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

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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

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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

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Section 1

Benefits of Investing in Transit Services

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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

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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”

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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

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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

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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

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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

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Section 2

Sources of Financing

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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

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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

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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

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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

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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

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…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.

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Section 3

Value for Money in Private Sector Participation

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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,

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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

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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

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