Urban Transport -How to address the commercial road blocks

1. Urban Transport -How to address the commercial road blocks Urban Transport Congress India 2010, Mumbai 25th June, 2010 Brijgopal Ladda, Head – CRISIL Infrastructure Advisory

2. In Nutshell- The Indian Transport sector • There is a huge transit demand • In large cities public transportation however inadequate, high level of rider-ship is observed during peak-hours • Incidence of car trips are bound to rise due to raise in income levels and affordability • Consensus and policy framework is in place for mass transits system that is sustainable, efficient, reliable and affordable- The National Urban Transport Policy • Few initiative exist in this direction, their success would need to be reviewed and to be replicated in other cities

3. Urban Travel Demand- In India Cities • By 2021 the travel demand is likely to increase by over 2.5 times • Current level of Public Transport system will not be able to meet this demand • Planned & Mass Public Transport System is the need of the hour……

4. Mode Share – In India Cities • A recent study indicated that during the period 1994 - 2007 the share of public transport has declined considerably across all category of cities • However in large cities public transport is still the single largest carrier • The lower patronage can be attributed quality & reliability of public transport system…..

5. The Key challenges in urban transport… 1/2 • Arriving at the right affordable transport model for the city to address: • Dispersed growth – low-medium density • Expansion of cities -increasing trip lengths • Ridership – demand estimation need to be realistic • In most projects demand estimation have surpassed than what was conceived • Issues- related to planning process • In most cities urban transport is not primary responsibility of ULBs • Substantial delays in land acquisition leading to cost escalation • Overlapping jurisdiction in large urban agglomerations – need for unified transport authority

6. The Key challenges in urban transport… Stakeholders perspective (2/2) • Implementing Agency- Perspective • High investment needs and budgetary constraints • Fare-box revenues alone not sufficient for viability • Need to explore alternate revenues to finance projects • Need to have densification and TDR policy • Need to capture incremental benefits & indirect revenues • Developers Perspective • Large project size • Long gestation period • Non availability of attractive PPP Models • Financial institutions • Reluctant & Selective to fund large projects • Lenders expects higher equity contribution • Concerns on contractual provisions to protect lenders interest

7. High Investment Need– Limited Finances • By 2027 an investment of Rs. 4,350 bn is required to meet the urban transport needs • Investments leaning towards capital intensive mass transit systems- BRT & Rail based • Financing shall be a constraint • 19 BRTS projects have been sanctioned under JNNURM with a project cost of Rs 47.73 bn • But funding under JNNURM is limited • Few MRTS projects in pipeline • Viability Gap Funding is limited to a maximum of 20%-40% of project cost Source: Traffic & Transportation Policies and Strategies in Urban Areas in India, MoUD Study by WSA Inc Above estimates are based on study of 87 cities in India for a period of 20 years

8. How these concerns are impacting the Projects? • Mumbai Metro- Line 2 • Project Cost : Over Rs. 7,500 crores • Of the seven qualified bidder only one submitted the Financial • Requested for 27% VGF • Mumbai Sea Link Project • Project cost : Over Rs. 4000 crores • Only 2 out of 17 qualified bidders submitted bids • Hyderabad Metro ?

9. Should these concerns tempt for public funding in UT ? • Currently private sector investments are low in urban transport • Currently real estate component is not that attractive • Should government move towards public funded infrastructure ?- No • Government is constrained by its budget, so can’t finance many projects • These large project need new skills sets • It would discourage private sector to invest in infrastructure • Having developed PPP market Government should: • Facilitate & promote more private finance in infrastructure : • Explore alternate project finance options intermittent to Public funding and PPP • Increase project viability by targeting indirect beneficiaries/sources

10. Explore Intermediate options • The extreme ends of the PPP continuum are not workable in situations of crisis • Hence need to develop intermediate Intermediate options Viability Gap Funding assisted projects Annuity projects Unlocking value • Service contract • Management contract • Concession Continuum of PPPs Public funded and private operated Private funded and private operated

11. Direct and Indirect beneficiaries Indirect Beneficiaries Direct Beneficiaries • Passengers of a public transport system • Vehicle owners using a flyover/facility • Businesses based on the infrastructure- advertisers on the system, vendors • Property owners near the developed transport system- gaining from higher potentail value of property • Business around the transport system- gaining from better connectivity • Local Government- gaining higher property taxes in the region due to escalation in property prices

12. PCMC BRTS Model– Is a model to be replicated ?

13. Concept of Pimpri Chinchwad Municipal Corporation Corridor Densification by TDR -linked Land Use Control and Infrastructure Financing Mechanism

14. Unlocking value from indirect beneficiaries in Pimpri-Chinchwad • Pimpri Chinchwad Municipal Corporation (PCMC) is developing 130 km of bus based mass transit corridors • PCMC has set up an Urban Transport Fund (UTF) to finance the project • The UTF to be managed by a SPV wholly owned by PCMC • A zone of 100 m on either side of the corridor designated as BRT influence zone Building permission charges in the zone The building permission charges in the influence zone allowed to the UTF Loading of Transferable Development Rights (TDR) PCMC allows TDR from other parts of the city to be loaded on the BRT influence zone on the payment of a loading premium Value unlocked from Indirect Beneficiaries Real Estate, Advertisements & lease of utility ducts Incremental Property Taxes The BRT influence zone is designated as high tax rate zone- the incremental revenue is allowed to the UTF

15. Design of the fund • Notified 100 m on either side of BRT route as BRT corridor zone • Increased ceiling FSI from 1 to 1.80 • 0.80 loading is through TDR with payment of a premium • Advantages • Does not release additional FSI in the city; only realigns the FSI from other zones to BRT Corridor • Will protect the value of TDR and make it more attractive • PCMC can plan higher order infrastructure in BRT corridor and facilitate focused service provision by densification • Ensures the attractiveness of mass transit

16. SPV for BRTS – PCMC Infrastructure Company Ltd • The SPV is 100% owned and controlled by PCMC • Will help PCMC to raise long term loans (12 yrs +) from multilateral agencies IFC, ADB • SPV ensures focussed and timely implementation, necessary for projects with borrowing • SPV will focus on generating the revenues for the projects • Strengthens the transit corridor densification approach for project sustainability

17. Sustainability of the model • The road network designed to cater to future growth patterns of the city • It is a priority based approach • Will spur substantial real estate development • Funding model is designed to capture this future growth benefits to fund road development • Fund makes the revenues secure which helps raise finance from lending agencies • Without fund structure it will be difficult to channelize earnings from indirect beneficiaries into development

18. Strategies to make to BRT attractive • State of Art BRT system for fast and cost effective transit • Higher order infrastructure for attracting densification • 24/ 7 water supply • 100% sewerage provision • Dust Bin free zone • Road design • Service lanes for mobility of local traffic • Provision for pedestrians – under pass, walk ways • Provision for non motorized vehicles – cycle track • Facilities for vehicle parking • 100% extra parking; • 25% to be handed over to PCMC for public parking • Miscellaneous • Wi Fi connectivity • Hawker zones

19. Key Take aways • The key factors for success of PCMC Model • The model requires real estate momentum to ensure that TDR loading • Mumbai Pune corridor has already been commissioned – land rates have seen upward revision • Mumbai Pune and Aundh Rawet will create the necessary momentum for sustaining the cycle for other roads • The stage is now set for scaling up • Key aspects for success of public transport • Planning • Proposals to be backed by comprehensive traffic studies and realistic forecast • To be linked with land use • Financing • Exploit all sources of revenue to improve the financial viability • Creation of an Urban Transport Fund (UTF) by pooling non fare based revenue to fund projects • Create of a Special Purpose Vehicle to manage the UTF • Contracting/Management • Risk allocation between government and private sector need to realistic • It is impossible to plan for all contingencies- Need for flexibility in concession agreement to renegotiate

20. Thank You