Prof. Dr. Mir Shabbar Ali

BRT Financing Options: Lessons from China

• Stages of development• Financial outlays• Commitments• Systems of financing• Penalties• Operational management

Lecture covers

Investment in BRTCuritiba URBS Bogota

TransMilenioSantiago 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

Planning Costs : TransMilenio

Firm contracted US$ Paid by McKinsey 3,569,231 UNDP Investment Bank 192,308 Department of Transport Steer Davies Gleave 1,384,615 Department of Transport Landscape Designs 115,385 Department of Transport TOTAL 5,261,538

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

Component Total cost (US$ million)

Cost per kilometer (US$ million)

Studies and designs 4.01 0.09 Exclusive running ways 36.69 0.87 General traffic lanes 36.13 0.85 Public space 28.29 0.67 Stations 25.51 0.6 Pedestrian overpasses 16.57 0.39 Terminals 15.72 0.37 Parking and maintenance areas 17.16 0.40 Properties 29.18 0.69 Network services 18.57 0.44 Maintenance 18.57 0.54 Roads for feeder buses 15.28 0.36 Control center 3.33 0.08 Others 22.85 0.54 Total trunk lines 292.2 6.89

Other systemsCity Kilometres of BRT

infrastructure Cost per

kilometre (US$ million / km)

Taipei 57 0.5 TransJakarta (Phase I) 12.5 0.6 Hangzhou 5.5 0.6 Beijing 5.5 0.87 Porto Alegre 27 1.0 Kunming Phase I 5 1.0 Quito (Ecovía Line) 10 1.2 Las Vegas (Max) 11.2 1.7 Curitiba 57 2.5 Dar es Salaam 23.5 (planned) 2.5 São Paulo 114 3.0 Bogotá (Phase I) 40 5.3 Bogota (Phase II) n.a. 13

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

Sources of BRT Infrastructure Financing - Bogota

Source Amount

Local Fuel Surcharge 46%

Decapitalization of the Power Company 20%

World Bank Credit 6%

National Government 20%

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

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

Possibilities of using PPP Model from Chinese Metro projects?

Beijing Metro Line 4Investment is 70% Public, 30% “Private”

Percentage Sources of funds Invest by Purpose & gain 40% Beijing Municipal Govt. and

District Govts. along the route Cash/Capital cash Construction tasks

30% Beijing Infrastructure Investment Co. Ltd (Government)

Cash/Capital cash Government-offered policies and resources

30% Private foreign investors (MTR Corp of Hong Kong)

Cash/loan Gain from the project

•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

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

TransMilenio’s 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

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

Single public monopoly

Thousands of informal

operators

Mixed system(competitive market with

public oversight)

Single public monopoly

Thousands of informal

operators

Mixed system(competitive market with

public oversight)

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

• 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.

Payment method is critical to the quality of operations

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)

TransMilenio Bidding CriteriaFactor Description Eligibility Min. Points Max. PointsLegal Legally

registeredX - -

Economic Sufficient Investment Capital

X - -

Operating Bus Operator in City

30 150

Operating Bus Operator in Corridor

50 250

Operating International - 50Price Services Offered

at ? $/km350

Ownership Shares Held by small bus owners

32 200

Environment Emissions, etc 200Vehicle Source Local Manufact 50

Penalties for Poor Service-Vehicle deficiencies,

– 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

the fine is a function of the revenue per kilometer

Poor service- customer service deficiencies

– 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

The fine is equivalent to a 20-day minimum wage. For operations deficiencies, the fine is a function of

the revenue per kilometer

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.

Constructing a Financial ModelDART Operating System ModelControl Panel

Inputs

Trunk FeederBus type 2 3

Bus capacity 3 5

Reserve fleet 1Air condition 2

Reserve fleet

With reserve fleet

Without reserves

Bus capacity - Trunk

170 pax

160 pax

140 pax

130 pax

120 pax

110 pax

100 pax

90 pax

Bus type - Trunk

Articulated 18m (160 pax)

Bus 15 m (130 pax)

Normal bus - 12,5m (100 pax)

Normal bus - 11m (80 pax)

Articulated Normal 18m (140 pax)

80 pax

Air condition

With AC

Without AC

Bus capacity - Feeder

110 pax

100 pax

90 pax

80 pax

60 pax

50 paxBus type - Feeder

Normal bus - 12,5m (100 pax)

Micro bus - 8,5m (50 pax)

Normal bus - 11m (80pax)

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 should be set once the total system costs and total system revenues are knownCalculate 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.

Fare structure

Distribution of TransMilenio Revenue

Operator 1

Operator 2

Operator 3

Operator 4Trunk-line operators

66.5%

Fiduciary company0.5%

Feeder operators20%

Public company3%

Fare collectioncompany 10% Operator 1

Operator 2

Operator 3

Operator 4Trunk-line operators

66.5%

Fiduciary company0.5%

Feeder operators20%

Public company3%

Fare collectioncompany 10%

THE REVENUES GENERATED BY THE SYSTEM ARE MANAGED BY A TRUST

Pay passengers

User’s fee

Trunk line operators

Feeder operators

Collecting operators

TransMilenio

Trustee

Collector

• Watches out for fulfillment of norms established for income distribution

• Collects money from individuals

• Deposits money in trustee

• Pays parties based on control system data and contractual formulas

• Distributes collection among funds

Trustee

TransMilenio

Main Fund

Contingency Fund

x

Distribution of TransMilenio Revenue

???

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