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Dachs itssa march 2012 pp ps financing transport infrastructure


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Dachs itssa march 2012 pp ps financing transport infrastructure

  1. 1. Leveraging PPPs to financeinfrastructure needs for urban transport William Dachs Gautrain Management Agency ITSSA Summit; Cape Town 8 March 2012
  2. 2. Stating the Problem• Cities in Developing Countries have – Too much demand for existing, limited services – Rates of growth greater than growth of services supply – Increasing inefficiency as a result of urban sprawl – Increasing inequity – Increasing congestion – Increasing noise and air pollution
  3. 3. Stating the Problem• Made worse by – Disjointed planning – Poor institutional arrangements – Limited public financing available – Inability to manage demand for services – Disjuncture between public planning and private finance – Poor maintenance of existing assets
  4. 4. Stating the Problem“...a society that is hell bent on outstrippingLos Angeles as the low density capital of theworld. The main reasons that such ascenario is bad are: the increasingly highcosts of providing basic services in a lowdensity megalopolis and, the forgone benefitsof effective urban agglomerations”Andrew Marsay - Transport Economist
  5. 5. Starting to solve them• Some basic building blocks – The key is integrated land use and infrastructure planning : 1. What will our cities look like in 10, 15 and 20 years time? 2. Where and what infrastructure is needed for those cities? 3. How do we finance, develop, and maintain those infrastructure assets?Only the last question is related to PPPs
  6. 6. Sources of Funding1. Public funds (tax revenue and sovereign borrowing)2. Domestic Development Finance Institutions3. Sub-sovereign borrowing and bonds4. Private Finance (PPP) • Institutional investors (especially pension funds) • DFIs • Infrastructure Funds • Capital markets • Debt markets (Banks Corporate (balance sheet) • Project Finance (limited recourse)All but public funds need a return!
  7. 7. Historic Sources of Revenue1. The user pays for the services eg water, electricity, transport costs2. The City pays for the services eg road maintenance contracts3. The Provincial or National Government provides a subsidy to either of the above eg public transport subsidies, ESKOM rebates• Can have a combination of such sources• Its actually about which tax payer pays for what and the application of user-pays-principle
  8. 8. Newer Sources of Revenue1. Developers pay a once-off capital contribution to cover the marginal costs of bulk infrastructure required for their development2. Betterment taxes (pre-or post development)3. Land value capture
  9. 9. Some options1. Cities with high land values and high government ownership of land give land development rights as part of PPP for transport (eg India, Vietnam) • Rights in perpetuity of great value • Property development different risk profile2. Cities with track record of delivery raise betterment taxes on land that will be improved by a project (eg London) • Must be trust that project will proceed • Must be demonstrable benefits3. PPPs to ensure ongoing maintenance by linking payment to performance
  10. 10. Some options1. Infrastructure Projects are selected for their economic and social benefits2. In an urban context these relate to savings in time, VOC, environmental costs, land use etc3. These benefits are rarely captured in form of capital contribution to the project4. PPPs can address technical sustainability, transfer risk and improve trust that project will be delivered5. Benefit capture must be agreed beforehand
  11. 11. Some issues1. PPPs don’t work all the time in all situations2. There has to be: • A stable and consistent regulatory environment • A competitive market • A revenue stream for the private sector3. Some examples: • Europe where PPPs now part of fiscal mess • SA where investor confidence damaged by e-toll fiasco • SA’s renewable energy IPPs a good example
  12. 12. Gautrain Case Study
  13. 13. Gautrain as a PPP• Capital Sources – Mix of Public and Private• Maintenance and Operating Costs - Private• User Revenue – Private Sector• Patronage Guarantee - Underwrites Private Sector demand risk• Risk Transfer, Value for Money, Affordability – Innovation, integration, fixed price, date certain• Performance & Penalty regime – Availability, reliability, safety & security – Performance deduction for low performance
  14. 14. PPP - Project partners: Equity PUBLIC PRIVATE 17% 8% 33% 25% 17%
  15. 15. Funding• Gautrain has 5 sources of funding – DoRA (Division of Revenue Act) money from central government via the Department of Transport – MTEF (Medium Term Expenditure Framework) from Gauteng Provincial Government – Private Sector Equity – Private Sector Borrowing – Provincial Borrowing
  16. 16. Project Financing Provincial borrowingPrivate Debt 18.4% 9.5%Equity1.8% MTEF 26.1% DoRA 44.2%
  17. 17. Development around Stations
  18. 18. Network Integration Pedestrian Desire Lines Park n Ride Corporate Entrance and Exit Shuttles Public Transport Entrance and Exit Minibus Metered Taxi Taxis Drop- off Gautrain F&D Pedestrian Buses Entrance PublicTransport Public Short Term Transport Parking
  19. 19. Gautrain in Urban Context• Land use planning very well coordinated• Very strong development around stations• No capture of benefits before hand• Ex-post betterment tax vehemently opposed• Development rights on stations constrained
  20. 20. Gautrain – Summary• Gauteng has gained a ZAR26 billion transport asset carrying up to 100,000 passengers per day• Shared costs between five sources• 15 year concession will end with revenue exceeding operating costs and assets fully paid for• Development on budget (to Province) and on time• World class risk management• Quarterly reporting on fiscal risks
  21. 21. PPP - Summary• Financing sources can be used smartly• Planning and intergovernmental coordination key• Benefits must be identified up-front and ring fenced• PPPs can help from technical sustainability• Investors and beneficiaries must trust that the projects will be delivered
  22. 22. Thank 0800-Gautrain