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
16
• Share of public transportation
(buses) has lagged behind
14
Two
Wheelers
15.6
12
10
• 70% of the vehicles sold in India
were two-wheelers (2002)
8
6
4
Buses
6
Cars
7.9
Overall
10.9
2
• Need to shift from ‘personal
transport’ to ‘public transport’
2.
0
Vehicular Growth - % (1951-2001)
Existing Share of Public Transport in Indian Cities*
% Trips by Public Transport
Existing and Desired Share of Public Transport
70
60
50
40
30
20
10
0
0.1 - 0.25
0.25 - 0.5
0.5 - 1.0
1.0 - 2.0
2.0 - 5.0
5.0+
City Population- In Millions
Existing
Desirable
• 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
3.
Investment Requirement in Public Transportation System
• Investments leaning towards capital
intensive rail-based mass transit
systems
Funds Requirement
Capacity Building
• 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
4.
Rs. Crores
100
0.1 - 0.5 million cities
3,700
0.5 - 1 million cities
4,000
1 - 4 million cities
4 million plus cities
11,600
6,000
MRT for mega cities
32,000
Total
57,400
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 Sector Investments in Major Sectors
Energy
Telecom
Water & Sewerage
Transport
Investment in US $ Mn
20,000
17,500
15,000
12,500
10,000
7,500
5,000
2,500
0
upto 1999
2000
2001
2002
2003
2004
2005
Year
• In general Private Investment in Urban Sector was limited
• Need of the hour is to develop viable & bankable projects for flow of
private capital
5.
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
6.
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 ?
7.
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
8.
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
Financial
of projects
intermediary
Viability Gap
Funding
Unlocking
value
• Service contract
• Management
contract
Public funded
and private
operated
9.
Continuum of PPPs
• Concession
Private funded
and private
operated
Exploit indirect beneficiaries from Urban Transport Projects
Direct Beneficiaries
Indirect 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
10.
Direct beneficiaries pay, but what about indirect beneficiaries?
Direct Beneficiaries pay through
various modes
Value gets unlocked for indirect
• For a public transport system
… but the value is not utilised for funding
• Price of the ticket- fare box
beneficiaries..
the creation of the urban transport asset
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
11.
How can the potential value of indirect
beneficiaries can then be captured for
creating the asset?
Structuring transactions with value from indirect beneficiaries
Defining project revenues…
Project beneficiaries
Direct beneficiaries
Indirect beneficiaries
Revenues directly
attributable to the project
Revenues not directly
attributable to the project
Revenues allocated to
the project
Value that is unlocked at
project level- directly
• Fare Box revenues
• Toll
• Revenue from advertising
• Revenues from grant of
vending right
12.
Value unlocked at project
level- indirectly
Revenues allotted to the
project
Revenues not specifically
allocated to the project
Value unlocked at city level
Revenues routed as grant
• incremental stamp duty
• revenues from property
development
• incremental property
taxes
• sale of FSI
• Incremental
professional and sales
taxes
• loading premium on
TDR
Structuring transactions with value from indirect beneficiaries
Assessment of viability at city level
Transport Authority/ ULB
Revenues
Betterment levies
Development charge
Expenditure
Revenue sources for
transport expenditure
Revenue grant to projects
Capital grant to projects
Fuel cess
Congestion charge
Licence fee/ operator premium
Project surplus
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
13.
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
Loading of Transferable
Development Rights (TDR)
Building permission charges in the
zone
PCMC allows TDR from other parts of
the city to be loaded on the BRT
influence zone on the payment of a
loading premium
The building permission charges in the
influence zone allowed to the UTF
Value unlocked for the UTF based on Comprehensive
Mobility Plan, through these modes
14.
Incremental Property Taxes
Other revenues
The BRT influence zone is designated
as high tax rate zone- the incremental
revenue is allowed to the UTF
Grant of advertising rights
Property re-development
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
yes
Are the
returns
attractive
?
no
Calculate available
equity return adding
2nd level revenues
Develop the project
with first and second
level revenues
15.
yes
Are the
returns
attractive
?
no
Apply for VGF or
grant from relevant
authority
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
Highest
Number of alternatives
Comprehensive Mobility Plan
Alternative Analysis
DPR-I for Project Sanction
DPR-II for Project Implementation
Lowest
Minimal
16.
Level of engineering design
Final design
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
17.
Thank You