1. 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

2. 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’

3. 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

4. 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
Funds Requirement
Rs. Crores
Capacity Building
100
million cities
3,700
million cities
4,000
1 - 4 million cities
11,600
4 million plus cities
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

5. 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

6. 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

7. 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 crores
Only 2 out of 17 qualified bidders submitted bids
Hyderabad Metro ?

8. 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

9. 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

10. Exploit indirect beneficiaries from Urban Transport Projects
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

11. 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?

12. 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

13. 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

14. 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)
PCMC allows TDR from other parts of the city to be loaded on the BRT influence zone on the payment of a loading premium
Building permission charges in the zone
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
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

15. 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

16. 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
Comprehensive Mobility Plan
Alternative Analysis
DPR-I for Project Sanction
DPR-II for Project Implementation
Level of engineering design
Minimal
Final design
Highest
Lowest
Number of alternatives

17. 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

18. Thank You