INNOVATIVE FINANCE IN

BUS TRANSPORT

SUMIT MISHRA

17th November 2016

Bus transport is the backbone of urban mobility….

In France, contributions from users covers only 25% of the operating costs of public transport systems, while

over 35% of the operating expenses are covered by Employer Tax (Versement Tax).

Fare box Recovery Ratio (Total Fare Revenue/ Total operating Expenses) of bus transport systems in most cities is less than 1

…..However, bus transport financing is a challenge globally….

• Rapid population growth and urbanization place pressure on existing transport resources• GoI is placing huge emphasis on enhancing use of public transport modes

• Buses cater to 90% of public transport in India

Financial health of SRTUs is usually weak…Most Indian SRTUs are loss making (combined losses of over Rs. 10,000 crore in 2014-15)

and revenue is barely sufficient to cover even operating costs

Loss of Rs. 64 crore

Loss of Rs. 846 crore

Loss of Rs. 224 crore

Loss of Rs. 3,986 crore

(Figures for revenue and costs for 2014-15, in Rs. lakh), Source: Review of the performance of SRTUs for 2014-15, MoRTH, GoI)

….Traditional sources of financing bus transport have certain limitations….

Option 1PASSENGER FARES

Public transport driven by a social objective Fares need to be kept at an affordable level

Low fares incentivize commuters to use public transport

Option 2BUDGETARY ALLOCATIONS

Conflicting demands of the exchequer Budgetary allocations often driven by political & social agenda

Budgetary provisions are subject to change

Option 3

SCHEME BASED FUNDING (AMRUT/JnNURM) Is usually accompanied by several terms and conditions –

Limited flexibility regarding use of funds Not a sustainable source, usually do not provide for operating

costs

TRADITIONAL FUNDING SOURCES face several limitations, and are often insufficient to cover even operating costs of bus transport services.

Thus arises the need to tap INNOVATIVE FINANCING MECHANISMS.

AdequacySustainability

Predictability

MEDIUM MEDIUMLOW

LOW LOW LOW

LOW HIGH HIGH

….Thus arises the need for tapping innovative sources…

Tax on employers

• Public transport plays a key role in enhancing business and economic activity in a region• Logical that businesses contribute to funding public transport• Employees to contribute certain % of the total salaries cost as Employer Tax• E.g: Versement Tax, France – in Paris, 40% of operating revenue is covered from Versement

Tax

Naming Rights

• Selling the right of naming on public infrastructure assets such as bus stations for a specified period of time

• Reliable and predictable revenue source• Has been widely implemented in metro rail, may be replicated to bus stations and bus

terminals• E.g.: Vodafone Metro Station, Bank of Baroda Sikanderpur Metro Station (Semi naming right)• E.g.: Southeastern Pennsylvania Transportation Authority changed name of Pattison stop to

AT&T Station

Option 4TAP INNOVATIVE FUND SOURCES

Innovative funding sources are currently untapped and possess huge potential Such sources are usually sustainable in nature

Tapping the untapped sources – Key innovative sources• Many Indian SRTUs posses huge land areas that are currently unutilized• Commercial exploitation of such land around bus terminals and other bus transport infrastructure

has not been fully undertaken• Commercial development could include multiplex, shopping mall, hotel, etc. depending on

demand• For greater efficiency, commercial exploitation may be outsourced to a competent private operator• PPP model may be implemented, wherein SRTUs manage bus and terminal operation activities,

while commercial exploitation is undertaken by a private player

Commercial exploitation

Leveraging Revenue Stream

• Predictable and continuous revenue stream for SRTUs (through identified sources) may be leveraged as security for making borrowings and raising additional funds

Betterment Levy• A charge on the increase in value of property arising on account of improved infrastructure such

as transport connectivity• May be imposed along the bus corridor for city bus operations, BRT and bus terminal projects

Tapping the established sources of fund

KEY RATIONALE BEHIND ALLOCATING A PORTION OF CRF

FOR BUS TRANSPORT:

Mere construction of roads would not ensure mobility.

It needs to be supplemented by a robust public transport system (specifically bus transport) to provide mobility to people.

Central Road Fund (Rs. 2 on diesel &

petrol)

Rs.1.5 (of diesel & petrol)

50% of diesel (Rs.0.75)

Rural Roads

50% of diesel & 100% of petrol

(Rs.2.25)

57.5% for development & maintenance of

National Highways

12.5% for ROBs & safety work at

unmanned railways crossing

30% for development & maintenance of

state roads

Rs.0.5 (of diesel & petrol

100% of diesel & petrol (Rs.1.0)

National Highways

Public Transport Fund

Allocate some fund for public transport

Tapping the established sources of fund

State & City level UTF in Karnataka

Mukhyamantri Nagarothana

Scheme

Bengaluru Infrastructure fund

Public Transport Funding

State level UTF created through executive order to facilitate

implementation of urban transport projects (1% cess on motor vehicle

tax, 2% cess on property tax & budgetary allocations)

Mukhyamantri Nagarothana Scheme is a kind of dedicated

budgetary allocation for development city.

Bengaluru Infrastructure Fund created to develop infrastructure

through betterment levy.

Portion of funds from NUTF

• Working Group on Urban Transport has recommended to be set up National Urban Transport Fund (NUTF).

• Apart from meeting capital needs, this fund will cater for possible support to certain systems during the operations stage too.

• A portion of funds from NUTF could be earmarked specifically to fund bus transport operations.

Tapping established sources of fund

Green cess on existing personalized vehicle – Rs.18,800 crore (base year)

Green surcharge of Rs.2 on petrol sold across country – Rs.3100 crore (base year)

Green cess on existing personalized vehicle – Rs.18,000 crore (base year)

Proposed sources of revenue for NUTF

NATIONAL URBAN

TRANSPORT FUND

Public Transport Funding

Earmarking of NUTF to cities/states

….Robust institutional mechanism needed to effectively channelize & manage identified sources….

Identification of innovative sources needs to be backed by an effective implementation mechanism

This calls for the establishment of an institutional framework in the form of a dedicated Fund

The Fund should have legal backing

Are the funds identified being collected in the

right amounts ?

Are the funds being used for the intended

purposes ?

How to keep track of the fund inflow and

outflow ?

What should be the order of priority in fund

utilization ?

KEY QUESTIONS FOR SRTUs IN THE ABSENCE OF A FUND MANAGEMENT MECHANISM

How the fund should be managed?

How the accountability & governance can be

ensured ?

….Strong institutional mechanism for bus transport finance offers several advantages…

Benefits of defined

institutional framework

for fund management

Enables accountability in fund collection and management

Enables prudent management of collected funds through financial budgeting and planning undertaken by a Fund Management Division/ Committee

Provides a platform for efficient utilization of funds, following a defined prioritization order

Enables audit of collected funds

Helps separate fund management function from bus transport planning and implementation

Thank You

….Enhancing efficiency of bus operations increases profitability...In addition to tapping additional fund sources, revenue for bus operations can be enhanced by optimizing operations and fully exploiting the existing sources such as fare box revenue potential.

Enhancing efficiency of bus transport system

ENHANCING OPERATIONAL

EFFICIENCY

ROUTE RATIONALIZATION

INTEGRATED MULTIMODAL

PLANNING

ENHANCING USE OF BUS

TRANSPORT

• Optimize costs of the organization• Improve fleet utilization and occupancy

ratios• Enhance staff and vehicle productivity

• Integrated service planning of various modes such as buses, metro, IPT, etc.

• This would avoid unnecessary competition wit other modes and streamline operations

• Fare box revenue would increase, as overall ridership goes up

• Scientific assessment of demand and consequent route planning to avoid overlaps, thereby enhancing demand and revenue

• Enabling modal shift towards public transport modes (specifically bus transport) by public awareness campaigns and programs educating citizens about environmental benefits of using public transport

• Implementation of ITS for providing greater information and convenience to passengers

Bus transport forms the backbone of urban mobility…

Current urban transport scenario in India

• India is the 2nd fastest country in terms of urbanization pace, 2nd only to China

• Rapid urbanization and population growth place pressure on urban transport services

• GoI is placing huge emphasis of enhancing mobility through use of Public Transport, with the objective of “moving people, not vehicles”

• Buses cater to more than 90% of public transport in India• GoI schemes such as JNnuRM and NUTP place huge emphasis on

enhancing bus transport• No. of passengers carried by STUs in 2013-14 : 251,111 lakh• Currently, over 64 State Transport Undertakings (SRTUs) operating in India

across various states• Currently, SRTUs are required to provide the bulk of infrastructure

facilities like bus stations, bus shelters, and other passenger amenities