SPECIAL PURPOSE VEHICLE

Sonakshi Gupta Intern,CPPR

BACKGROUND:

Presently cities and towns contribute to more than 60%, approximately two third of the total‘gross domestic product’ of India. By 2030, this figure is estimated to grow to about 70%. Inadequate infrastructure was recognised in the Eleventh Plan as a major constraint on rapid growth. The Plan had, therefore, emphasized the need for massive expansion in investment in urban infrastructure based on a combination of public and private investment, the latter through various forms of public-private partnerships.

Therefore the total investment in infrastructure which includes roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation has increased from

5.7% of the gdp in the base year of the 11th five

year plan

8% of the gdp in the last year of

the plan

8.37% of the gdp in the base year of the 12th plan

ROADS AND ROADWAYS:

• Rapid growth needs to be supported by an efficient, reliable and safe transport system.

• Requirements of transport services are likely to grow significantly faster than overall GDP growth. Road traffic volumes, as measured by the consumption of automotive fuel, have grown by about the same rate as overall GDP.

• The expansion of urban centres has triggered an enormous demand for dependable urban mass transit. From 28% population in urban areas in 2001, it is projected that by 2031 about 40% population i.e. about 600 million people would be living in urban areas. To meet these expanding demands large investments was needed in roads and roadways.

12th Five Year Plan

• According to the recommendations of the working group of the 12th Five year plan, the investment expenditure on buses will be RS. 13759 cr. And on bus infrastructure will be 8760 cr.

FUNDING:

• Buses 50% by GoI, 30% by State Govt./ULB/Parastatal, 20% by private investment

• Bus Infrastructure (Depots, Terminals, Workshops)50% by State Govt. and 50% by PPP

JNNURM

GoI, on 03.01.2009 announced that as part of the second stimulus package, funding for buses for urban transport would be given under the JnNURM as an incentive to cities and states across the country to implement bus based public transport systems. Under this: City Total fleet

sanctioned 900/850 mm buses

650 mm buses

400 mm buses

Mini/ midi

KOCHI 200 120 - 50 30

THIRUVANTHAPURAM

150 - 120 30 -

PROPOSED REFORMS UNDER JNNURM: State level:

i. Setting up of a city-level Unified Metropolitan Transport Authority (UMTA) for all one million plus cities, duly backed by a legislation to facilitate coordinated planning and implementation of projects relating to urban transport and their integrated management.

ii. Setting up of a Dedicated Urban Transport Fund at the State level

iii. Change in bye-laws and Master Plan of cities to integrate land-use and transport by densification along with the MRTs corridors and areas around the stations.

iv. Nominating a single department at the State level to deal with all urban transport issues as against different departments at present.

v. Setting up of a regulatory/ institutional mechanism to periodically revise fares of all public and intermediate public transport systems.

vi. The State government and ULB waiving off / reimbursing its taxes on urban buses & city bus service/BRTs.

City level: • i. Setting up of a Dedicated Urban Transport Fund at the city-level. • ii. An advertisement policy which taps advertisement revenue on

public transport, intermediate public transport and public utilities for public purposes subject to relevant legislations.

• iii. Parking policy wherein parking fee represents the true value of land of the land occupied which is used to make public transport more attractive banning of parking on arterial/ring roads, multi-level parking centres in the city centre with park-and-ride facility etc.

• iv. A well organized and efficient city bus system by using ITS through city specific SPV preferably on PPP, under well structured contracts.

• v. Multimodal integration including urban railways (by involving MoR) to provide network-connectivity in the region and single ticketing to provide seamless travel.

• vi. Setting up of a Traffic Information Management Control Centre for effective monitoring and enforcement of traffic as well as data generation and data-collection for future planning.

SPVS:

Wherever the bus services are introduced on public private partnership basis, it should be in the form of setting up of professional umbrella public bodies that have the capacity to make scientific assessment of the demand on various routes and contract services that can be properly monitored. These umbrella public bodies should also manage common facilities like bus stations, bus depots, terminals, Central office and control center etc. and provide for the maintenance facilities which the private players can use on payment basis. Such umbrella bodies should have representation from all the major operators and stake holders including traffic police.

Examples: • Indore took the lead of setting up a Special Purpose Vehicle, for city bus

operations, encompassing the Municipal Corporation, Development Authority and franchising bus operations to private partners.. A unique partnership thus emerged which ensured good quality, high efficiency and sustained public services. Other cities like Bhopal, Jabalpur, Ujjain and Raipur also followed the Indore model by setting up city specific SPVs for operating bus services in each of the cities.

• Billed as India's first privately run metro service, the DELHI METRO was built under a public private partnership scheme by a special purpose vehicle (SPV) known as DAMEPL.

The SPV consists of Delhi Metro Rail Corporation (DMRC) and a consortium of Reliance Infrastructure (95%) and Spain-based train manufacturer Construcciones y Auxiliar de Ferrocarriles. The project cost was shared equally between DMRC and the consortium.

SPECIAL PURPOSE VEHICLE: A Special Purpose Vehicle may be necessary to oversee the

planning and operation of city bus and BRT services. This should represent all stakeholders (transport related). The SPV may be headed by the City Mayor and could have the following as members:

• Collector (Vice Chairman) • Chief Executive of the City Development/Planning Authority. • Commissioner of the City Corporation. • Representative of the Police. • Representative of Commuters’/Citizens’ Associations. • Transportation Planning Expert. • Representative of a Government Transport Organisation. • Chief Executive of the SPV. Initially, the SPV can be set up with an Executive Order, but when it

enters into contracts it should be given a corporate status. This could be done by registering it as a Government Company. The function of the SPV would be to assess the public transport requirement in the city, to plan the transport system and to contract with bus operators for services. It would have to be authorized for this purpose by the State Government. The bus operators could be private entities or a government company.

Should the proposed SPV be entirely govt. funded or on a PPP basis?

Expansion and improvement of bus fleets or services can be done in a number of ways depending on the role of the public sector and the potential of private sector involvement in the current environment. The government could procure and operate buses directly, or let the private sector introduce or expand all of the city bus services. There are several intermediate options.

INDORE • Contracting Authority: Indore City Transport Services

Limited (ICTSL) which is an SPV : formed between Indore Municipal Corporation (IMC) and Indore Development Authority (IDA)

• The SPV manages 3 sets of private operators:

1. Bus Operators: Dayajeet Nimay Logistics Private Limited, Rama Jyoti Travels, Anam Travels, Priyadarshani Transport Service - each operating on designated routes

2. Pass Issuing Agency: R Square Systems and Solutions

3. Advertising Agency: Giriraj Advertising and Marketing Services

Indore City Transport Services Limited (ICTSL) was constituted in 2005 as an SPV with equal contributions from IMC and IDA. Management was entrusted to a Board of Directors, with the District Collector as the Executive Director. The SPV was a thinly capitalized entity - expected to lead private operators under a unified bus system for the city.

Key features of the proposed reforms:

Key features of the proposed system were: 1. Standardized and colour coded ultra modern buses

plying along select high traffic routes of the city 2. Improved compliance with schedules due to real time

tracking of vehicles, through a Global Positioning System (GPS) based On Line Bus Tracking System (OLBTS) managed from a central control point

3. Computerized ticketing and Pass Vending (allowing user unlimited travel on any route for a month)

4. GPS based Passenger Information System for displaying arrival times and other information through LED displays installed at bus stops

Implementation

1.Background studies included analysis of financial feasibility, and surveys to finalize bus routes which would provide maximum passenger traffic. 18 routes were finalized in consultation with the Road and Transport Authority (RTA)

2. A movement system was designed as a hub-spoke pattern to cover both personal and workplace commuting requirements. Bus routes and buses were to be colour coded for ease of identification.

3. Ultramodern low-floor TATA buses were selected as the standard model to be procured by operators.

Procurement Procedure 1. Competitive bidding process for selection of bus operators

was held in December 2005 for each of the bus routes. The following companies: Dayajeet Nimay Logistics Private Limited, Rama Jyoti Travels, Anam Travels, Priyadarshani Transport Service were selected for operating on designated routes, based on the quotes for highest monthly premium to be paid to ICTSL.

2. Competitive bidding process for pass issuance agency was held in January 2005. Square Systems and Solutions was selected on the basis of their quote for cost per pass.

3. Competitive bidding process for advertising agency was held in January 2005. Giriraj Advertising and Marketing Services was selected on the basis of its quote for highest revenue offered per bus per month.

Obligations of ICTSL 1. Act as a regulator for the entire system, administer tariff

fixation/revision, monitor quality and standard of services, and undertake planning and route management

2. Provide and maintain allied infrastructure such as bus stops (through IMC), GPS based passenger information system and common ticketing facilities

3. Manage the revenue sharing arrangement between operators

Regulatory and monitoring arrangements

Regulation was through the SPV and the powers vested in it through executive orders of the Government.

Project Financials 1) All investments towards procurement and operation of buses, setting up of pass

vending systems and advertising media were to be made by the respective private parties.

2) Investments for allied infrastructure (except bus stops developed by the IMC) were made by ICTSL

3) The following revenue streams and revenue-sharing mechanisms were envisioned as part of the project:

a) Revenue from fare-box collections: accrued entirely to Bus Operators for the specified bus routes

b) Revenue from passes: was shared on 80-20 basis between Bus Operators and ICTSL. ICTSL would retain 12.2% of its share in case of a new pass and 17% in case of a renewed pass and the remaining was given back to the pass issuance agency

c) Revenue from in-bus advertisement: accrued to the advertising agency and a fixed sum of Rs.25,000 was to be paid to ICTSL per bus per month. 60% of such advertisement revenue was shared by ICTSL with the Bus Operators

d) Revenue from advertisement at bus stops: and through ICTSL installed LEDs for displaying public information was shared between ICTSL and IMC

e) A monthly premium (bid amount) was paid by bus operators to ICTSL

Project Risks and allocation

The operators bore the investment and revenue risk since travel demand is variable and the Concessioning Authority did not guarantee fixed minimum payment to any of the Concessionaires. The risk was mitigated in part for the bus operators through the revenue sharing arrangements

Project outcomes: 1. The SPV operates 110 ultramodern buses through private operators

in Indore. Success of the bus initiative has prompted ICTSL to expand into new systems such as a Bus Rapid Transit (BRT) System and a network of CNG call cabs.

2. Users have benefitted through direct benefits such as better facilities,

increased reliability and ease of accessibility. The project has also brought in allied benefits such as time and cost savings (for people using private transport previously) and improvement in quality of services offered by competing mini buses and auto rickshaws

3. The project has generated high and steady revenues for ICTSL with

minimal asset holding in the system 4. Bus operators have also gained advantages since there is no

competition on the routes they operate. 5. The model has been replicated in all major cities in the State such as

Bhopal, Gwalior and Ujjain as well as in other cities/States such as Raipur and Bilaspur (Chhattisgarh) and Ludhiana and Jalandhar (Punjab).

Project shortcomings:

1. The contract did not prescribe any particular formula (indexing or otherwise) for calculating periodic increases in bus fares. Decisions on fare revisions are the mandate of the ICTSL Board of Directors and its acceptance is subject to mutual understanding between the two parties.

2. The existing bus system is focused on high capacity arterial routes of the city. The system does not service all areas of the city and expansion through the same model may be difficult due to smaller roads, problems of congestion and possible lack of enthusiasm from private parties due to lesser profits.

Lessons learnt: 1. The current case illustrates that PPP arrangements can be employed even in sectors

such as city bus transport, which are typically seen as loss-making public services. 2. Robust institutional structuring and risk distribution has been the key to the success

of the Indore Bus Concessions. ICTSL as an overall regulatory body assesses demands, plans routes, regulates tariffs, and monitors daily performance through a permanent team appointed for the purpose. This has allowed the system to achieve optimum functional distribution and run efficiently, despite the presence of a number of different private operators within the arrangement.

3. The project is also an excellent illustration of the manner in which all possible

revenue streams (bus operation, advertising etc.) have been tapped and captured under a single system, with a revenue sharing mechanism that allows all private operators to get adequate returns.

4. Indore city started with a ‘clean slate’ since a State Transport Corporation was not

already operational. In cities where such corporations do exist, extensive financial and manpower investment is already ‘sunk in’ and such an arrangement may be infeasible. Many such corporations are also hampered by not having the freedom to fix fares. Only those corporations, such as Bangalore Metropolitan Transport Corporation (BMTC) at Bengaluru, which have a reasonably better fare regime, manage to show profits in operations. As such replicability of the model in other cities may largely depend upon availability of such enabling preconditions.

How are urban buses generally organized in Indian cities? Are there any good examples?

There are many cities where there is NO urban bus service, although there are inter-city buses regulated/operated by the state governments in some of these cities. These buses, however, primarily serve inter-city travelers and their routes, stops, terminals and schedules are not suitable for inner-city traffic. Experience with urban buses is mixed, but there are good examples, such as Bangalore (public sector) and Indore (SPV and private sector).

Questions that need to be addressed by SPV

• Our city does not have any urban buses, what can be done to develop new bus services?

In a city where services are not available, the planning process requires additional steps, such as changing the regulatory framework, establishing a regulatory body and public or private bus operators.

What types of fare structure are available and how can we select

the most appropriate option? Choice of fare structure is a very important part of bus

planning. It directly influences operators’ revenue. Options such as flat fare, distance-based fare, zone-based fare etc., together with guidelines on their advantages and disadvantages. SPVs could investigate the potential to reduce administrative costs and to increase revenue by examining the options in detail.

However, in India fare structure is set at state government

level and this aspect needs to be taken into consideration. Fares should also be reviewed annually, so that variations in costs of bus operation are reflected. Fares should address social objectives :

1)Disadvantaged groups are not excluded from public transport. 2) Giving incentive to the middle class and upper middle class to

take up public transport than using private vehicles.

Existing bus services are not performing well. Is there any way to improve services?

Recommended to analyze the existing situation carefully, set goals and objectives for improvement, examine available options, select most appropriate measures, and implement them carefully. As the decisions may affect the interest of a variety of stakeholders, it is particularly important to involve them at appropriate stages in the planning process.

What are the options to involve the private sector in providing urban bus services?

It is widely recognized that the private sector is suited to the operation of transport services, but there is always a possibility that the private sector is unable to optimize services from the user/community points of view alone. The public sector can in such a case function as regulator and licensor or franchise the provision of bus services, by route or by area, but infrastructure such as bus terminals and maintenance depots may have to be provided by the public sector in Indian cities. Merits and demerits of various options and the process of involving the private sector are to be explored.

What can we do to increase non-fare revenue from urban bus operations?

Although the main source of revenue for public transport organizations is from trip fares, there are other sources that can be explored: from property development and advertising, land monetization etc