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BRT Financing Options: Lessons from China. Lecture covers. Stages of development Financial outlays Commitments Systems of financing Penalties Operational management. Investment in BRT. Planning Costs : TransMilenio. Planning Costs: Other systems. Quito; $100,000
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Lecture covers • Stages of development • Financial outlays • Commitments • Systems of financing • Penalties • Operational management
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)
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
How Much does a BRT System Cost?Infrastructure: TransMilenio
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)
Current structure of municipal infrastructure financing in China: Public Sources • Municipal 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.
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
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)
Other Examples of Private investment into BRT Infrastructure
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)
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
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.
Issues with PPP in BRT- 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
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.
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.
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.
Basis of Private Company Revenue Stakeholder payment
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
BRT bidding criteria can help From single municipal bus monopolies to competitive private transit operators
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 Payment method is critical to the quality of operations • 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.
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
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.
Problems of private monopolies:Quito 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.
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)
Penalties for Poor Service-Vehicle 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, driver’s cellular or walkman use, lights that don’t work, unclean bus or seats in a bad shape. • 100 kilometers for doors that don’t 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
Poor service- 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 TransMilenio’s authorization, for drivers abandoning the bus for no reason
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
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.
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.
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
Fare structure • Fare should be set once the total system costs and total system revenues are knownCalculatetotal 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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