Exploring opportunities for Public Private Partnerships

BRTS for International Business

BRT Africa

Source: Treehugger.com

BRT India

Source: Huffingtonpost.in

BRT Brazil

Source: Flickr.com

BRT Washington

Source: Greatergreaterwashington.org

BRT Guangzhou

Source: Cityweekend.com.cn

• Passengers/day: 14, 718, 290

• Cities: 66

• Length (km): 1,785

Latin America BRT Statistics

• Passengers/day: 9, 293, 374

• Cities: 42

• Length (km): 1,489

Asia BRT Statistics

Usage across 6 continents

Africa Australia North America Europe Asia Latin America0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

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Passenger/dayPassenger/day

Bogota, Columbia

• Known as Transmilenio

• It is operated primarily through a PPP model

• A concessional contract model has been adopted

• Compensated through user fee generated

• Risk allocation is distributed between government and the private firms

Bogota, Columbia

Curitiba, Brazil

• Began in 1974

• 5,61,000 passengers per day

• Covers 84 kms length

• 46% of total trips in city made by means of public transport

Curitiba, Brazil

• After key changes in the Brazilian Constitution, new policies that encourage private sector participation have been formed

• The Curitiba BRT which began in 1974 and covers some 83 kms today, is supported through a concessional contract model

• This is a User feee-based Build-Operate-Transfer Model

• The government offers 2 forms of concession to the private entity

1. Sponsored Concession – provided for services delivered to the end-users2. Administrative Concession – provided for services delivered to the administration

itself

Curitiba, Brazil

Santiago, Chile

• Started in 2006

• 3,40,800 passengers per day

• Covers 91 kms of length

• 35% of the total city transit is through public transport

Santiago, Chile

• 69% funding by private consortium

• Concession based model

• Contract signed for 81 kms

Santiago, Chile

Guangzhou, China

• It began in 2010

• 8,50,000 passengers a day

• Length of 23 kms, which is growing further at a rapid pace

• 32% of total city transport depends on public modes like BRT

Guangzhou, China

• 30% investment by private firms

• Follows the same model as Transmilenio in Bogota, Columbia

• The buses are operated and maintained by private contractors

• The compensation received is through user fee collection

Guangzhou, China

Ahmedabad, India

• Began in 2009

• Covers 82 kms

• 1,30,000 passengers per day

• 22% of the city’s transit is through public transport

Ahmedabad, India

• The Ahmedabad BRTS retains complete ownership of the system

• 100% financing by government

• Only the buses are provided by private entities like TATA and Chartered Logistics Ltd.

• There is opportunity for furthering PPP engagements

Ahmedabad, India

• User fee based Build-Operate Transfer Model

• Annuity based BOT Model

• Performance based Management/Maintenance Contracts

• Turnkey Projects

PPP Models

• Medium to large scale PPPs have been awarded mainly in the energy and transport sub-sectors (roads, ports and airports)

• Although there are variations in approaches, over the years the PPP model has been veering towards competitively bid concessions where costs are recovered mainly through user charges (in some cases partly through Viability Gap Funding (VGF) from the government

User fee based BOT Model

• In sectors/projects not amenable for sizable cost recovery through user charges, owing to socio-political-affordability considerations, such as in rural, urban, health and education sectors, the government harnesses private sector efficiencies through contracts based on availability/performance payments.

• Implementing annuity model will require necessary framework conditions, such as payment guarantee mechanism by means of making available multi-year budgetary support, a dedicated fund, letter of credit etc.

• Government may consider setting-up a separate window of assistance for encouraging annuity-based PPP projects.

• A variant of this approach could be to make a larger upfront payment (say 40% of project cost) during the construction period.

Annuity based BOT Model

• In an environment of constrained economic resources, PPP that improves efficiency will be all the more relevant.

• PPP models such as performance based management/maintenance contracts are encouraged.

• Sectors amenable for such models include water supply, sanitation, solid waste management, road maintenance etc.

Performance based management/maintenance contracts

• In traditional Design-Build (DB) contract, private contractor is engaged for a fixed-fee payment on completion.

• The primary benefits of DB contracts include time and cost savings, efficient risk-sharing and improved quality.

• Government may consider a Turnkey DB approach with the payments linked to achievement of tangible intermediate construction milestones (instead of lump-sum payment on completion) and short period maintenance / repair responsibilities.

• Penalties/incentives for delays/early completion and performance guarantee (warranty) from private partner may also be incorporated.

• Subsequently, as the market sentiment turns around these projects could be offered to private sector through operation-maintenance-tolling concessions.

Modified Design Build (Turnkey) Contracts

• We started with an idea of understanding BRTS operations• We wanted to explore the potential gaps in operations

• From these gaps we wanted to identify business opportunities

• We then aimed at categorize these opportunities into business areas

• Measure the interest levels of BRTS Ahmedabad and MNCs separately

• Compare them to predict the robustness of PPP in BRTS• Study this through a global comparison of 5 major cities,

including Ahmedabad

• And thus conclude the benefits to International Business

Research Objectives

• Qualitative Method• Primary data collection by means of surveys and interviews• Secondary data collection using various online resources

Methodology

• Risk allocation and financing remain major considerations and potential challenges for new PPP Projects (Yen, Shen & Cheng, 2010)

Literature Review

• We prepared a data collection survey to understand the everyday operation of BRTS Ahmedabad

• We aimed to observe 3 main units:1. Bus Stops2. Buses3. Bus Routes

• We planned to measure 3 aspects of the operations:1. Basic Infrastructure2. Functional Efficiency3. Marketability of Services

Phase I – Operational Analysis

• We divided our potential data collection zone into East Ahmedabad and West Ahmedabad

• We divided into groups of 2 and pursued on-field data collection

• We scored the data obtained – as part of data analysis

• We could cover 35 bus stops, 35 buses and 30 bus routes across the city’s span

• We prepared a score sheet for the items and categorized them into Basic, Functional and Marketability Parameters

Phase I Data Analysis

Phase I Observations

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Operational Pattern Across BRTS Bus Stops (Ahmedabad)

Basic Functional Marketability

Phase I Observations

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 350

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Operational Pattern Across BRTS Buses (Ahmedabad)

Basic Functional Marketability

Phase I Observations

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Operational Patten of BRTS Routes (Ahmedabad)

Basic Functional Marketability

• We pursued an online passenger satisfaction survey to know what people felt about BRTS

• We got some 20 responses

• We did not collect personal information, so as to ensure privacy

Phase I – Customer Satisfaction Survey

• 60% of the respondents used BRTS frequently

• However, only 10% owned BRTS Cards

• 35% showed interest in getting a BRTS Passenger card in near future

• 15% found the BRTS Service to be excellent, 55% fond it to be very good, while 30% found it average

• 75% people agreed that BRTS was better than other modes of transport

• 85% recommended the service to their friends and family

• 85% found it faster, 65% found it convenient and 70% found it to be efficient

Phase I Customer Satisfaction Survey

• 95% of the respondents found it to be well-maintained

• 55% said that traffic was a problem

• Customer friendliness was felt by 90%

• 20% found the design to be excellent

• 75% expect more services from BRTS

• 55% agreed that Public Private Partnership in BRTS was an excellent idea

• 90% of the people want to have better infrastructure for BRTS, while 60% of the respondents expect IT Services/Mobile Applications being introduced for BRTS

Phase I Customer Satisfaction Survey

• BRTS route should not be used by other vehicles

• Traffic congestions need to be reduced

• Use of solar panels for bus stops, basic amenities like water and sanitation

• The use of BRTS needs to be increased, so as to combat pollution levels in the city

• Round figure fares, to avoid delays caused due to lack of change

Phase I Customer Suggestions

• We found that marketability of the services were higher in case of stops that had the basic infrastructure in place and was functionally more efficient

• It was lower in cases where both basic infrastructure and functional efficiency was lacking

• Marketability was more controllable by means of basic and functional parameters only in case of bus stops and buses

• It was not related to basic and functional parameters in case of bus routes, where we believe external influences were at play

• From CSS we found that PPP in infrastructure and IT Services offer potential opportunities

Phase I - Inferences

• We visited the BRTS Head Office at Usmanpura and talked to key officials in Operations

• We interviewed 3 officials

• We found that they were hesitant towards PPP, primarily because there was a lack of push from the higher management

• However, user-fee based model and annuity based BOT model were rated highest

• They are using the PPP model used by GSRTC at Geetamandir, as a roadmap for implementing some key PPPs themselves

• Advertising is not as much encouraged, in spite of the benefits

Phase II – Interview Based Data Collection at BRTS Office

• We recorded the interviews and prepared transcripts of the same

• The transcripts were used to derive a summary of the discussion

Phase II – Data Analysis

• We believe that more of on-field research can help BRT understand the current state of BRT operations in the city

• They have not really considered BRT operations in other countries

• If they study international structures, they would find relevant frameworks for implementation in Janmarg

• Open-mindedness to new ventures and partnerships was lacking

• Bureaucratic structure of PPP engagements

• BRTS expects huge investments, rather than small ones

• Creativity in PPP strategy is required

Phase II - Inferences

• We prepared an interest survey for MNCs

• And through telephonic data collection we identified 5 MNCs that showed interest in PPP with BRTS

Phase III – MNCs Interest Survey

• MNCs are interested in BRTS due to the large scale assets and governmental ownership

• They are hesitant due to the delay occurring in procedures and finalization

• They are also hesitant due to lack of flexibility in government’s role and responsibilities

Phase III - MNC Survey Inferences

Phase IV – Comparative Analysis of BRT in 204 Cities

Phase IV: BRT Comparative Across the World

• BRT is seeing phenomenal growth across the globe

• Many examples of successful BRT, especially in Latin America and Asia, show that PPP Models are highly successful in this respect

• The User Fee Based BOT Model of PPP is the most widely followed

• BRT is currently in operation in 204 cities

• It is in expansion stage in 48 cities

• It is being planned and currently under construction in 139 cities

• The total length of BRT as of date is 5,333 kilometers

Phase IV - Inferences

• We did a comparative of PPP models in five cities 1. Bogota, Columbia2. Curitiba, Brazil3. Santiago, Chile4. Gangzhou, China5. Ahmedabad, India

Phase V – Case Study of PPP in BRT Across 5 Cities

• PPP has seen massive success in the case studies of cities which we followed up on

• We believe that Ahmedabad BRTS can be an impressive tool for International Business investments in near future

• The policy framework at the central government level is already in place

• The PPP Cell instituted by the Ministry of Finance, offers a good deal of support to potential PPPs in infrastructure

• Also, the Viability Gap Funding (VGF) is an initiative taken by Government of India to offer financial support to projects that have very good potential for revenue generation and infrastructural enhancements

Phase V - Inferences

• We would like to conclude that more research is required in the field of PPP strategies, especially in Indian infrastructure

• The positive policy stand of the current government offers an environment for International Businesses to step in and initiate massive projects that would generate huge profits in the coming years, considering the growing economy of the nation

• Ahmedabad BRTS, with all its support and recognition, is a fertile sector for massive private sector investments

• The result being that everyone will be benefitted in the process: the people, the government and the private sector firms

Conclusions

Thanks for listening!