financing options for sustainable transport development regional expert group meeting on...

Financing options for sustainable transport development

Regional Expert Group Meeting on “Sustainable and Inclusive Transport Development”

Second Asia BRTS Conference-2014

Organized by UN ESCAP Ahmedabad (India)

September 29, 2014

Agenda

Challenges faced by Urban Transport system11

Criteria for sustainable financing of Transport projects

Modes of funding (transport) across globe33

Learnings from Case Study of BRT System in Bogota, Colombia44

22

Potential Solution or Approach for sustainable financing55

Urban transport system faces major challenges which are almost common across globe…

► Components of Urban Transport system can include:

► Stakeholders generally involved in urban transport across globe include:

► Increasing congestion due to rapid urbanization rate ► Tremendous increase in air & noise pollution due to increase in usage of motorized

vehicles► Improper planning and allocation of resources due to lack of coordination ► Lack of focus on development of public transport► Operation recovery is a major concern due to improper pricing of services► Scarcity of resources (especially financial) particularly at urban local body’s level

Urban Local Bodies (ULBs)

District Administration

Multilaterals/ Bilaterals

Private Sector

National/ State Governments

Citizens

Metro RailBus Rapid

Transit

Mono Rail ParkingStations / Bus Depot

Taxi System

Traffic Signaling

Urban Roads

Private vehicles

About Urban Transport

Key challenges faced by the sector

Huge funds (both capital & operational) required for to tackle many of these issues

The system requires huge investments to bridge the infrastructure and service gaps…

Huge funding is required to meet both capital and operational costs.

►There are mainly two kinds of investments/ expenses required – 1) Capital and 2) Operational:

Capital Expenses Operational Expenses

► Fixed assets (Roads, Railways, Bridges, Stations, Airports, etc.)

► Investment in new technologies (New buses, Intelligent Transport System, etc.)

► Operation and Maintenance costs (repair, maintenance, power, etc.)

► Administrative costs (city administration, traffic police, traffic management, support for policies/ programs)

Expenses

Large financial resource requirement; difficult to be met by municipal/ local resources

Continuous resource requirement; should be met through revenues from users of the service

Note: Apart from Capital and Operational expenses, there is another category of expense which can’t be explicitly captured and it includes negative effects of transportation such as noise, pollution, congestion, etc.

The motor vehicle population in India has increased 100 times from 1951 to 2004, while the road network has expanded only eight times

Fact about lack of investment

To make the system financially sustainable, balance between Expenses and Revenues is required…

In short, sustainability of the system depends on maintaining balance between expenses & revenues while providing equal access and environmental safeguard

►A Sustainable Urban Transport (SUT) system can be defined by 3 Es (i.e., Efficiency, Equality and Environment):

Efficiency

EqualityEnvironm

ent

Best use of resources including funding resources

Meeting the needs of every section of the society

Safeguarding the Environment

Balance

Expenses Revenues

Balance needs to be maintained at 3 levels:

Policy level

• Budget allocation

Program level

• Planning group of projects

Project level

• Project execution

Financial Sustainability

►Financing Instruments can be divided into three categories – 1) Local, 2) National, and 3) International

►Some of the instruments can be used to finance capital cost of projects while others can be used to fund operational expenditure

►It is recommended to identify a mix of instruments that can be used in a particular geography to finance both capital and operational expenses of transport projects

Expenses can be balanced by raising funds through various sources…

Source of Fund Local National International

For meeting Capital Expenses

• Land Value tax• Subsidies/ Grants/

Loans

• Clean Development Fund (CDF)

• Multilaterals and bilateral Climate funds

For meeting Operation Expenses

• Parking Charges/ Levies

• Fare box Revenue• Advertisement

For meeting both Capital and Operational Expenses

• Road pricing/ Congestion Charges

• Employer Contribution

• Fuel Taxes/ Surcharges• Vehicle Taxation

Various modes of funding are used for financing SUT projects across globe…1/3

Mode of FundingExpenses to be met

SourceExtent of Funding

Issue(s)/ Challenge(s)

International Example(s)

Parking Charges Operational Local (User) LowEither Parking charges are absent or are highly subsidized

• Parking Management in Sibiu, Romania to manage traffic demand by using differential pricing system

Workplace Parking Levies

Operational (Local work)

Local (Business communities)

LowOpposition from business communities and hence political will

• Workplace Parking levies in Nottingham, UK came into existence in 2000

Road Pricing & Congestion Charging

Both Capital & Operational

Local, National

Medium

Politically controversial scheme with low level of public acceptability; In addition, very difficult to implement

• Electronic road pricing in Singapore;

• Congestion Charges in London;• Road Pricing in Seoul, South

Korea

Employer Contribution


Local, National

Medium

A legislative framework is needed; Public protest in case of misappropriation of fund

• The Brazilian Vale-Transporte system requires the employers to buy and distribute tickets to their employees;

• Similarly, the French Versement Transport system mandates the employers to levy tax from employers’ salaries to develop local public transport system

Parking Charges are levied to locally manage

traffic demand and promote usage of public

transportIn some countries, legislation is there which enables local bodies to

levy fee from companies for each parking spaceRoad Pricing involves charging road users

within defined area for their use of road space for limiting congestion

In some countries, employers have to pay certain taxes to local authorities to develop

transport system

Source: gtz report on Transport, EY Analysis

Various modes of funding are used for financing SUT projects across globe…2/3



Issue(s)/ Challenge(s) International Example(s)

Fare Box Revenues

Mostly Operationa, sometimes capital too

Local (Users)

Medium

Setting of fare levels to avoid any negative impacts on patronage; Impacts on poor people

• Tokyo metropolitan metro and bus services uses fare box revenue system effectively with more than 80% of their expenses being met by revenues from tickets sale

Land Development Tax

Mostly Capital

Local Huge

A legislative framework is needed; Determining the land value gain and area of influence could be a tricky tasks

• Land value capturing in Copenhagen, Denmark in which 45% of construction cost of metro was met by selling the real estate around the metro site

Advertising OperationalLocal, Private

Low to Medium

Safety concerns to be kept in mind

• Bus stops/ shelters used for advertising in Delhi, India

• Velib Rental Bike scheme in France financed by advertising

Fuel Taxes/ Surcharges


National Huge

Public protests against raising of rates to reflect correct value; Reallocation of collected revenues to local areas

• Fuel surcharges in Bogota and other Columbian cities

Setting the fares or ticket prices in such a way that

Opex are met fully

Some portion of increased land value due

to better connectivity should be shared by

beneficiaries


Revenues from advertisement from municipal transport

assets could be a reliable source of revenue

Fuel taxes/ surcharges are popular way to raise revenue from sale of fuel

Various modes of funding are used for financing SUT projects across globe …3/3



Issue(s)/ Challenge(s)

International Example(s)

Vehicle TaxationBoth Capital & Operational

National HugeReallocation of collected revenues to local areas

• Vehicle quota system in Singapore

• Motor Vehicles User’s Charge in Philippines

Loans and GrantsCapital & Institutional Development

National, International

HugeIncreased burden on Government or Authority

• In India, 112 transport and related projects worth USD 2 billion got financial support under JnNURM scheme

Clean Development Mechanism (CDM)

Capital (Technology & Innovation on Clean development)

International Huge

Estimation of reduction in carbon emission could be a difficult task

• Bus Rapid Transit System in Bogota, Colombia

• Regenerative braking technology equipped on Delhi Metro in Delhi NCR, India

Multilaterals and bilateral Climate funds

International HugeLiaising with multilaterals and bilaterals

• Climate Investment Funds to improve public transport in Vietnam

Vehicle tax, popular way to raise revenue, is levied one time or annually from owners of vehicle for use

of infrastructure

Funding shortfall is generally met by grants

or loans from Governments and lending agencies

CDM is an instrument introduced under Kyoto

Protocol which encourages developing

countries to invest in projects that reduces

emissionsVarious funds have been created by multilaterals / bilateral banks to invest

in projects involving environment protection


Depending upon requirement, a region can use several of listed instruments for funding it transport infrastructure and services requirement.

Case Study – TransMilenio BRT System in Bogota, Colombia…1/2

Key Project Features

► 84km dedicated bus way, 515km feeder routes

► Bus stations at every 500m

► Replacement of old buses with advanced buses

►TransMilenio BRT system in Bogota, Colombia is one of the most successful urban transport projects across world

►About 1.5 million passengers commute per day using BRTS

►It was implemented on PPP mode► Government responsible for capital investments► Private sector responsible for operation and maintenance

(including fleet purchase, ticketing and revenue collection) and takes demand risk

►Total infrastructure cost (Government’s contribution) for:► Phase-I was US $297 million - Operational in 2002► Phase-II was US $545 million - Operational in 2006

Fuel tax46%

Local revenues 28%

World Bank loan6%

National Gov-ernment Grant

20%

Break-up of Capex in Phase-I

Source: ESMAP

Source: ESMAP

Case Study – TransMilenio BRT System in Bogota, Colombia…2/2►Key Learnings from TransMilenio BRTS in Bogota,

Colombia are:

►National and local stakeholders were involved during planning and implementation of the system

►Use of contractual agreement with proper risk allocation framework – Only O&M risks and demand risks were given to Private player

►Fare revenue only to meet operational expenses and desired rate of return of private player, thereby making the system affordable to all

►Usage of good mix of financing instruments (fuel tax, local revenues, national Govt. grant and World Bank loan)

Parameter Perceived Benefits

FiscalNo tariff subsidy from Government (Equal tariff for all)

Air Emission 40% reduction

Carbon Credit

US $25 million earnings by 2012

Travel Time 32% reduction (avg.)

Safety92% reduction in fatalities

Fuel Saving 47% savings

Benefits of BRTS in Bogota

Source: ESMAP

E

EE

Efficiency

EqualityEnvironment

SUT

Innovative Funding – Urban Transport Fund

Urban Transport Pooled Fund

Pool of ULBs

Ensuring performance KPIs: Service frequency Quality of services (based on customer surveys),

reduction in travel time Improvement in operational efficiency (measured

in terms of financial viability of the SUTP) Potential CO2 reduction

RoI / repayment of debt (additional interest on

non-performance)

Support for seed capital &

Operational cost

Multilateral Funding Public Issue of Bonds

Private Operator

Repayment of borrowed funds

Sharing upside in cost efficiencies

Repay principal + Interest

Right to operate Performance

based payments

Funding assistance

Bonds

User charges collected

State government guarantee of debt

Sovereign guarantee for loansSovereign guarantee for loans

There should be a 3-step approach for sustainable financing of SUT projects…

Investment & Financial Sustainability Plan

Optimal Financial Instruments Mix

Implementation of Reforms, Policies, etc.

► Identification of SUT projects to be required in next 20 years

► Estimation of capital and operation costs

► Analysis of municipal budgets & accounts and national plans to check sustenance capacity of local bodies

► Estimation of additional funding requirement for existing and future SUT projects

► Identification of possible new financing instruments

► Determination of optimal mix of identified instruments

► Mapping of revenues to be used for financing capital and operational expenses

► Determination of whether CDM or Climate funds can be availed

► New/ modification of policies, legislations, etc. at local/ national level

► Institutional restructuring for better coordination in planning and reallocation of revenues

► Establishment of Urban Transport Fund to ring fence capital and operational fund

Thank YouAdil ZaidiDirector - Infrastructure and PPP

Ernst & Young LLP6th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi, Delhi 110 001, India

Phone: +91 11 4363 3000Email: [email protected]

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