Presentation on theme: "Second Annual Conference on Intra-City Transportation Systems"— Presentation transcript:
1 Second Annual Conference on Intra-City Transportation Systems Urban Transport –Financing Urban Transport Projects by unlocking indirect sources of revenuesCRISIL Infrastructure Advisory27th July 2009
2 Transportation in India Vehicular population growth has been about 11 % CAGRShare of public transportation (buses) has lagged behind70% 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 alternativesPreference 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 systemsFinancing infrastructure requirement will be a challengeJNNURM funding for capital intensive projects is unlikelyViability Gap Funding limited to upto 20% of project costNeed to searchfor cost-effective public transportation solutionsalternate financing mechanismFunds RequirementRs. CroresCapacity Building100million cities3,700million cities4,0001 - 4 million cities11,6004 million plus cities6,000MRT for mega cities32,000Total57,400Source: 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 limitedNeed 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 PerspectiveLarge project sizeLong gestation periodNon availability of attractive PPP ModelsStricter & Lengthier scrutiny by Financial Institutions while assessing the viabilityFinancial institutionsReluctant & Selective to fund large projectsLenders expects higher equity contributionConcerns 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 2Project Cost : Over Rs. 7,500 croresOf the seven qualified bidder only one submitted the FinancialRequested for 27% VGF against approved VGF of 20% of project costMumbai Sea Link ProjectProject cost : Over Rs croresOnly 2 out of 17 qualified bidders submitted bidsHyderabad Metro ?
8 Should these concerns tempt for public funding in UT ? As private sector investments are constrained in urban infrastructureCurrently Real estate component is not that attractiveShould government move towards public funded infrastructure ?- NoGovernment is constrained by its budget, so can’t finance many projectsLarge project need new skills setsIt would discourage private sector to invest in infrastructureHaving developed PPP market Government should:facilitate & promote more private finance in infrastructure :Explore alternate project finance options intermittent to Public funding and PPPIncrease project viability by targeting indirect beneficiaries/sources
9 The Intermediate options The extreme ends of the PPP continuum are not workable in situations of crisisGovernment needs to develop intermediateIntermediate optionsAnnuity form of projectsFinancial intermediaryViability Gap FundingUnlocking valueService contractManagement contractConcessionContinuum of PPPsPublic funded and private operatedPrivate funded and private operated
10 Exploit indirect beneficiaries from Urban Transport Projects Passengers of a public transport systemVehicle owners using transport facilities (flyover, ring roads etc)Businesses based on the infrastructure- advertisers on the system, vendorsProperty owners near the developed transport system- gaining from higher potential value of propertyState Government- gaining higher stamp duties collection due to higher amount of transactions in the regionLocal 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 assetDirect Beneficiaries pay through various modesFor a public transport systemPrice of the ticket- fare box collectionsPrice of monthly passesPrice of the permit to carry on business in the transport systemPrice paid to advertise on the transport systemFor a new flyoverTollsHigher taxes and cessHow 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 beneficiariesDirect beneficiariesIndirect beneficiariesRevenues not directly attributable to the projectRevenues directly attributable to the projectRevenues allocated to the projectRevenues not specifically allocated to the projectValue that is unlocked at project level- directlyValue unlocked at project level- indirectlyValue unlocked at city levelRevenues routed as grantincremental stamp dutyincremental property taxesIncremental professional and sales taxesFare Box revenuesTollRevenue from advertisingRevenues from grant of vending rightRevenues allotted to the projectrevenues from property developmentsale of FSIloading premium on TDR
13 Structuring transactions with value from indirect beneficiaries Assessment of viability at city levelTransport Authority/ ULBRevenuesExpenditureRevenue sources fortransport expenditureBetterment leviesRevenue grant to projectsDevelopment chargeCapital grant to projectsFuel cessCongestion chargeThese two sides should ideally match at the city level, so that the city self finances its transport investmentIn case of any deficit, the city will require state govt. or central govt. assistance in form VGFLicence fee/ operator premiumProject surplus
14 Unlocking value from indirect beneficiaries in Pimpri-Chinchwad Pimpri Chinchwad Municipal Corporation (PCMC) is developing 130 km of bus based mass transit corridorsPCMC has set up an Urban Transport Fund (UTF) to fund the projectThe UTF to be managed by a SPV wholly owned by PCMCA zone of 100 m on either side of the corridor designated as BRT influence zoneLoading 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 premiumBuilding permission charges in the zoneThe building permission charges in the influence zone allowed to the UTFValue unlocked for the UTF based on Comprehensive Mobility Plan, through these modesOther revenuesGrant of advertising rightsProperty re-developmentIncremental Property TaxesThe 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 levelCalculate Project IRR considering 1st level revenueCalculate available return for equity investorAre the returns attractive?yesnoCalculate available equity return adding 2nd level revenuesAre the returns attractive?Develop the project with first and second level revenuesApply for VGF or grant from relevant authorityyesno
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 strategyIdeally planning should follow Comprehensive Mobility Plan- to allocate revenues among all projects in the cityComprehensive Mobility PlanAlternative AnalysisDPR-I for Project SanctionDPR-II for Project ImplementationLevel of engineering designMinimalFinal designHighestLowestNumber of alternatives
17 ConclusionsA holistic planning exercise is essential to identify requirements, and to identify alternative transport optionsActions required at city levelProposals to be backed by comprehensive traffic as well as land-use studiesEstimate & exploit all three sources of revenue to fund projectsCreation of a city level transport authority with responsibility for integrated planning, implementation and financial managementInnovation in project structuringCreation of a Special Purpose VehicleCreation of an Urban Transport Fund (UTF) by pooling non fare based revenue to fund projectsImprove financial viability by exploiting non-fare based revenue sources
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