The Challenges of Private Sector Participation in Urban Bus Systems | 21
loans associated with them to SPV stakeholders. Banca Mifel, the financier for the buses, reportedly is happy with the new arrangement. Interviews with financial agents in Mexico and the experience of other World Bank–supported projects in Latin America are consistent with this observation. 2. The case of Medellín in Colombia represents somewhat of a natural experiment. After dividing the city into nine areas for the purposes of integrating conventional buses into the system (publicly operated metro, BRT, cables, and trams), an initial bidding process in two of the areas resulted in US$20 million in annual operational subsidies. For the rest of the areas, the city followed a different approach (without reorganizing incumbent operators or issuing permits), achieving superior results. Business agreements achieved better levels of service, including with regard to frequency of service, implementation of fare collection systems, incorporation of a corporate image, use of clean bus technology, and provision of other services to users. They also avoided the overlapping of services (penny wars) and did not require subsidies. Chapter 3 discusses legal alternatives to a PPP, and appendix A provides more details on the experience of Medellín in Colombia and other cases mentioned throughout this report. 3. In some cases, the local financial markets lack the capacity to close pure project finance deals and may feel comfortable with more familiar corporate finance arrangements. 4. This was the case among many local banks lending to urban bus projects in Mexico, as reported in interviews with the authors.
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