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BUS KARO - Talking Transit
Innovative Financing Mechanisms
Ashish ChandraFebruary 2015
PwC
Current Issues
“a burgeoning population, a strained transport network, polluted streets and inadequate housing”
“Thick fog hung over the city and roads were dirty and dangerous”
London1970
London2015
World’s Leading Financial and Cultural Capital with 5th
highest GDP in the world (Source Brookings,2014)
Institutional Reforms and Capital Investment led development strategy• “London Plan ” – Long term development plan, re-thinking London’s
economies and economic futures• "Fares Fair" – Policy to improve financial health of GLA• Centralized governance – Devolution of Met Police, TfL and other city
operations to the Mayor• Large scale infrastructure construction to prepare for future – the M25 (outer
ring road), Blackwall Tunnel, Westway, the Woolwich Ferry and the Thames Barrier
London
“The city had begun to sprawl far beyond the boundaries”
“people were living in deplorable conditions and suffering all kinds of nuisances and inconveniences because of the irregular way in which our towns and cities have grown up”
Source: The rise and fall of the GLC – BBC News, 31st March 2016. http://www.bbc.com/news/uk-england-london-35716693
PwC
Public Transport can become the preferred mode with targeted improvement in service quality & customer experience
Fleet
Renovation
Technology
Adoption
Serv
ice
Freq
uenc
y
Last
Mile
Acce
ssib
ility
02Service FrequencyIncentivize operators to align number of trips and timings with the routes and travel patterns of Mauritian population
04Technology adoptionImplementing smart ticketing systems, journey planner, information dissemination systems
Focus Areas for Investment & Improvement
Fleet renovationIncentivize private sector for
investing in modern, fuel efficient buses
03Accessibility and coverage
Expanding the catchment area served by each bus stop/ bus
station, reduce access & egress time
01
PwC
Modernizing City Bus Services with Innovative Financing•Existing Bus Operations and Need for Upgrade
• Infrastructure Improvements• Fleet Renewal• Investment in Technology• Accessibility
• Sources of Financing• Real Estate Asset Monetization • Non-Fare Revenue • Fare Restructuring• Local Taxation
• Private Participation• Fully/Semi-Regulated Bus Services
PwC
Section 1
Benefits of Investing in Transit Services
PwC
Most of the bus transport agencies in India are facing financial cash flow crunch to even meet its operating expenses
BEST
BMTC
Delhi (DTC)
Odisha SRTC
Rajasthan SRTC
0% 25% 50% 75% 100%
Revenue per passenger as a per-centage of operating cost per
passenger
2014-15 2013-14 2012-13
BEST
BMTC
Delhi (DTC)
Odisha SRTC
Rajasthan SRTC
0% 10% 20% 30% 40% 50% 60%
Operationally, higher the proportion of variable costs, financial viability
improves(2014-15)
Fuel and lubricant cost as a % of total costInterest cost as a % of total cost
Source: MORTH, PwC Analysis
…limiting their abilities to invest in transport services as well as improving commuter experience
PwC
Funding of State Transportation Companies through different sources
Due to heavy operational losses, State Transport Undertakings are dependent on funds for State and Central govt. in order to provide adequate transport and infrastructure facilities
The sources of funds are different for different State Transport Undertaking
The different sources of fund for Maharashtra and Karnataka SRTC are given in the table below:
State Transport Undertakings
Maharashtra SRTC Karnataka SRTCAmount (in
Cr. Rs.) Percentage Amount (in Cr. Rs.) Percentage
Internal Resources
120.02 28% 286.6 56%
From State Government
302.59 72% 0.0 0%
From Central Government
0 0% 0.0 0%
Through JNNURM
0 0% 108.6 21%
Loans and other
borrowings0 0% 117.0 23%
Bus Rapid Transport System
BRT systems in India are funded by Central Government for about 40-50% of the cost of the project thought JNNURM
Majority of BRT Systems have also implemented parts of the BRT project like construction of bus stops, bus operations etc. through PPP model
The list of BRT systems in India which are PPP based are:
• Ahmedabad• Pimpri-Chinchwad• Vishakhapatnam• Indore• Rajkot• Bhopal• Pune &• Surat
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0 5 10 15 20 25 30 35 40 45 50
(1000.00)
(800.00)
(600.00)
(400.00)
(200.00)
0.00
200.00
Operating Loss per Passenger KM 2013
Passenger KM
Ope
rati
ng L
oss
(Rs.
'000
per
Pa
xKM
)
0 5000 10000 15000 20000 25000
(10000.00)
(8000.00)
(6000.00)
(4000.00)
(2000.00)
0.00
2000.00
Operating Loss per Fleet Size 2013
Fleet Size
Ope
rati
ng L
oss
(R
s. '0
00 p
er
Bus
)Higher fleet size tend to increase losses which are proportional to size of operations and passengers carried
Delhi TC
Delhi TC
Mizoram STC
Tripura RTC
50% of STCs are operating below 80% recovery level due to low fares and huge discounts given to students, senior citizens etc.Average Operating Loss per Bus =
Rs. 589,000 per Year, Rs. 13,500 per Year per Passenger KM
0
2
4
6
8
10
12
0%
20%
40%
60%
80%
100%
120%
Operating Ratio of STCs
Freq Cummulative Freq
“PwC findings from the MRVC study suggest that 80% commuters are willing to pay 10%+higher fares for higher quality of service”
PwC
Managing the fleet and continuous renewal is important for added customer convenience
Features of a low floor bus Low-floor buses have the bus
floor height of at most 400mm above the road surface
The floor surface can further be lowered by at least 80 mm to bring the floor at the front entrance to a height of the kerb
A retractable ramp can also be deployed to facilitate access and egress to the kerb
Why transit agencies go for Low floor buses?
To provide easier access for all passengers, including people with disabilities
To provide transit services for the growing number of elderly people with fixed route service rather than special transportation
To reduce stop dwell times by achieving faster boarding and alighting times
Passengers convenience in low floor buses is overwhelmingly positive and use of these vehicles have the potential to effectively compete with the private cars for patronage from non-captive public transport users
Low Floor Bus High Floor Bus
The use of low floor buses instead of high floor buses is fast become the norm in the developed world
More than 85% of buses in Europe are low-floor buses
The use of these buses is more prominent for intra-city purposes, where the number of stops (boardings/alightings) are more
PwC
But High-floor buses are better economically as compared to Low-floor buses
Parameter High-floor Bus Low-floor Bus
Cost • Lower costs • Higher Costs due to complexity in
design• 20-30% more than High-floor bus
Maintenance • Low maintenance cost • High maintenance cost if run on bad roads
Fuel Efficiency• Better fuel efficiency• Average mileage of 2.7 Km/L (Volvo
buses)
• Lewer fuel efficiency• Average mileage of 2.4 Km/L (Volvo
buses)
Capacity
• Higher capacity due to less impact of wheel wells
• A 12m Volvo bus can carry around 86 passengers
• Lower capacity due to less impact of placement of wheel wells
• A 12m Volvo bus can carry around 70 passengers
Vehicle Towing• Easy, as can be towed by a
conventional tow truck in case of breakdown
• Complex, as may require special type of towing vehicle
Life Cycle • Almost similar operational life of 12 years
Emissions• Emissions depend on the type of engine and fuel used• Not much difference and can be same for both type of
buses
PwC
Economic comparison of a operating minibus with respect to a standard high floor bus
Parameter Standard high-floor Bus Minibus
Cost • Around Rs. 20-30 Lakhs • Around Rs. 10-15 lakhs
Operating Cost • Average operating cost of Rs 18.50 per Km
• Average operating cost of Rs. 15.00 per Km
Fuel Efficiency • Average mileage of 3.75 Km/L • Average mileage of 6 Km/L
Passenger Capacity
• Can carry around 60-80 passengers at a time
• Suitable for carrying 10-20 passengers at a time
Emissions • Causes lower level of atmospheric pollution
• Causes higher level of atmospheric pollution
Maneuverability
• Requires proper wide roads to operate• Not suitable for operating in high
population density regions and on weak bridges
• Can be easily operated in congested areas and weak and low brigdes having restrictions on vehicle dimentions
PwC
New Electric buses can be operated profitably with a ROI of 8 years
Significant improvement in technology of Electric buses Reduction in the recharging time of batteries due to regenerative braking technology; from
over 8 h to about an hour Range of 250 Km in a single recharge Buses can even recharge during 15 mins turnaround period Long battery life; 4,000-10,000 recharging cycle Multiple manufacturers available (Build Your Dream-BYD, Proterra etc.)
IISC Study: Electric vs Diesel buses for BangalorePurchase cost of Electric Bus: Rs 3.0 CrorePurchase cost of Diesel Bus: Rs 85 LakhsOperating cost of Electric Bus: Rs 12 per KmOperating Cost of Diesel Bus: Rs 28 per Km Considering same fare price and
passenger number, Diesel buses break even in 4 years and Electric buses in 8 years
1 2 3 4 5 6 7 8 9 10 11 12 13
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
Electric Bus Diesel Bus
Years
Net
Pro
fit
Break Even
*IISC Bangalore Study- Air-pollution and economics: diesel bus versus electric bus
PwC
Section 2
Sources of Financing
PwC
Transit authorities like BEST & BMTC need to focus on innovative revenue sources which leverage their Core Values, and Key Strengths
Real Estate Development
Sustainability
Safe Mobility & Services
Community Involvement
Stakeholder Engagement
Possible BusinessModels for Commercial
Exploitation of Land Assets
Asset Value Maximisation
Development of Real estate in sync with the micro markets and ToD characteristics – Commercial, Office space, residential and hospitality
Concept of the Business Model
Utilization of spaces available for passenger centric amenities, retails, parking, ATMs, etc. rental or pay-&-use system based businesses
Core Values of Transit Authority
Key Strengths
Depots / Stations Buses /
Rolling Stock
High Ridership
Smart Card, Payment
MechanismSource: PricewaterhouseCoopers Pvt Ltd (PwC)
Interchange or transport hubs
Provide seamless connectivity for moving people from one point to another intra or inter City through various modes- metro, bus, railway, etc.
Social Infrastructure and facilities
Development of social infrastructure such as sports, healthcare, education, affordable housing, recreational facilities, etc.
Renewable energy
Use of facilities for rooftop solar power and other means of renewable energy for captive use or 3rd party commercial sell
PwC
While in case of Kochi Metro, we are implementing Alternate Revenue Models linked to Asset Value Maximisation, Service Delivery, Enhanced Customer Connect or Associated Brand Value
BEST Undertaking • 10
Transit Company or “Mobility Service Provider”
Partnership with Mumbai
IPL Team
Source: PwC Analysis
PwC
Financing feasibility depends on ability to monetise existing assets while enhancing the asset value and revenue potential
13
Category 2
Category 1
Category 4
Category 3
HIGH on Ease of Implementation
LOW on Ease of Implementation
HIGH Revenue Potential
LOW Revenue Potential
• These are low hanging fruits
• How can these land assets be monetized on priority while maximizing revenue potential for the Undertaking?
• High potential, but difficult to implement due to various reasons arising from the aspects of regulatory, stakeholder interests, etc.
• How can the Undertaking enhance the implementability of commercial exploitation of sites?
• These are low hanging fruits, however, with low commercial potential
• How can revenue potential from these sites be enhanced?
• Typically low on priority for monetizing assets
• How can the ease of implementation as well as revenue potential be enhanced for these sites?
• What alternate strategies can be adopted to benefit tangibly/intangibly? Source: PwC Analysis
PwC
Case Study – Assisting BEST Undertaking in Mumbai to formulate strategy for enhancement of asset value and revenue potential Assisting BEST Undertaking for revenue maximization by commercial development of
71 sites admeasuring ~200 acres and spread across city Key considerations
How can it best leverage land and transport use integration?
How can it help city in…
• Improving citizen’s commuting experience,
• Decongestion, especially in suburban railway station area
• Provide seamless inter-modal transport connectivity
• Enhance public transport usageHow strategically can it employ its assets and resources – both hard and soft to maximise its operating and non-operating revenues
PwC
Existing/ emerging
Residential and
Institutional Area
CBD
Overview of approach for revenue enhancement strategies for BEST…
Rai
l / M
etro
line
Transit hub / (if not available), mixed-use development
Residential or commercial use – cum – bus transport facilities
Multi-modal transport interchange hubs
1) Identify locational advantage2) Plot specific approach to assess best use in-line with the core value of the transport agency3) Create mix of commercial and operational plan4) Identify implementation challenges and propose mitigation strategies/alternate solutions
Station
Station
Area/City – Entry Points
Kurla Bus Depot – Kanakia Zillion (along LBS Road)
Integrated commercial-
cum-bus depot / station development
PwC
…alternate strategies where asset value maximization through real estate development may be difficult to achieve
(Primarily Category 4 assets and few from Category 3)
Certain site are leased from other entities with restricted land usage rights
Certain site fall under restricted areas and difficult to obtain approvals and clearances
To improve potential from such sites, alternate strategies being adopted
For instance,
Utilization of such land resources for BEST’s own admin and housing requirement
Allied commercial activities wherever permissible such as passenger centric retail, captive-cum-public fuel stations
Bundling of two or more plots – redesign traffic operations freeing up some developable area
Alternate revenue streams like creation of pan-city e-charging infrastructure, renewable energy (roof-top solar), etc.
PwC
Section 3
Value for Money in Private Sector Participation
PwC
Private Sector participation will require ccompetitive policies to incentivize better perf0rmance, enhancing customer experience, and reducing government support
Number of operators Single
Multiple for region, Single on
RouteMultiple for
region and routes Multiple
Nature of competition Monopoly Regulated
MonopoliesService
competition to acquire market
Free market competition
Fare structureGovernment
Owned & Regulated
Regulated Regulated Unregulated (with oversight)
Market/ Demand risk
Choice for users
Role in operations planning
Cross subsidies
Innovation in service – price combination
Role in capacity planning
Low High
Low High
Low High
Low High
Low High
High Low
Example: India, London Bus Mauritius Sri Lanka IPTs,
PwC 14
Implication on nature of investors
Rea
l Es
tate
• High return expectation, shorter investment timeframe•Capital competes with other high-risk, high growth sectors
• Low risk appetite, long investment timeframe•Capital competes with similar sectors in other countries
Ris
k pr
ofile
Perf
orm
anc
e Fare & Non Fare Revenues
Metros, Terminals
Risk bundling across transport modes would improve financing ability
Indian infrastructure Outlook: Opportunities for Japanese corporates •
Source: PwC Analysis
Toll Roads, Parking and Vehicle RegistrationM
arke
t
PPP’s in India typically carry demand and revenue risk
• Occasionally, also Real Estate risk bundled in
Government actions expected PPP structures being
revisited Sector reform & regulation
to make Demand risk financeable
Partnering strategies, and choice of business-models, can help align risk profile with appetite
PwC
Summary
Asset Value Maximisation through enhanced monetisation potential
Improving Customer Services and rider quality is important to drive up demand
Alternate non-fare revenue sources depend on ability to monetise customer connect
Fare rationalisation could be necessary to develop sustainable financing sources
Thank YouThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2016 PricewaterhouseCoopers Private Ltd. All rights reserved. “PwC”, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PwC International Limited, each of which is a separate and independent legal entity.