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Second Annual Conference on Intra-City Transportation Systems Urban Transport –Financing Urban Transport Projects by unlocking indirect sources of revenues. CRISIL Infrastructure Advisory 27th July 2009. Transportation in India. Vehicular population growth has been about 11 % CAGR

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Second Annual Conference on Intra-City Transportation Systems

Urban Transport –Financing Urban Transport Projects by unlocking indirect sources of revenues

CRISIL Infrastructure Advisory

27th July 2009

transportation in india
Transportation in India
  • Vehicular population growth has been about 11 % CAGR
  • Share of public transportation (buses) has lagged behind
  • 70% of the vehicles sold in India were two-wheelers (2002)
  • Need to shift from ‘personal transport’ to ‘public transport’
existing share of public transport in indian cities
Existing Share of Public Transport in Indian Cities*
  • Large dependence on two-wheelers for mobility in absence of public transportation alternatives
  • Preference for Public Transport exists evident from over-crowding during peak-hours

*MoUD, Government of India, Traffic and Transportation Policies and Strategies in Urban Areas in India, 1998

investment requirement in public transportation system
Investment Requirement in Public Transportation System
  • Investments leaning towards capital intensive rail-based mass transit systems
  • Financing infrastructure requirement will be a challenge
  • JNNURM funding for capital intensive projects is unlikely
  • Viability Gap Funding limited to upto 20% of project cost
  • Need to search
    • for cost-effective public transportation solutions
    • alternate financing mechanism

Source: Report of the Working Group for the 11th Five Year Plan on Urban Transport including MRTS

private investment in public transportation has been limited
Private Investment in Public Transportation has been limited
  • In general Private Investment in Urban Sector was limited
  • Need of the hour is to develop viable & bankable projects for flow of private capital
what are the concerns for mobilizing private capital in ut
What are the concerns for mobilizing private capital in UT ?
  • Developers Perspective
    • Large project size
    • Long gestation period
    • Non availability of attractive PPP Models
    • Stricter & Lengthier scrutiny by Financial Institutions while assessing the viability
  • Financial institutions
    • Reluctant & Selective to fund large projects
    • Lenders expects higher equity contribution
    • Concerns on contractual provisions to protect lenders interest
how these concerns are impacting the projects
How these concerns are impacting the Projects?
  • Current financial crisis might be scaring away private developers…
  • Mumbai Metro- Line 2
    • Project Cost : Over Rs. 7,500 crores
    • Of the seven qualified bidder only one submitted the Financial
    • Requested for 27% VGF against approved VGF of 20% of project cost
  • Mumbai Sea Link Project
    • Project cost : Over Rs. 4000 crores
    • Only 2 out of 17 qualified bidders submitted bids
  • Hyderabad Metro ?
should these concerns tempt for public funding in ut
Should these concerns tempt for public funding in UT ?
  • As private sector investments are constrained in urban infrastructure
  • Currently Real estate component is not that attractive
  • Should government move towards public funded infrastructure ?- No
    • Government is constrained by its budget, so can’t finance many projects
    • Large project need new skills sets
    • It would discourage private sector to invest in infrastructure
  • Having developed PPP market Government should:
    • facilitate & promote more private finance in infrastructure :
    • Explore alternate project finance options intermittent to Public funding and PPP
    • Increase project viability by targeting indirect beneficiaries/sources
the intermediate options
The Intermediate options
  • The extreme ends of the PPP continuum are not workable in situations of crisis
  • Government needs to develop intermediate

Intermediate options

Annuity form of projects

Financial intermediary

Viability Gap Funding

Unlocking value

  • Service contract
  • Management contract
  • Concession

Continuum of PPPs

Public funded and private operated

Private funded and private operated

exploit indirect beneficiaries from urban transport projects
Exploit indirect beneficiaries from Urban Transport Projects

Indirect Beneficiaries

Direct Beneficiaries

  • Passengers of a public transport system
  • Vehicle owners using transport facilities (flyover, ring roads etc)
  • Businesses based on the infrastructure- advertisers on the system, vendors
  • Property owners near the developed transport system- gaining from higher potential value of property
  • State Government- gaining higher stamp duties collection due to higher amount of transactions in the region
  • Local Government- gaining higher property taxes in the region due to escalation in property prices
direct beneficiaries pay but what about indirect beneficiaries
Direct beneficiaries pay, but what about indirect beneficiaries?

Value gets unlocked for indirect beneficiaries..

… but the value is not utilised for funding the creation of the urban transport asset

Direct Beneficiaries pay through various modes

  • For a public transport system
    • Price of the ticket- fare box collections
    • Price of monthly passes
    • Price of the permit to carry on business in the transport system
    • Price paid to advertise on the transport system
  • For a new flyover
    • Tolls
    • Higher taxes and cess

How can the potential value of indirect beneficiaries can then be captured for creating the asset?

structuring transactions with value from indirect beneficiaries
Structuring transactions with value from indirect beneficiaries

Defining project revenues…

Project beneficiaries

Direct beneficiaries

Indirect beneficiaries

Revenues not directly attributable to the project

Revenues directly attributable to the project

Revenues allocated to the project

Revenues not specifically allocated to the project

Value that is unlocked at project level- directly

Value unlocked at project level- indirectly

Value unlocked at city level

  • Revenues routed as grant
    • incremental stamp duty
    • incremental property taxes
    • Incremental professional and sales taxes
  • Fare Box revenues
  • Toll
  • Revenue from advertising
  • Revenues from grant of vending right
  • Revenues allotted to the project
    • revenues from property development
    • sale of FSI
    • loading premium on TDR
structuring transactions with value from indirect beneficiaries1
Structuring transactions with value from indirect beneficiaries

Assessment of viability at city level

Transport Authority/ ULB

Revenues

Expenditure

Revenue sources for

transport expenditure

Betterment levies

Revenue grant to projects

Development charge

Capital grant to projects

Fuel cess

Congestion charge

These two sides should ideally match at the city level, so that the city self finances its transport investment

In case of any deficit, the city will require state govt. or central govt. assistance in form VGF

Licence fee/ operator premium

Project surplus

unlocking value from indirect beneficiaries in pimpri chinchwad
Unlocking value from indirect beneficiaries in Pimpri-Chinchwad
  • Pimpri Chinchwad Municipal Corporation (PCMC) is developing 130 km of bus based mass transit corridors
  • PCMC has set up an Urban Transport Fund (UTF) to fund the project
  • The UTF to be managed by a SPV wholly owned by PCMC
  • A zone of 100 m on either side of the corridor designated as BRT influence zone

Building permission charges in the zone

The building permission charges in the influence zone allowed to the UTF

Loading of Transferable Development Rights (TDR)

PCMC allows TDR from other parts of the city to be loaded on the BRT influence zone on the payment of a loading premium

Value unlocked for the UTF based on Comprehensive Mobility Plan, through these modes

Other revenues

Grant of advertising rights

Property re-development

Incremental Property Taxes

The BRT influence zone is designated as high tax rate zone- the incremental revenue is allowed to the UTF

structuring transactions with value from indirect beneficiaries2
Structuring transactions with value from indirect beneficiaries

Estimating Project viability and making the case for value unlocking at city level

Calculate Project IRR considering 1st level revenue

Calculate available return for equity investor

Are the returns attractive?

yes

no

Calculate available equity return adding 2nd level revenues

Are the returns attractive?

Develop the project with first and second level revenues

Apply for VGF or grant from relevant authority

yes

no

planning for value integrated at city level

Highest

Comprehensive Mobility Plan

Alternative Analysis

Number of alternatives

DPR-I for Project Sanction

DPR-II for Project Implementation

Lowest

Minimal

Final design

Level of engineering design

Planning for value- integrated at city level
  • To capture all possible sources of value, the planning needs to be part of a city level strategy
  • Ideally planning should follow Comprehensive Mobility Plan- to allocate revenues among all projects in the city
conclusions
Conclusions
  • A holistic planning exercise is essential to identify requirements, and to identify alternative transport options
  • Actions required at city level
    • Proposals to be backed by comprehensive traffic as well as land-use studies
    • Estimate & exploit all three sources of revenue to fund projects
    • Creation of a city level transport authority with responsibility for integrated planning, implementation and financial management
  • Innovation in project structuring
    • Creation of a Special Purpose Vehicle
    • Creation of an Urban Transport Fund (UTF) by pooling non fare based revenue to fund projects
  • Improve financial viability by exploiting non-fare based revenue sources