132 | Public-Private Partnerships in Urban Bus Systems
service, since the concessionaire will ensure that buses travel the routes at the decided frequencies and timings without necessarily paying attention to the quality and efficiency of the service, since these elements do not affect the payment expected. • Payments based on passengers transported. These payments depend on the number of users (demand), which encourages the concessionaire to provide efficient and high-quality service. However, this compensation mechanism is costly, since a risk premium must be paid in the event of insufficient demand to cover operating expenses. The public transportation authority (PTA) must guarantee the accuracy of the forecasted demand resulting from technical studies and also ensure that the return on investment will be within the promised timeline. Therefore, the design of the payment mechanism is very important in a PPP, as it introduces key indexes or incentives meant to improve operations (Beltrán, Gschwender, and Palma 2012; Hensher, Mulley, and Smith 2013). Some researchers have proposed designing a simplified payment model that can be used to ensure value for the government’s money (for example, Hensher, Mulley, and Smith 2013). The payment mechanism must be decided when designing the concession, since the incentives to provide an adequate level of service and reduce the risk to the concessionaire’s income will depend on it. However, setting an effective mechanism often requires the PTA to have capacity for the planning, s upervision, performance clauses, and high-quality execution of programs as well as the ability to apply the law and the concession. In this sense, as can be seen in table 11.1, depending on the characteristics of the operation, the PTA must use one or more payment mechanisms to allocate the incentives in an appropriate manner.
Defining the level of service Defining service is a vital aspect of a concession, since it establishes the parameters that will guide the efficient provision and quality of service. The following are key operational variables: • Routes. Determined routes on which the service operates • Frequency. Number of units that must travel through a specific point of the route during a given time interval • Hours. Start and end of service hours • Stops. Stops required on the given routes
TABLE 11.1 Remuneration
arrangements and incentives FIXED PAYMENT
PERFORMANCE-BASED PAYMENTS
PASSENGER-BASED PAYMENTS
Catering demand
REMUNERATION ARRANGEMENT
−
−
+
Frequency
−
+
+ (if high demand) − (if low demand)
Safety
+
+
−
Risk and access to finance
+
+
−
Capacity requirements for planning and monitoring
−
−
+
Source: Gómez-Lobo and Briones 2013. Note: − = the incentives generated by the payment mechanism cause a negative result; + = the incentives have a positive result or impact.
