38 | Public-Private Partnerships in Urban Bus Systems
Other fiscal requirements In many cases, projects require contingent liabilities from the government to achieve bankability, which has an impact on fiscal capacity. When project structures do not minimize risks, or even when they do but their perceived risk is too high, projects may not be bankable. A project is not bankable when its expected rate of return does not compensate private financiers, given the level of forecasted risk. In these situations, the only way to achieve bankability is through contingent liabilities. Such liabilities may come in an explicit form, such as a partial credit risk guarantee or a public obligation to provide revenue as a last resort. They also can be implicit, as when the concessionaire is entitled to a payment and the fare revenue is the source of payment. Even if this implicit liability is not mentioned in the concession contract, the authority will have the obligation to ensure the provision of services, which may imply a partial or total bailout of the concession if the project fails.
INSTITUTIONAL AND REGULATORY ELEMENTS4 A strong legal framework A PPP contract sets out, in exhaustive detail, the terms of the partnership and the rights and obligations of the private partner and the government entity. If the private partner is not certain of its ability to defend its rights in the event of a dispute, then implementing a PPP will not be possible. A strong legal framework is achieved with the combination of good transportation regulation, a government record of compliance that lowers perceived political risks, and a properly structured contract in the case of a concession.
A transportation authority with adequate capacity If the government wishes to achieve its goals and ensure that services are delivered at the quality and quantity set out in the contract, it must also have capable staff. Similarly, the transportation authority should have the capacity to fulfill its responsibilities. In a reform involving conventional bus systems, the authority can undertake a wide range of planning levels. From a mere definition of routes to daily programming, planners should find the right balance that ensures an appropriate level of service and a realistic expectation of the role to be played by the authority. Controlling informal competition deserves a special mention. The government must decide whether an existing institution will assume these responsibilities5 or whether it must create and train an entity6 to plan and manage the project. The control and regulation of informal and illegal modes of transportation are also key to the success of proposed reforms. These modes of transportation are becoming more prevalent in many cities around the world, especially in low- and middle-income countries; they are a very important part of the public transportation service provision system, and any reform should take them into consideration.
