

• Urban Transport Fund

• Financing Through Cross-Subsidy Projects

• Property Development

• Land Value Capture

• Kiosks and Shops at Stations

• Taxes and Fiscal Incentives

• Cross Subsidy 91

CASE STUDY – FSI-LINKED TDR FOR FINANCING BRTS & CORRIDOR DENSIFICATION: PIMPRI-CHINCHWAD, INDIA

URBAN TRANSPORT FUND

DENSIFICATION: PIMPRI-CHINCHWAD, INDIA

92

TDR

• TDR is a powerful instrument that separates the land from its development

rights.

• This tool allows transfer of development potential of a piece of land that is

reserved for some purpose to another designated area.

• TDR is linked to Floor Space Index (FSI), which is the ratio of total floor

area of construction to the total area of the plot.

• TDR is thus essentially a floating FSI that can be traded or sold to

developers at market price.

• The TDR prices are determined by demand and supply, and in a mature

market of TDR the key players influencing the market are the developers

and TDR brokers.

• The concept of TDR, which was introduced in the USA more than 40 years

back, has since been used extensively in the USA93

BRTS PROJECT – PIMPRI CHINCHWAD• PCMC has planned 10 BRT routes for quick and effective transit

• The project cost for the first phase is about Rs. 1540 crore

• GOI & GOM contribute Rs.475 crore (JNNURM)

• Loans of about Rs.690 crore from DFI/Multilateral Banks (ADB & World

Bank),

• Rest Rs.375 crore is to be contributed by PCMC.

• Complementing PPP models for the project are also conceived for the • Complementing PPP models for the project are also conceived for the

provision of bus stops, public toilets, landscaping, general maintenance,

and advertisement rights

94

URBAN TRANSPORT FUND – PIMPRI CHINCHWAD

• PCMC has set up an Urban Transport Fund (UTF), managed by an SPV, PCMC

Infrastructure Company Ltd (PICL), to finance its share of the BRT project and

develop infrastructure along the BRT routes, which includes providing

sanitation, water, and other civic amenities to people living along the BRT

corridor.

• Accordingly, 100 meters on both sides of the corridor have been earmarked as

the “BRT Influence Zone”, and various instruments are used to capture part of

the incremental value from the influence zone. the incremental value from the influence zone.

• The financing instruments are

(i) Premiums charged for loading TDR in the influence zone

(ii) Development charges in the influence zone

(iii) Incremental taxes, as the influence zone is designated a high property tax

zone

(iv) Other sources, such as leasing utility ducts and advertisements.

95

URBAN TRANSPORT FUND – PIMPRI CHINCHWAD

• TDR mechanism has a dual objectives

• Densification of BRT corridors for orderly spatial development

• Generating revenue by capturing the benefit of increase in land and real

estate value in the proximity of the BRT corridor to partially finance the

development project

• PCMC has raised the FSI in the influence zone from 1 to 1.8 with the added

FSI of 0.8 being achieved through loading of TDR

• TDRs can be generated anywhere in the city and applied to the influence zone,

subject to some restrictions.

• The PCMC area is divided into zones A, B, C, where A is most congested, and C

is least developed.

• A premium (which is like a one-time tax) is charged for using TDR in the

influence zone according to originating TDR zones, as per the proposed rates

Rs. 300/600/900 per sq. ft for originating zones A/B/C.

• The rationale for gradation of the premium is based on incentivizing movement

away from congested zones, which therefore have lower premium (“tax‟).

96

URBAN TRANSPORT FUND – PIMPRI CHINCHWAD

• Based on the total influence zone area along the 60 km BRTS corridor,

additional 0.8 FSI permissible in the influence zone

• Assuming only 80 % of the influence zone could accommodate TDRs

(because of defence land, flyovers, etc), the maximum absorptive

capacity for TDRs is 83 million sq. ft.

• Based on an average premium of Rs. 600 per sq. ft, applied to the 83

million sq. ft of absorptive capacity in the influence zone, the

maximum hypothetical revenue that can be generated is Rs. 4980 Crsmaximum hypothetical revenue that can be generated is Rs. 4980 Crs

TDR Potential TDRs (mn

sq ft)

Revenue from TDR

use (Rs.cr)

Max potential, assuming absorption in

80% of influence zone

83 4980

97

CASE STUDY –BANGALORE’S TRAFFIC AND TRANSPORT MANAGEMENT CENTRES (TTMCS)

LEVERAGING LAND HOLDINGS FOR REVENUE AND SUPPORT INFRASTRUCTURE GENERATION

MANAGEMENT CENTRES (TTMCS)

98

BACKGROUND: BMTC (1)

• Bangalore Metropolitan Transport Corporation (BMTC) is the sole

provider of bus based public transport in Bangalore city

• It is one of the largest public transport operators in India

• Everyday, BMTC:

• Operates 2,400+ routes

• Uses 6,200+ buses

• Carries 4.8+ million passengers and

• Serves 42% of all trips in the city

• In recent years, it has been one of the few public transport companies

to operate at a profit99

BACKGROUND: BMTC (2)

• Despite its success, in the late 2000s BMTC was facing two major

challenges:

Challenge 1:

Identify alternate sources of revenue generation to maintain Identify alternate sources of revenue generation to maintain Identify alternate sources of revenue generation to maintain Identify alternate sources of revenue generation to maintain

profitability and financial sustainabilityprofitability and financial sustainabilityprofitability and financial sustainabilityprofitability and financial sustainability

Challenge 2:Challenge 2:

Develop high quality support infrastructure to improve the quality of Develop high quality support infrastructure to improve the quality of Develop high quality support infrastructure to improve the quality of Develop high quality support infrastructure to improve the quality of

service for bus usersservice for bus usersservice for bus usersservice for bus users

100

THE TTMC CONCEPT (1)

• To face both of these challenges, BMTC decided to leverage its major asset: land holdings in strategic locations throughout the city

• BMTC therefore developed the innovative concept of

Traffic and Transit Management Traffic and Transit Management Traffic and Transit Management Traffic and Transit Management CentersCentersCentersCenters (TTMCs)(TTMCs)(TTMCs)(TTMCs)

• The TTMC concept combines the development of passenger terminals with the creation of commercial real estate spacewith the creation of commercial real estate space

• Revenue from rent of the commercial real estate space would cross subsidize the construction cost of the passenger terminal and amenities, and also form a source of continuing additional revenue for the corporation.

101

Conceptual Design of TTMC in Bangalore102

THE TTMC CONCEPT (2)

• The TTMC concept consists of 3 main components

1. An integrated terminal facility with adequate facilities and

amenities to cater to the requirements of all user groups

2. A mixed-use development with shopping, malls, office space, and

other commercial activity, to enable people to fulfill all these

needs through using bus transport

3. The provision of park-and-ride facilities to encourage the use of

Public Transport

103

104

105

106

107

108

109

110

111

TTMC IMPLEMENTATION

• 10 TTMCs have been constructed since 2009

• Initial funding was provided by JNNURM

• BMTC also used significant amounts of its own

funding, confident in its ability to recover costs

through renting commercial space

112

SlSlSlSl

NoNoNoNoLocationLocationLocationLocation

Cost of the Cost of the Cost of the Cost of the

Project (Project (Project (Project (RsRsRsRs. . . .

in in in in CroresCroresCroresCrores))))

Commercial Commercial Commercial Commercial

Real Estate Real Estate Real Estate Real Estate

Developed (in Developed (in Developed (in Developed (in

Sq. Ft)Sq. Ft)Sq. Ft)Sq. Ft)

InauguratedInauguratedInauguratedInaugurated

Average monthly Average monthly Average monthly Average monthly

rent from rent from rent from rent from

commercial commercial commercial commercial

space (space (space (space (RsRsRsRs.).).).)

01.

Shantinagar A Block

103.78

2,82,731 13-10-2012 12,77,919

Shantinagar B Block 94.655 17-10-2011 8,95,000

Shanthinagar MLCP

Block53,550 17-01-2012 3,76,236

02. Koramanagala 64.34 3,10,785 01-04-2012 6,81,504

03. Banashankari 31.23 1,09,215 15-12-2011 15,15,49003. Banashankari 31.23 1,09,215 15-12-2011 15,15,490

04. Vijayanagar 56.60 1,65,799 16-09-2011 24,27,228

05. Jayanagar 13.90 61,184 27-12-2009 13,76,365

06. Whitefield 40.37 1,42,859 23-07-2011 15,84,349

07. Domlur 17.00 77,849 07-07-2011 1,57,210

08. Kengeri 37.50 1,09,779 01-08-2011 2,56,700

09. Bannerghatta 5.01 12,932 25-01-2012 19,798

10. Yeshwanthpur 89.50 2,27,634 26-01-2012 20,12,121

Total 460.15 16,00,512 1,25,79,920

113

OUTCOMES

• TTMCs have received an enthusiastic response from users

• The development of high quality terminals has resulted in a significant

improvement in the quality of bus travel

• BMTC also earns roughly Rs. 15 crore per annum from renting

commercial space

• This revenue is expected to increase, as the commercial space gets • This revenue is expected to increase, as the commercial space gets

fully occupied over time and as rental rates increase due to the

strategic location of TTMCs.

114

REFLECTIONS AND LESSONS LEARNED

• The “1st Generation” of TTMCs have been a great success

• However, there are some lessons learned that can inform future TTMC

design:

• At some TTMCs, the layout of commercial space has negatively

impacted bus operations. The design of the facility should be first

and foremost to improve city bus services

• Conversely, the design of commercial spaces at some TTMCs has

not been to the standards expected of potential tenants

• Future designs should also better integrate other modes such as

cycling, autos and taxis. Pedestrian environments around the TTMC

should also be improved as part of the development.

115

FUTURE PLANS

• JNNURM funding played a big role in the financial viability of “1st

Generation” TTMCs . Future expansion will require further innovations

in financing.

• BMTC is currently exploring the PPP model for TTMC development.

• In this model:

• A private developer pays BMTC an upfront fee as well as an annual • A private developer pays BMTC an upfront fee as well as an annual

premium

• The private developer also builds the specified transport

infrastructure as required by BMTC (terminal, depot, etc.)

• In return, the developer gets the right to develop commercial real

estate and collect the resulting rets for the contract period

116

CONCLUSIONS

• A high quality urban bus service requires more than just good buses -

the passenger experience doesn’t depend only on ‘in-bus’ time

• The full passenger experience must be served – including waiting for

buses, transferring, and so on. This requires high quality terminals

and bus stops.

• High quality terminals and transfer facilities also help in optimal

service and operations planning.service and operations planning.

• However, financially constrained public transport agencies find it

difficult to obtain the funds necessary to invest in such facilities.

117

CONCLUSIONS (2)

• At the same time, public transport providers are under increasing

financial strain.

• Increasing fuel, fleet and staff costs are placing increasing pressure

on the financial performance of BMTC

• Fares cannot be raised at will to increase revenues, due to the public

service aspect of public transportation.

• Public transport providers therefore need to identify and implement

innovative methods in non-fare revenue generation.

118

CONCLUSIONS (3)

• The TTMC model from Bangalore provides a useful example of how to

leverage land holdings to solve two challenges at once: the need to

provide support infrastructure for bus services and the need to

generate non-fare revenue to subsidize operations.

• As urban areas expand, public transport authorities need to recognize

and actively explore the commercial opportunities that their land

holdings provide.

• Innovations such as PPP financing can further improve the financial

viability of such strategies.

• However, the commercial exploitation of land holdings should always

keep the need to improve transport services as the primary goal

119

HANDOUT 5: HANDOUT 5: FARE FIXATION, SUBSIDIES

120

FARE FOR TRANSIT SERVICE

OPERATIONAL

COSTS

Fare

High

INITIAL

INVESTMENT

Infrastructure

Vehicles

Control

Fare

Low

Low

High

121

FARE STRUCTURE

SoldSoldSoldSold TripsTripsTripsTrips x x x x TechnicalTechnicalTechnicalTechnical FareFareFareFare ==== PaymentsPaymentsPaymentsPayments totototo thethethethe PartsPartsPartsParts

Trips SoldBus Operators Payment (#Kms*$Kms)

Fare Collector Payment (#Pax*$Pax)X

Fare

Fare Collector Payment (#Pax*$Pax)

SPV Salaries (%SPV)

Trust Fund Costs ($TF)

RevenuesRevenuesRevenuesRevenues = = = = OperationalOperationalOperationalOperational CostCostCostCost122

TechnicalTechnicalTechnicalTechnical FareFareFareFare ==== PaymentsPaymentsPaymentsPayments totototo thethethethe PartsPartsPartsParts / / / / SoldSoldSoldSold TripsTripsTripsTrips

Technical Fare =No. Kms * $Km + +No. Pax *

No. Pax

$TF$FC +%SPV

FARE STRUCTURE

$Km

$FC

$TF% SPV}

All expenditures include

Investments, Operational

Costs, Taxes, and

Profits (NPV, IRR)

Business PlanBusiness PlanBusiness PlanBusiness Plan

123

Technical Fare =No. Kms * $Km + +No. Pax *

No. Pax

$TF$FC +%SPV

TechnicalTechnicalTechnicalTechnical FareFareFareFare ==== PaymentsPaymentsPaymentsPayments totototo thethethethe PartsPartsPartsParts / / / / SoldSoldSoldSold TripsTripsTripsTrips

FARE STRUCTURE

Technical Fare =$ Bus Operators +

No. Pax%SPV

Simplified to:

124

Technical Fare =$ Bus Operators +

No. Pax%SPV

Bus Investment

TechnicalTechnicalTechnicalTechnical FareFareFareFare ==== PaymentsPaymentsPaymentsPayments totototo thethethethe PartsPartsPartsParts / / / / SoldSoldSoldSold TripsTripsTripsTrips

FARE STRUCTURE

Operator RevenuesOperator RevenuesOperator RevenuesOperator Revenues

[# Kms * $ Kms

++++ Advertisement]

Bus Investment

Bus Maintenance

Bus Cleaning

Drivers

Fuel & Parts

Fixed Cost

Taxes + Profits

}

125

Technical Fare =$BusOperators +

No. Pax%SPV

Maintenance + Cleaning + Administration+ Administration+ Administration+ Administration

TechnicalTechnicalTechnicalTechnical FareFareFareFare ==== PaymentsPaymentsPaymentsPayments totototo thethethethe PartsPartsPartsParts / / / / SoldSoldSoldSold TripsTripsTripsTrips

Stations:

FARE STRUCTURE

SPV RevenueSPV RevenueSPV RevenueSPV Revenue

% SPV + Advt.

Hardware + Software + Communication

Network

Operation + Conductors + Clearing

House

AdministrationAdministrationAdministrationAdministration

Maintenance + Cleaning + Administration+ Administration+ Administration+ Administration

Hardware + Software + Communication

Network

Operation + AdministrationAdministrationAdministrationAdministration

Stations:

Collector:

Scheduling

&

Controlling

126

FARE STRUCTURE & CONTRACT STRUCTURE

Fare Structure Fare Structure Fare Structure Fare Structure Contract Structure Contract Structure Contract Structure Contract Structure

Incomes

Expenditures

Rights

Obligations

MIRRORMIRRORMIRRORMIRROR

127

SPV Management Profile

SERVICE & FINANCIAL MANAGEMENT

Technical Fare =No. Kms * $Km + +No. Pax *

No. Pax

$TF$FC +%SPV

No.Pax * Fare No.Kms * $Kms

SPV

(Economic Team) Source Expenditure (Transport Team)

Management Profile

RevenuesRevenuesRevenuesRevenues Operational CostsOperational CostsOperational CostsOperational Costs

128

FARE

• Fare can be defined in two aspects:

• Technical Fare – Total average cost of transporting one passenger

• User Fare – Total average fare per passenger

• User fare may be above or below the technical fare

• Generally user fare is lower than the technical fare due to political and other reasons and other reasons

• Low user fare many times results in lower degree of revenue realisation

129

USER FARE

• User fare is the fare by a passenger for using a transit service

• It may be above or below the technical fare

• Generally, user fare is lower than the technical fare due to

political and other reasons

• Low user fare many times results in lower degree of revenue

realization realization

130

SUBSIDY

• The difference between total costs and total revenues is the amount

of subsidy that is required by the transport agency.

• Transport is a form of public service, and many times it is justified that

government should subsidize a portion of costs.

• However, for subsidies to be acceptable and effective, they should be

used to improve the quality of public transport service and not to cover

the inefficiencies of operations. the inefficiencies of operations.

• It is prudent for an agency to develop a business plan and calculate

operating costs and required subsidies at the beginning of every

financial year.

• The agency should run operations within that budget, barring

unforeseen circumstances.

131

SUBSIDY

• For Public Transport to compete with private vehicles, it needs to be safe, inexpensive, reliable and comfortable.

• Subsidies should aim at improving these qualities in public transport.

• Subsidies can be provided to bus agencies that are operating buses at 7 to 12 people per meter square to increase operating frequency and thereby reduce crowding stations to more tolerable levels.

• Such a subsidy improves passenger comfort while conveying that satisfactory service is just as important as revenue.

132

FARE FIXATION AND REVISION FOR URBAN CASE STUDY: AUTO-RICKSHAW SECTOR IN MUMBAI

FARE FIXATION AND REVISION FOR URBAN TRANSPORT SERVICES

133

CHARACTERIZATION OF URBAN TRANSPORT MODES – ROLE OF AUTO-RICKSHAWS AND TAXIS

Non-motorized Transport (NMT)

Pedestrians

Private motorized transport

Motorized two

wheelers

Public transport

Buses

Intermediate public transport

(IPT)

Auto-rickshaws

Cyclists

wheelers (MTWs)

Cars

Metro

Suburban rail

Taxis

134

CHARACTERIZATION OF IPT SERVICES IN CITIES

IPT in Indian cities

Demand responsive services

Cycle rickshaws

Informal public transport services

Share-autoCycle rickshaws

Auto-rickshaws

Taxis

Share-auto

Share-taxi

135

NEED FOR FARE REGULATION FOR AUTO-RICKSHAW AND TAXI SERVICES

• Existing research on taxi regulation (Schaller, 2007) makes the case

for fare regulation by the government for auto-rickshaw and taxi

services, based on following reasons:

Market imperfection Overcharging

Need for government regulation to correct market imperfection, such as “imperfect information”

Customers typically don’t have all the information available to determine whether the fare they are paying is reasonable. Therefore, government determined fares bring transparency.

Government fare regulation becomes important to avoid overcharging of customers, particularly those requiring service to low-demand locations

136

REGULATORY STRUCTURE FOR FARE FIXATION IN AUTO-RICKSHAW AND TAXI SECTOR

• The Ministry of Road Transport and Highways (MORTH) is the apex

body that provides broad guidelines for regulation of motor vehicles

(including auto-rickshaws and taxis), under the Central Motor

Vehicles Act.

• At the city level, auto-rickshaws and taxis are regulated by the State

government, under provisions of the State Motor Vehicle Rules. government, under provisions of the State Motor Vehicle Rules.

• Regional Transport Authorities (RTAs) are the regulatory bodies set

up by the State governments that are in charge of fare regulation for

auto-rickshaws and taxis.

137

FARE FIXATION KEY CONSIDERATIONS

Auto-rickshaws should not be thought of as poor-man’s mode of transport –that role should be played by buses and other mass transit

Keeping fares unrealistically low affects quality of service (refusals, overcharging, lack of innovations, competition with PT)

Fare estimation should be based on real costs of ownership, operations and maintenance, and should be revised on a regular basismaintenance, and should be revised on a regular basis

Regular fare revisions based on changes in input costs are critical, to ensure quality of service, and sustainable livelihood for drivers

Fare regulation is linked with supply-demand. Important to ensure adequate supply, through issue of permits. If regulation constrains supply, government regulated fares will never work.

138

COMPONENTS OF AUTO-RICKSHAW AND TAXI FARES

Fare ComponentFare ComponentFare ComponentFare Component DescriptionDescriptionDescriptionDescription

Minimum fare

This is the minimum fare which customers pay for availing the

service. There is a minimum distance which is stipulated up to

which the minimum fare is applicable.

Unit fare

This is the fare which becomes applicable when the trip

distance exceeds the minimum distance. This fare is calculated Unit fare

distance exceeds the minimum distance. This fare is calculated

for every unit incremental distance beyond the minimum

distance.

Idling/Waiting

fare

This fare is applicable when the vehicle is being used but is

stationary (either in congestion, or waiting).

139

KEY INPUT FACTORS FOR FARE ESTIMATION

Input Factors Description Data source

Fixed costs

Interest payments (permit and

vehicle costs) Driver surveys

Depreciation

Statutory charges (registration,

taxes, insurance)

Transport

departmenttaxes, insurance) department

Variable costsFuel

Driver surveysMaintenance

Operating

characteristics

Average total kmsDriver surveys

Average empty kms

140

HISTORY OF FARE FIXATION IN MUMBAI

1996

•Seven-person committee set up by Government of Maharashtra, headed by Mr. PMA Hakim, referred to as the “Hakim Committee”, to create a formula to revise taxi fares in Mumbai

•Fare formula developed for taxis used for auto-rickshaws as well.

2012

•Fare fixation committee, again headed by Mr. PMA Hakim, reappointed in April 2012, to revise fare formula separately for auto-rickshaws and taxis in Mumbai

•Committee recommendations for fare revisions implemented in September 2012 for auto-rickshaws and taxis.

141

FARE FIXATION (1996, HAKIM COMMITTEE)KEY COSTS AND OPERATING CHARACTERISTICS

ParameterParameterParameterParameter ValueValueValueValue

Interest and depreciation Rs. 20,000 annually

Consumption of fuel (petrol) and oil 9 kms per liter

Maintenance cost Rs. 40,000 annually

Cost of living of taxi driver (including rent, medical Cost of living of taxi driver (including rent, medical

expenses, and general cost of living)Rs. 3,750 monthly

Taxes, insurance, and statutory charges Rs. 4,870 annually

Average distance traveled by a taxi daily 150 kms

Idling distance as percentage of total distance 20%

142

ParametersParametersParametersParameters Value (Value (Value (Value (RsRsRsRs per Km)per Km)per Km)per Km) ShareShareShareShare

Interest & Depreciation 0.555 8.7%

Maintenance Cost 1.111 17.4%

Living & Related Cost 1.25 19.6%

Petrol Cost 3.338 52.2%

FARE FIXATION (1996, HAKIM COMMITTEE)COSTS PER KM

Petrol Cost 3.338 52.2%

Insurance & Tax 0.135 2.1%

Total 6.39 100%

143

FARE FIXATION (2012, HAKIM COMMITTEE)

• Among its main objectives, the Committee aimed to look at the

following:

1. cost-based fare structures that varied with fuel usage

2. a formula for future fare revisions

3. minimum distance considerations in the fare

• Interacted with various stakeholders: Auto-rickshaw Unions,

Consumer/Passengers’ Association

144

FARE FIXATION (2012, HAKIM FARE FIXATION (2012, HAKIM FARE FIXATION (2012, HAKIM FARE FIXATION (2012, HAKIM COMMITTEE) KEY COMMITTEE) KEY COMMITTEE) KEY COMMITTEE) KEY FACTORS CONSIDEREDFACTORS CONSIDEREDFACTORS CONSIDEREDFACTORS CONSIDERED

(i) the demands made by the various unions to formulate the fare structure taking

into account the real impact of various costs, particularly the cost of living;

(ii) proposal to revise (in respect to Mumbai, Thane and Navi Mumbai) the distance

for which the minimum fare is calculated;

(iii) installation and use of electronic meters;

(iv) realistic estimates of the average distance travelled daily, percentage of idle run

and fuel consumption; and fuel consumption;

(v) adequate provision for proper maintenance of auto-rickshaws;

(vi) fare fixation when auto-rickshaws based on different fuels operate in the same

area;

(vii) complaints of refusal of passengers by auto-rickshaws;

(x) other issues relevant for fare fixation; and

(xi) frequency of fare revision.

145

FARE FIXATION (2012, HAKIM COMMITTEE)KEY COSTS AND OPERATING CHARACTERISTICS

Parameter Value

Interest and depreciation Rs. 17,692 annually

Average kms per kg of CNG 28.5 km

Maintenance cost Rs. 21,000 annually

Cost of living of taxi driver (including rent, medical Rs. 1,44,000 annually

Cost of living of taxi driver (including rent, medical

expenses, and general cost of living)Rs. 1,44,000 annually

Taxes, insurance and statutory charges Rs. 4,546 annually

Average distance traveled by an auto-rickshaw daily 80

Idling distance as percentage of total distance 18%

146

FARE FIXATION (2012, HAKIM COMMITTEE) COSTS PER KM

ParameterParameterParameterParameter ValueValueValueValue (Rs. per km)(Rs. per km)(Rs. per km)(Rs. per km) Share (%)Share (%)Share (%)Share (%)

Interest and depreciation 0.518 5.1%

Insurance and taxes 0.133 1.3%

Fuel 1.643 16.2%

Maintenance 0.697 6.9%

Cost of living 7.164 70.5%Cost of living 7.164 70.5%

Total 10.155 100%

147

2012, HAKIM COMMITTEE PROCEDURE FOR FARE REVISIONS

• Interest and depreciation: (Latest price in rupees of a new auto-

rickshaw) divided by 2703.

• Insurance and taxes: (Latest total amount of insurance and all taxes in

rupees) divided by 341.8

• Fuel: (Latest cost of one kg of CNG in rupees) multiplied by 4.964• Fuel: (Latest cost of one kg of CNG in rupees) multiplied by 4.964

• Repairs and maintenance: (Latest price in rupees of a new auto-

rickshaw) divided by 2678 plus plus plus plus (CPI number for the latest available

month) divided by 11.707

• Cost of living: (CPI number for the latest available month) multiplied by

3.512

148

2012, HAKIM COMMITTEE FREQUENCY OF FARE REVISIONS

• Fare revisions proposed to be undertaken every year on the 1st of

May. This is to bring clarity and transparency to the fare revision

process, and account for yearly changes in input costs.

• Fare revisions should be undertaken even if increase in basic fare

per km is below 50 paise.

• If input costs increase due to unexpected circumstances such that

basic fare per km rises by more than 20%, then fare increases

should be implemented without waiting until the following 1st of

May.

149

OTHER RECOMMENDATIONS

• Change in using WPI to CPI (Inflation measure for adequately

reflecting auto-rickshaw drivers)

• It was further suggested that the additional fare of 25% presently

charged for journeys after midnight be increased to 30%.

• Electronic meters and recalibration mandatory, for accurate fare

charges and to be a deterrent from tampering

• Average distance travelled and idle distance: Surveys conducted with

help of RTO

150

SUCCESS FACTORS

• Surveys conducted to gauge actual usage and running of auto-

rickshaws

• Scientific, verified method of data collection and sample analysis

• Highlighting gaps in data collection and considering various

perspectives

• Different fuels considered, detailed fare revision formulae• Different fuels considered, detailed fare revision formulae

151

ISSUES/CHALLENGES

• Different fuels used by different vehicle models: Petrol, CNG, LPG

• Waiting Time/Congestion charges: How to estimate

• Fare revisions: Revisions in factors

• Minimum distance found to impact driver refusals

152

AFTERMATH

• Many organizations and representatives (from government, unions as

well as passengers/consumers) were consulted during the

deliberations of the committee, leading to general disapproval and

displeasure.

• Currently, a public interest litigation (PIL) proposed that the

government appoint an expert panel to decide some of the

components of the revised fare, which was rejected.components of the revised fare, which was rejected.

153

LESSONS LEARNED

• Scientific method: useful – although does not always lead to

consensus among various stakeholders

• Using different factors and considering varying viewpoints for holistic

estimation

• Provision of frequent and timely revisions stressed

154

CASE STUDY: BMTC, BANGALORE

FARE FIXATION AND REVISION FOR URBAN TRANSPORT SERVICES

155

FARE REVISION ON ACCOUNT OF INCREASE IN DIESEL PRICES

F (DPA) = (F F (DPA) = (F F (DPA) = (F F (DPA) = (F –––– D) + [(RPD/BPD) x D]D) + [(RPD/BPD) x D]D) + [(RPD/BPD) x D]D) + [(RPD/BPD) x D]

• Where,

• F (DPA) = Revised fare in terms of Paisa per passenger kilometer

• F = Average cost per passenger kilometer at the time of previous

FARE REVISION

• F = Average cost per passenger kilometer at the time of previous

fare revision

• D = Diesel cost per passenger kilometer at the time of previous fare

revision

• RPD = Revised price of diesel

• BPD = Basic price of diesel when the last fare revision was

permitted 156

FARE REVISION ON ACCOUNT OF RISE IN DA RATES:

FR = F + [CPKM (L)/CPKM] x P x F/100FR = F + [CPKM (L)/CPKM] x P x F/100FR = F + [CPKM (L)/CPKM] x P x F/100FR = F + [CPKM (L)/CPKM] x P x F/100

• Where,

• F = current fare per kilometer

• FR = Revised fare paisa per passenger kilometer

FARE REVISION

• FR = Revised fare paisa per passenger kilometer

• CPKM = Total cost per kilometer at the time of previous fare

revision

• CPKM (L) = Staff cost per kilometer at the time of previous fare

revision

• P = Percentage increase in staff cost due to DA increase over the

staff cost at the time of previous revision

BENEFITS OF PERIODIC FARE REVISION

The advantage of periodic and timely revision is that the fare hike is nominal

and STUs do not incur losses. However:

• In order to avoid frequent hike in fares, the government has decided that

the fares would be hiked only when the combined burden of diesel price

increase and DA hike, as per the formula above, exceeds 0.25 paisa per

passenger kilometer (i.e. total burden exceeds Rs. 11 crore in a year).

• Whenever there is a decrease in diesel price, the fare will also decrease.• Whenever there is a decrease in diesel price, the fare will also decrease.

• The additional revenue realization on account of fare hike will not

exceed the total increased cost of diesel and DA.

• The STU will have liberty of distributing the quantum of fare increase

between different types of services such as ordinary, deluxe, express,

and luxury.

158

HANDOUT 6: COST BENEFIT ANALYSES

159

BACKGROUND• At any time, there will be multiple PPP projects competing for limited

investment opportunities, both by the government and the private sector.

• The question is which projects to invest in, or which projects to give priority

to.

• Decision criteria

• Highest financial benefit

• Other non-financial benefits• Other non-financial benefits

• Financial analysis looks at a project purely from the perspective of returns.

The project that offers the highest financial returns for a given investment

is considered most favorable.

• In economic analysis, we go beyond the financial returns and consider all

the benefits (and losses) that accrue to a project over its entire life cycle.

160

WHAT IS FINANCIAL ANALYSIS• A financial analysis is an assessment of the viability, stability, and profitability of a project.

• Here, one considers the total value of revenue to be earned from the project over its entire duration, given the capital investment that needs to be made. (opportunity cost of capital)

• It has 4 main components:

• Profitability: Its ability to earn profit for its investors

• Solvency: Its ability to pay its obligations to creditors (lenders) in a timely manner

• Liquidity: Its ability to maintain enough cash flow at any point in time, to cover all its expenses and obligations, including taxes

• Stability: Its ability to stay in business through risk and uncertainty

• The main objective is:

• To determine whether to invest

• To determine how to structure the project

161

FINANCIAL STATEMENT• Balance sheet

• This is a summary of the total worth of assets and liabilities of the company at a

given point of time.

• The different between assets and liabilities is the net worth of the company at that

point of time. (The profitability indicator)

• Profit and Loss sheet

• This shows the company’s itemized revenue and expenses for a given period, usually

a year.

• Note: revenue and expenses are different from cash inflow and outflow

• Revenue minus expenses is equal to the profit (or loss) of the company for that year.

• Profit might be either retained for future investment or distributed to equity partners

as dividend (The profitability indicator)

• Cashflow statement

• This shows the real inflow and outflow of cash at various periods of the project

duration.

• A negative net cashflow at any point of the project duration is unacceptable, and the

project will have to be restructured to prevent this. (The liquidity indicator)

162

HOW IS PROFITABILITY MEASURED• Net Present Value (NPV)

• The discounted value of each year’s cash flow (inflow minus outflow),

through the entire duration of the project.

• Notionally, cash flow in the future is less valuable than cash flow earned

today (because of inflation, uncertainty, delayed consumption). Hence,

future cash flows are reduced by a discounting factor for each subsequent

year in the futureyear in the future

• Internal Rate of Return (IRR)

• The rate of return that makes NPV = 0.

• Other things being equal, the higher the IRR, the more desirable the project

• This is used as a benchmark for investment decision

( ) ( ) ( ) ( )n

n

r

E

r

E

r

E

r

E

r

EENPV

+++

++

++

++

++=

1...

11114

2017

3

2016

2

20152014

2013

163

INDICATORS OF SOLVENCY

• Debt Service Coverage Ratio (DSCR)

• The ratio of cash available for debt servicing (interest and principal) in

each period (monthly/annually).

• Typically, the DSCR should be at least 1.2 at all times

• Debt Equity Ratio (DER)

• The ratio of debt to equity in the project

• The higher the debt proportion, the more risky is it for the lenders

• In non-recourse financing, DER of 70:30 is acceptable, though there

can be exceptions.164

STABILITY ANALYSIS

• In any project, there are risks and uncertainties.

• A stability analysis assesses how various indicators in the project change, when there is a change in the project situation. Examples:

• Cost escalation

• Construction delay

• Demand shortfall• Demand shortfall

• If any indicator reaches an unacceptable critical level due to one of these changes, then the project will have to be restructured to overcome this risk.

• This is often known as scenario analysis, simulation, or crystal ball analysis.

165

WHAT IS ECONOMIC ANALYSIS

• If one neglects to consider the non-financial benefits of a PPP project, then

one is at risk of ignoring a sizeable set of benefits accruing from the project.

• In any PPP project, there will be both monetary and non-monetary benefits (as

well as losses). The latter is known as the positive and negative externalities

of the project.

• In economic viability analysis, we try to capture the notional value of these

externalities for all individuals and entities in society. These benefits (or externalities for all individuals and entities in society. These benefits (or

losses) could be social, economic, environmental, health-related, cultural, etc.

• The most common tool to do this is a socio-economic cost benefit analysis.

166

SOME FACTORS TO BE CONSIDERED IN ECONOMIC ANALYSIS

• Environmental impact: CO2 emissions, other pollutants

• Economic impact: Jobs created or income generated, both direct and

indirect. Often the indirect jobs created will far outnumber the direct jobs

• Social impact: What is the historical/cultural impact. This is often the most

controversial and difficult to estimate. Each person values the same controversial and difficult to estimate. Each person values the same

things differently.

• Other impacts: Health impacts, accidents, intangibles, etc.

167

Stanich13

Slide 167

Stanich13 Suggestion under Social impact: Remove last sentence and insert instead something like: "A development proposal will be received by each person differently, as it will impact different groups in different ways. The poor and marginalized are often overlooked in this assessment process."Rebecca, 5/21/2013

COST-BENEFIT ANALYSIS

• This is a systemic evaluation process for calculating and comparing benefits

and costs of a project, in order to aid the decision (generally for the

government entity) on where to make an investment decision or not.

• Like financial evaluation, CBA is expressed in monetary terms, where future

values may be discounted to make them equal to present values. HOWEVER,

discount rate, if used, should be low, because the benefits and losses to every

generation are equally important.generation are equally important.

• The process of attaching monetary values to these intangible benefits can be

very subjective. There are rigorous methodologies available in the public

domain on how to calculate some of the more common benefits, such as

carbon emission reduction, lives saved, jobs created, etc.

168

COST-BENEFIT ANALYSIS(CONTINUED)

• The monetary values for each benefit (or loss) is calculated in several

ways:

• Stated preference / willingness to pay survey: where respondents

are asked how much they would be willing to pay for the given

benefit if they had to pay for it

• Revealed preference: where one considers how much people paid

for a similar benefit in another circumstancefor a similar benefit in another circumstance

• Market rates: Some benefits have a market-traded proxy; for

example carbon credits or job market

169

WHO SHOULD DO AN ECONOMIC ANALYSIS

• There is a conflict of interest when the private partner in the PPP conducts

the economic analysis of the project.

• Economic analysis must always be done by an independent party with no

financial stake in the project.

• Economic analysis must always precede financial analysis. Only if the

economic analysis is favorable, should one proceed to a financial analysis.

170

COMPARISON

Financial AnalysisFinancial AnalysisFinancial AnalysisFinancial Analysis Economic AnalysisEconomic AnalysisEconomic AnalysisEconomic Analysis

Decision to invest based only on

financial returns

Decision to invest based on non-

financial benefits and losses to the

economy, environment, society, culture,

health, etc

Decision based on Financial Modeling

through NPV, IRR, DSCR, DER, etc

Decision based on socio-economic Cost-

Benefit analysis

In a PPP, this is the more important In a PPP, this is the more important In a PPP, this is the more important

indicator to the private partner and

the lenders

In a PPP, this is the more important

indicator to the government and/or

grant/aid organizations

Returns accrue only to the PPP

partners and lenders

Benefits/losses accrue to society at

large

Time consideration is only as long as

the project durationTime consideration is normally unlimited

Heavy discount on future returns

Lesser discount on future benefits or

losses, as each generation is equally

important

171

CBA – KEY STEPS

172

COMMON APPROACH TO CBA

• Three common methods or approaches of economic evaluation are

• Net Present Value Method

• Internal Rate of Return Method

• Benefit Cost Ratio

• NPV and Internal rate of return methods are the most commonly used method for doing CBA

173

COST COMPONENTS

Some of the important cost components, apart from the regular capital

and operation cost, include:

• Value of Time

• Vehicle Operating Costs

• Social cost such as cost of accident

• Environmental Costs

174

BENEFITSSome of the important benefits include:

• Traffic Benefits

• Increase in normal traffic

• Diverted traffic

• Generated traffic or induced traffic

• Road user benefits

• Vehicle operating cost savings• Vehicle operating cost savings

• Value of travel time savings

• Value of savings in accident costs

• Social Benefits

• Improvement in administration, law and order, and defence

• Improvement in health and education

• Improvement in agriculture, industry, trade, and mining

• Improvement in environment

• Appreciation in land value in influence zone

175

COST BENEFIT ANALYSIS FOR URBAN

CASE STUDY: TRANSMILENIOBRTS PROJECT

COST BENEFIT ANALYSIS FOR URBAN TRANSPORT PROJECT

176

CASE STUDY TRANSMILENIO BRT SYSTEM BOGOTA

177

TRANSMILENIO BRT SYSTEMBOGOTA (PHASES I AND II)

Length of Bus-Only Lanes : 84 km

Length of Feeder Routes : 663 km of routes

Stations : 114

Trunk Vehicles : 1,262 articulated buses

10 bi-articulated buses

Feeder VehicleS : 519 conventional buses (12 m)

178

Feeder Routes : 83

Payment System : No-contract smart card

Control Center : On-line real-time supervision

User information : Fixed signage and dynamic display panels

Total passengers : Average of 1.7 million on weekdays

Users of feeder routes : 48% of the total users

Fare (flat) : Rs. 50 per trip, including transfer with feeders

Economic Prices (in

Billion INR)

PUBLIC COSTS 65.68

Studies and project preparation costs 0.73

Real estate purchase and resettlement 8.45

Infrastructure Construction and/or Rehabilitation 51.17

Infrastructure Maintenance 2.61

Implementation of Control Center 0.87

TABLE 1 - TRANSMILENIOCOSTS, PHASES I AND II (PRESENT VALUE, WITH A 12% DISCOUNT RATE, BILLIONS OF INR)

Implementation of Control Center 0.87

Control Center Operation 0.19

Costs of the Public Project Management Agency 1.66

PRIVATE COSTS 42.04

Bus Fleet Acquisition 12.95

Bus Fleet Operation 22.32

Implementation of Collection System 0.59

Collection System Operation 6.20

TOTAL 107.72 179

COSTS COP 108 BILLION INR (2008) 1998-2018, DISCOUNTRATE 12%

180

BENEFITSBENEFITSBENEFITSBENEFITS TotalTotalTotalTotal

Reduced Travel Time in Public Transport 91.99

Time Lost during Construction (5.22)

Table 2 Table 2 Table 2 Table 2 –––– Present Value of Benefits, Present Value of Benefits, Present Value of Benefits, Present Value of Benefits, TransMilenioTransMilenioTransMilenioTransMilenio, Phase I and II, Phase I and II, Phase I and II, Phase I and II

(Billions INR of 2008, 12% discount rate)(Billions INR of 2008, 12% discount rate)(Billions INR of 2008, 12% discount rate)(Billions INR of 2008, 12% discount rate)

Reduced Operating Cost of Public Transport

Vehicles66.92

Reduced Injuries, Deaths, and Losses due to Road

Crashes9.04

Positive Impact on Health due to Reduced Emissions of

Air Pollutants6.18

Total 168.92 181

BENEFITS COP 166 BILLION INR 2008 1998-2008, DISCOUNTRATE 12%

182

CASH FLOW – COSTS AND BENEFITS(COP BILLION 2008, DISCOUNTRATE 12%)

183

SOCIO-ECONOMIC EVALUATION PHASES I AND II

• Evaluation horizon 1998 Evaluation horizon 1998 Evaluation horizon 1998 Evaluation horizon 1998 –––– 2018201820182018

• Discount rate 12%Discount rate 12%Discount rate 12%Discount rate 12%

• Net Present Value: USD 56,560 million INRNet Present Value: USD 56,560 million INRNet Present Value: USD 56,560 million INRNet Present Value: USD 56,560 million INR

184

• Benefit/Cost Ratio: 2.5 Benefit/Cost Ratio: 2.5 Benefit/Cost Ratio: 2.5 Benefit/Cost Ratio: 2.5

• Internal rate of return (social): 24.2%Internal rate of return (social): 24.2%Internal rate of return (social): 24.2%Internal rate of return (social): 24.2%

INPUT PARAMETERS/ASSUMPTIONSComponentComponentComponentComponent ValueValueValueValue UnitsUnitsUnitsUnits CommentsCommentsCommentsComments

Infrastructure Investment66

116Rs. Crores per km

Phase I (1)

Phase II (1)

Infrastructure Rehabilitation50% of Initial

InvestmentYear 11 (2)

Investment in Buses1.5

0.5Rs. Crores per Unit

Articulated (1)

Feeder (1)

Replacement of Buses100% of initial

investmentYear 10 (2)

Operation of Trunk Buses 58 Rs. per km Average, 2002-2008 (1)Operation of Trunk Buses 58 Rs. per km Average, 2002-2008 (1)

Operation of Feeder Buses 27Lac Rs. per

bus/year(1)

Value for travel time 67 Rs. per Trip Hour Based on income (2)

Losses during construction 50% time savings (2)

Impacts on Accidents and

Health

5,40,24,514

7,66,481

84,864

29,53,340

1,008

1,080

Death

Injury

Accident

Chronic Bronchitis

Restricted

Activity/day

Lost Day

Value of a statistical life;

accidents according to

insurance; health

equivalent in Mexico (2)

Source: (1) TRANSMILENIO S.A., (2) Assumption

185

Net Present Net Present Net Present Net Present

ValueValueValueValueChangeChangeChangeChange B/CB/CB/CB/C IRRIRRIRRIRR

Base Scenario 61 2.501 24.2%

Salvage Value equal to zero 58 -5.3% 2.464 24.0%

Rehabilitation Cost equal to initial

construction56 -8.1% 2.402 23.6%

TABLE 4 – RESULTS OF THE SENSITIVITY ANALYSIS(BILLIONS OF 2008 INR, 12% DISCOUNT RATE)Source: Prepared based on data provided by TRANSMILENIO S.A.

construction

50% increase in fleet value, 2009-2018 60 -2.3% 2.470 24.1%

50% increase in bus operating costs 56 -7.8% 2.336 23.7%

50% lower travel time value 18 -70.9% 1.859 16.3%

Losses during construction equal to 100%

of time savings in first year 55.98 -8.5% 2.424 22.4%

Transit savings 50% lower 27.74 -54.7% 2.006 17.8%

Value of a Statistical Life 50% lower 56.06 -8.4% 2.425 23.2%

Health and accident benefits equal to zero 48.79 -20.3% 2.317 21.6%186

PlannedPlannedPlannedPlanned ActualActualActualActual ProgressProgressProgressProgress

Trunk km 172 84 49%

Passengers 3,319,385 1,600,000 48%

PHYSICAL AND FINANCIAL PROGRESS OF IMPLEMENTATION ACCORDING TO CONPES 3093, 2000-2008

Passengers per km of busway 19,254 19,408 99%

Capital investment in infrastructure

INR Million 35975 73800 205%

Capital investment in infrastructure per

kilometer of busway INR Million208.5 878.5 421%

Source: CONPES, 2000. data from TRANSMILENIO S.A. 187

OTHER IMPACTS

• Employment: 1,900 to 2,900 permanent jobs in operation, 1,400 to

1,800 jobs /month during construction

• Tax revenues: Between 2005 and 2008 operators reported 893

million INR in revenue taxes and 485 million INR in other taxes (VAT,

industry and commerce taxes, vehicle taxes)

• Increased land values• Increased land values

• Crime reduction

188

• Increases in land prices in areas less than 1 km from TransMilenio

(during a period in which average land prices dropped in the city at

large, Bogotá Real Estate Exchange,2002)

• Hedonic price surveys reflect positive trends within walking distance

of TransMilenio stations (Barrios, 2002; Rodriguez y Targa, 2004;

Muñoz-Raskin, 2010):

• Positive for middle-class, negative for lower income and upper-class

LAND VALUES

• Positive for middle-class, negative for lower income and upper-class

categories

• Negative impacts on housing in the immediate vicinities of stations:

greater commercial use, noise, and perceived safety (problems?)

(Rodríguez y Targa, 2004).

189

REPORTEDCRIME IN AV. CARACAS (MAIN TRUNKWAY)

Home ViolationsHome ViolationsHome ViolationsHome Violations HomicideHomicideHomicideHomicide

Source: Moreno-García, A. (2005) with data from the Metropolitan Police Department

Motorcycles RobberyMotorcycles RobberyMotorcycles RobberyMotorcycles Robbery Vehicles RobberyVehicles RobberyVehicles RobberyVehicles Robbery

190

REPORTEDCRIME IN AV. CARACAS (MAIN TRUNKWAY)

Commercial Establishment

Robbery Person Robbery

Homes Robbery Total Reported Crime

Source: Moreno-García, A. (2005) with data from the Metropolitan Police Department

191

CONCLUSIONS

• High impact, high performance system

• User perception declining; need to improve quality of service

• Favorable socio-economic evaluation, but much lower than initially

estimated – much higher infrastructure costs

• Positive impacts on employment, tax revenues, land prices, and

reduced reported crimereduced reported crime

192

Expressway Bus Lanes TransMilenio, Bogotá

193

194

New New New New FlleetFlleetFlleetFlleet of of of of BiarticulatedBiarticulatedBiarticulatedBiarticulated Buses Euro VBuses Euro VBuses Euro VBuses Euro V

DowntonDowntonDowntonDownton TransitTransitTransitTransit Mall (Eje Ambiental)Mall (Eje Ambiental)Mall (Eje Ambiental)Mall (Eje Ambiental)

New New New New FlleetFlleetFlleetFlleet of of of of BiarticulatedBiarticulatedBiarticulatedBiarticulated Buses Euro VBuses Euro VBuses Euro VBuses Euro V

DowntonDowntonDowntonDownton TransitTransitTransitTransit Mall (Eje Ambiental)Mall (Eje Ambiental)Mall (Eje Ambiental)Mall (Eje Ambiental)

195

COST BENEFIT ANALYSIS FOR URBAN

CASE STUDY: MEXICO, METRO BUS BRTS PROJECT

COST BENEFIT ANALYSIS FOR URBAN TRANSPORT PROJECT

196

MEXICO CITY PROFILE

• North America's largest metropolis

• Financial, political, and cultural

capital of Mexico

• 8.8 million inhabitants in Federal

District

• 21 million inhabitants in metro area• 21 million inhabitants in metro area

• Regarded as one of the most

polluted cities in the world

197

MEXICO CITY: METROBÚSPROJECT

• Launched to replace the existing private micro-bus scheme with a more

organized, efficient, and environmentally sustainable operation

• A unique public-private partnership (PPP) helped plan and build dedicated

BRT lanes

• Covers 95 kms: largest system of BRT corridors in Latin America

• Corridors include:

• segregated bus lanes• segregated bus lanes

• enclosed stations with prepayment

• large buses

• electronic fare collection

• advanced control systems

• Spaces designed exclusively for women, children, and the elderly at most

stations and within buses198

MEXICO CITY: POLITICAL CHALLENGES IN IMPLEMENTATION

• Lack of institutional alignment toward project goals by agencies not

directly involved in project planning

• Existing concessionaires of the corridor had to be brought on board to

overcome opposition

• Public protests by operators were not acceptable• Public protests by operators were not acceptable

199

MEXICO CITY: METROBÚSBUSINESS MODEL

• PPP: existing micro-bus drivers displaced and then hired as BRT rolling

stock operating companies with the government as facilitator

• Dispersed concessions replaced by one single concession for the whole

fleet

• Metrobús in charge of planning, control, and supervision, as well as

coordination with other agencies

200

MEXICO CITY: INSTITUTIONAL ARRANGEMENTS

• The public decentralized body Metrobús is responsible for the planning,

administration, and control of the Corridor System of Passenger Public

Transport of the Federal District.

• The transport companies Corredor Insurgentes S.A. de CV formed by the

old concesionaries of Route 2 in the insurgents corridor and Red de

Transporte de Pasajeros del Distrito Federal. One private and one public

company will operate the 84 articulated buses in a proportion of 75% and company will operate the 84 articulated buses in a proportion of 75% and

25% respectively.

• One company specialized in the operation and maintenance of the

payment systems (Imbursa)

• One private fiduciary for the administration, investment, and distribution of

the resources generated by the Insurgentes Corridor.

201

Stanich18

Slide 201

Stanich18 remove "will"?Rebecca, 5/21/2013

MEXICO CITY: GREEN PLAN

• Measures to enhance the city’s walking and cycling conditions:

• “Pedestrianization” of the city's historical centers and of some of

its neighborhoods

• Bicycle promotion strategy

• Building cycling-friendly infrastructure • Building cycling-friendly infrastructure

• Bicycle-sharing system, Ecobici (EcoBike)

202

MEXICO CITY: GREEN PLAN

$237,213

$712,405

$360,896

$13,614

-$196,838 -$200,000

$-

$200,000

$400,000

$600,000

$800,000

1 2 3 4 5

-$196,838

-$400,000

-$200,000

Relationship

Total

$0 -

$4,500

$4,501 -

$7,500

$7,501 -

$15,000

$15,001 -

$30,000

More than

$30,000

1.54 1.62 2.76 1.88 1.03 0.6

Benefit-Cost Ratio by Quintile (income per month)

Distribution of Net Benefits for Mexico City’s

Metrobús across Various Income Quintiles

203

HANDOUT 7: PROJECT PREPARATION

204

PROJECT PREPARATION

• A project is a series of activities aimed at bringing about clearly

specified objectives within a defined time period and within a

defined budget identification.

205

PROJECT PREPARATION PHASE

• Every project can be presented as a sequence of consecutive

phases as exhibited through a project cycle and can be

conceptually shown as:

206

LIFE CYCLE OF A PPP PROJECT

PPP development pipeline

Phase 2:

Full feasibility,

PPP preparation,

Phase 3:

Procurement,

Final approval,

Phase 4:

Implementation

and monitoring

PPP operation

Phase 1:

Strategic planning,

Project pre-feasibility,

PPP suitability testing,

PPP identification

PPP preparation,

Clearance

Final approval,

Awardand monitoring

PPP suitability testing,

Internal clearance

207

PROJECT RISKS

Risk

Risk

Risk

Risk

PPP projects need Project Development

Risk

Risk

Risk

Risk

Concept / Development

Concept / Development

Concept / Development

Concept / Development

Construction

Construction

Construction

Construction

TransitionTransitionTransitionTransition OperationOperationOperationOperation

TimeTimeTimeTime208

PROJECT DEVELOPMENT

• Project Development is aimed at:

• Defining the scope and outcomes of a project

• Setting out the modalities for implementation

• Designing a project structure that would enable the project to find

credible investors and access to project finance

• OR IN OTHER WORDS

• Making the project “bankable” so that it can be successfully

implemented

209

STAGES OF PROJECT DEVELOPMENT

Stage 1 SECTOR STUDY - Resulting in a well-defined strategy

Stage 2ANALYSIS OF LEGAL, REGULATORY AND POLICY FRAMEWORK

Ensuring that there is a suitable enabling environment

Stage 3 PROJECT IDENTIFICATION - Assessing amenability of a projectStage 3 PROJECT IDENTIFICATION - Assessing amenability of a project

Stage 4 PROJECT PREPARATION Technical Feasibility

Evaluation

Financial Viability Analysis

Stage 5PROJECT STRUCTURING

(PACKAGING)Project structuring options

Project implementation issues

210

CASE STUDY: NOIDA TOLL BRIDGE PROJECT & DELHI GURGAON EXPRESSWAY

PROJECT DEVELOPMENT EXAMPLES

GURGAON EXPRESSWAY

211

NOIDA TOLL BRIDGE PROJECT

• An opportunity -

• Demand for connectivity

• Willingness to pay

• Missing link – A bridge on Yamuna

• Project Development created the bridge• Project Development created the bridge

• 552 m long with 8 lane approach roads (5.5 Kms)

• COP: Rs 4,000 mn

212

GEOGRAPHY - ORIENTATION

213

KEY MILESTONES

• Apr 1992Apr 1992Apr 1992Apr 1992 Signing of MOUSigning of MOUSigning of MOUSigning of MOU

• Nov 1997Nov 1997Nov 1997Nov 1997 Concession Agreement signedConcession Agreement signedConcession Agreement signedConcession Agreement signed

• Jan 1998Jan 1998Jan 1998Jan 1998 EPC contract awarded to MMCEPC contract awarded to MMCEPC contract awarded to MMCEPC contract awarded to MMC

• May 1998 Land handed over to the EPC contractor

• Aug 1998Aug 1998Aug 1998Aug 1998 Regulation authorizing NTBCL to Regulation authorizing NTBCL to Regulation authorizing NTBCL to Regulation authorizing NTBCL to collect collect collect collect tollstollstollstollscollect collect collect collect tollstollstollstolls

• Oct 1998 Execution of Loan documents

• Dec 1998 Appointment of O&M contractor

• Dec 1998 Financial close

• Dec 1998 Commencement of construction

• Feb 2001Feb 2001Feb 2001Feb 2001 Commercial operationsCommercial operationsCommercial operationsCommercial operations 214

KEY STAKEHOLDERS

• Government of IndiaGovernment of IndiaGovernment of IndiaGovernment of India

• Government of Uttar PradeshGovernment of Uttar PradeshGovernment of Uttar PradeshGovernment of Uttar Pradesh

• Government of the NCT DelhiGovernment of the NCT DelhiGovernment of the NCT DelhiGovernment of the NCT Delhi

• NOIDANOIDANOIDANOIDA

• IL&FSIL&FSIL&FSIL&FS• IL&FSIL&FSIL&FSIL&FS

• The World Bank

• Kampsax International, Denmark

• Mitsui Marubeni Corporation, Japan

• Intertoll, South Africa

215

TYPICAL INFRASTRUCTURE RISKS

Political Risk

Revenue Risk

Force Majeure

Risk

Operation and

Maintenance Risk

Regulatory Risk

RISKSFinancial Risk

Demand

Risk

Land Acquisition RiskConstruction

Risk

Technology

Risk

Performance

Risk

216

e.g. an

earthquake, a new

competitor, a flood

GROUPING RISKSBASED ON UNDERLYING UNCERTAINTY

Uncertain Events

e.g. the expected

value of operating

expenditures is 100,

though it can also

Uncertain

Assumptions

e.g. the inflation in

India can be 5% or it

can be 10%

Uncertain Environment

competitor, a floodthough it can also

be 80 and it can

also be 150

can be 10%

217

GROUPING RISKS

Nature of RiskNature of Risk

RisksRisks

Project SpecificProject Specific

Systematic Systematic

Driven byDriven by

Nature of Project specific risks

Nature of Project specific risks

SpreadSpread

Uncertain Assumptions

PurePure

Uncertain Events

Uncertain Environment

218

HOW TO STRUCTURERECAP OF KEY CONSIDERATIONS

Scope

What is the scope of the “overall” project?

Which tasks/responsibilities can be developed as a PPP (i.e. scope of the PPP can be different

from the scope of the project)

Cost Recovery

How can costs be recovered?

Should the public sector support the financing?

Should the tariff / user charges be regulated?

Duration

How long should the PPP contract last?

PPP Modal Variants

How does preferred risk allocation impact the choice of a PPP modal variant?

Structuring PPP

219

Thank You!Thank You!Thank You!Thank You!

220