20 | Public-Private Partnerships in Urban Bus Systems
A PPP is not an instrument for creating fiscal space or fostering the reorganization of the transportation sector. When deciding whether to use a PPP, policy makers too often consider irrelevant concerns. For example, the government needs fiscal space whether the provider is public or private. A PPP may create value and reduce costs. However, except when a project is self-sustaining, these reduced costs will translate into an obligation for which the public sector requires fiscal space. Second, and specific to transportation, governments often see PPPs as an opportunity to reorganize the sector by restructuring incumbent operators and creating an SPV or making room for the entry of an external operator (alone or in association with incumbents). However, an authority does not need a concession for these purposes. Permits or licenses, for example, may be used to encourage sector reorganization and greater supervision. For instance, while issuing permits or licenses, the government can require operators to maintain a single farebox for fare collection and agree on a jointly planned operation in compliance with specific requirements for a particular level of service (in relation to frequency, speed, stops, routes, and schedules) as well as reporting mechanisms (see appendix A for the example of Medellín, Colombia). Replicating successful project structures—without paying proper attention to the local context or even project objectives—has too often led to suboptimal allocation of risks and functions. One of the advantages of a PPP is that it allows for efficient risk allocation. Mitigating risks and allocating them to the party most able to bear them help to minimize the overall project risk borne by an SPV. In theory, the SPV can borrow and benefit from low risk premiums in a project finance plan. In practice, doing so requires an assessment of the capacity and appetite of financiers and the risk associated with the sector. As noted, some local banks may refuse to lend to an urban bus SPV and prefer to lend to its shareholders (operating companies with a credit history). Other banks may not have a sophisticated methodology for assessing the risks of urban bus projects and may systematically apply the same risk premium to all projects.4 Therefore, making the operator responsible for fleet provision without considering its access to finance is a suboptimal strategy for allocating risk. Similarly, projects have run into problems by not adapting remuneration plans to demand or by making authorities responsible for project elements they do not have the capacity to undertake. Demand models consistently overestimate demand, and projects are rarely articulated at an urban level. The overestimation of demand has led many projects to fail or falter. While the first corridors in Bogotá and Mexico City allowed for shorter travel times that justified additional transfers, the application of the solution in other contexts did not always have successful outcomes. In addition, many cities have planned projects without realistically considering how to deal with incumbent operators. Projects have also put too much emphasis on planning a specific corridor, without adequately considering how this corridor would be integrated with existing modes in the area or the rest of the system. This oversight may result in surprises when expanding or integrating the system and does not maximize the welfare of public transportation users. See appendix C for relevant tools.
NOTES 1. For example, Sittsa (Solución Inmediata en Transporte) is a concessionaire for the operation of the World Bank–financed BRT project in Tijuana, Mexico. Sittsa, which is owned by some of the city’s traditional operating companies, started transferring buses as well as the
