6 | Public-Private Partnerships in Urban Bus Systems
• Urban bus PPPs have limitations, which shape how projects are structured. The main limitations include their ability to generate revenue or to use operating revenue to pay for project components as well as the nature and experience of potential private partners. These factors lead most urban bus PPPs to focus private participation on the provision and operation of rolling stock. • Public authorities wishing to attract private investors must learn to think like them. What changes (legislative, institutional, regulatory) can be made to eliminate avoidable risks, thereby easing investors’ fiduciary duty to minimize these? • Mitigating risks also mitigates costs. Where risks are reduced up-front, projects are more attractive and more affordable—a virtuous circle. • New technologies bring both challenges and opportunities. At the municipal and national levels, successful planners are using new technologies and innovations even as they recognize the important role of incumbent operators and tried-and-true operating modes. • Urban bus PPPs have experienced common issues leading to sustainability problems. These issues include (a) problems with project definition and design; (b) problems with risk allocation; (c) planning flaws, including demand overestimation; and (d) lack of appropriate integration and articulation at the urban level. • Unbundling the provision and operation of fleets helps to solve the common problem of operators’ lack of access to finance. Having a solvent private partner providing the fleet may reduce financial costs associated with fleet provision, but requires careful planning to ensure proper fleet maintenance. • Electric buses are a clean solution that brings new partners to PPP structures, but using them requires very careful technical planning. Though still expensive, electric buses are a promising technology to reduce emissions. Utilities are in a good position to manage some of the risk involved and can provide some infrastructure and capital. • Funding the private provision of infrastructure with tariffs is seldom an option. Bus project revenues often struggle to cover operations and maintenance costs. Private provision of infrastructure requires fiscal capacity and makes sense only when a market failure in the financial markets hinders the ability of solvent entities to access funding or when infrastructure provision can be bundled with operations to reduce inherent risk.
NOTES 1. Appendix A describes the case studies analyzed in this document. 2. For instance, using equity provided by equity funds may mitigate governance risks. If an operator’s corporate governance is subpar, experienced investors with equity in the project may step in and help the operator to become better organized, thus mitigating this risk. In another example, an operator faces a huge technological risk when buying electric buses. If the buses are financed through an operating lease with an experienced provider, this mitigates the risk, since an experienced partner will help with planning and maintenance. In another example, private vehicles may be charged for their use of certain high-volume roads to encourage the use of public transportation. These fees not only provide revenue but also mitigate the risk that demand for bus services will be lower than expected.
