Selecting Funding Sources and Financing Instruments | 123
The World Bank Group’s financial instruments can be used to improve the financial structure of a project and attract private investment. These instruments can support the following project activities: • • • •
Derisking projects Enhancing projects’ bankability Lowering the cost of capital Providing equity to projects.
Depending on a country’s regulations, financial instruments can also be used for the activities listed under nonfinancial instruments. The purposes of the two types of instruments are not necessarily mutually exclusive. Multiple instruments from different branches of the World Bank Group can, and often should, be used in conjunction with instruments from other branches. However, certain instruments can be used only in countries whose designated status qualifies them. The focus of each branch is as follows: • International Bank for Reconstruction and Development (IBRD). Middleincome and creditworthy low-income countries (with the exception of “enclave projects” in countries otherwise covered by only the International Development Association) • International Development Association (IDA). Poorest countries (noncreditworthy), “blend countries” (creditworthy countries, as determined by the IBRD), and countries with a population of less than 1.5 million • Multilateral Investment Guarantee Agency (MIGA). Investors and lenders to facilitate foreign direct investment in emerging economies (cross-border investments in low- and middle-income countries) • International Finance Corporation (IFC). Private ventures located in low- and middle-income countries.
FUNDING SOURCES The identification of revenue sources has become even more critical for urban bus projects than it is for many other public services involving other sectors. Bus projects are, at a city level, seldom self-sustaining (even when costs associated with O&M are expected to be recovered by user fares), and project planners are usually tasked with finding other revenue sources to fill in the gap. Given the importance of public transportation services, the associated transaction costs, and the uncertainty of alternative revenue sources, the analytical framework considers the public budget to be the main source of revenue, after user fares, that is needed to ensure a project’s long-term financial sustainability. This section outlines the most common revenue sources that planners can include in the structure of urban bus projects.4
Tariff revenue If the fares paid by users are considered a source of funding for the project, they should be linked to the costs of the system to some degree. In most cases, the income generated by the fares paid by users are directed to the system— irrespective of the risk allocation or the remuneration mechanisms involved. The costs of public transportation systems are linked to the variation of prices
