Critical Analysis of Bus Financing
in Bus Rapid Transit Projects!
Dr. Abel López Dodero!
www.worldbank.org!
Content!
!   Public transport in Mexico!
!   Progress in public transport in Mexico!
!   Common practices in bus improvements!
!   Bus financing!
!   Risks in bus financing !
!   The concept of “Project Finance”!
Public Transport Provision in Mexico!
!   Prevails man-and-his bus model. Problems in areas off:!
!   Human resources!
!   Financial management!
!   Operation and maintenance!
!   Service provision without regulation (frequency, service hours)!
!   Prevails informality in all areas associated with the operation and
management!
!   Verbal agreements between the driver and concession holder!
!   Income management and taxes!
!   Route schedule and alignment !
!   Transit units/buses in poor conditions !
Se realizan en transporte público Problems with service provision!
Compe33on in the market and oversupply of service Problems with service provision!
Low level of comfort and safety Externalities!
Contribu3on to air pollu3on Improvements in public transport!
2003!
2005!
2008!
2009!
2011!
2012!
2014!
26 km!
1 system!
46 km!
2 systems!
55 km!
2 systems!
92 km!
3 systems!
128 km!
5 systems!
156 km!
6 systems!
215 km!
8 systems!
237,000
Pax/day!
497,000!
Pax/day!
552,000!
Pax/day!
964,000!
Pax/day!
1,304,000!
Pax/day!
1,354,000!
Pax/day!
1,754,000!
Pax/day!
2.5% of all total trips made by public transport!
Common practices in bus improvements!
8!
Elements of bus improvements and !
their impact on the Tariff!
Infrastructure costs and its associated
financial costs are covered by the
government!
(Federal Government + Municipality) !
No impact on Tariff!
Bus financing is critical
for the financial viability of
the Tariff!
Federal Government Support
(PROTRAM)!
Up to 50% for
technical !
studies!
Credit !
Guarantees !
!
Up to 50% for the cost of
the infrastructure!
Bus financing!
1. Commercial Bank financing
2. Armadoras / Ensambladoras financing
3. Project finance
Commercial Bank financing!
!   Local banks with a clear idea of who operators are and
of their business !
!   Local banks evaluate cash flows and cascade of
payments!
!   Assets of the companies / or the buses as collateral. !
!   Buses as collateral do not have an impact on risk
reduction !
!   Partial guarantee !
!
Characteristics:!
ü  Interest rate: 10% - 15% !
ü  Include the cost of a partial
guarantee!
ü  6 years maturity term !
ü  6 months grace period!
Disadvantages!
ü  Expensive!
ü  Only available when the operator can
proved credit history and has assets that
can be used as collateral. !
ü  Assets cannot be used for any other
financial operation!
Armadoras financing!
!   Bus assemblers give financial options
for the operators!
!   Evaluate cash flows and cascade of
payments!
!   Buses as collateral. There is a
secondary market. !
!   Partial guarantee !
Characteristics!
Disadvantages!
ü  Interest rate: 6% -­‐ 10% ü  Maturity and grace period can be nego9ated Very attractive credit conditions but
these conditions are offset by having
a high initial cost of transit units!
!
Cheap financing for costly buses!
How to deal with the cost of financing?!
Understand the risks associated with transport projects !
Regulatory Risks Risks with cash flows Mismatch
between
infrastructure
and transit units
Trust and Fare
Collection
System
Legal Framework
Demand
Forecast
Commercial Risks Tariff Policy
Management of
the company
Corporate Risks To ensure "project finance" all associated risks with public transport
provision need to be covered
Project Finance!
Government Actions!
Concession
Right!
Regulator –
Public Entity!
Concessionaire
Actions !
Fare collection
and Trust!
Legal
Framework!
Guarantee!
Smart cards /
no cash !
Tariff !
Policy!
Project !
Finance!
Transparency
and good
practices!
Government Actions!
Project Finance: Social Policy vs Bancability!
Concession
Right!
Concessionaire
Actions !
Regulator –
Public Entity!
Transparency
and good
practices!
Fare collection
and Trust!
Legal
Framework!
Government!
Par3al Guarantees •  Government covers the cost of the guarantee •  Government secures any issue with the system through federal transfers Project !
Finance!
Guarantee!
Smart cards /
no cash !
Tariff !
Policy!
Socially VERY
REASONABLE!
Political
Decision!
For Banks VERY
UNRESANOBLE!
How can we promote "Project Finance" and achieve social goals? Conclusions!
!   Project finance for buses offers an important opportunity to lower
the total financial cost of BRT systems and helps to lower Tariffs!
!   Project finance requires a rethinking of BRT design and
structuring and a different role for governments to make financial
institutions comfortable!
!   A key issue is Tariff Policy !
!What is eminently sensible from a public policy
perspective poses a risk that Bankers are not comfortable
taking !
!   Creating project finance for buses will require government create
more transparency and assurance in Tariff adjustment and
perhaps complement a project finance approach with guarantees
that cover for Political Risk!
Se realizan en transporte público Thanks !
!
Abel López Dodero
Departamento de Desarrollo Sostenible Región de América Latina y el Caribe!
[email protected] | Tel: (52-55) 5480-4247 | Fax: (52-55) 5480-4222 | @abeldodero!
With the support of Shomik Mehndiratta, Alejandro Hoyos,
Antonio Huerta y the National Bank for Public Works in
Mexico (BANOBRAS)!