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BRT Financing Options: Lessons from China

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Title: BRT Financing Options: Lessons from China


1
BRT Financing Options Lessons from China
Walter Hook, Executive Director, ITDP BAQ,
Yogyakarta, Indonesia, December 2006
Funded by the Energy Foundation
2
China has a lot of potential to increase private
investment in BRT
3
Planning Costs TransMilenio
4
Planning Costs Other systems
  • Quito 100,000
  • Dar es Salaam 2,000,000
  • Jakarta 1,500,000 (Phase I)
  • Reasonable amount for planning 2,000,000
    (depends on the level of municipal govt
    competence and existing modeling capacity)

5
Sources of financing for BRT planning
  • Municipal government
  • World Bank or other development bank loan
  • Global Environmental Facility
  • Bi-laterial aid agencies (US AID)
  • UNDP
  • Private Foundations
  • CAI Asia SUMA program (?)

6
How Much does a BRT System Cost?Infrastructure
TransMilenio
7
Other systems
8
Sources of Financing for Infrastructure(China)
  • Municipal Government Budget Revenues
  • Municipal Government Off Budget revenues (land
    sales)
  • Municipal government loans from World Bank via
    national government (Shijiazhuang)
  • Loans from state banks
  • Advertising companies (bus shelters example,
    Kunming)

9
Current structure of municipal infrastructure
financing in China Public Sources
  • Muncipal Government Own Sources 49
  • National Government Funds 10
  • Loans from Domestic (mostly State-Owned) Banks
    41

Hence, national influence over municipal
infrastructure decision making is very weak.
10
Sources of Municipal Government Funds is not very
transparent Basic Sources
  • income and some other smaller taxes (1/3 of the
    national income tax goes to the municipal
    government)
  • land taxes and the sale of long term land lease
    rights
  • income from municipally owned enterprises
  • enterprise taxes
  • Numerous fees

11
Sources of BRT Infrastructure FinancingBogota
12
Other Systems
  • Ahmedabad
  • National Government (Nehru Urban Development
    Fund) 35
  • Gujarat Provincial Government 15
  • Ahmedabad Municipal Corporation 50
  • Jakarta
  • Municipal Government Budget 100
  • Dar es Salaam BRT (DART)
  • National Govt from World Bank loan (IDA) 70
  • National Govt match 30 (land acquisition and
    resettlement)

13
Possibilities for PPP in BRT Infrastructure?Examp
le TransSantiago Experience
  • 69 of the Infrastructure on TransSantiago BRT is
    financed by private consortium
  • Not a full BRT system.
  • Concession is for 81 km, but bus lanes only on 22
    km
  • No prepaid boarding stations (reduces cost
    significantly but also performance)
  • Fare is 0.53/ high by developing country
    standards

14
Other Examples of Private investment into BRT
Infrastructure
15
Possibilities of using PPP Model from Chinese
Metro projects? Beijing Metro Line
4Investment is 70 Public, 30 Private
  • Ultimate source of public financing is leasing of
    municipal land
  • The private investor is actually only 49
    private, as BII and Beijing Capital Group own 51
  • Financing from Private investment actually only
    covers rolling stock
  • Financing of 1 billion from Industrial and
    Commercial Bank of China (a state bank)

16
Beijing Subway Line 9
  • Design Build Finance Operate
  • Basically, money is public sector but financing
    comes from the concessionaire

17
Guangzhou Metro
  • Line 2 Phase I 1.34 billion
  • 30 Municipal corporation (land leasing)
  • 30 Domestic Commercial Bank (State owned)
  • 30 Foreign export credit agency from the
    country providing the rolling stock
  • Loans all backed by Municipal Guarantee
  • Operations roughly breaking even now.

18
PPP Toll Roads as a Model? Chinese Examples
  • 70 of Intercity Roads in Shanghai Area are
    financed by private investment
  • Shanghai Fuxi Investment Company (nominally
    private) invested 99 of the funds for the Hu
    Hang toll highway without a government guarantee
  • 211 fully private BOT highways have been built in
    ZheJiang region since mid 1990s, worth some
    7.3 billion. (State role is murky)
  • In Guangzhou, typically, municipally owned
    highway corporations form joint ventures with
    foreign (Hong Kong) companies, use land leases to
    finance 40 of highway construction, and 60
    comes from municipal or state bank loans.
  • Some of these roads are profitable, some are
    making huge losses.

19
PPP Mass Transit Elsewhere in Asia
  • PPP for Light Rail in Kuala Lumpur
  • Both STAR and PUTRA Light Rail PPPs ended in
    Bankrupcy in 2001/2002
  • Public Sector had to bail out 1.5 billion in
    outstanding debts

20
Prospects for PPP in BRT Infrastructure?
  • Start up costs of establishing the legal basis
    could be huge.
  • First Rail PPP in Kuala Lumpur required 32
    separate legal agreements between the Government
    and the investor
  • Required Government guarantees, which ended in
    big bailout.
  • First tender of PPP for BRT in Panama City
    involved huge unquantifiable financial risks,
    making most qualified bidders balk. Rumour is
    that cronies of the President won the bid.
  • Bids will be led by Construction Companies, with
    engineering, planning, and bus operating firms.
  • Forming these commercial relationships and
    overcoming legal obstacles will be time consuming
    and expensive at first.

21
Issues with PPP in BRT
  • Cons
  • Will create a monopoly concessionaire for a long
    period of time.
  • Likely to compromise ability of the Municipality
    to demand quality of service.
  • Big risk that municipality will not be
    sophisticated enough to guarantee contracts that
    protect the public interest and share fairly the
    demand risk.
  • If a vehicle manufacturer is part of the
    consortium, they will drive up vehicle
    procurement costs by removing competitive bidding
    for buses.
  • Pros
  • Might lead to better, more integrated planning
    and design on higher demand corridors
  • Many problems could be resolved with well written
    contracts
  • Would create a lobbying force that could compete
    with Metro interests
  • Would help attract some of the free floating
    international capital to good projects

22
PPP for Bus Operations and Procurement, and
Ticketing Systems
  • Big potential to attract private investment for
    bus procurement and bus operators in China
  • This is standard for many BRT systems
    internationally
  • Bogota
  • Curitiba
  • Quito EcoVia Line
  • Metrobus Mexico City
  • Etc.

23
Business Model for BRT Bogota Example
24
BRT system should be designed to be Self
Financing and attract private investment
  • Requiring the system to be self financing will
    help ensure the system is designed to maximize
    consumer benefits
  • Carefully estimate projected demand on the
    planned BRT Corridors. Best to do traffic
    modeling
  • Phase I system size should be determined based on
    minimum revenue needed to cover operations and
    bus procurement
  • Consider shifting from Direct bus routes to Trunk
    and Feeder routes when more profitable
  • Consider banning competing bus services in the
    same corridor
  • Link with traffic demand management measures.
  • Set the technical specifications at a level that
    the system can afford.

25
Basis of Private Company Revenue
Stakeholder payment
26
Payment method is critical to the quality of
operations
  • Payment by the bus kilometer ends dangerous
    competition for the cent on trunk routes
  • Payment/bus kilometer difficult on feeder routes
    because some bus operators may cheat and not
    travel parts of the route.
  • Bus operators still face demand risk IF the
    public authority can adjust the number of bus
    km/day in response to demand.
  • Giving the public authority control over
    operational schedule is critical to ensuring
    operators face demand risk rather than the
    government

27
BRT bidding criteria can help China move from
single municipal bus monopolies to competitive
private transit operators
28
Private bus operations already profitable in
Guangzhou and other cities in China. With BRT
there is no reason for public subsidies for
operation or bus procurement
  • BRT takes the buses out of congestion, decreasing
    operating costs
  • BRT can increase passengers/bus
  • BRT can decrease the number of buses needed to
    service the same passengers.

29
Private Investment but public quality control
  • Government needs complete system and cost
    information
  • Competitive bidding is key
  • Operating contracts should specify a service
    contract for a fixed number of kilometers
    (800,000 km in TransMilenio) but not a fixed
    corridor. This facilitates easier operational
    adjustments and competition between companies
    within the same routes.
  • Quality of service contracting and immediate
    rewards and penalties

30
Problems of Public Monopoly Operators Quito
Trolebus
  • Quito Electric Trolley Buses were too expensive
    to purchase and operate to allow for
    privatization. Still in a public company.
  • Public company faces increasing debt burden that
    will probably be passed onto taxpayers
  • Some suspicions around public procurement of the
    vehicles.
  • Maintenance issues arising.
  • Govt allowed private vehicles back into the right
    of way. A good contract with a private operator
    have prohibited this.

31
Problems of private monopoliesQuito EcoVia line
  • Existing bus operator monopoly in a corridor
    retained control.
  • Their operations and revenues remained
    non-transparent
  • Public sector had to buy the buses.
  • Private operators supposed to pay lease fees but
    they never pay.

32
Problems of monopoly operators Curitiba,
TransJakarta
  • Public authority loses control over private
    operator.
  • Fare goes up, (Curitiba fare is 0.55 cents
    compared to 0.40 in TM), OR
  • Operating costs per km go up (TransJakarta is
    paying too much per bus kilometer)

33
TransMilenio Bidding Criteria
34
Penalities for Poor Service in TransmilenioVehicl
e deficiencies, the fine is a function of the
revenue per kilometer
  • 50 kilometers for altering the vehicle in its
    interior or exterior, non-authorized
    advertisements, stereos, drivers cellular or
    walkman use, lights that dont work, unclean bus
    or seats in a bad shape.
  • 100 kilometers for doors that dont work properly
    and worn tires.
  • 250 kilometers for altering or damaging the GPS
    and radio communication system.
  • 25 kilometers for running leaking fuel or oil
  • 50 kilometers for noise and air pollutants above
    the levels stipulated in the public bid. For
    mishandling hazardous material and for not
    following the maintenance, reparation and
    revision schedules

35
For customer service deficiencies, the fine is
equivalent to a 20-day minimum wage. For
operations deficiencies, the fine is a function
of the revenue per kilometer
  • 25 kilometers for stopping the bus at different
    stations than the assigned ones or for stopping
    for a longer period or not stopping at an
    assigned station. For blocking an intersection
  • 60 kilometers for parking the bus in an
    unauthorized place or change the route without
    authorization. For delaying the operation for no
    reason or for over passing another bus with the
    same route
  • 175 kilometers for operating in non-authorized
    hours
  • 250 kilometers for picking up or leaving
    passengers in places different from the stations.
    For riding the buses on streets different from
    the trunk lines without TransMilenios
    authorization, for drivers abandoning the bus
    for no reason

36
For administrative and institutional
deficiencies, the fine is a function of the
revenue per kilometer, as follows
  • 50 kilometers for failing to send the reports
    required by TransMilenio and for opposing to
    receive inspectors from TransMilenio, hiding
    information or providing wrong information
  • 100 kilometers for wrong practices in
    administrative and accounting procedures and
    abusing of the dominant position

37
Private investment into the buses is not just
about getting the money
  • Privately owned buses tend to be better
    maintained because they own the asset.
  • Private operators are usually better able to
    negotiate a lower price and better service
    contracts for the buses from manufacturers
  • Private operators are more likely to make a
    reasonable choice of bus technology not
    influenced by political considerations that may
    compromise service quality
  • Procurement is the most typical source of
    government corruption.

38
Bring system into regulation one corridor at a
time or all at once
  • Curitiba modernized regulatory structures over 20
    years and city wide
  • Sao Paulo also did it in phases
  • Bogota brought the BRT corridors into regulatory
    system and left rest of the system in informal
    control.

39
Constructing a Financial Model
40
Steps to Creating Financial Model
  • Basic business model needs to be defined (How
    many companies, integrated or split trunk and
    feeder, etc)
  • Demand needs to be estimated for different fares
    using a traffic model
  • Operational model needs to be defined (number of
    buses needed, daily and weekly schedule)
  • Range of bus options needs to be defined by
    demand
  • Local bus and fare collection equipment
    procurement costs need to be determined for each
    bus option
  • Local operating costs of each bus type need to be
    estimated
  • Total operating cost of each system component
    needs to be estimated (the bus operations, fare
    collection operations, system manager admin
    costs, etc)
  • Total costs can then be compared to projected
    revenue
  • Decisions about fare, Phase I system size, and
    technical spec can then be finalized

41
Fare should be set once the total system costs
and total system revenues are known
  • Calculate total system operational costs
    (including bus and ticketing system procurement)
  • Calculate total projected system revenues
  • Set the fare where the revenues cover total
    system costs (except infrastructure) plus rate of
    return on investment.
  • If system revenue is not enough, consider the
    following
  • Change the Phase I system size and/or route to
    capture more demand
  • Cut more competing bus routes
  • Reduce the technical spec on the bus (use cheaper
    buses)
  • Work to further optimize the operations
  • ONLY THEN Re-apportion some costs to the public
    budget.

42
The following can then be done if business model
shows system still not profitable
  • Management costs of BRT Operating authority shift
    to public budget
  • Ticketing equipment procurement shift to public
    budget
  • Station maintenance and security shift to public
    budget
  • Road maintenance shift to public budget
  • Look for alternative revenue (advertising, real
    estate, PPP for terminal development)
  • Look for cheap financing from a development bank
    or export credit agency
  • Reduce the of operating companies to achieve
    economies of scale (management of bus companies
    are fixed costs)
  • Look for exemptions on fuel taxes, VAT, vehicle
    import duties, corporate taxes etc.
  • Look for PARTIAL govt guarantee on the bus
    procurement loan
  • ONLY THEN CONSIDER
  • Partial bus procurement subsidy
  • NEVER subsidize operations! If you need to
    subsidize operations, there is a problem with the
    way the system was planned.

43
Distribution of TransMilenio Revenue
44
TransMilenio Phase I Trunk Bus Operators
Number of trunk operators a function of the
number of depots/terminals. TM has 3
depots/terminals, each operator has one. Most
bus km concentrated near terminal/depot to
minimize dead (non-revenue generating) km.
45
Successful Bids Feeder Routes, TransMilenio
46
(No Transcript)
47
Thank You
  • www.itdp.org
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