BRT Financing Options: Lessons from China

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BRT Financing Options Lessons from China
Walter Hook, Executive Director, ITDP BAQ,
Yogyakarta, Indonesia, December 2006
Funded by the Energy Foundation
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China has a lot of potential to increase private
investment in BRT
Curitiba URBS Bogota TransMilenio Santiago Beijing BRT
Bus Procurement Private Private Private Public
Bus Operations Private Private Private Public
Fare Collection Public Private Private Public
Trust Fund Public Private Private Public
Control Center Public Public Private Public
Operational Planning Public Public Private Public
Setting the Fare Public Public Public Public
System Design Public Public Public Public
Service Standards Public Public Public Public
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Planning Costs TransMilenio
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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)

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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 (?)

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How Much does a BRT System Cost?Infrastructure
TransMilenio
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Other systems
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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)

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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.
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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

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Sources of BRT Infrastructure FinancingBogota
Source Amount
Local Fuel Surcharge 46
Decapitalization of the Power Company 20
World Bank Credit 6
National Government 20
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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)

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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

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Other Examples of Private investment into BRT
Infrastructure
Example Result
Belo Horizonte First Transfer Terminal, 50 of cost paid by mall developer in exchange for land lease. Second Transfer terminal, 100 paid by mall developer in exchange for land lease. Working ok.
Kunming Private advertisers paid for low cost bus stops in exchange for advertising revenue. Ok
TransMilenio Phase II Construction companies provided their own financing (paid up front and are reimbursed by the city over 5 years
Panama City Pending
San Salvador Stalled
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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)

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Beijing Subway Line 9

• Design Build Finance Operate
• Basically, money is public sector but financing
  comes from the concessionaire

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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.

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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.

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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

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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.

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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

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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.

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Business Model for BRT Bogota Example
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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.

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Basis of Private Company Revenue
Curitiba Integrated transport network Bogotá Transmilenio Santiago Transantiago
Trunk Operator Per bus kilometer Per bus kilometer Per passenger
Feeder Bus Operators Per bus kilometer 50 per km, 50 per passenger Per passenger
Fare collection Public budget of URBS Percentage of total revenue Percentage of revenue
Control Center Public budget of URBS TransMilenios budget (4 of total revenue) Per passenger
Finance management Public Budget of URBS of fare revenue (0.5) Charged to the fare collection operator AFT
Stakeholder payment
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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

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BRT bidding criteria can help China move from
single municipal bus monopolies to competitive
private transit operators
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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.

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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

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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.

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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.

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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)

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TransMilenio Bidding Criteria
Factor Description Eligibility Min. Points Max. Points
Legal Legally registered X - -
Economic Sufficient Investment Capital X - -
Operating Bus Operator in City 30 150
Operating Bus Operator in Corridor 50 250
Operating International - 50
Price Services Offered at ? /km 350
Ownership Shares Held by small bus owners 32 200
Environment Emissions, etc 200
Vehicle Source Local Manufact 50
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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

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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

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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

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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.

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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.

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Constructing a Financial Model
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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

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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.

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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.

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Distribution of TransMilenio Revenue
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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.
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Successful Bids Feeder Routes, TransMilenio
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Thank You

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