Transcript Experience from EBRD's urban transport sector financing Abbas Ofarinov, Principal Banker 27 September 2013

Experience from EBRD's
urban transport sector
financing
Abbas Ofarinov, Principal Banker
27 September 2013
Partnering for urban development
15 years of municipal finance at EBRD
EBRD and municipal finance
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Net Cumulative Business Volume
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2011 a record
year with
€600m
invested
3500
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€5bn invested
by EBRD
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300 projects
signed
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Activity started
in 1994
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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
New EU member states:
Central Europe
Western
Balkans
Other CIS
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What attracts EBRD to the urban
transport sector?
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 smartcard ticketing
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50+ urban transport projects and €1000
million invested thus far since mid-90s
Project examples:
Poland
Kazakhstan
Warsaw (Metro & Tram), Krakow,
Gdansk; Lodz; Sopot
CNG Buses, Trolleybuses
Serbia
Romania
Belgrade Sava Bridge, trams,
buses, ITS
Bucharest (Multisector); Iasi Tram;
Arad Tram
Ukraine
Bulgaria
Sofia (Tram), Plovdiv, Burgas
Kiev (Metro, Trolleybus, Bus, ITS);
Lviv Trams and ITS
Turkey
Armenia
Istanbul Ferries, Bursa LRT,
Gaziantep CNG Buses
Yerevan (Metro)
Macedonia
Kyrgyzstan
Skopje ITS
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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Typical Arrangement for Public Transport Companies
prior to EBRD involvement
Downward
spiral effect
Revenue from fares
(cash-based) collected
and distributed
Loss of accountability
Chronic financial gaps
Maintenance relaxed,
New investment wanes
Asset quality
declines
Annual, ad hoc subsidy
payment (Dependent on
budget availability, other priorities)
Service standards
slip, poor
operational focus
Passenger numbers drop
Car congestion increases
Municipality
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Passengers
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
Sovereign-backed
loans
Cheap but can
become politicised
Municipality loans
Self-financing
independence for cities
Higher cost and
burden on city debt
book
EBRD’s
‘bread and
butter’ How
is this done?
Utility loans
supported by cities
Off-balance sheet
borrowing for the city
Need to be backed by
Public Service
Contract + Municipal
Support Agreements
Utility corporate
loans or bonds
Self-financing
independence for
utilities
Entirely based on
company
creditworthiness / PSC
PPP/concessionaire
loans to privatisation
Private sector
indebtedness
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
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The Public Service Contract:
the lynchpin of EBRD urban
transport financing
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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What is a PSC?


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)
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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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Lending structure: EBRD corporate loan
to Muni Operator backed by PSC, off-balance for City
Revenue from e-ticket
fares collected and
distributed
Loan
Agreement
PSC
(Payments per km for services
rendered ) based on pre-defined
performance standards
Municipal Support
Agreement to Sign and
Maintain PSC for duration
of loan
Municipality
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Passengers
Possible Lending structure: EBRD sovereign loan
(Central Bank), beneficiary agreement with CTA,
backed by PSC
Revenue from e-ticket
fares collected and
distributed
Loan
Agreement
PSC
(Payments per km for services
rendered ) based on pre-defined
performance standards
Support Agreement to Sign
and Maintain PSC for
duration of loan
Governorate
and TRA
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Passengers
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 rollingstock and depots.
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Advantages of PSC for City
 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
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Advantages of PSC for Public
Transport Operator
 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
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Basic Content of a typical PSC
 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)
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Basic Content of a typical PSC
(cont.)
• 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
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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)
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Project Examples
based on PSC
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, onschedule
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TURKEY: Bursa LRT (Phase II) : clean and
modern urban transport
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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 serve the mobility needs for the
continued 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, eticketing, 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 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 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-Tank
Senior Transport Specialist
tel: +44 20 7338 7498
email: [email protected]
Abbas Ofarinov
Principal Banker
tel: +7 727 332 0019
email: [email protected]
European Bank for Reconstruction and Development
One Exchange Square, London EC2A 2JN
www.ebrd.com/mei
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