1. Financing options for sustainable transport development Regional Expert Group Meeting on “Sustainable and Inclusive Transport Development” Second Asia BRTS Conference-2014 Organized by UN ESCAP Ahmedabad (India) September 29, 2014

2. Page 2 Agenda Challenges faced by Urban Transport system 1 1 Criteria for sustainable financing of Transport projects Modes of funding (transport) across globe 3 3 Learnings from Case Study of BRT System in Bogota, Colombia 4 4 2 2 Potential Solution or Approach for sustainable financing 5 5

3. Page 3 Urban transport system faces major challenges which are almost common across globe… ► Components of Urban Transport system can include: ► Stakeholders generally involved in urban transport across globe include: ► Increasing congestion due to rapid urbanization rate ► Tremendous increase in air & noise pollution due to increase in usage of motorized vehicles ► Improper planning and allocation of resources due to lack of coordination ► Lack of focus on development of public transport ► Operation recovery is a major concern due to improper pricing of services ► Scarcity of resources (especially financial) particularly at urban local body’s level Urban Local Bodies (ULBs) District Administration Multilaterals/ Bilaterals Private Sector National/ State Governments Citizens Metro Rail Bus Rapid Transit Mono Rail Parking Stations / Bus Depot Taxi System Traffic Signaling Urban Roads Private vehicles About Urban Transport Key challenges faced by the sector Huge funds (both capital & operational) required for to tackle many of these issues

4. Page 4 The system requires huge investments to bridge the infrastructure and service gaps… Huge funding is required to meet both capital and operational costs. ► There are mainly two kinds of investments/ expenses required – 1) Capital and 2) Operational: Capital ExpensesOperational Expenses ► Fixed assets (Roads, Railways, Bridges, Stations, Airports, etc.) ► Investment in new technologies (New buses, Intelligent Transport System, etc.) ► Operation and Maintenance costs (repair, maintenance, power, etc.) ► Administrative costs (city administration, traffic police, traffic management, support for policies/ programs) Expenses Large financial resource requirement; difficult to be met by municipal/ local resources Continuous resource requirement; should be met through revenues from users of the service Note: Apart from Capital and Operational expenses, there is another category of expense which can’t be explicitly captured and it includes negative effects of transportation such as noise, pollution, congestion, etc. The motor vehicle population in India has increased 100 times from 1951 to 2004, while the road network has expanded only eight times Fact about lack of investment

5. Page 5 To make the system financially sustainable, balance between Expenses and Revenues is required… In short, sustainability of the system depends on maintaining balance between expenses & revenues while providing equal access and environmental safeguard ► A Sustainable Urban Transport (SUT) system can be defined by 3 Es (i.e., Efficiency, Equality and Environment): Best use of resources including funding resources Meeting the needs of every section of the society Safeguarding the Environment Balance Expenses Revenues Balance needs to be maintained at 3 levels: Policy level Budget allocation Program level Planning group of projects Project level Project execution Financial Sustainability

6. Page 6 ► Financing Instruments can be divided into three categories – 1) Local, 2) National, and 3) International ► Some of the instruments can be used to finance capital cost of projects while others can be used to fund operational expenditure ► It is recommended to identify a mix of instruments that can be used in a particular geography to finance both capital and operational expenses of transport projects Expenses can be balanced by raising funds through various sources… Source of Fund  LocalNationalInternational For meeting Capital Expenses Land Value tax Subsidies/ Grants/ Loans Clean Development Fund (CDF) Multilaterals and bilateral Climate funds For meeting Operation Expenses Parking Charges/ Levies Fare box Revenue Advertisement For meeting both Capital and Operational Expenses Road pricing/ Congestion Charges Employer Contribution Fuel Taxes/ Surcharges Vehicle Taxation

7. Page 7 Various modes of funding are used for financing SUT projects across globe…1/3 Mode of Funding Expenses to be met Source Extent of Funding Issue(s)/ Challenge(s) International Example(s) Parking ChargesOperationalLocal (User)Low Either Parking charges are absent or are highly subsidized Parking Management in Sibiu, Romania to manage traffic demand by using differential pricing system Workplace Parking Levies Operational (Local work) Local (Business communities) Low Opposition from business communities and hence political will Workplace Parking levies in Nottingham, UK came into existence in 2000 Road Pricing & Congestion Charging Both Capital & Operational Local, National Medium Politically controversial scheme with low level of public acceptability; In addition, very difficult to implement Electronic road pricing in Singapore; Congestion Charges in London; Road Pricing in Seoul, South Korea Employer Contribution Both Capital & Operational Local, National Medium A legislative framework is needed; Public protest in case of misappropriation of fund The Brazilian Vale-Transporte system requires the employers to buy and distribute tickets to their employees; Similarly, the French Versement Transport system mandates the employers to levy tax from employers’ salaries to develop local public transport system Parking Charges are levied to locally manage traffic demand and promote usage of public transport In some countries, legislation is there which enables local bodies to levy fee from companies for each parking space Road Pricing involves charging road users within defined area for their use of road space for limiting congestion In some countries, employers have to pay certain taxes to local authorities to develop transport system Source: gtz report on Transport, EY Analysis

8. Page 8 Various modes of funding are used for financing SUT projects across globe…2/3 Mode of Funding Expenses to be met Source Extent of Funding Issue(s)/ Challenge(s)International Example(s) Fare Box Revenues Mostly Operationa, sometimes capital too Local (Users) Medium Setting of fare levels to avoid any negative impacts on patronage; Impacts on poor people Tokyo metropolitan metro and bus services uses fare box revenue system effectively with more than 80% of their expenses being met by revenues from tickets sale Land Development Tax Mostly Capital LocalHuge A legislative framework is needed; Determining the land value gain and area of influence could be a tricky tasks Land value capturing in Copenhagen, Denmark in which 45% of construction cost of metro was met by selling the real estate around the metro site AdvertisingOperational Local, Private Low to Medium Safety concerns to be kept in mind Bus stops/ shelters used for advertising in Delhi, India Velib Rental Bike scheme in France financed by advertising Fuel Taxes/ Surcharges Both Capital & Operational NationalHuge Public protests against raising of rates to reflect correct value; Reallocation of collected revenues to local areas Fuel surcharges in Bogota and other Columbian cities Setting the fares or ticket prices in such a way that Opex are met fully Some portion of increased land value due to better connectivity should be shared by beneficiaries Source: gtz report on Transport, EY Analysis Revenues from advertisement from municipal transport assets could be a reliable source of revenue Fuel taxes/ surcharges are popular way to raise revenue from sale of fuel

9. Page 9 Various modes of funding are used for financing SUT projects across globe …3/3 Mode of Funding Expenses to be met Source Extent of Funding Issue(s)/ Challenge(s) International Example(s) Vehicle Taxation Both Capital & Operational NationalHuge Reallocation of collected revenues to local areas Vehicle quota system in Singapore Motor Vehicles User’s Charge in Philippines Loans and Grants Capital & Institutional Development National, International Huge Increased burden on Government or Authority In India, 112 transport and related projects worth USD 2 billion got financial support under JnNURM scheme Clean Development Mechanism (CDM) Capital (Technology & Innovation on Clean development) InternationalHuge Estimation of reduction in carbon emission could be a difficult task Bus Rapid Transit System in Bogota, Colombia Regenerative braking technology equipped on Delhi Metro in Delhi NCR, India Multilaterals and bilateral Climate funds InternationalHuge Liaising with multilaterals and bilaterals Climate Investment Funds to improve public transport in Vietnam Vehicle tax, popular way to raise revenue, is levied one time or annually from owners of vehicle for use of infrastructure Funding shortfall is generally met by grants or loans from Governments and lending agencies CDM is an instrument introduced under Kyoto Protocol which encourages developing countries to invest in projects that reduces emissions Various funds have been created by multilaterals / bilateral banks to invest in projects involving environment protection Source: gtz report on Transport, EY Analysis Depending upon requirement, a region can use several of listed instruments for funding it transport infrastructure and services requirement.

10. Page 10 Case Study – TransMilenio BRT System in Bogota, Colombia…1/2 Key Project Features ► 84km dedicated bus way, 515km feeder routes ► Bus stations at every 500m ► Replacement of old buses with advanced buses ► TransMilenio BRT system in Bogota, Colombia is one of the most successful urban transport projects across world ► About 1.5 million passengers commute per day using BRTS ► It was implemented on PPP mode ► Government responsible for capital investments ► Private sector responsible for operation and maintenance (including fleet purchase, ticketing and revenue collection) and takes demand risk ► Total infrastructure cost (Government’s contribution) for: ► Phase-I was US $297 million - Operational in 2002 ► Phase-II was US $545 million - Operational in 2006 Source: ESMAP

11. Page 11 Case Study – TransMilenio BRT System in Bogota, Colombia…2/2 ► Key Learnings from TransMilenio BRTS in Bogota, Colombia are: ► National and local stakeholders were involved during planning and implementation of the system ► Use of contractual agreement with proper risk allocation framework – Only O&M risks and demand risks were given to Private player ► Fare revenue only to meet operational expenses and desired rate of return of private player, thereby making the system affordable to all ► Usage of good mix of financing instruments (fuel tax, local revenues, national Govt. grant and World Bank loan) ParameterPerceived Benefits Fiscal No tariff subsidy from Government (Equal tariff for all) Air Emission40% reduction Carbon Credit US $25 million earnings by 2012 Travel Time32% reduction (avg.) Safety 92% reduction in fatalities Fuel Saving47% savings Benefits of BRTS in Bogota Source: ESMAP Efficiency Equality Environment SUT

12. Page 12 Innovative Funding – Urban Transport Fund Urban Transport Pooled Fund Pool of ULBs Ensuring performance KPIs:  Service frequency  Quality of services (based on customer surveys), reduction in travel time  Improvement in operational efficiency (measured in terms of financial viability of the SUTP)  Potential CO2 reduction RoI / repayment of debt (additional interest on non-performance) Support for seed capital & Operational cost Multilateral FundingPublic Issue of Bonds Private Operator  Repayment of borrowed funds  Sharing upside in cost efficiencies Repay principal + Interest  Right to operate  Performance based payments Funding assistance Bonds User charges collected State government guarantee of debt Sovereign guarantee for loans

13. Page 13 There should be a 3-step approach for sustainable financing of SUT projects… Investment & Financial Sustainability Plan Optimal Financial Instruments Mix Implementation of Reforms, Policies, etc. ► Identification of SUT projects to be required in next 20 years ► Estimation of capital and operation costs ► Analysis of municipal budgets & accounts and national plans to check sustenance capacity of local bodies ► Estimation of additional funding requirement for existing and future SUT projects ► Identification of possible new financing instruments ► Determination of optimal mix of identified instruments ► Mapping of revenues to be used for financing capital and operational expenses ► Determination of whether CDM or Climate funds can be availed ► New/ modification of policies, legislations, etc. at local/ national level ► Institutional restructuring for better coordination in planning and reallocation of revenues ► Establishment of Urban Transport Fund to ring fence capital and operational fund

14. Page 14 Thank You Adil Zaidi Director - Infrastructure and PPP Ernst & Young LLP 6th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi, Delhi 110 001, India Phone: +91 11 4363 3000 Email: adil.zaidi@in.ey.com