5.1 New approaches to bus financing based on public-private partnerships

by the provision of adequate financing. Ghana should improve its metropolitan and municipal revenues; rationalize its intergovernmental fiscal framework, including the prevailing decentralization reforms; and develop new urban financing mechanisms. some potential sources of revenue could be the direct beneficiaries of urban transport in the form of user charges, fuel levies, taxation of vehicle operation, and parking fees. Revenue from the indirect beneficiaries of improvements in urban mobility could take the form of land value capture and allocation of different taxes.

Expand opportunities for private sector participation in urban mobility

Public–private partnerships (PPPs) are another way to bridge financing gaps and achieve private sector added value in urban mobility. The development of regulations to guide PPPs could expand the options available for municipal financing, but they will require additional technical assistance and regulatory clarification. Areas ripe for private participation are infrastructure financing, bus operations, fare collection, station management, parking, and transit-oriented development, among others. The appetite of the private sector for assuming risks in any of these areas depends on the predictability of costs and revenues and the experiences of previous projects (box 5.1).

BOX 5.1

New approaches to bus financing based on public-private partnerships

Most urban transport projects in the developing world have recognized the need for fleet renewal, but countries have taken two very different approaches to renewal.

The traditional approach, particularly with a public sector passenger service provider, has been to procure buses to support the state-owned companies. The common practice until the late 1990s was that the government would subsidize financing for procurement of buses for state-owned public undertakings to operate. But for the following reasons the results were often disappointing, and the buses did not last their economic life. First, the public sector operator was not responsible for fleet replacement, and it was motivated by the short-term goal of profit maximization, which required operating the buses for long hours with little maintenance. second, operational reforms were not introduced, and the fare structure was set below full cost recovery, resulting in the decline and eventual demise of the state-owned bus companies in most cities. Third, buyers who procured the rolling stock often did not follow competitive and transparent guidelines. And, fourth, at times rolling stock suppliers charged higher than market prices for maintenance and replacement parts. In addition, support for the public sector operator had the unintended consequence of discouraging the private sector from engaging in an environment of unfair competition.

A contemporary approach has focused on public-private partnerships, with the public sector financing the enabling environment (including infrastructure development) and the private sector retaining all operational responsibilities, including rolling stock finance and management. But even the private sector often needs an initial impetus in the form of subsidized financing for fleet renovation, primarily because the existing private operators are often financially constrained and lack the market knowledge needed to invest in standard good-quality buses. Meanwhile, commercial banks are often reluctant to lend to operators until the business model for financing new buses is established. And the capacity of city agencies to regulate and monitor improved services often needs strengthening. Good examples of successful bus financing can be found in Dakar and Lagos.