Post on 15-Jan-2016
Experience from EBRD's urban transport sector financing
Abbas Ofarinov, Principal Banker27 September 2013
Partnering for urban development
15 years of municipal finance at EBRD15 years of municipal finance at EBRD
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Business volume Net Cumulative Business Volume
Activity started in 1994
300 projects signed
€5bn invested by EBRD
2011 a record year with €600m invested
EBRD and municipal financeEBRD and municipal finance
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Appetite for private and non-sovereign risk for municipal infrastructure
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Diversified across municipal sectors
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Diversified across EBRD sub-regions
New EU member states: Romania & Bulgaria
Other CIS
Western Balkans
New EU member states: Central Europe
What attracts EBRD to the urban transport sector?
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Balance and benefits
Urban transport investment provides multiple advantages and has long-term effects: Unique ability to provide high-quality alternative to urban travel Acts as antidote to urban congestion Scalability, both in network and capacity Value-added for urban environment (property values, air quality, carbon
reductions) Revenue generation, rises with economic growth Able to be commercialised Can attract Private Sector Participation (PSP) if structured adequately Lasting investments: urban rail investments produce benefits measured in
decades, not years Varied and complementary investments in sector all part of solution, with public
transport, ITS, parking management, road maintenance, road safety, and smart-card ticketing
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50+ urban transport projects and €1000 million invested thus far since mid-90s
Kazakhstan
CNG Buses, Trolleybuses
Serbia
Belgrade Sava Bridge, trams, buses, ITS
Ukraine
Kiev (Metro, Trolleybus, Bus, ITS); Lviv Trams and ITS
Armenia
Yerevan (Metro)
Macedonia
Skopje ITS
Project examples:
Poland
Warsaw (Metro & Tram), Krakow, Gdansk; Lodz; Sopot
Romania
Bucharest (Multisector); Iasi Tram; Arad Tram
Bulgaria
Sofia (Tram), Plovdiv, Burgas
Turkey
Istanbul Ferries, Bursa LRT, Gaziantep CNG Buses
Kyrgyzstan
Bishkek (Trolleybuses)
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The Typical UT Challenge faced by EBRD
Poorly managed municipal public transport company
Obsolete asset base – 20 year old bus fleets, and 40 year tram fleets
not uncommon
Maintenance depots dating from the 60s
Over-staffed, a legacy of the Soviet era
Cash/coin-based paper ticketing system – cash leakage endemic
Chronically loss-making entities
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Municipality
Annual, ad hoc subsidy payment (Dependent on budget
availability, other priorities)
Passengers
Revenue from fares (cash-based) collected and distributed
Downward spiral effect
Typical Arrangement for Public Transport Companies prior to EBRD involvement
Chronic financial gaps
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The EBRD Approach to financing urban transport projects
The EBRD promotes decentralised decision-making and financing to both public and private clients
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EBRD promotes broad trend in urban transport finance
DECENTRALISATION
EBRD’s ‘bread and butter’ How is this done?
EBRD is not dogmatic -- we structure projects across the whole spectrum, e.g., from sovereign loans when legally necessary, municipal loans, public utility loans backed by muni guarantee, operational concessions (DBOM), PPPs based on DBFO to full privatisations
The Public Service Contract: the lynchpin of EBRD urban
transport financing
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Needed Foundations for Lasting Improvement in Urban Transport
Create a stable revenue and define revenue sources for public transport – key
for creditworthiness
Focus on operating cost and service quality for users
Invest in new rolling stock & infrastructure
Give citizens real alternative to private transport
Strengthen regulation
HOW? Public Service Contracting (PSC) between public owner and public transport
operator (either municipal or private)
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A Contract with a municipal operator to define clearly how public sector “compensates” the municipal public transport company fairly (no over-payments) for operational services delivered, rather than old-style subsidization (“state-aid”)
PSC is a commonly used regulatory tool in EU (EU Regulation 1370/2007, in force from Dec 2009)
What is a PSC?
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Roles and Responsibilities within PSC
Municipality as the Client: Defines network, policy, service standards, tariffs Sets & enforces regulatory framework Formally agrees to amount and quality of services Makes support payments to cover difference between
tariff revenues and full operational costs, due to social nature of services
Operator as Service Provider: Takes on operational and managerial risks Provides services according to key PSC performance
levels (reliability, punctuality, safety, cleanliness, customer satisfaction);
Operates & maintains new and improved rolling stock
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Municipal Support Agreement to Sign and Maintain PSC for
duration of loan
Municipality
PSC (Payments per km for services
rendered ) based on pre-defined performance standards
Passengers
Revenue from e-ticket fares collected and distributed
Loan Agreement
Lending structure: EBRD corporate loan to Muni Operator backed by PSC, off-balance for City
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Support Agreement to Sign and Maintain PSC for duration of
loan
Governorate and TRA
PSC (Payments per km for services
rendered ) based on pre-defined performance standards
Passengers
Revenue from e-ticket fares collected and distributed
Loan Agreement
Possible Lending structure: EBRD sovereign loan (Central Bank), beneficiary agreement with CTA, backed by PSC
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Basics Steps to set up a PSC
DEFINE STANDARDS: For quantity and quality of public transport service
PAYMENT FOR PERFORMANCE: Multi-year agreement on total level of service along quantity and quality indicators in exchange for payment by public sector (Municipality) to public transport operator (total payments per km basis)
ALLIGN LONG-TERM INCENTIVES: Indicators & payment support levels defined in PSC up-front -- introduces multi-year stability for all parties, enhances creditworthiness for modernizing rolling-stock and depots.
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Operational & commercialised focus: Payment for quality controlled services only
Gives incentives to public transport company to focus on operational efficiency
Simplifies public sector budgeting by linking payments to PSC payment formula -- smooth & predictable over many years
Penalties and remedies for failure to provide required quality
International experience shows 10-15 per cent savings initially on price/km basis
E-ticketing introduction has an additional 10-20 per cent improvement on the sector’s finances
Advantages of PSC for City
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Provides multi-year stable revenues per contractual formula in PSC – very similar to availability payment stream in PPPs
Sharp operational focus: public payments based only on delivered services as per PSC agreed operational plan and KPI compliance – similar to UK PFI approach
Passenger demand risk transferred to City within the PSC Annual indexation formula linked to key cost inputs (labour,
fuel, inflation, etc.) Incentives and penalties for performance quality Increases ridership over time as quality improves
Advantages of PSC for Public Transport Operator
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A) State objective of PSC: full ‘all-in’ compensation for services delivered
B) Define operational plan C) Arrange for ticketing collection D) Benchmark costs to deliver operational plan, with inputs
such as labour, energy, materials, depreciation and capital costs E) Establish indexation basis over life of PSC for variable costs
(e.g., labour, CPI, fuel/energy costs) F) Set duration of the PSC, linked to asset life to be financed G) Describe vehicles types; safety goals; service
quality/KPIs; tariff system H) Define payment formula: When the operator retains fare
revenue, a net payment is made following this basic formula: Net Payment/km = Opex Costs + Asset Depreciation + Financial
Costs – Fare Revenue – Other compensation from City/State (e.g., for social category passengers)
Basic Content of a typical PSC
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• I) Define City obligations to provide transport infrastructure and traffic control measures in good condition
• J) Other standard contractual clauses: Supervision; Control and auditing; Invoicing and payments; Amendments; Force Majeure; Dispute resolution; and Termination clauses
• K) Technical Appendices o Service and operations plan; Vehicle requirements; Service
Quality Indicators (% of operational plan executed; availability of fleet; safety; customer satisfaction); Tariff plan; Penalty system for poor performance; Indexation formulae
Basic Content of a typical PSC (cont.)
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Additional EBRD Value Added
Package of Technical Cooperation in Support of EBRD Financing:
Project preparation (Sector Strategies; Feasibility Studies, EIA)
Tender preparation and procurement support Development of PSC and training of operator Corporate development (Business plan, Management
Information System, bench-marking on efficiency and costs, twinning arrangements)
Regulatory development (tariff planning, electronic ticketing development, PSC monitoring)
Project Examplesbased on PSC
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POLAND: Warsaw Metro Wagons
Borrower – municipally-owned Warsaw Metro Company,an internal operator of the Warsaw underground system
Project – Approved in 2011, financing part of the investment programme for acquisition of 35 metro trains (210 individual wagons) (Rolling-stock procured from Siemens-NEWAG)
TC - The Bank provided technical assistance, funded by Austria, aimed at monetising the Project’s anticipated emission reductions as carbon credits under the Kyoto Protocol’s Joint-Implementation (“JI”) Mechanism to assist with the monetisation of the resulting carbon credits
Total Investments – PLN 1.1 billion (equivalent to €273 million)
EBRD Loan – PLN 322.6m (equiv €80 million) under A/B structure
Co-financing – with EIB and EU
Status and Timing – Wagons to be delivered in 2012/13, on-schedule
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TURKEY: Bursa LRT (Phase II) : clean and TURKEY: Bursa LRT (Phase II) : clean and modern urban transportmodern urban transport
Borrower – Bursa Municipality
Project - extension of Bursa LRT system (9 km, 8 new stations), purchase rolling stock (30 new vehicles), other investments
Total Investments– EUR 219 mln
EBRD Loan – EUR 50 mln
– Tenor – 15 years, including a 3 year grace period
– Pledge of selected assets
Co-financing - with EIB
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……to to serve the mobility needs for the serve the mobility needs for the continued growth of the economycontinued growth of the economy
City – 2 million people
Carbon Monetisation of Clean Urban Transport -- The LRT Project has significant carbon emission reduction effects
Corporate Development of Burulas -- the municipal transport company: Burulas will be assisted to deepen its managerial and operational capabilities, in line with the growth of its LRT network and fleet
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UKRAINE: Lviv Trams
Borrower – Lviv Electrotrans Company
Project – Approved in 2010, modernisation of tram track Lines 2 and 6, associated depots, and road reconstruction to prioritise tram mode
TC - The Bank to provide procurement and implementation support, PSC development, e-ticketing, regulatory improvements
EBRD Loan – EUR 40 million
Local Contribution – EUR 7 million
Status and Timing – Under implementation, completion by 2013
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KAZAHKSTAN: Almaty CNG BusesKAZAHKSTAN: Almaty CNG Buses
Borrower – Almaty Electric Transport Company (AlmatyElectrotrans)
Project – Approved in 2010, introduction of the first 200 Compressed Natural Gas low entry buses in Almaty, setting new standard in sector. Procured a fleet compliant with EURO-5 emission standard rendering services for more than 40 million passengers per annum
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Almaty CNG BusesAlmaty CNG Buses
TC – Development of PSC, a new institutional and regulatory framework for urban transport and design, procurement and implementation of sector-wide electronic ticketing system
EBRD Loan – USD 30 million
Local Contribution – USD 10 million
Status and Timing - Implemented, full fleet in operation, ridership doubled on average as compared to standard buses
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Contacts
Matthew Jordan-TankSenior Transport Specialisttel: +44 20 7338 7498email: jordantm@ebrd.com
Abbas OfarinovPrincipal Bankertel: +7 727 332 0019email: ofarinoa@ebrd.com
European Bank for Reconstruction and DevelopmentOne Exchange Square, London EC2A 2JN
www.ebrd.com/mei