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the public authority waives some of its future income to ensure project viability. • In-kind contributions. The public authority can provide existing assets that are part of project components. • Other national or local assets. In some cases, countries own assets (toll roads) and manage the revenue generated by these assets. Mexico created the National Infrastructure Fund (FONADIN) to support infrastructure investments across the country with both nonrefundable and refundable financing instruments. Funding from FONADIN comes primarily from the national toll roads that the fund manages. PROTRAM, a program under the umbrella of FONADIN, supports the development of urban mass transit. PROTRAM resources can be used for subordinated debt or guarantees for closing the viability gap.
Making the most of revenue sources by mobilizing funds for investment Operating and nonoperating revenues can be managed strategically to mobilize further funds for investments. Sources of operating revenue—or at least a portion of the total revenue generated—can be directed to an independently managed trust fund for their future securitization. The trust fund can invest the securitized resources in strategic capital investments that would help to improve service provision and revenue generation. Given that most mass transit systems in low- and middle-income countries are managed by SOEs, this securitization might be registered as public debt or might require a guarantee to access already tapped or untapped investors. Regarding sources of nonoperating revenue, the challenge remains of how to earmark these revenue sources for the bus project or leverage them into more resources. Given that the nature of these nonoperating revenue sources is usually budgetary, they can be collected and used for purposes other than public transportation provision. The greater the size of these revenue sources, the more incentives governments have to redirect them toward other public services. This situation is often the case in low- and middle-income countries where the need to support other public services is critical. As in the case of sources of operating revenue, a trust fund will be needed to manage any additionally generated resources. This fund will provide confidence to investors that the revenues generated by securitization will be invested in projects that will improve the collection of nonoperating revenue. Moreover, investors will require a certain amount of newly generated nonoperating revenues to be set aside to repay their investments.
SETTING UP SUBSIDIES Regardless of their source of funding, setting up subsidies properly is a powerful risk mitigation mechanism and helps to ensure efficiency in the use of public resources. As discussed above, given the elusiveness of a project’s financial self-sufficiency, subsidies are often required to ensure the sustainability of urban bus projects. This section briefly discusses the justification for subsidies and describes a few experiences with their application.
