Leveraging PPPs to finance infrastructure needs for

urban transport

Leveraging PPPs to finance infrastructure needs for

urban transportWilliam Dachs

Gautrain Management Agency

ITSSA Summit;

Cape Town

8 March 2012

•Cities in Developing Countries have – Too much demand for existing, limited services– Rates of growth greater than growth of services

supply– Increasing inefficiency as a result of urban sprawl– Increasing inequity– Increasing congestion– Increasing noise and air pollution

Stating the Problem

•Made worse by – Disjointed planning – Poor institutional arrangements – Limited public financing available– Inability to manage demand for services– Disjuncture between public planning and private

finance– Poor maintenance of existing assets

Stating the Problem

“...a society that is hell bent on outstripping Los Angeles as the low density capital of the world. The main reasons that such a scenario is bad are: the increasingly high costs of providing basic services in a low density megalopolis and, the forgone benefits of effective urban agglomerations”

Andrew Marsay - Transport Economist

Stating the Problem

•Some basic building blocks– The key is integrated land use and infrastructure

planning :1. What will our cities look like in 10, 15 and 20

years time?2. Where and what infrastructure is needed for

those cities?3. How do we finance, develop, and maintain those

infrastructure assets?

Only the last question is related to PPPs

Starting to solve them

Sources of Funding

1. Public funds (tax revenue and sovereign borrowing)

2. Domestic Development Finance Institutions

3. Sub-sovereign borrowing and bonds

4. Private Finance (PPP)• Institutional investors (especially pension funds)• DFIs• Infrastructure Funds• Capital markets• Debt markets (Banks Corporate (balance sheet)• Project Finance (limited recourse)

All but public funds need a return!

Historic Sources of Revenue

1. The user pays for the services eg water, electricity, transport costs

2. The City pays for the services eg road maintenance contracts

3. The Provincial or National Government provides a subsidy to either of the above eg public transport subsidies, ESKOM rebates

• Can have a combination of such sources• Its actually about which tax payer pays for what and the

application of user-pays-principle

Newer Sources of Revenue

1. Developers pay a once-off capital contribution to cover the marginal costs of bulk infrastructure required for their development

2. Betterment taxes (pre-or post development)

3. Land value capture

Some options

1. Cities with high land values and high government ownership of land give land development rights as part of PPP for transport (eg India, Vietnam)

• Rights in perpetuity of great value• Property development different risk profile

2. Cities with track record of delivery raise betterment taxes on land that will be improved by a project (eg London)

• Must be trust that project will proceed• Must be demonstrable benefits

3. PPPs to ensure ongoing maintenance by linking payment to performance

Some options

1. Infrastructure Projects are selected for their economic and social benefits

2. In an urban context these relate to savings in time, VOC, environmental costs, land use etc

3. These benefits are rarely captured in form of capital contribution to the project

4. PPPs can address technical sustainability, transfer risk and improve trust that project will be delivered

5. Benefit capture must be agreed beforehand

Some issues

1. PPPs don’t work all the time in all situations

2. There has to be:• A stable and consistent regulatory environment• A competitive market• A revenue stream for the private sector

3. Some examples:• Europe where PPPs now part of fiscal mess• SA where investor confidence damaged by e-toll

fiasco• SA’s renewable energy IPPs a good example

Gautrain Case StudyGautrain Case Study

Gautrain as a PPP

• Capital Sources – Mix of Public and Private

• Maintenance and Operating Costs - Private

• User Revenue – Private Sector

• Patronage Guarantee - Underwrites Private Sector demand

risk

• Risk Transfer, Value for Money, Affordability– Innovation, integration, fixed price, date certain

• Performance & Penalty regime– Availability, reliability, safety & security– Performance deduction for low performance

PPP - Project partners: Equity

PUBLIC PRIVATE

33%

25%17%

17% 8%

Funding

• Gautrain has 5 sources of funding– DoRA (Division of Revenue Act) money from

central government via the Department of Transport

– MTEF (Medium Term Expenditure Framework) from Gauteng Provincial Government

– Private Sector Equity– Private Sector Borrowing– Provincial Borrowing

Project Financing

MTEF26.1%

DoRA44.2%

Equity1.8%

Private Debt9.5%

Provincial borrowing18.4%

Chart Title

Development around Stations

Pedestrian Entrance

Gautrain F&D Buses

Public Transport

Minibus Taxi

Pedestrian Desire Lines

Park n Ride Entrance and Exit

Public Transport Entrance and Exit

Public Transport

Short Term Parking

Corporate Shuttles

Drop-off

Metered Taxis

Network Integration

Gautrain in Urban Context

• Land use planning very well coordinated

• Very strong development around stations

• No capture of benefits before hand

• Ex-post betterment tax vehemently opposed

• Development rights on stations constrained

Gautrain – Summary

• Gauteng has gained a ZAR26 billion transport asset carrying up to 100,000 passengers per day

• Shared costs between five sources• 15 year concession will end with revenue exceeding

operating costs and assets fully paid for• Development on budget (to Province) and on time• World class risk management • Quarterly reporting on fiscal risks

PPP - Summary• Financing sources can be used smartly• Planning and intergovernmental coordination key• Benefits must be identified up-front and ring fenced• PPPs can help from technical sustainability • Investors and beneficiaries must trust that the

projects will be delivered

Thank Youwww.gautrain.co.za

0800-Gautrain

Thank Youwww.gautrain.co.za

0800-Gautrain