Transantiago contracts and it´s renegotiation process Seminário Modelos de Concessấo do Transporte Urbano por Ộnibus

Sao Paulo, 15th August 2014

Carolina Simonetti Development Manager

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background

Background | Santiago’s Transport System

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• Santiago City today:

– ~7 Million inhabitants

– US$ 14,000 per capita GDP

– 1,534 km2 (region)

– 680 km2 (urban area)

– 34 municipalities

– 2.6 daily trips/inhabitant

– 1.3 millions of private vehicles

– 0.2 vehicles/inhabitant

– Petrol prices

• Diesel: ~ 1.3 USD/ltr

• Unleaded: ~ 1.6 USD/ltr

(CLP$ 570 per USD @ Aug 2014)

• System not integrated with Metro

– under-utilization of Metro network: 800,000 passengers per day in 3 lines (46 km)

– Long trips + transfers

– Costly trips (2 fares)

• Excessive on-street competition (over 8,000 buses)

– Incomes 100% per passenger

• Poor infrastructure

• No information system

• Good geographical coverage

• Severe externalities

– Passenger discrimination

– Pollution

– Congestion

– Accidents

– Informality on labour force

– Poor night services

– Constant strikes paralysing the city

Background | Why Transantiago? The “yellow buses” system until 2007

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the beginning

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Troncal 4 - Express Troncal 1 - Alsacia

Troncal 2 - Subus Troncal 3 BGS / Buses Vule

Troncal 5 B. Metropolitana

Background | Transantiago at the beginning Trunk & Feeder System

• International tender process

• 5 trunk units

• 5 companies, 3 economic groups

• Contracts finishing at 2018

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Background | Transantiago at the beginning Trunk & Feeder System

• 9 feeder units

• 7 companies

• Organized by geographical zones

• Contracts finishing at Oct’2011

G

E

D

F

C

B

H

J

I

G

E

D

F

C

B

H

J

I

BGS*/RedBus RedBus STP Unitran STP Las Araucarias Transaraucarias*/BGS* Com. Nueva Milenio Com. Nueva Milenio

* Companies bankrupted between 2010 and 2011

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Background | Transantiago at the beginning Companies payments

• Complex contracts, high % of fixed payments

• Discounts related to the performance (frequency, regularity) applied directly as a % of the income

Feeders:

Trunks:

(~43%)

(~39%)

~80% payments guarrantied

High incentive to accomplish the supply, not to transport people

Background | Transantiago at the beginning Original scheme (2007)

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MTT

Bus companies

Bus companies

Bus companies

Bus companies

Bus companies

Bus companies

Metro de Santiago

AFT

Private system, financial sustainability

MTT: Ministry of Transports & Telecomunications

• Big Bang at 10th Feb 2007

• 4,500 buses

• Overcrowded situation

• Severe crisis (political crisis, social crisis, mobility difficulties)

Background | Transantiago at the beginning Stabilization period (mid 2007 – 2009)

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MTT: Ministry of Transports & Telecomunications

• Strong need of public subsidies

• Fleet & supply increase

• Costs rise

AND

• Users fares were maintained constant for 2 years

MTT

Bus companies

Bus companies

Bus companies

Bus companies

Bus companies

Bus companies

Metro de Santiago

AFT

Private system but public subsidies needed

Central Government

$$$$

dic-07 dic-08 dic-09

Routes 276 322 335

Fleet (buses) 4,742 6,121 6,612

Monthly kilometers (MM) 38.6 40.7 43.4

Monthly dispatches (MM) 1.6 2.3 2.4

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the users’ fare crisis (2010)

2010 | Year of problems

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• Sep 2009: law 20.378 was approved

– It established subsidies to public transport

– Experts’ Panel was created to determine user’s fares

• 27 Feb 2010: huge earthquake (8.8° Richter)

• 11 Mar 2010: new authorities assumed (President Piñera)

• 27 Mar 2010: the Experts’ Panel ordered the first fare rise

• Jul 2010: first bus concessionaire company bankrupted (Transaraucarias)

2010 | Users’ fare rise

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$ 350

$ 400

$ 450

$ 500

$ 550

$ 600

$ 650

feb-

08

may

-08

ago-

08

nov-

08

feb-

09

may

-09

ago-

09

nov-

09

feb-

10

may

-10

ago-

10

nov-

10

feb-

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Tarifa adulto

Buses

Metro Punta

42%

35%

Peak hour

Normal fare

2010 | Evasion rate

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2010 | Financial Projections

AÑOS / USD1%

ConstitucionalLey 20.378

Total Subsidio

disponible

2009 526.987.147 331.142.658 858.129.805

2010 771.799.927 771.799.927

2011 719.354.619 719.354.619

2012 478.256.279 478.256.279

2013 430.928.296 430.928.296

2014 346.843.590 346.843.590

2015 243.045.253 243.045.253

2016 243.045.253 243.045.253

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014

Gap which must be covered by farerising

Transitory Subsidy

Permanent Subsidy

Incomes (users' fares)

15

69%

22%

8% 1%

System Costs

Buses

Metro

AFT

Others

2010 | Overview

Fare rise (Law 20.378)

Lower quality of service

Increase of evation rate

Financing problems

Incomes reduction

Costs reduction (supply)

Demand reduction

•High % of fixed incomes

•Rigid, expensive &

long term contracts

•Incentives not aligned to

users’ needs and quality of

service

Bus companies

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An urgent change was needed

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the redesign process (2011)

2011 | Pillars of the process

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Redesign process

Quality

Costs Stability

Improve ans stabilize the quality of service.

Align users’ expectations and perception with the real level of service.

Reduce system’s costs & obtain an efficient industry.

Companies with financial long term stability, focused in providing a good public service.

2011 | Regulatory framework

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Bus companies

Bus companies

Bus companies

Bus companies

Bus companies

Bus Companies

Metro de Santiago

Finantial Management

Central Government

$$$$

Technology

Fare collection

MTT

MTT: Ministry of Transports & Telecomunications

Private system but public subsidies needed

Stronger regulatory role of MTT

Law 20.504

Authorized MTT to:

•End the Transantiago contracts

•Subscribe direct contracts without a tender process

•All above within 2 years after law approval (March 2011)

2011 | Key issues

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1. Political support

2. Window of opportunity

– Feeder’s contracts ending Oct’2011 (opportunity to grow market shares)

– Users’ fare rising and demand decreasing

3. Dedicated team

– 12 professionals (4 attorneys, 2 economists, 6 engineers with transport studies or knowledge)

– External support (legal, public transport, group management)

4. Exclusive dedication

– 12 months working 24/7

2011 | The process

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Analysis Expressions of Interest

Negotiation Contracts

Sign

•What do we want to change? •What do we want to add? •How do we want to make this work?

Tran

sp

ort

Eco

no

mic

Leg

al

•How much would this cost? •Which price is the maximum we want to pay? •Which incentives do we want to establish?

•Which legal instruments? •How end old contracts and sign new ones at the same time? •Which approvals do we need?

•Prepare a “Work Document” with the main issues of the new contracts. •Receive the companies’ expression of interest to operate the different units, and the price. •Evaluate the different options.

•Write the new contracts. •Prepare all legal instruments to end the old contracts.

•Negotiation process. •Get the final prices. •Agree the contents of the contracts.

•Sign the new contracts. •End the old contracts. •Transfer the operation from old concessionaires to new ones without stopping the service. •Contain the labor contingences (drivers).

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the new contracts

New Contracts | The main changes

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Focus on the supply provision Focus on the quality of service given to users

Exclusive use of the roads Preferential use of the roads

Trunk & Feeder Services Services designed regarding

mobility patterns

Operators’ income highly guarantied

Operators’ income for “provided services”

Performance indices focused on supply compliance

Performance indices focused on users’ experience

Discounts related to performance unlimited

Discounts limited (5% income)

- Mechanisms to equilibrate

financial risks

New Contracts | Some details

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Operators’ income for “provided services”

Performance indices focused on users’ experience

Provided Services = Transported Passengers & Kilometers

~70% ~30%

Programmed supply compliance

ICF Frequency

ICR Regularity

On route quality

ICA Service given to users

ICV Vehicles quality

Transport capacity

CAP Transport capacity

ADET Transport availability

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the results (2012)

2012 | New units

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UN1: ex T1 Operator: Alsacia

Deadline: Oct. 2018

UN2: ex T2 + G Operator: SuBus

Deadline: Ago. 2020

UN3: ex T3 + E + H + I Operator: Buses Vule Deadline: Nov. 2021

UN4: ex T4 + D Operator: Express

Deadline: Oct. 2018

UN5: ex T5 + J Operator: B. Metropolitana

Deadline: Oct. 2018

UN6: B + C Operator: RedBus

Deadline: Mayo 2015

UN7: F Operator: STP

Deadline: Mayo 2015

2012 | New units

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Colors change objective: Make each company responsible for the level of service provided

2013 | System numbers

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Item

Fleet (Buses/coaches)

Network coverage (km)

Vehicle kilometres run (millions)

Metro

1,093

104

6,493

2,770

143 464

Drivers 1,000 17,000

Buses

Transactions (millions) 668 1,010

Services/Lines 5 368

Trips (millions) 1,090

2012 | New roles

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Bus Operator

MTT

Quality of Service

Supply accomplishment

supervision and control

Fleet Acquisi-tion &

Mainte-nance

Operation Planning

Sales (evasion control)

Operation Client

Service

Quality Standards Definition

Transport Services

Definition

Fleet Acquisi-tion &

Mainte-nance

Operation Planning

Sales (evasion control)

Operation Client

Service

Quality Standards Definition

Transport Services

Definition

2013 | Users opinion

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2013 | Users opinion

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Thank you

Carolina Simonetti Development Manager

Directorio de Transporte Público Metropolitano carolina.simonetti@dtpm.gob.cl