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UNDP Training Module Subject Module Volume 1 - Training Manual Financing , Fare Fixation, & Cost Benefit Analyses. Section II - Subject Lecture Material ( Full presentation). Objectives of the Module. Understand investment needed in the urban transport sector

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Section ii subject lecture material full presentation

UNDP Training Module Subject ModuleVolume 1 - Training ManualFinancing, Fare Fixation, & Cost Benefit Analyses

Section II - Subject Lecture Material

(Full presentation)


Objectives of the module

Objectives of the Module

  • Understand investment needed in the urban transport sector

  • Become familiarized with various sources of funding

  • Understand the key issues involved in urban transport investment

  • Highlight the various public financing schemes

  • Become familiarized with the various sources of private sector financing

  • Understand the concept of Public Private Partnership

  • Become familiarized with the concept of financing through multilaterals

  • Understand innovative financing mechanisms

  • Understand the concepts involved in setting up fare

  • Comprehend the need and process for fare revision

  • Understand the concepts of Cost / Benefit analysis , Economic analysis, and Financial analysis

  • Become familiarized with the project preparation process


What does this module not do

What does this module not do

  • Provide a panacea for all financing issues facing urban transport in Indian cities

  • Dive into in-depth financial analysis and theories, based on the principles of finance / economics

  • Advocate a particular type of project structuring

  • Identify precise skill sets / ways forward for financing urban transport projects

  • Develop financing plans for any project


Who are the intended users of this module

Who are the intended users of this module

  • Policymakers

  • Senior-level staff in national, state, and city governments, heading or managing departments that work in transport and related areas such as: motor vehicle licensing and regulation, land use and transport planning, public transport provision (both government and private operators), traffic management, pollution control, road safety, housing, and urban poverty alleviation

  • NGOs

  • Media


Handout 1 urban transport investment financing needs issues

HANDOUT 1: URBAN TRANSPORT INVESTMENT & FINANCING – NEEDS & ISSUES


Rapid urbanization 100 million to 200 million in the last 20 years

Rapid Urbanization: 100 Million to 200 Million in the last 20 years


Rapid motorization

Rapid Motorization

. IIHS 2011. “Urban India 2011: Evidence”

Pai, M. 2010. “India Urban Transport Indicators”


Section ii subject lecture material full presentation

Road Fatalities

Leading causes of premature death in the world:

90% of traffic fatalities occur in low- and middle-income countries and involve 70% of vulnerable users of the road


Section ii subject lecture material full presentation

Road Traffic Scenario - Further evidence from Bangalore

Pedestrian (51%)

9


India 2030 mobility scenarios total energy consumed by mode

India 2030 Mobility Scenarios: Total Energy Consumed by Mode

Schipper, Banerjee, and Ng (2009) Carbon Dioxide Emissions from Land Transport in India: Scenarios of the Uncertain, TRR


Automobility

Automobility

  • Expanding road capacity is not a solution to congestion

  • Induced travel:

    • 10% increase in lane kilometers in California

      9% increase in Vehicle Kilometers Travel (VKT) within 4 yrs

      Cervero, 1998

    • 50-100% of the new capacity created is absorbed by induced traffic after 3 years

      Noland and Len, 2000


Importance of urban transport

Importance of Urban Transport

  • Urban Transport is one of the most important and crucial sectors of urban infrastructure and services.

  • The importance of an efficient and effective transport system to support and promote rational development of urban areas need hardly be stressed.

  • The National Commission on Urbanization (NCU) has noted that urban transport is the single most important component instrumental in shaping urban development and urban living.

  • While urban areas may be viewed as engines of growth, urban transport is, figuratively and literally, the wheels of that engine. Transportation is also critical for the economic growth of cities.

  • Industry, trade, commerce, and other economic activities thrive in areas where accessibility is high.


Key transport statistics

Key Transport Statistics


Investment needs mckinsey global institute 2007

Investment Needs - Mckinsey Global Institute (2007)

  • MGI has estimated a capital outlay of USD 1.182 trillion (about Rs 53 lakh crores) for the next 20 years to build up services in cities in India to enable them to play their role in the desired economic growth of the country.

  • Mass rapid transit services and roads together require a major share of the projected investment; more than half of the estimated capital expenditure, i.e. USD 392 and 199 billion (Rs 17 & 9 lakh crores) respectively.


Investment needs high powered expert committee

Investment Needs - High Powered Expert Committee

  • The Committee commissioned by the Ministry of Urban Development Government of India estimates a total expenditure of Rs 39,18,670 crores on Indian urban infrastructure and services by 2031.

  • Major expenditure on urban roads is: Rs 17,28,941 crores

  • Urban transport is estimated to require Rs 4, 49,426 crores.

  • In addition, traffic support infrastructure is estimated to require Rs 97,985 crores, and street lighting Rs 18,580 crores.


Investment comparison mgi vs hpec

Investment Comparison – MGI vs. HPEC

  • HPEC’s total expenditure on roads and urban transport together out of the total expenditure is about same order (as a percentage) as the Mckinsey estimate.

  • However, there is a major difference in the estimate for roads vis-a-vis urban transport.


Key issues affecting investment in urban transportation

Key Issues affecting Investment in Urban Transportation

  • High Capital and Operation Cost

  • Long Gestation Period

  • Project Viability

  • User Charge

  • Fare Revision

  • Cost Recovery

  • Demand Risk

  • Social Linkages

  • Macro Economic Policies


Existing state laws and legal frameworks regarding financing

Existing State Laws and Legal Frameworks Regarding Financing

  • As per the present practice, the government makes budgetary allocations both in the revenue and the capital account.

  • This is linked to the overall government budgeting and not necessarily to the needs of urban transport in a city and hence is seldom adequate.

  • A policy on budgetary allocations, user charges, and tapping other sources of funds based on taxation of non-user beneficiaries, land development and vehicle taxation on the polluter-pays principle should be provided to the city.

  • All cities should have formula-based funding from the central and state governments, and should leverage debt as well.

  • Involvement of the private sector is a potential source for financing and managing urban transport services in the city.

  • This source should be used for services that yield direct revenue to the private entrepreneur to recover his investment with commercial profit.


Handout 2 financing sources public private and public private partnership

HANDOUT 2: Financing Sources (Public, Private, and Public-Private Partnership)


Service provision options

Service Provision Options

Urban Transport Services

Public Agency:

Govt. creates assets & provides services

Privatisation: Government

transfers entire sector responsibility to the private sector – which then creates assets and provides services

PPPs: Contracting of Services - Government creates assets and contracts service provision to private sector

PPPs: Government awards concession/ licence to private sector for a fixed term under which it creates assets and provides services


Public financing 5 year plans

Public Financing – 5 year Plans

For Urban Transport, 10 goals have been identified in the 12th Five Year Plan (FYP)

1. To create an effective institutional and implementation framework that will manage the huge investments envisaged;

2. To build capacity of state and city officials and other stakeholders—today hardly any state or city has an urban transport professional on its roles;

3. To create facilities for walking and cycling in all 2 lac+ cities and state capitals—these are non-polluting modes that do not use fossil fuels and provide social equity;

4. To develop an upgraded cycle rickshaw as an integral part of the last mile connectivity for city-wide public transport networks

5. To augment public transport with part funding from the Government of India so as to:

a.Introduce organized city bus service as per Urban Bus Specifications issued by MoUDin all 2 lac+ cities and state capitals;

b. Add BRTS at 20 km/1 million population in 51 cities with population> 1 Million;

c. Add rail transit at 10 km/ million population,

d. Expand rail transit in existing mega cities i.e. 4 million +, at 10 km per/yr. i.e. 50 km in 12th FYP,


Public financing 5 year plans1

Public Financing – 5 year Plans

e. Provide suburban rail services in urban agglomerations with population > 4 million;

f. Improve and upgrade Intermediate Public Transport vehicles and services.

6. To improve accessibility and mobility in cities through:

a. Developing hierarchical road networks in newly developing areas

b. Completing 25 percent of major road networks in all 2 lac + cities with missing links including opening up of dead end roads for better utilization

c. Improving and maintaining road surface to the highest standards with good drainage

7. To provide grade-separated entries and by-passes for through traffic;

8.To improve road safety and security against vandalism, crime, and terrorism introduce a system of safety audit;

9. To use technology for multimodal integration, enforcement, and traffic management;

10.To promote innovation, research, and development in guided transport; and to support pilot projects with 100 percent funding from the Government of India.


Public financing investments under 12th fyp

Public Financing - investments under 12th FYP

  • Rs. 3,88,308 crore is estimated to be required from all sources on urban transport.

  • Development of the street network as well including pedestrian and bicycle facilities is Rs. 1,67,218 crores

  • The projected investment in public transport is estimated at Rs. 2,02,628 Crore.


State budgets

State Budgets

  • In the 11th FYP, of the total estimated investment, the states accounted for a 32.6 % share

  • Within state investment, the state budgetary support accounted for a 66.3% share, followed by a 23.6 % share from borrowings, while internal generation contributed to only 10.1 % of the total investment

  • 12th Central Finance Commission (CFC) made recommendations on the measures needed to augment the Consolidated Fund of a state to supplement the resources of the panchayats and municipalities

  • Rs. 20,000 crore for the panchayats and Rs. 5,000 crore for the municipalities may be provided as grants-in-aid to augment the Consolidated Fund of the states for the period 2005-10 to be distributed with inter sate shares


Municipal budgets

Municipal Budgets

  • The annual outlay in mega cities such as Delhi for the year 2012-13 indicates an outlay of Rs 3372 crores for the transport sector, which is 22 %of the total plan outlay.

  • The temporal trends of outlays in the 9th , 10th, and 11th FYP period of Delhi reveal that the total outlay increased from 15541.28 cr. in the 9th FYP to 23,000 cr in the 10th FYP and 45,000 cr. in the 11th FYP.

  • The corresponding share on Transport was 20.3 percent, 23.7 percent, and 33.9 percent respectively, exhibiting the increasing importance of transport in the city’s overall development budget.


Central schemes

Central Schemes

  • Jawaharlal Nehru National Urban Renewal Mission (JnNURM)

  • Urban infrastructure Development Scheme for Small & Medium Towns (UIDSSMT)

  • Viability Gap Funding (VGF)

  • Central Assistance for doing Technical Studies


Private sector financing

Private Sector Financing

  • There is an ongoing public policy debate in India on how to find the necessary new investment as well as operations and maintenance on the growing transport infrastructure needs.

  • The GOI and many state governments are interested in broadening the role of the private sector in transport infrastructure development with a view to strengthening and expanding private financing.

  • There are several key determinants of the viability of privately financed programmes, including the country regulatory and legal environment and the resulting nature of the public private risk regime.

  • The main sources of private sector financing in transport projects include:

    • Debts

    • Equity


Private sector financing debt

Private Sector Financing – Debt

  • Debt financing takes the form of loans that must be repaid over time, usually with interest.

  • Businesses can borrow money over the short term (less than one year) or long term (more than one year).

  • Debt financing offers businesses a tax advantage, because the interest paid on loans is generally deductible.

  • Debt funding to infrastructure projects is dominated by domestic commercial banks

  • Debt funding has been restricted by factors such as regulatory uncertainties, rising domestic interest rates, etc.


Private sector financing equity

Private Sector Financing – Equity

  • Equity financing continues to be a vital source of investment for the infrastructure sector.

  • Given the under-developed state of the Indian debt market, infrastructure developers have to rely quite a lot on equity subscription to fulfil their capital requirements.

  • While both the primary and secondary equity markets have taken a hammering in the past year, private equity (PE) has remained a surprisingly buoyant source of funding.

  • Equity investment with respect to infrastructure projects can be divided into two types: (a) active (or ‘direct’) equity investors that seek to participate in the management or operations of the project; and (b) passive (or ‘portfolio’) equity investors that provide for only their funds.


Public private partnerships ppp

Public Private Partnerships – PPP

  • The Department of Economic Affairs, Government of India defines PPP as: an arrangement between a government or statutory entity or government-owned entity on one side and a private sector entity on the other, for the provision of public assets and/or related services for public benefit, through investments being made by and/or management undertaken by the private sector entity for a specified period of time, where there is a substantial risk sharing with the private sector, and the private sector receives performance-linked payments that conform (or are benchmarked) to specified, pre-determined, and measurable performance standards.

  • The ultimate accountability to users for the provision of these services vests is with the public entity – even if delivery is by the private partner


Why do we need ppps

Why do we need PPPs?

  • Fiscal reasons - inadequacy of resources with government (most common reason)

    • By leveraging on committed government funding, it is possible to finance projects of much larger magnitudes.

  • Efficiency gains due to appropriate risk transfer, speedy decision making, and flexibility of operations (better reason)

    • Examples of private sector involvement in core sectors: airlines, telecom services, oil refining -private sector is able to take on large projects, complex operations, and can handle reasonable commercial risks attached to projects such as Design, Financing, Construction, Operations, and Maintenance.

    • Risks that often affect projects implemented by the public sector - time overrun, cost overrun, change of scope, inadequate designs, lower construction quality, leakage of revenues, high maintenance costs – can be assumed by the private player

    • There is also incentive for the private party to use appropriate technology, develop innovative design solutions, improve project management practices, install more efficient revenue collection practices, and use a life cycle cost approach.

    • Expected outcomes - value for money, expeditious implementation, and higher quality of assets and services


Key benefits

Key Benefits

  • Rigorous project preparation – since the focus shifts to developing bankable projects

  • Delivery of a whole life solution – going beyond asset creation

  • Focus shifts to service delivery – construction responsibility is integrated with O&M obligations and, together with appropriate quality monitoring and service delivery-linked payments, this could enhance the levels of service delivery

  • It is possible to roll it into a program and have a time-bound implementation plan

  • Can lead to better overall management of public services – transparency in prioritization, selection, and ongoing implementation


Pre requisites

Pre-requisites

  • The public entity should have the enabling authority to transfer its responsibility – enabling a legislative & policy framework as well as administrative order; the instrument of transfer is through a contract

  • There is a significant transfer of responsibility to the private entity – usually including large financial investment obligations

  • Payment to the private entity for services – directly by users or paid by the public entity

    • These are conditional on achieving pre-specified levels of performance

  • The nature of the relationship is usually long-term to derive maximum benefits


Features of ppps 1

Features of PPPs - 1

  • Genuine risk transfer

    • All risks pertaining to design, building, financing, and operation transferred to the private entity as applicable

    • Transfer of demand risk depends on the extent to which the private sector can influence usage or on the monopoly characteristic of the asset

  • Output-Based Specifications

    • Contracts specify the service outputs required rather than asset configuration/mode of service delivery

    • Emphasis on type of service & performance standards

    • Incentive to deliver outputs using innovation in design, construction, operation, and financing


Features of ppps 2

Features of PPPs - 2

  • Whole life asset performance

    • Private entity takes responsibility & assumes risk for the performance of the asset and delivery of service over the long term

  • Payment for Performance

    • Revenue/ Payment to private entity is subject to performance in relation to specific & quantified criteria set out in the contract


Types of ppps

Types of PPPs

  • Financially free standing projects

    • Role of public sector - planning, licensing & statutory approvals

    • No financial support/ payment is made by government

    • Revenues are by levy of user charges by private sector

    • Examples: Toll Roads/ Bridges, Telecom services, Port projects

  • Projects where Government procures services

    • Private Sector is paid a fee (tipping fee), tariff (shadow toll) or periodical charge (annuity) by Government for providing services

    • The payment is made against performance

    • There may be demand risk transfer – either in part or whole

    • Example - Roads - annuity/ shadow tolls, power - under PPAs. In UK -prisons, education, health services, defence-related services

  • In both cases, the design, financing, construction, and O&M risks are fully that of the private partner


Types of ppps 2

Types of PPPs - 2

  • Hybrid Structures – Combine the financially free-standing nature – levy of a user charge – with payment by the public entity

    • Payment could be as a viability gap subsidy or an annuity payment

    • Example – toll road project with either viability gap payment by government or annuity payment-based road contract with tolling rights


Section ii subject lecture material full presentation

High

Low

Extent of private sector participation

PPP Options


Ppp options

PPP Options

  • Existing Assets, usually with refurbishment obligations

    • Lease of assets

    • Concessions (licenses)

    • Management contracts of whole or significant parts of the undertaking

  • New Assets

    • OMT Concessions of assets newly built by the public sector

    • Sale of a government-owned SPV after project implementation

    • Design, Build, Operate, Transfer Concessions – most common form used in India


Concession terminologies

Concession Terminologies

  • BOT - Build Operate Transfer

  • BOOT - Build Own Operate Transfer

  • BOO - Build Own Operate

  • BOOST - Build Own Operate Share Transfer

  • BOLT - Build Own Lease Transfer

  • DBFO - Design Build Finance Operate Transfer

  • OMT - Operate Maintain Transfer


Stakeholder expectations

Stakeholder Expectations

  • Sponsors/ Strategic Investors

    • Project cash flows are reasonably predictable and sufficiently long term

    • Stable policy/ regulatory framework

    • Return – commensurate with the level of risk

  • Lenders/ Other Financial Investors

    • Adequate/ Secure cash flows to cover debt/ meet return expectations

    • Contractual claim on cash flows for debt servicing

    • Comfort in the event of termination

  • Government/ Public Authority

    • Asset built & operated/ maintained to specified standard – service of desired order – public interest

    • Transparent award of project to a suitable partner

  • User

    • Quality of service

    • Affordable/ Reasonable cost


Contractual framework

Contractual Framework

  • All intentions are set out in a contract

  • Concession Agreement - bundle of rights & obligations and consequences in case of non-fulfillment

  • Usually the only tangible security available

  • Contracting parties : Government Agency – Concessioning Authority and Private Party – Concessionaire

  • Other parties – state government, lenders, suppliers of services

  • A concession is a license – rights enjoyed for obligations performed


What a ppp is not what it is

What a PPP is not & what it is

  • PPP is not privatization or disinvestment

  • PPP is not about borrowing money from the private sector

  • PPP is more about creating a structure

    • in which greater value for money is achieved for services

    • through private sector innovation and management skills

    • delivering significant improvement in service efficiency levels

  • This means that the public sector

    • no longer builds roads, it purchases kilometers of maintained highway

    • no longer builds prisons, it buys custodial services

    • no longer operates ports but provides port services through world class operators

    • No longer builds power plants but purchases power


Partnership in practice

Partnership in Practice

  • Partners, not adversaries – this is important given the background of mistrust in conventional procurement

  • Project should be key focus – “win-win” for both parties

  • Independent agencies – Independent Engineer - useful during both implementation and operations

  • Government retains ultimate responsibility but uses the private sector to deliver infrastructure services of specified standard

  • Private Financing – can significantly leverage public funds


Investor comforts incentives

Investor Comforts & Incentives

  • Fiscal Benefits - Tax holiday of 100% for 10 years in a block of 20 years

  • Viability gap funding of up to 40% of the cost of the project – as a grant

  • Foreign Direct Investment – 74% to 100% of the equity permitted

  • Duty-free import of high capacity and modern construction equipment

  • Long Concession periods – up to 30 years


Ppp in urban transport projects

Case-study of Indore City Bus Service

PPP in urban transport projects


Indore a snap shot

indore: a snap shot


Before city bus unorganized transport in indore

Before City Bus: UnorganizedTransport in Indore


About aictsl

about AICTSL

  • Inception in 2006 with a seed capital of Rs. 5 million

  • Adopted the net-cost based PPP model of bus operations… widely copied in other cities across India

  • Started with 37 buses with 4 operators.

  • Installed vehicle tracking systems on the entire fleet, which remains the best in the country to date.

  • Initiated the BRT project in Indore, which is in the final stage of implementation.

  • Funding from JnNURM allowed modernizing the fleet with CNG buses that have electronic displays and voice announcement systems.


Section ii subject lecture material full presentation

  • PPP Model of Bus Operations

  • Public partners role:

    • Planning of routes

    • Inviting tenders for bus operations

    • Providing support infrastructure

  • Objective: Providing affordable

  • & quality public transport

2004

2005

2012

2006

  • Private operator responsibilities:

    • Owns, operates, and maintains fleet

    • Collects fare from passengers

    • Pays premium to AICTSL for right to operate on route

2011

2007

2010

2008

2009


Indore statistics

Indore Statistics

  • Number of routes::16

  • Average route length::18 km

  • Number of bus stops::210

  • Fleet Size::122 buses

  • Operating frequency::8 minutes (min)

    26 minutes (max)

  • Avg. daily ridership::112,000 pax

  • Avg. daily collection ::Rs. 5,35,000 /day

  • Ridership per bus::920 pax/bus

  • Avg. revenue per day::Rs. 7,88,000 /day


Mode shift

Mode Shift

Safety & Quality has helped attract trips from private travel modes


Lives saved emissions reduced

Lives Saved, Emissions Reduced

Lives saved due to Indore City Bus::6 /year

(0.024 fatalities/mill PKT * 0.64 mill PKT per day * 365 days)

Hundreds of accidents avoided

CO2 Reduced:~5.5 ton/day


System expansion issues

System Expansion & Issues

  • Starting from 37 buses, AICTSL now operates a fleet of 122 buses.

  • City bus in Indore has a mode-share of 4.4%

  • The BRT launch will add 50 buses (mode-share > 6%)

  • However, to sustain growth, the mode-share of PT should increase to 40% or more.

  • The CMP for Indore recommends having 750 city buses by 2015


Challenges

Challenges

  • CNG fuel prices have increased by 64% in 24 months, thus reducing profitability to operators

  • AICTSL has limited financial resources (premium from operators, advertising) for additional infrastructure

  • Passenger ridership per bus has increased only marginally, not keeping pace with input costs

    Modernizing the system by way of better workshop infrastructure, improved information for passengers, and customer service is necessary for expanding the system.


Ppp in urban transport projects1

Case Study of Inter-State Bus Terminus (ISBT), Dehradun, Uttarakhand

PPP in urban transport projects


About dehradun

About Dehradun

  • Dehradun is the capital city of the newly formed State of Uttarakhand.

  • It is located 236 km from New Delhi, and is one of the counter-magnets (alternative centers of growth) to the NCR.

  • As per the 2011 Census, the population is approx. 5.78 lakhs within the municipality area, and approx. 7.14 lakhs within the urban agglomeration area.

  • Dehradun is a popular tourist and educational hub in north India

  • While Dehradun has air and rail connectivity to some major cities, its main inter-city mode of connectivity is buses.

www.embarqindia.org


About the project

About the project

  • Buses are the predominant mode of inter-city transport, especially for connectivity to and from New Delhi.

  • Before the project, terminal facility was ad-hoc, with very few passenger facilities. Bus handling capacity was also limited, and would not be able to cater to the expanding demands on inter-city transport

  • The Mussoorie Dehradun Development Authority (MDDA) envisaged the development of a modern, state-of-the-art inter-city bus terminal with ancillary facilities under PPP mode

  • Feedback Ventures was appointed as project advisor for project configuration, structuring, bid process, and award

www.embarqindia.org


Project structure salient features

Project Structure Salient Features

  • Project envisaged as Integrated ISBT (Phase 1) and commercial-entertainment complex (Phase 2) to be developed under PPP. Stated as first of its kind in India

  • The PPP configuration was Design, Finance, Build, Operate & maintain and Transfer (DFBOT)

  • Concession period 20 years, extendable to 30 years

  • Revenue to the Concessionaire is from:

    • usage fees charged to the scheduled 750 buses per day

    • lease rental from commercial-entertainment complex

    • fees from other value-added services

  • MDDA to receive an annuity payment from Concessionaire


Bid process

Bid process

  • 2 stage selection process: Request for Qualification (RFQ) and Request for Proposal (RFP).

  • Post RFQ, 13 bids were short-listed to participate in the RFP stage

  • The RFP stage consisted of technical and financial criteria. The financial criterion was Bidder offering highest annuity payment to MDDA

  • RFP security as Bank Guarantee of Rs 25 lakhs was sought from all shortlisted bidders.

  • Post evaluation of bids, Ramky Infrastructure Ltd was declared as successful bidder

www.embarqindia.org


Project timeline

Project timeline

  • Pre-bid meeting: 25 April 2003

  • Bid submission date: 10 June 2003

  • Concession agreement signing date: 26 July 2003

  • Construction began on 15 August 2003

  • ISBT (Phase 1) begins operations on 3 June 2004

www.embarqindia.org


Benefits to the city

Benefits to the city

  • No expense borne by city for the development of this facility

  • MDDA to receive guaranteed annual revenue of Rs 81 Lakhs (inflated 5% annually) from the lapse of the moratorium period onward, which would aggregate to approxRs 19.16 crores over the entire concession period.

  • Ultra Modern Bus Terminal with all modern facilities and amenities. Showcase project for the city

  • Dehradun city to have first Mall-cum-Multiplex Complex which will act as one of the finest leisure entertainment centers for residents of Dehradun and floating populace.

www.embarqindia.org


Area statement

Area Statement

www.embarqindia.org


Toll fees for buses

Toll Fees for buses

www.embarqindia.org


Images

Images

www.embarqindia.org


Images1

Images

www.embarqindia.org


Recent development

Recent development

  • Recently some issues have cropped up between MMDA and Ramky over drainage

  • Water-logging is leading to deterioration of some internal roads.

  • Both parties are in negotiations to resolve this issue and take the project forward

www.embarqindia.org


Handout 3 financing through multilaterals

HANDOUT 3: Financing through multilaterals


Multilateral development banks mdbs

Multilateral development banks (MDBs)

  • Multilateral development banks (MDBs) provide finance for investments in human and physical capital that promote development.

  • This is in broad terms the mandate of the World Bank (WB) and the three regional development banks – the African Development Bank (AfDB), Asian Development Bank (ADB) and Inter-American Development Bank (IADB) – that were established between the late 1940s and the mid 1960s.

  • MDBs assist in Urban Transport Funding through the following:

    • Loans

    • Grants

      • The Global Environment Facility (GEF)

      • Clean Development Mechanism (CDM)


Loans

Loans

  • Multilateral banks and bilateral public aid help to fund investments in transport systems but not in the operating of the systems.

  • Soft loans, namely, loans with conditions which are more favorable than bank loans in terms of:

    • duration: very long-term loans of 15, 20, and even 30 years;

    • interest rates: bonus rates which are smaller than those on the banking market;

    • grace periods given before the first installment

  • The conditions of these loans vary according to the situation in the country; the most favorable treatment is given to the least developed countries.

  • Typically, soft loans have extended grace periods in which only interest or service charges are due. They also offer longer amortization schedules and lower interest rates than conventional bank loans.


Soft loans characteristics

Soft Loans Characteristics

  • Typically, soft loans will have one or more of the following characteristics:Soft loans, namely, loans with conditions which are more favorable than bank loans in terms of:

    • A lower rate of interest. Some EU subsidised loans may charge less than half the rate of a high street bank.

    • A repayment holiday before you must start repaying

    • Offering to act as a guarantor or otherwise arrange for a business loan without the need for you to provide security

      Example: Delhi Metro Rail Corporation (DMRC) was set up with 50:50 equity participation between the Government of India and the Delhi Government. The project has been implemented in three phases with an outlay of approximately Rs. 55,000 crore, 55% (approximately Rs. 30,000 crs) of which has come from Japan Bank of International Cooperation (JBIC) as an inter- government loan


Grants the global environment facility gef

Grants - The Global Environment Facility (GEF)

  • The Global Environment Facility (GEF) was established in 1991 to provide funding to assist developing countries in meeting the objectives of United Nations Framework Convention on Climate Change (UNFCCC)

  • It now serves as a financial mechanism of UNFCCC by funding projects and programmes that protect the global environment

  • GEF grants support projects related to biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants

  • There are three implementing agencies which manage GEF projects on the ground - UNEP, UNDP, and World Bank.


Gef sustainable urban transport project

GEF – Sustainable Urban Transport Project

  • GoI has initiated the Sustainable Urban Transport Project with the support of the Global Environment Facility (GEF).

  • The total GEF grant proposed for the project is US$ 25 million, which will be complemented with a grant of US$ 170 million from GOI, State Governments, and Implementing Agencies (IA) along with US$ 105 million co-financing from the World Bank.

  • The project is to be implemented over a four-year period starting from 2010.

  • Primary Stakeholders in this program are Ministry of Urban Development (MoUD), Ministry of Environment and Forest (MoEF), UNDP, and the World Bank. MoUD is the nodal agency for this program’s implementation


Grants clean development mechanism cdm

Grants - Clean Development Mechanism (CDM)

  • A CDM program is one in which emissions reductions are achieved by multiple activities executed over time as a result of a government measure or private sector initiative. The basic characteristics of a CDM program are:

    • It occurs as a result of a deliberate public sector measure (voluntary or mandatory), or a private sector initiative.

    • It results in a multitude of dispersed activities that are induced by the program and would not occur but for the implementation of the program.

    • The GHG reducing activities do not necessarily occur at the same time or in the same location.

    • The type, size, and timing of the emission reducing activities induced by the program may not be known at the time of project registration. However, the types and sizes of the expected activities must be identifiable ex ante, attributable to the program, and verifiable ex post.

    • The various activities under the CDM program are submitted to validation and registration through a single Project Design Document.


Cdm examples

CDM – Examples

Transmilenio, Bogotá (BRT)

  • A case of adoption of CDM is Transmilenio, Bogotá in Colombia, which is the first BRT project to be successfully registered under CDM for carbon credits.

  • Credits are available for projects which have a clear plan to reduce existing public transport capacities, either through scrapping, permit restrictions, or other means, and replace them with a BRT system.

  • Transmileniowill generate credits from the following sources:

    • Improved fuel use efficiency

    • Use of new large buses and scrapping old buses

    • Mode switch due to availability of more efficient and attractive public transport system


Cdm examples1

CDM – Examples

Delhi Metro

  • The Delhi Metro has been certified by the United Nations as the first metro rail-based system in the world to get carbon credits for contributing to the fight against climate change by helping to reduce pollution levels in the city by 6.3 lakh tons every year.

  • The Delhi Metro has helped remove more than 91,000 vehicles from the roads of Delhi daily.

  • The organization has also earned carbon credits worth Rs 47 crore annually for the next seven years. With nearly 20 lakh people taking the new age transport system every day, the Metro has helped reduce pollution and emission of green house gases, as it is a completely non-polluting and environmentally-friendly system.

  • DMRC has helped in reducing the emission of harmful gases into the city’s atmosphere, and the United Nations body administering the Clean Development Mechanism (CDM) under the Kyoto Protocol has certified that DMRC has reduced emissions.


Multilateral support in transport projects

Case Study of Indore BRTS Project, Indore, Madhya Pradesh

Multilateral support in transport projects

BinoyMascarenhas


Indore public transport history 1

Indore Public Transport History (1)

  • Atal Indore City Transport Services Ltd (AICTSL) was established in Indore in 2005 with a paid-up capital of INR 25 lakhs.

  • AICTSL did not have any other sources of government funding for public transport services.

  • City Bus operations started in 2006 with 37 buses

    • Model of bus operations was Net-Cost

    • Private operators procured fleet at their own cost and paid a premium to AICTSL

    • Additionally, AICTSL generated revenue through advertisements on-bus and issuance of bus passes

    • Bus stops were constructed by IMC

    • AICTSL provided depot facilities for city bus operations with the money raised from route-premiums


Indore public transport history 2

Indore Public Transport History (2)

  • However, net cost model had its limitations

    • It could not account for increase in fuel price hike and escalation

    • Private operators have not been able to cope with increasing escalation of costs

    • Fare increases have immediate impact on ridership

    • AICTSL had no real control over performance of operators

    • Revenue generated through Net Cost model was not big enough to allow AICTSL to fund further infrastructure development

  • For BRTS, AICTSL / City sought other external sources of funding support and different model of bus operations


Project background brts

Project Background: BRTS

Niranjanpur

Rajiv Gandhi


Initial estimate for corridor construction

Initial estimate for corridor construction

  • What was not included:

    • Bus Stations

    • Bus Procurement

    • ITS/Traffic Signals

    • Workshop/Control Centre

    • PMC/Consulting Charges

  • GoI (JnNURM) approved cost: INR 98 Cr

  • This included:

    • Civil works of corridor

    • Street lighting & Signage

30 Cr

49 Cr

19 Cr


Tendered cost of corridor construction

Tendered cost of corridor construction

  • Cost after tender process: INR 121 Cr

    • JnNURM does not cover for cost escalation

    • Indore City bore additional INR 23 Cr

    • City total became: INR 53 Cr


Other costs

Other costs

  • Fleet (50 X Buses): INR 30 Cr

    • AICTSL’s share would be borne by bus operator

  • Bus stations including automatic sliding doors: INR 18 Cr

    • Cost borne by IMC

  • Land worth approximately INR 250-300 Cr was given by people of Indore for the project in exchange for Transferable Development Rights

  • Workshop-cum-Depot: INR 6.5 Cr

    • Cost borne by AICTSL through loan approved by State


Other costs intelligent transport systems 1

Other costs – Intelligent Transport Systems (1)

  • Initial cost estimate: INR 47 Cr (41 Cr – procurement + 6 Cr – consulting and capacity building)

  • Agreement was signed as per above funding share arrangement

  • GoI recommended this funding to be streamed from overall Additional Central Assistance (ACA) funding allocation to the State

  • However, there was no money left under ACA for the state of MP


Other costs intelligent transport systems 2

Other costs – Intelligent Transport Systems (2)

  • Revised cost estimate: INR 23 Cr

    • AFCS + AVLS + Control Center equipment: INR 15 Cr

    • Traffic Signals: INR 7 Cr (State loan repayment + State grant + City)

    • Control Center: INR 1 Cr

  • This cost would be borne by AICTSL, through a loan from any appropriate agency

    • State has approved this loan, and would pay 80% of the repayments; rest 20% would be borne by AICTSL / City


Overall project cost break down

Overall Project Cost Break-Down


Innovations in project financing

Innovations in Project Financing

  • All land acquisition done using Transfer of Develop Rights (TDR) model – Savings to the tune of INR 250-300 Cr.

  • Advertisement rights along entire corridor transferred to AICTSL from IMC – Expected revenue to the tune of INR 5 Cr per annum

  • Proposed share of Urban Transport Fund (UTF) tax being introduced in Indore

  • It was attempted to tender out the ITS project on Annuity model. However, that did not attract many interested bidders.


Lessons learned

Lessons Learned

  • Project planning and cost estimation is very critical in order to avoid cost increase due to escalation and additions at a later stage

  • Any funding initiative/agreement with multilateral banks must be first approved by the State Finance Department

  • It is important to accommodate and address the issue of increase in input cost in net-cost bus operations model, as fare increases may not always be practical

  • If land acquisition costs are considered, project cost for Indore BRTS would have doubled. However, TDR presented a great opportunity for acquiring the requisite land without actual ‘cost’

  • Policy support such as penalties for ticket-less travel, tax exemption of fuel and revenue, etc. are very important for financial sustainability of operations


Handout 4 innovative financing mechanism

HANDOUT 4: Innovative Financing Mechanism


Non fare box revenue potential

Non-Fare Box Revenue Potential


Innovative financing mechanism

Innovative Financing Mechanism

  • The issue of urban transport financing has become increasingly prevalent in recent years as costs of providing transport services have expanded more rapidly than traditional revenue resources.

  • The National Urban Transport Policy of April 2006 also emphasizes the innovative use of land as a resource for financing public transport projects.

    • MP LAD Scheme Description

    • Urban Transport Fund

    • Financing Through Cross-Subsidy Projects

    • Property Development

    • Land Value Capture

    • Kiosks and Shops at Stations

    • Taxes and Fiscal Incentives

    • Cross Subsidy


Urban transport fund

Case Study – FSI-linked TDR for financing BRTS & corridor densification: Pimpri-Chinchwad, India

Urban Transport Fund


Section ii subject lecture material full presentation

TDR

  • TDR is a powerful instrument that separates the land from its development rights.

  • This tool allows transfer of development potential of a piece of land that is reserved for some purpose to another designated area.

  • TDR is linked to Floor Space Index (FSI), which is the ratio of total floor area of construction to the total area of the plot.

  • TDR is thus essentially a floating FSI that can be traded or sold to developers at market price.

  • The TDR prices are determined by demand and supply, and in a mature market of TDR the key players influencing the market are the developers and TDR brokers.

  • The concept of TDR, which was introduced in the USA more than 40 years back, has since been used extensively in the USA


Brts project pimpri chinchwad

BRTS Project – PimpriChinchwad

  • PCMC has planned 10 BRT routes for quick and effective transit

  • The project cost for the first phase is about Rs. 1540 crore

  • GOI & GOM contribute Rs.475 crore (JNNURM)

  • Loans of about Rs.690 crore from DFI/Multilateral Banks (ADB & World Bank),

  • Rest Rs.375 crore is to be contributed by PCMC.

  • Complementing PPP models for the project are also conceived for the provision of bus stops, public toilets, landscaping, general maintenance, and advertisement rights


Urban transport fund pimpri chinchwad

Urban Transport Fund – PimpriChinchwad

  • PCMC has set up an Urban Transport Fund (UTF), managed by an SPV, PCMC Infrastructure Company Ltd (PICL), to finance its share of the BRT project and develop infrastructure along the BRT routes, which includes providing sanitation, water, and other civic amenities to people living along the BRT corridor.

  • Accordingly, 100 meters on both sides of the corridor have been earmarked as the “BRT Influence Zone”, and various instruments are used to capture part of the incremental value from the influence zone.

  • The financing instruments are

    • Premiums charged for loading TDR in the influence zone

    • Development charges in the influence zone

    • Incremental taxes, as the influence zone is designated a high property tax zone

    • Other sources, such as leasing utility ducts and advertisements.


Urban transport fund pimpri chinchwad1

Urban Transport Fund – PimpriChinchwad

  • TDR mechanism has a dual objectives

    • Densification of BRT corridors for orderly spatial development

    • Generating revenue by capturing the benefit of increase in land and real estate value in the proximity of the BRT corridor to partially finance the development project

  • PCMC has raised the FSI in the influence zone from 1 to 1.8 with the added FSI of 0.8 being achieved through loading of TDR

  • TDRs can be generated anywhere in the city and applied to the influence zone, subject to some restrictions.

  • The PCMC area is divided into zones A, B, C, where A is most congested, and C is least developed.

  • A premium (which is like a one-time tax) is charged for using TDR in the influence zone according to originating TDR zones, as per the proposed rates Rs. 300/600/900 per sq. ft for originating zones A/B/C.

  • The rationale for gradation of the premium is based on incentivizing movement away from congested zones, which therefore have lower premium (“tax‟).


Urban transport fund pimpri chinchwad2

Urban Transport Fund – PimpriChinchwad

  • Based on the total influence zone area along the 60 km BRTS corridor, additional 0.8 FSI permissible in the influence zone

  • Assuming only 80 % of the influence zone could accommodate TDRs (because of defence land, flyovers, etc), the maximum absorptive capacity for TDRs is 83 million sq. ft.

  • Based on an average premium of Rs. 600 per sq. ft, applied to the 83 million sq. ft of absorptive capacity in the influence zone, the maximum hypothetical revenue that can be generated is Rs. 4980 Crs


Leveraging land holdings for revenue and support infrastructure generation

Case Study –

Bangalore’s Traffic and Transport Management Centres (TTMCs)

Leveraging Land Holdings for Revenue and Support Infrastructure Generation


Background bmtc 1

Background: BMTC (1)

  • Bangalore Metropolitan Transport Corporation (BMTC) is the sole provider of bus based public transport in Bangalore city

  • It is one of the largest public transport operators in India

  • Everyday, BMTC:

    • Operates 2,400+ routes

    • Uses 6,200+ buses

    • Carries 4.8+ million passengers and

    • Serves 42% of all trips in the city

  • In recent years, it has been one of the few public transport companies to operate at a profit


Background bmtc 2

Background: BMTC (2)

  • Despite its success, in the late 2000s BMTC was facing two major challenges:

    Challenge 1:

    Identify alternate sources of revenue generation to maintain profitability and financial sustainability

    Challenge 2:

    Develop high quality support infrastructure to improve the quality of service for bus users


The ttmc concept 1

The TTMC Concept (1)

  • To face both of these challenges, BMTC decided to leverage its major asset: land holdings in strategic locations throughout the city

  • BMTC therefore developed the innovative concept of

    Traffic and Transit Management Centers (TTMCs)

  • The TTMC concept combines the development of passenger terminals with the creation of commercial real estate space

  • Revenue from rent of the commercial real estate space would cross subsidizethe construction cost of the passenger terminal and amenities, and also form a source of continuing additional revenue for the corporation.


Section ii subject lecture material full presentation

Conceptual Design of TTMC in Bangalore


The ttmc concept 2

The TTMC Concept (2)

  • The TTMC concept consists of 3 main components

    • An integrated terminal facility with adequate facilities and amenities to cater to the requirements of all user groups

    • A mixed-use development with shopping, malls, office space, and other commercial activity, to enable people to fulfill all these needs through using bus transport

    • The provision of park-and-ride facilities to encourage the use of Public Transport


Ttmc implementation

TTMC Implementation

  • 10 TTMCs have been constructed since 2009

  • Initial funding was provided by JNNURM

  • BMTC also used significant amounts of its own funding, confident in its ability to recover costs through renting commercial space


Outcomes

Outcomes

  • TTMCs have received an enthusiastic response from users

  • The development of high quality terminals has resulted in a significant improvement in the quality of bus travel

  • BMTC also earns roughly Rs. 15 crore per annum from renting commercial space

  • This revenue is expected to increase, as the commercial space gets fully occupied over time and as rental rates increase due to the strategic location of TTMCs.


Reflections and lessons learned

Reflections and Lessons Learned

  • The “1st Generation” of TTMCs have been a great success

  • However, there are some lessons learned that can inform future TTMC design:

    • At some TTMCs, the layout of commercial space has negatively impacted bus operations. The design of the facility should be first and foremost to improve city bus services

    • Conversely, the design of commercial spaces at some TTMCs has not been to the standards expected of potential tenants

    • Future designs should also better integrate other modes such as cycling, autos and taxis. Pedestrian environments around the TTMC should also be improved as part of the development.


Future plans

Future Plans

  • JNNURM funding played a big role in the financial viability of “1st Generation” TTMCs . Future expansion will require further innovations in financing.

  • BMTC is currently exploring the PPP model for TTMC development.

  • In this model:

    • A private developer pays BMTC an upfront fee as well as an annual premium

    • The private developer also builds the specified transport infrastructure as required by BMTC (terminal, depot, etc.)

    • In return, the developer gets the right to develop commercial real estate and collect the resulting rets for the contract period


Conclusions

Conclusions

  • A high quality urban bus service requires more than just good buses - the passenger experience doesn’t depend only on ‘in-bus’ time

  • The full passenger experience must be served – including waiting for buses, transferring, and so on. This requires high quality terminals and bus stops.

  • High quality terminals and transfer facilities also help in optimal service and operations planning.

  • However, financially constrained public transport agencies find it difficult to obtain the funds necessary to invest in such facilities.


Conclusions 2

Conclusions (2)

  • At the same time, public transport providers are under increasing financial strain.

  • Increasing fuel, fleet and staff costs are placing increasing pressure on the financial performance of BMTC

  • Fares cannot be raised at will to increase revenues, due to the public service aspect of public transportation.

  • Public transport providers therefore need to identify and implement innovative methods in non-fare revenue generation.


Conclusions 3

Conclusions (3)

  • The TTMC model from Bangalore provides a useful example of how to leverage land holdings to solve two challenges at once: the need to provide support infrastructure for bus services and the need to generate non-fare revenue to subsidize operations.

  • As urban areas expand, public transport authorities need to recognize and actively explore the commercial opportunities that their land holdings provide.

  • Innovations such as PPP financing can further improve the financial viability of such strategies.

  • However, the commercial exploitation of land holdings should always keep the need to improve transport services as the primary goal


Handout 5 fare fixation subsidies

HANDOUT 5: Fare Fixation, Subsidies


Fare for transit service

Fare for Transit Service

OPERATIONAL

COSTS

High

Fare

Low

INITIAL

INVESTMENT

Low

High

Infrastructure

Vehicles

Control


Section ii subject lecture material full presentation

Fare Structure

SoldTrips x TechnicalFare =PaymentstotheParts

Bus OperatorsPayment (#Kms*$Kms)

FareCollectorPayment (#Pax*$Pax)

SPV Salaries (%SPV)

Trust FundCosts ($TF)

TripsSold

X

Fare

Revenues = OperationalCost


Section ii subject lecture material full presentation

Fare Structure

TechnicalFare =PaymentstotheParts / SoldTrips

No. Kms *

$Km

$TF

+

No. Pax *

+

+

$FC

%SPV

Technical Fare =

No. Pax

Business Plan

}

All expenditures include

Investments, Operational

Costs, Taxes, and

Profits (NPV, IRR)

$Km

$FC

$TF

% SPV


Section ii subject lecture material full presentation

Fare Structure

TechnicalFare =PaymentstotheParts / SoldTrips

No. Kms *

$Km

$TF

+

No. Pax *

+

+

$FC

%SPV

Technical Fare =

No. Pax

Simplified to:

$ Bus Operators

+

%SPV

Technical Fare =

No. Pax


Section ii subject lecture material full presentation

Fare Structure

TechnicalFare =PaymentstotheParts / SoldTrips

$ Bus Operators

+

%SPV

Technical Fare =

No. Pax

Bus Investment

Bus Maintenance

Bus Cleaning

Drivers

Fuel & Parts

Fixed Cost

Taxes + Profits

}

Operator Revenues

[# Kms * $ Kms

+ Advertisement]


Section ii subject lecture material full presentation

Fare Structure

TechnicalFare =PaymentstotheParts / SoldTrips

$BusOperators

+

%SPV

Technical Fare =

No. Pax

Maintenance + Cleaning + Administration

Stations:

}

Hardware + Software + Communication Network

Operation + Conductors + Clearing House

Administration

SPV Revenue

% SPV + Advt.

Collector:

Hardware + Software + Communication Network

Operation + Administration

Scheduling

&

Controlling


Section ii subject lecture material full presentation

Fare Structure & Contract Structure

Fare Structure

Contract Structure

Incomes

Expenditures

Rights

Obligations

MIRROR


Section ii subject lecture material full presentation

Service & Financial Management

No. Kms *

$Km

$TF

+

No. Pax *

+

+

$FC

%SPV

Technical Fare =

No. Pax

Management Profile

SPV

Expenditure (Transport Team)

(Economic Team) Source

No.Pax * Fare

No.Kms * $Kms

Revenues

Operational Costs


Section ii subject lecture material full presentation

Fare

  • Fare can be defined in two aspects:

    • Technical Fare – Total average cost of transporting one passenger

    • User Fare – Total average fare per passenger

  • User fare may be above or below the technical fare

  • Generally user fare is lower than the technical fare due to political and other reasons

  • Low user fare many times results in lower degree of revenue realisation


User fare

User Fare

  • User fare is the fare by a passenger for using a transit service

  • It may be above or below the technical fare

  • Generally, user fare is lower than the technical fare due to political and other reasons

  • Low user fare many times results in lower degree of revenue realization


Subsidy

Subsidy

  • The difference between total costs and total revenues is the amount of subsidy that is required by the transport agency.

  • Transport is a form of public service, and many times it is justified that government should subsidize a portion of costs.

  • However, for subsidies to be acceptable and effective, they should be used to improve the quality of public transport service and not to cover the inefficiencies of operations.

  • It is prudent for an agency to develop a business plan and calculate operating costs and required subsidies at the beginning of every financial year.

  • The agency should run operations within that budget, barring unforeseen circumstances.


Subsidy1

Subsidy

  • For Public Transport to compete with private vehicles, it needs to be safe, inexpensive, reliable and comfortable.

  • Subsidies should aim at improving these qualities in public transport.

  • Subsidies can be provided to bus agencies that are operating buses at 7 to 12 people per meter square to increase operating frequency and thereby reduce crowding stations to more tolerable levels.

  • Such a subsidy improves passenger comfort while conveying that satisfactory service is just as important as revenue.


Fare fixation and revision for urban transport services

Case Study: Auto-rickshaw sector in Mumbai

Fare Fixation and Revision for Urban Transport Services


Characterization of urban transport modes role of auto rickshaws and taxis

Characterization of Urban Transport Modes – role of auto-rickshaws and taxis


Characterization of ipt services in cities

Characterization of IPT services in cities


Need for fare regulation for auto rickshaw and taxi services

Need for fare regulation for auto-rickshaw and taxi services

Existing research on taxi regulation (Schaller, 2007) makes the case for fare regulation by the government for auto-rickshaw and taxi services, based on following reasons:


Regulatory structure for fare fixation in auto rickshaw and taxi sector

Regulatory structure for fare fixation in auto-rickshaw and taxi sector

The Ministry of Road Transport and Highways (MORTH) is the apex body that provides broad guidelines for regulation of motor vehicles (including auto-rickshaws and taxis), under the Central Motor Vehicles Act.

At the city level, auto-rickshaws and taxis are regulated by the State government, under provisions of the State Motor Vehicle Rules.

Regional Transport Authorities (RTAs) are the regulatory bodies set up by the State governments that are in charge of fare regulation for auto-rickshaws and taxis.


Fare fixation key considerations

Fare Fixation Key Considerations


Components of auto rickshaw and taxi fares

Components of auto-rickshaw and taxi fares


Key input factors for fare estimation

Key input factors for fare estimation


History of fare fixation in mumbai

History of Fare Fixation in Mumbai


Fare fixation 1996 hakim committee key costs and operating characteristics

Fare Fixation (1996, Hakim Committee)Key Costs and Operating Characteristics


Fare fixation 1996 hakim committee costs per km

Fare Fixation (1996, Hakim Committee)Costs per Km


Fare fixation 2012 hakim committee

Fare Fixation (2012, Hakim Committee)

  • Among its main objectives, the Committee aimed to look at the following:

    • cost-based fare structures that varied with fuel usage

    • a formula for future fare revisions

    • minimum distance considerations in the fare

  • Interacted with various stakeholders: Auto-rickshaw Unions, Consumer/Passengers’ Association


Fare fixation 2012 hakim committee key factors considered

Fare Fixation (2012, Hakim Committee) Key Factors Considered

(i) the demands made by the various unions to formulate the fare structure taking into account the real impact of various costs, particularly the cost of living;

(ii) proposal to revise (in respect to Mumbai, Thane and Navi Mumbai) the distance for which the minimum fare is calculated;

(iii)installation and use of electronic meters;

(iv) realistic estimates of the average distance travelled daily, percentage of idle run and fuel consumption;

(v) adequate provision for proper maintenance of auto-rickshaws;

(vi) fare fixation when auto-rickshaws based on different fuels operate in the same area;

(vii)complaints of refusal of passengers by auto-rickshaws;

(x) other issues relevant for fare fixation; and

(xi) frequency of fare revision.


Section ii subject lecture material full presentation

Fare Fixation (2012, Hakim Committee)Key Costs and Operating Characteristics


Section ii subject lecture material full presentation

Fare Fixation (2012, Hakim Committee) Costs per km


2012 hakim committee procedure for fare revisions

2012, Hakim Committee Procedure for fare revisions

Interest and depreciation: (Latest price in rupees of a new auto-rickshaw) divided by 2703.

Insurance and taxes: (Latest total amount of insurance and all taxes in rupees) divided by 341.8

Fuel: (Latest cost of one kg of CNG in rupees) multiplied by 4.964

Repairs and maintenance: (Latest price in rupees of a new auto-rickshaw) divided by 2678 plus (CPI number for the latest available month) divided by 11.707

Cost of living: (CPI number for the latest available month) multiplied by 3.512


2012 hakim committee frequency of fare revisions

2012, Hakim Committee Frequency of fare revisions

Fare revisions proposed to be undertaken every year on the 1st of May. This is to bring clarity and transparency to the fare revision process, and account for yearly changes in input costs.

Fare revisions should be undertaken even if increase in basic fare per km is below 50 paise.

If input costs increase due to unexpected circumstances such that basic fare per km rises by more than 20%, then fare increases should be implemented without waiting until the following 1st of May.


Other recommendations

Other Recommendations

Change in using WPI to CPI (Inflation measure for adequately reflecting auto-rickshaw drivers)

It was further suggested that the additional fare of 25% presently charged for journeys after midnight be increased to 30%.

Electronic meters and recalibration mandatory, for accurate fare charges and to be a deterrent from tampering

Average distance travelled and idle distance: Surveys conducted with help of RTO


Success factors

Success Factors

Surveys conducted to gauge actual usage and running of auto-rickshaws

Scientific, verified method of data collection and sample analysis

Highlighting gaps in data collection and considering various perspectives

Different fuels considered, detailed fare revision formulae


Issues challenges

Issues/Challenges

Different fuels used by different vehicle models: Petrol, CNG, LPG

Waiting Time/Congestion charges: How to estimate

Fare revisions: Revisions in factors

Minimum distance found to impact driver refusals


Aftermath

Aftermath

Many organizations and representatives (from government, unions as well as passengers/consumers) were consulted during the deliberations of the committee, leading to general disapproval and displeasure.

Currently, a public interest litigation (PIL) proposed that the government appoint an expert panel to decide some of the components of the revised fare, which was rejected.


Lessons learned1

Lessons Learned

Scientific method: useful – although does not always lead to consensus among various stakeholders

Using different factors and considering varying viewpoints for holistic estimation

Provision of frequent and timely revisions stressed


Fare fixation and revision for urban transport services1

Case Study: BMTC, Bangalore

Fare Fixation and Revision for Urban Transport Services


Fare revision

Fare Revision

FARE REVISION ON ACCOUNT OF INCREASE IN DIESEL PRICES

F (DPA) = (F – D) + [(RPD/BPD) x D]

  • Where,

  • F (DPA) = Revised fare in terms of Paisa per passenger kilometer

  • F = Average cost per passenger kilometer at the time of previous fare revision

  • D = Diesel cost per passenger kilometer at the time of previous fare revision

  • RPD = Revised price of diesel

  • BPD = Basic price of diesel when the last fare revision was permitted


Fare revision1

Fare Revision

FARE REVISION ON ACCOUNT OF RISE IN DA RATES:

FR = F + [CPKM (L)/CPKM] x P x F/100

  • Where,

  • F = current fare per kilometer

  • FR = Revised fare paisa per passenger kilometer

  • CPKM = Total cost per kilometer at the time of previous fare revision

  • CPKM (L) = Staff cost per kilometer at the time of previous fare revision

  • P = Percentage increase in staff cost due to DA increase over the staff cost at the time of previous revision


Benefits of periodic fare revision

Benefits of Periodic Fare Revision

The advantage of periodic and timely revision is that the fare hike is nominal and STUs do not incur losses. However:

  • In order to avoid frequent hike in fares, the government has decided that the fares would be hiked only when the combined burden of diesel price increase and DA hike, as per the formula above, exceeds 0.25 paisa per passenger kilometer (i.e. total burden exceeds Rs. 11 crore in a year).

  • Whenever there is a decrease in diesel price, the fare will also decrease.

  • The additional revenue realization on account of fare hike will not exceed the total increased cost of diesel and DA.

  • The STU will have liberty of distributing the quantum of fare increase between different types of services such as ordinary, deluxe, express, and luxury.


Handout 6 cost benefit analyses

HANDOUT 6: Cost Benefit Analyses


Background

Background

  • At any time, there will be multiple PPP projects competing for limited investment opportunities, both by the government and the private sector.

  • The question is which projects to invest in, or which projects to give priority to.

  • Decision criteria

    • Highest financial benefit

    • Other non-financial benefits

  • Financial analysis looks at a project purely from the perspective of returns. The project that offers the highest financial returns for a given investment is considered most favorable.

  • In economic analysis, we go beyond the financial returns and consider all the benefits (and losses) that accrue to a project over its entire life cycle.


What is financial analysis

What is financial analysis

  • A financial analysis is an assessment of the viability, stability, and profitability of a project.

  • Here, one considers the total value of revenue to be earned from the project over its entire duration, given the capital investment that needs to be made. (opportunity cost of capital)

  • It has 4 main components:

    • Profitability: Its ability to earn profit for its investors

    • Solvency: Its ability to pay its obligations to creditors (lenders) in a timely manner

    • Liquidity: Its ability to maintain enough cash flow at any point in time, to cover all its expenses and obligations, including taxes

    • Stability: Its ability to stay in business through risk and uncertainty

  • The main objective is:

    • To determine whether to invest

    • To determine how to structure the project


Financial statement

Financial Statement

  • Balance sheet

    • This is a summary of the total worth of assets and liabilities of the company at a given point of time.

    • The different between assets and liabilities is the net worth of the company at that point of time. (The profitability indicator)

  • Profit and Loss sheet

    • This shows the company’s itemized revenue and expenses for a given period, usually a year.

    • Note: revenue and expenses are different from cash inflow and outflow

    • Revenue minus expenses is equal to the profit (or loss) of the company for that year.

    • Profit might be either retained for future investment or distributed to equity partners as dividend (The profitability indicator)

  • Cashflow statement

    • This shows the real inflow and outflow of cash at various periods of the project duration.

    • A negative net cashflow at any point of the project duration is unacceptable, and the project will have to be restructured to prevent this. (The liquidity indicator)


How is profitability measured

How is profitability measured

  • Net Present Value (NPV)

    • The discounted value of each year’s cash flow (inflow minus outflow), through the entire duration of the project.

    • Notionally, cash flow in the future is less valuable than cash flow earned today (because of inflation, uncertainty, delayed consumption). Hence, future cash flows are reduced by a discounting factor for each subsequent year in the future

  • Internal Rate of Return (IRR)

    • The rate of return that makes NPV = 0.

    • Other things being equal, the higher the IRR, the more desirable the project

    • This is used as a benchmark for investment decision


Indicators of solvency

Indicators of Solvency

  • Debt Service Coverage Ratio (DSCR)

    • The ratio of cash available for debt servicing (interest and principal) in each period (monthly/annually).

    • Typically, the DSCR should be at least 1.2 at all times

  • Debt Equity Ratio (DER)

    • The ratio of debt to equity in the project

    • The higher the debt proportion, the more risky is it for the lenders

    • In non-recourse financing, DER of 70:30 is acceptable, though there can be exceptions.


Stability analysis

Stability Analysis

  • In any project, there are risks and uncertainties.

  • A stability analysis assesses how various indicators in the project change, when there is a change in the project situation. Examples:

    • Cost escalation

    • Construction delay

    • Demand shortfall

  • If any indicator reaches an unacceptable critical level due to one of these changes, then the project will have to be restructured to overcome this risk.

  • This is often known as scenario analysis, simulation, or crystal ball analysis.


What is economic analysis

What is Economic Analysis

  • If one neglects to consider the non-financial benefits of a PPP project, then one is at risk of ignoring a sizeable set of benefits accruing from the project.

  • In any PPP project, there will be both monetary and non-monetary benefits (as well as losses). The latter is known as the positive and negative externalities of the project.

  • In economic viability analysis, we try to capture the notional value of these externalities for all individuals and entities in society. These benefits (or losses) could be social, economic, environmental, health-related, cultural, etc.

  • The most common tool to do this is a socio-economic cost benefit analysis.


Some factors to be considered in economic analysis

Some factors to be considered in economic analysis

  • Environmental impact: CO2 emissions, other pollutants

  • Economic impact: Jobs created or income generated, both direct and indirect. Often the indirect jobs created will far outnumber the direct jobs

  • Social impact: What is the historical/cultural impact. This is often the most controversial and difficult to estimate. Each person values the same things differently.

  • Other impacts: Health impacts, accidents, intangibles, etc.


Cost benefit analysis

Cost-Benefit Analysis

  • This is a systemic evaluation process for calculating and comparing benefits and costs of a project, in order to aid the decision (generally for the government entity) on where to make an investment decision or not.

  • Like financial evaluation, CBA is expressed in monetary terms, where future values may be discounted to make them equal to present values. HOWEVER, discount rate, if used, should be low, because the benefits and losses to every generation are equally important.

  • The process of attaching monetary values to these intangible benefits can be very subjective. There are rigorous methodologies available in the public domain on how to calculate some of the more common benefits, such as carbon emission reduction, lives saved, jobs created, etc.


Cost benefit analysis continued

Cost-Benefit Analysis(continued)

  • The monetary values for each benefit (or loss) is calculated in several ways:

    • Stated preference / willingness to pay survey: where respondents are asked how much they would be willing to pay for the given benefit if they had to pay for it

    • Revealed preference: where one considers how much people paid for a similar benefit in another circumstance

    • Market rates: Some benefits have a market-traded proxy; for example carbon credits or job market


Who should do an economic analysis

Who should do an economic analysis

  • There is a conflict of interest when the private partner in the PPP conducts the economic analysis of the project.

  • Economic analysis must always be done by an independent party with no financial stake in the project.

  • Economic analysis must always precede financial analysis. Only if the economic analysis is favorable, should one proceed to a financial analysis.


Comparison

Comparison


Cba key steps

CBA – Key Steps


Common approach to cba

Common Approach to CBA

  • Three common methods or approaches of economic evaluation are

    • Net Present Value Method

    • Internal Rate of Return Method

    • Benefit Cost Ratio

  • NPV and Internal rate of return methods are the most commonly used method for doing CBA


Cost components

Cost Components

Some of the important cost components, apart from the regular capital and operation cost, include:

  • Value of Time

  • Vehicle Operating Costs

  • Social cost such as cost of accident

  • Environmental Costs


Benefits

Benefits

Some of the important benefits include:

  • Traffic Benefits

    • Increase in normal traffic

    • Diverted traffic

    • Generated traffic or induced traffic

  • Road user benefits

    • Vehicle operating cost savings

    • Value of travel time savings

    • Value of savings in accident costs

  • Social Benefits

    • Improvement in administration, law and order, and defence

    • Improvement in health and education

    • Improvement in agriculture, industry, trade, and mining

    • Improvement in environment

    • Appreciation in land value in influence zone


Cost benefit analysis for urban transport project

Case Study: TransMilenio BRTS Project

Cost Benefit Analysis for Urban Transport Project


Case study transmilenio brt system bogota

Case Study TransMilenio BRT System Bogota


Transmilenio brt system bogota phases i and ii

TRANSMILENIO BRT SystemBogota (Phases I and II)

Length of Bus-Only Lanes: 84 km

Length of Feeder Routes:663 km of routes

Stations:114

Trunk Vehicles:1,262 articulated buses

10 bi-articulated buses

Feeder VehicleS:519 conventional buses (12 m)

Feeder Routes:83

Payment System:No-contract smart card

Control Center:On-line real-time supervision

User information:Fixed signage and dynamic display panels

Total passengers: Average of 1.7 million on weekdays

Users of feeder routes:48% of the total users

Fare (flat):Rs. 50 per trip, including transfer with feeders


Section ii subject lecture material full presentation

Table 1 - TransMilenio Costs, Phases I and II (Present Value, with a 12% Discount Rate, Billions of INR)


Section ii subject lecture material full presentation

Costs COP 108 billion INR (2008) 1998-2018, Discountrate 12%


Section ii subject lecture material full presentation

Table 2 – Present Value of Benefits, TransMilenio, Phase I and II

(Billions INR of 2008, 12% discount rate)


Section ii subject lecture material full presentation

BenefitsCOP 166 billion INR 2008 1998-2008, discountrate 12%


Section ii subject lecture material full presentation

Cash flow – costs and benefits

(COP billion 2008, discountrate 12%)


Socio economic evaluation phases i and ii

Socio-Economic Evaluation Phases I and II

  • Evaluation horizon 1998 – 2018

  • Discount rate 12%

  • Net Present Value: USD 56,560 million INR

  • Benefit/Cost Ratio: 2.5

  • Internal rate of return (social): 24.2%


Input parameters assumptions

Input Parameters/Assumptions

Source: (1) TRANSMILENIO S.A., (2) Assumption


Section ii subject lecture material full presentation

Table 4 – Results of the Sensitivity Analysis

(Billions of 2008 INR, 12% discount rate)

Source: Prepared based on data provided by TRANSMILENIO S.A.


Section ii subject lecture material full presentation

Physical and Financial Progress of Implementation according to CONPES 3093, 2000-2008

Source: CONPES, 2000. data from TRANSMILENIO S.A.


Other impacts

Otherimpacts

  • Employment: 1,900 to 2,900 permanentjobs in operation, 1,400 to 1,800 jobs /monthduringconstruction

  • Taxrevenues: Between 2005 and 2008 operatorsreported893 million INR in revenue taxes and 485 million INR in other taxes (VAT, industry and commercetaxes, vehicletaxes)

  • Increasedlandvalues

  • Crimereduction


Land values

LandValues

  • Increases in land prices in areas less than 1 km from TransMilenio (during a period in which average land prices dropped in the city at large, Bogotá Real Estate Exchange,2002)

  • Hedonic price surveys reflect positive trends within walking distance of TransMilenio stations (Barrios, 2002; Rodriguez y Targa, 2004; Muñoz-Raskin, 2010):

  • Positive for middle-class, negative for lower income and upper-class categories

  • Negative impacts on housing in the immediate vicinities of stations: greater commercial use, noise, and perceived safety (problems?) (Rodríguez y Targa, 2004).


Reported crime in av caracas main trunkway

ReportedCrime in Av. Caracas (maintrunkway)

Homicide

Home Violations

Motorcycles Robbery

Vehicles Robbery

Source: Moreno-García, A. (2005) with data from the Metropolitan Police Department


Reported crime in av caracas main trunkway1

ReportedCrime in Av. Caracas (maintrunkway)

Commercial Establishment Robbery

Person Robbery

Total Reported Crime

Homes Robbery

Source: Moreno-García, A. (2005) with data fromtheMetropolitanPoliceDepartment


Conclusions1

Conclusions

  • High impact, high performance system

  • User perception declining; need to improve quality of service

  • Favorable socio-economic evaluation, but much lower than initially estimated – much higher infrastructure costs

  • Positive impacts on employment, tax revenues, land prices, and reduced reported crime


Expressway bus lanes transmilenio bogot

Expressway Bus Lanes TransMilenio, Bogotá


Section ii subject lecture material full presentation

New Flleet of Biarticulated Buses Euro V

DowntonTransit Mall (Eje Ambiental)


Cost benefit analysis for urban transport project1

Case Study: Mexico, Metro Bus BRTS Project

Cost Benefit Analysis for Urban Transport Project


Mexico city profile

Mexico City Profile

  • North America's largest metropolis

  • Financial, political, and cultural capital of Mexico

  • 8.8 million inhabitants in Federal District

  • 21 million inhabitants in metro area

  • Regarded as one of the most polluted cities in the world


Mexico city metrob s project

Mexico City: Metrobús Project

  • Launched to replace the existing private micro-bus scheme with a more organized, efficient, and environmentally sustainable operation

  • A unique public-private partnership (PPP) helped plan and build dedicated BRT lanes

  • Covers 95 kms: largest system of BRT corridors in Latin America

  • Corridors include:

    • segregated bus lanes

    • enclosed stations with prepayment

    • large buses

    • electronic fare collection

    • advanced control systems

  • Spaces designed exclusively for women, children, and the elderly at most stations and within buses


Mexico city political challenges in implementation

Mexico City: Political Challenges in Implementation

  • Lack of institutional alignment toward project goals by agencies not directly involved in project planning

  • Existing concessionaires of the corridor had to be brought on board to overcome opposition

  • Public protests by operators were not acceptable


Mexico city metrob s business model

Mexico City: Metrobús Business Model

  • PPP: existing micro-bus drivers displaced and then hired as BRT rolling stock operating companies with the government as facilitator

  • Dispersed concessions replaced by one single concession for the whole fleet

  • Metrobús in charge of planning, control, and supervision, as well as coordination with other agencies


Mexico city institutional arrangements

Mexico City: Institutional Arrangements

  • The public decentralized body Metrobús is responsible for the planning, administration, and control of the Corridor System of Passenger Public Transport of the Federal District.

  • The transport companies CorredorInsurgentes S.A. de CV formed by the old concesionaries of Route 2 in the insurgents corridor and Red de Transporte de Pasajeros del Distrito Federal. One private and one public company will operate the 84 articulated buses in a proportion of 75% and 25% respectively.

  • One company specialized in the operation and maintenance of the payment systems (Imbursa)

  • One private fiduciary for the administration, investment, and distribution of the resources generated by the Insurgentes Corridor.


Mexico city green plan

Mexico City: Green Plan

  • Measures to enhance the city’s walking and cycling conditions:

    • “Pedestrianization” of the city's historical centers and of some of its neighborhoods

    • Bicycle promotion strategy

    • Building cycling-friendly infrastructure

    • Bicycle-sharing system, Ecobici(EcoBike)


Mexico city green plan1

Mexico City: Green Plan

Distribution of Net Benefits for Mexico City’s Metrobús across Various Income Quintiles


Handout 7 project preparation

HANDOUT 7: Project Preparation


Project preparation

Project Preparation

  • A project is a series of activities aimed at bringing about clearly specified objectives within a defined time period and within a defined budget identification.


Project preparation phase

Project Preparation Phase

  • Every project can be presented as a sequence of consecutive phases as exhibited through a project cycle and can be conceptually shown as:


Life cycle of a ppp project

Life Cycle of a PPP Project


Project risks

Risk

Concept / Development

Transition

Operation

Construction

Time

Project Risks

PPP projects need Project Development


Project development

Project Development

  • Project Development is aimed at:

    • Defining the scope and outcomes of a project

    • Setting out the modalities for implementation

    • Designing a project structure that would enable the project to find credible investors and access to project finance

  • OR IN OTHER WORDS

    • Making the project “bankable” so that it can be successfully implemented


Stages of project development

Stages of Project Development

Stage 1

SECTOR STUDY - Resulting in a well-defined strategy

ANALYSIS OF LEGAL, REGULATORY AND POLICY FRAMEWORK

Ensuring that there is a suitable enabling environment

Stage 2

Stage 3

PROJECT IDENTIFICATION - Assessing amenability of a project

Stage 4

PROJECT PREPARATION

Technical Feasibility Evaluation

Financial Viability Analysis

PROJECT STRUCTURING (PACKAGING)

Stage 5

Project structuring options

Project implementation issues


Project development examples

Case Study: Noida Toll Bridge Project & Delhi Gurgaon Expressway

Project Development Examples


Noida toll bridge project

Noida Toll Bridge Project

  • An opportunity -

    • Demand for connectivity

    • Willingness to pay

  • Missing link – A bridge on Yamuna

  • Project Development created the bridge

    • 552 m long with 8 lane approach roads (5.5 Kms)

  • COP: Rs 4,000 mn


Geography orientation

GEOGRAPHY - ORIENTATION


Key milestones

Key Milestones

  • Apr 1992Signing of MOU

  • Nov 1997Concession Agreement signed

  • Jan 1998EPC contract awarded to MMC

  • May 1998Land handed over to the EPC contractor

  • Aug 1998Regulation authorizing NTBCL to collect tolls

  • Oct 1998 Execution of Loan documents

  • Dec 1998Appointment of O&M contractor

  • Dec 1998Financial close

  • Dec 1998Commencement of construction

  • Feb 2001Commercial operations


Key stakeholders

Key Stakeholders

  • Government of India

  • Government of Uttar Pradesh

  • Government of the NCT Delhi

  • NOIDA

  • IL&FS

  • The World Bank

  • Kampsax International, Denmark

  • Mitsui Marubeni Corporation, Japan

  • Intertoll, South Africa


Typical infrastructure risks

Typical infrastructure risks

Regulatory Risk

Political Risk

Operation and Maintenance Risk

Revenue Risk

RISKS

Force Majeure

Risk

Financial Risk

Performance Risk

Demand

Risk

Technology

Risk

Land Acquisition Risk

Construction

Risk


Grouping risks based on underlying uncertainty

Grouping risksbased on underlying uncertainty

e.g. an earthquake, a new competitor, a flood

e.g. the expected value of operating expenditures is 100, though it can also be 80 and it can also be 150

e.g. the inflation in India can be 5% or it can be 10%

Uncertain Events

Uncertain Assumptions

Uncertain Environment


Grouping risks

Grouping Risks


How to structure recap of key considerations

How to StructureRecap of Key Considerations


Thank you

Thank You!


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