Kanika Kalra

Urban Transport Expert

Financing, Fare IUT
Fixation & Cost
1
Benefit Analyses
Investment Needs

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“Urban transport is the single most important
component instrumental in shaping urban
development and urban living.”
National Commission on Urbanization (NCU)

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 Investment Needs – Next 20 years
Study Total Investments in Investment in Investment in
Investment Transport Mass Transit Road
for Services Infratsructure
Mckinsey Global Rs 53 lakh Rs 27 lakhs Crs Rs 18 lakh crs. Rs 9 lakh crs.
Institute (2007) crs. (51%)

High Powered Expert Rs 39 lakh Rs 22 lakhs Crs Rs 5 lakh crs. Rs 17 lakh

Committee (HPEC) crs. (56%) crs.

The total expenditure on roads and urban transport

together out of the total expenditure is about same order
(as a percentage) as the Mckinsey estimate.

However, there is a major difference in the estimate for

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roads vis-a-vis urban transport.
Key Issues affecting Investment in Urban
Transportation
• High Capital and Operation cost

• Long Gestation Period

• Project Viability

• User Charge

• Fare Revision

• Cost Recovery

• Demand Risk

• Social Linkages

• Macro economic policies 5

Financing Structure

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Financing Structure

National Level – 12th

Five Year Plan

State level – State

Budgets

City Level - Municipal

Budgets
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12th Five Year Plan - Goals
 To create an effective institutional framework to
manage investments
 Capacity building of State & City Officials
 Create walking & Cycling facilities
 Augment public Transport
 Improve accessibility and mobility
 Provide grade separated entries and by passes for
through traffic
 Improve road safety
 Use of technology for multimodal integration, safety 8
etc
 Promote research in guided transport
 12th Five Year Plan - Investments
 A total of Rs 3,88,308 cr is estimated to achieve the
goals of the 12th 5 year plan
Sources for the total investment
Source Rs (in Crores)

Central Government 85,843

State Government/ Development Authorities 1,07,585

Property Development 5,268

Private Sector 1,35,560

Debt from Multilateral/ Bilateral institutions 31,606

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Debt from domestic financial institutions 22,447
State Budgets

 In 11th Plan – of the total

investment state share was
32.6%
Sources of Investment
 12th Central Finance
Commission recommended
to augment Consolidated
Fund of the State to
supplement resources of
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panchayats and
municipalities
Financing Options

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Service Provision Options

Urban Transport
Services
Privatisation: Government
Public Agency: transfers entire sector
Govt. creates assets responsibility to the
& provides services private sector – which
then creates assets and
provides services

PPPs: Contracting of PPPs: Government

Services - Government awards concession/
creates assets and licence to private sector
contracts service for a fixed term under
provision to private which it creates assets
sector and provides services
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Financing options

Public Financing Private Sector

Schemes Investments

Financing
Sources

Multilateral Innovative Financing

Investments Mechanisms
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Upcoming Central Schemes
National Urban Renewal Mission (NURM)
Smart Cities Scheme
HRIDAY – Heritage Cities
Viability Gap Funding (VGF)
Central Assistance for doing Technical Studies like
CMP, Metro DPRs etc.

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Private Sector Funding
Advantages
 Easing Budgetary Constraints
 Improved Value For Money
 Sharing Of Risks Between Public & Private Partners
 Reduction In Cost Of The Project

Main sources of Private Sector Funding

Debt
Equity
PPP 15
Key Benefits of PPP
 Rigorous project preparation
Delivery of whole life solution
Focus shifts to service delivery
Time bound implementation plan
Better overall management of public services

PPP Options

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Case-study of Indore City Bus Service

PPP IN URBAN TRANSPORT PROJECTS 17

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 Examples – Metro Projects

Concessioni Total Cost

VGF Concession
Metro Link ng Concessionaire (Rs./Crore)
(Rs./Crore) Period
Authority

Delhi Metro Reliance

DMRC 5,800 1,786 30 Years
Airport Link Infrastructure Limited

Mumbai Metro Reliance Energy

MMRDA 2,356 650 35 Years
Line-1 Limited
Mumbai Metro Reliance Energy
MMRDA 8,250 1,532 35 Years
Line-2 Limited
Gurgaon Metro
HUDA DLF & ILFS Limited 1,088 - 99 Years
Rail Link

Hyderabad Metro HMRL L&T Metro Rail 11,814 1,458 35 Years 18

Examples – Bus Operations

Indore City Bus Service

Bhopal City Bus Service
Rajkot City Bus Service
Surat City Bus Service
Bhubaneswar – Puri City Bus Service
Ahmedabad BRT operations
Delhi Bus Service

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Before City Bus:
Unorganised Transport in Indore

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About AICTSL
Inception in 2006 with a seed capital of Rs. 5 million.
Adopted the net-cost based PPP model of bus operations…
widely copied in other cities across India.
Started with 37 buses with 4 operators.
Installed vehicle tracking systems on the entire fleet, that is
the best in the country even till date.
Initiated the BRT project in Indore which is in the final stage
of implementation.
Funding from JnNURM allowed modernising the fleet with
CNG buses that have electronic displays and voice 21
announcement systems.
  PPP Model of Bus Operations
 Public partners role:
Safety & Quality has helped • Planning of routes
attract trips from private travel • Inviting tenders for bus operations
modes
• Providing support infrastructure
 Objective: Providing affordable
& quality public transport
 Private operator
responsibilities:
• Owns, operates & maintains
fleet
• Collects fare from passengers
• Pays premium to AICTSL for
right to operate on route

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Indore Statistics

Number of routes :: 16
Average route length :: 18 km
Number of bus stops :: 210
Fleet Size :: 122 buses
Operating frequency :: 8 minutes (min)
26 minutes (max)
Avg. daily ridership :: 112,000 pax
Avg. daily collection :: Rs. 5,35,000 /day
Ridership per bus :: 920 pax/bus
Avg. Revenue per day :: Rs. 7,88,000 /day 23
Challenges
CNG fuel prices have increased by 64% in 24 months, thus
reducing profitability to operators
AICTSL has limited financial resources (premium from
operators, advertising) for additional infrastructure
Passenger ridership per bus has increased only marginally,
not keeping pace with input costs

Modernising the system by way of better workshop

infrastructure, improved information for passengers and
customer service is necessary for expanding the system 24
Financing through multilaterals

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Multilateral Development Banks (MDBs)
 Multilateral development banks (MDBs) provide finance for investments
in human and physical capital that promote development.

 Includes
 World Bank (WB)

 African Development Bank (AfDB)

 Asian Development Bank (ADB)

 Inter-American Development Bank (IADB)

 MDBs assist in Urban Transport Funding through

the following:
 Loans
 Grants
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 The Global Environment Facility (GEF)
 Clean Development Mechanism (CDM)
Maturity Profile and Terms of Loan

Type of Grace
Donor Maturity
Interest Period

ADB Variable 0-5 Years 15-25 Years

(LIBOR)

IBRD Variable 5 Years 20-25 Years

(LIBOR)

IDA Fixed (service) 10 Years 35 Years

0.75%

Japan Fixed 0.75 to 10 Years 30 Years

4.25%

Fixed 0.75 to 5-10 Years 15-50 Years 27

Germany
5. 50%
GEF – Sustainable Urban Transport
Project
• Government of India has initiated the Sustainable Urban Transport
Project with the support of the Global Environment Facility (GEF)
• The total GEF grant proposed for the project is US$ 25 million, which
will be complemented with a grant of US$ 170 million from GOI, State
Governments, and Implementing Agencies (IA) along with US$ 105
million co-financing from the World Bank.
• The project is to be implemented over a four-year period starting from
2010.
• Primary Stakeholders in this program are Ministry of Urban
Development (MoUD), Ministry of Environment and Forest (MoEF),
UNDP and World Bank. MoUD is the nodal agency for this program 28

implementation
CDM – Examples
Delhi Metro
• The Delhi Metro- certified by the United Nations as the first metro
rail-based system in the world to get carbon credits for contributing
to the fight against climate change by helping to reduce pollution
levels in the city by 6.3 lakh tons every year.
• The Delhi Metro has helped remove more than 91,000 vehicles from
the roads of Delhi daily.
• The organization has also earned carbon credits worth Rs 47 crore
annually for the next seven years.
• United Nations body administering the Clean Development
Mechanism (CDM) under the Kyoto Protocol has certified that
DMRC has reduced emissions.

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The Carbon price crash due to economic recession and end of Kyoto
protocol has severely impacted future projects under CDM.
Innovative Financing Mechanisms

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Innovative Financing Mechanism
 The issue of urban transport financing has become increasingly
prevalent in recent years as costs of providing transport services
have expanded more rapidly than traditional revenue resources.

 The National Urban Transport Policy of April 2006 also lays

emphasis on the innovative use of land as a resource for financing
public transport projects.

 Urban Transport Fund

 Financing Through Cross-Subsidy Projects
 Property Development
 Land Value Capture
 Kiosks and Shops at Stations
 Taxes and Fiscal Incentives
 Cross Subsidy 31
Non Fare Box Revenue Potential
Farebox Non Fare Box
Sl. No. Project Name Revenue (%) Revenue (%)
1 Singapore Metro 89 11
2 Bangkok Metro 88 12
3 London Metro 83 17
4 Washington Metro 77 23
5 New York Metro 70 30
6 Hong Kong Metro 37 63
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Case Study – FSI-linked TDR for financing BRTS & corridor
densification: Pimpri-Chinchwad, India

URBAN TRANSPORT FUND

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TDR
• PCMC has planned for 10 BRT routes for quick and effective
transit and the cost for the first phase is about Rs. 1540 crore

• PCMC has set up an Urban Transport Fund (UTF), managed by an 34

SPV, PCMC Infrastructure Company Ltd (PICL), to finance its
share of the BRT project.
Urban Transport Fund – Pimpri
Chinchwad
• 100 metres on both sides of the corridor have been earmarked
as the “BRT Influence Zone’,
• PCMC has raised the FSI in the influence zone from 1 to 1.8 with
the added FSI of 0.8 being achieved through loading of TDR
• Based on the total influence zone area along the 60 km BRTS
corridor, additional 0.8 FSI permissible in the influence zone, the
project can generate close to 5000 Crs of revenue

TDR Potential TDRs (mn Revenue from

sqft) TDR use (Rs.cr)
Max potential, assuming absorption 83 4980
in 80% of influence zone 35
 Case Study-The TTMC
Concept
 BMTC developed the innovative concept of
‘Traffic and Transit Management Centres
(TTMCs)’
 The TTMC concept combines the
development of passenger terminals with the
creation of commercial real estate space.
 Revenue from rent of the commercial real
estate space would cross subsidise the
construction cost of the passenger terminal
and amenities, and also form a source of
continuing additional revenue for the
corporation.
Implementation
 10 TTMCs have been constructed since 36
2009
 Initial funding was provided by JNNURM
Fare Fixation, Subsidies

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Fare
• Fare can be defined in two aspects:
• Technical Fare – Total average cost of transporting one passenger
• User Fare – Total average fare per passenger

• User fare may be above or below the technical fare

• Generally user fare is lower than the technical fare due to

political and other reasons

• Low user fare many times results in lower degree of

revenue realisation
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Fare Fixation – Public Transport

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Fare Fixation - objective
• Objective
1. Long term sustainability of the system, &
2. Affordability of the passengers
• What is the level of service expected?
• Frequency of service,
• Can higher fare can be charged for better level
of service?
• Should the government force the transport
corporation to bear the burden of subsidy or
should it be provided through Budget?
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Fare Structure

Sold Trips x Technical Fare = Payments to the Parts

Operators Payment (#Kms* `Kms)

Trips Sold
Fare Collector Payment (#Pax* `Pax)
X
SPV Salaries (%SPV)
Fare
Trust Fund Costs (`TF)

Revenues = Operational Cost

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Fare revision is important to accommodate changes in operating

cost, especially the volatile fuel prices
Fare Structure & Contract Structure

Fare Structure Contract Structure

Incomes Rights

MIRROR

Expenditures Obligations

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Subsidy
• The difference between technical and use fare or total costs and
total revenues is the subsidy
• Transport is a form of public service and many a times is justified
that government should subsidise a portion of costs
• However, for subsidies to be acceptable and effective, they
should be used to improve the quality of public transport service
and not to cover the inefficiencies of operations.

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Case Study: Auto-rickshaw sector in Mumbai

FARE FIXATION AND REVISION FOR

URBAN TRANSPORT SERVICES 44
History of IPT Fare Fixation in
Mumbai
• Seven-person committee set up by Government of
Maharashtra, headed by Mr. PMA Hakim, referred to as
the “Hakim Committee”, to create a formula to revise
taxi fares in Mumbai
1996 • Fare formula developed for taxis used for auto-
rickshaws as well.

• Fare fixation committee, again headed by Mr. PMA

Hakim, reappointed in April 2012, to revise fare formula
separately for auto-rickshaws and taxis in Mumbai
• Committee recommendations for fare revisions
2012 implemented in September 2012 for auto-rickshaws
and taxis.
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Fare Fixation (2012, Hakim Committee)
Among its main objectives, the Committee aimed
to look at the following:
1. cost-based fare structures that varied with fuel
usage,
2. a formula for future fare revisions, and
3. minimum distance considerations in the fare

Interacted with various stakeholders: Auto-rickshaw

Unions, Consumer/Passengers’ Association
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Key input factors for fare estimation
Input Factors Description Data source
Fixed costs Interest payments Driver surveys
(permit and vehicle
costs)
Depreciation
Statutory charges Transport
(registration, taxes, department
insurance)
Variable costs Fuel Driver surveys
Maintenance
Operating Average total kms Driver surveys
characteristics Average empty kms
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Fare Fixation (2012, Hakim Committee)
Recommended Costs per km

Parameter Value (Rs. per km) Share (%)

Interest and 0.518 5.1%
depreciation
Insurance and taxes 0.133 1.3%
Fuel 1.643 16.2%
Maintenance 0.697 6.9%
Cost of living 7.164 70.5%
Total 10.155 100%
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2012, Hakim Committee
Frequency of fare revisions
• Fare revisions proposed to be undertaken every
year on the 1st of May. This is to bring clarity and
transparency in fare revision process, and account
for yearly changes in input costs.
• Fare revisions should be undertaken even if
increase in basic fare per km is below 50 paise
• If input costs increase due to unexpected
circumstances such that basic fare per km rises by
more than 20%, then fare increases should be
implemented without waiting for completion of 49
one year.
Case Study: BMTC, Bangalore

FARE FIXATION AND REVISION FOR

URBAN TRANSPORT SERVICES 50
Fare Revision
FARE REVISION ON ACCOUNT OF INCREASE IN DIESEL PRICES

f(dpa) = (F – D) + [(RPD/BPD) x D]
• Where,
• f (dpa) = Revised fare in terms of Paisa per passenger kilometre
• F = Average cost per passenger kilometre at the time of previous fare revision
• D = Diesel cost per passenger kilometre at the time of previous fare revision
• RPD = Revised price of diesel
• BPD = Basic price of diesel when the last fare revision was permitted

FARE REVISION ON ACCOUNT OF RISE IN DA RATES:

fr = F + [CPKM (L)/CPKM] x P x F/100
• Where,
• fr = Revised fare paisa per passenger kilometre
• F = current fare per kilometre
• CPKM = Total cost per kilometre at the time of previous fare revision
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• CPKM (L) = Staff cost per kilometre at the time of previous fare revision
• P = Percentage increase in staff cost due to DA increase over the staff cost at the time
of previous revision
Cost Benefit Analyses

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Background
• At any time, there will be multiple projects competing for
limited investment opportunities, both by the government and
the private sector.
• The question is which projects to invest in, or which projects
to give priority to.
• Decision criteria
• Highest financial benefit
• Other non-financial benefits
• Financial analysis looks at a project purely from the
perspective of returns. The project that offers the highest
financial returns for a given investment is considered most
favorable.
• In economic analysis, we go beyond the financial returns, and 53
consider all the benefits (and losses) that accrue to a project
over its entire life cycle through Cost Benefit Analyses.
Project Development & Estimation of
Project Cost

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Project Development
Project Development aims at:
• Defining the scope and outcomes of a project
• Setting out the modalities for implementation
and
• Designing a project structure which would
enable the project to find credible investors and
access to project finance
OR
IN OTHER WORDS
• Making the project “bankable” so that it can be
successfully implemented. 55
Project Preparation
• A project is a series of activities aimed at bringing about clearly
specified objectives within a defined time period and within a
defined budget Identification

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Project Risks
Risk

Concept / Development

Construction

Transition Operation
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Time
Typical infrastructure project risks
Regulatory Risk
Political Risk
Operation and
Maintenance Risk

Revenue Risk
Force Majeure
Risk
RISKS Financial Risk
Performance
Risk

Demand
Technology Risk
Risk

Land Acquisition Risk 58

Construction
Risk

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Project Cost Components

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Capital Cost
• Land including Resettlement and Rehabilitation
(R&R).
• Civil construction (Road, bus stand, bus depot, etc.),
• Plant & Machinery (cost of bus, machines required
for bus depot, etc.)
• Traffic signaling, signage, etc.
• Applicable Taxes & Duties viz., Customs Duty, Excise
Duty, VAT, Service Tax, etc.
• Cost of tree plantation, Compensatory plantation etc.
(It is known as Mandatory Investment)

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Phasing of initial Capital Cost and
calculation of completion cost
• Phasing of initial Cost:
• Estimated period of completion.
• Estimated % of works to be completed.
• Price level.
• Assumed escalation %.
• IDC: If the approved funding plan of the project
envisage a particular percentage of cost to be funded
through borrowing then the element of IDC comes into
picture.
• It is an amount of interest accrued during the
construction period. IDC is added to the estimated
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cost.
 Operation & Maintenance Cost
• O&M cost consists of the following:-
• Staff cost,

• Energy / Fuel

• Repair and Maintenance Cost

• Administrative Cost

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Replacement of Assets, capital
additions during the operation
• In the DPR the following items need to be factored into :-
• Replacement of assets, if any,

• When replacement is required,

• Additional capital additions, if any, to meet the

increased passenger level.

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Cost – Benefit Analysis

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Cost Benefit Analysis (CBA)
• Comparison of “Anticipated Costs to the ‘Anticipated
Benefits” during the life of the project.

• CBA is done to determine the Financial and Economic

feasibility of the new project.

• A project is financially viable if the future benefit is

higher than the estimated costs of developing new
project i.e.,

• BENEFITS > COST

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Need for CBA
• Multiple projects.
• Limited Investment Opportunities
• Therefore, the question is which projects to invest in?
• Decision criteria
• Highest financial benefit
• Other non-financial benefits
• Financial Viability Analysis. It is about assessing the
viability, stability and profitability of a proposed project.
• Payback Period, etc.
• Benefit Cost Ratio (BCR)
• Net Present Value (NPV),
• Financial Internal Rate of Return (FIRR), 66
• Debt Service Coverage Ratio (DSCR)
Investment criteria - Capital Budgeting (Capex)
Method Formula Criteria for Remark
judgment
It is the number of
Initial
Payback PBP < target period years required to
Investment/Annual
Period accept else reject recover the initial
cash inflow
investment
It is the sum of the
Net Present =C1/(1+r)^1+c2/(1+r) Accept if the NPV is present values of all
Value (NPV) ^2+….. +ve else reject . the cash flows
(outflow and inflows)
Investment = Sum
Ct/(1+r)^t , where Ct
Accept if the IRR is >
Internal Rate is cash flow at the It is the discount rate
cost of capital else
of Return end of year t, r is which makes its NPV
reject .
(IRR) discounting rate and ZERO
n is life of the
project.
It is the ratio of cash
EBITA/(Annual loan available for debt 67
Accept if the DSCR is
DSCR repayment +annual servicing to interest,
>=1.2, else reject
interest) principal and lease
payments.
Benefit Cost Ratio (BCR)
BCR = Present Value of Benefits (PVB)
Initial Investment (I)
BCR measures the net present value per rupee of outlay based on
cost of capital to the company.
PROJECT-A Initial Investment Rs.100,000
Year 1 Rs. 25,000
Year 2 Rs. 40,000
Year 3 Rs. 40,000
Year 4 Rs. 50,000
Cost of Capital is say 12%
BCR = 25000 + 40000 + 40000 + 50000
(1.12) (1.12)2 (1.12)3 (1.12)4
100000
=1.145
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Criteria for acceptance/rejection is: If the BCR > 1 Accept else
reject.
Economic Evaluation
• Viability, stability and profitability of a proposed project
from the society (or economy) as a whole.
• Economic Internal Rate of Return (EIRR),
• The economic savings are the difference of the cost of
the same benefit components under ‘with’ and ‘without’
metro situation.
• Some of the important cost components, apart from the
regular capital and operation cost include:
• Value of Time
• Vehicle Operating Costs
• Social cost like cost of accident
• Environmental Costs
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Comparison of Financial & Economic Analysis
Financial Analysis Economic Analysis
Decision based only on Decision based on non-financial
financial returns benefits viz., environment, society,
culture, health, etc
Decision based on Financial Decision based on socio-economic
Modeling viz., NPV, IRR, Cost-Benefit analysis
DSCR, etc
In a PPP, this is the more In a PPP, this is the more important
important indicator to the indicator to the government and/or
private partner and the lenders grant/aid organizations
Returns accrue only to the PPP Benefits/losses accrue to society at
partners, and lenders large
Time consideration is only as Time consideration is normally
long as the project duration unlimited
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Heavy discount on future Lesser discount on future benefits
returns or losses, as each generation is
equally important
Sensitivity Analysis - FIRR & EIRR
- FIRR & EIRR are sensitive to the following: -
- Revenue,
- Capital cost,
- O&M Costs
- The effect on the FIRR, EIRR due to increase /decrease
in the above factors need to be highlighted in the DPR.

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FIRR Sensitivity Analysis
CAPITAL COSTS with Central Taxes

10% increase in 20% increase in 10% decrease 20% decrease

capital cost capital cost in capital cost in capital cost

1.59% 1.15% 2.64% 3.26%

REVENUE

20% decrease in 10% decrease in 10% increase 20% increase

revenue revenue in revenue in revenue
-1.61% 0.51% 3.36% 4.44%
O&M COSTS
10% increase in O&M cost 10% decrease in O&M cost
1.45% 2.68% 72
Case Study: TransMilenio BRTS Project & Metro Bus BRT Project - Mexico

COST BENEFIT ANALYSIS FOR URBAN

TRANSPORT PROJECT

73
Case Study TransMilenio BRT System
Bogota

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74
TRANSMILENIO BRT System Bogota (Phases I
and II)
Length of Bus-Only Lanes: 84 km
Length of Feeder Routes: 663 km of routes
Stations: 114
Trunk Vehicles: 1,262 articulated buses
10 bi-articulated buses
Feeder Vehicles: 519 conventional buses (12 m)
Feeder Routes: 83
Payment System: No-contract smart card
Control Center: On-line real-time supervision
User information: Fixed signage and dynamic display
panels
Total passengers: Average of 1.7 million on
weekdays
Users of feeder routes: 48% of the total users 75
Fare (flat): Rs. 50 per trip,
including transfer with feeders
Table 1 - TransMilenio Costs, Phases I and II (Present Value,
with a 12% Discount Rate, Billions of INR)

Economic Prices (in

Billion INR)
PUBLIC COSTS 65.68
Studies and project preparation costs 0.73
Real estate purchase and resettlement 8.45
Infrastructure Construction and/or Rehabilitation 51.17
Infrastructure Maintenance 2.61
Implementation of Control Center 0.87
Control Center Operation 0.19
Costs of the Public Project Management Agency 1.66
PRIVATE COSTS 42.04
Bus Fleet Acquisition 12.95
Bus Fleet Operation 22.32
Implementation of Collection System 0.59 76
Collection System Operation 6.20
TOTAL 107.72
Table 2 – Present Value of Benefits, TransMilenio, Phase I and II
(Billions INR of 2008, 12% discount rate)

BENEFITS Total
Reduced Travel Time in Public Transport 91.99
Time Lost during Construction (5.22)
Reduced Operating Cost of Public Transport
Vehicles 66.92
Reduced Injuries, Deaths and Losses due to Road
Crashes 9.04
Positive Impact on Health due to Reduced
Emissions of Air Pollutants 6.18

Total 168.92

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Socio-economic evaluation Phases I and II

• Evaluation horizon 1998 – 2018

• Discount rate 12%

• Net Present Value: USD 56,560 million INR

• Benefit/Cost Ratio: 2.5

• Internal rate of return (social): 24.2%

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Thank You!

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