delegated management in public transport

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Delegated Management in Public Transport-

Overview and Applicability to Asia
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CONTENTS

What is Delegated Management and where was it adopted

Risk Sharing

Situation in Asia


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Risk Sharing

Situation in Asia


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Delegated Management:

O&M franchises or Public Service contracts

O&M services are tendered out through

competitive bidding, for a limited duration, with

very clear Quality of Service requirements

This model is widely used in Europe for all

public utilities water, waste management,energy, public transport

European rail regulation - EU Regulation 1370/2007 - Public Service

Contracts

In principle, all regional / urban rail operations have to be tendered out from 2010

If local governments decide to retain their local public operator without a tender, this

operator cannot compete on other markets

ALL rail operations have to be contract based, even with State or Municipality Owned

monopolies


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The principle of delegated management

PublicManagement

DelegatedManagement

Deregulation

Definition ofthe publicservice mission

Managing thepublic service

Publicauthority

Publicauthority

Publiccorporation

Statecompany

Privatecompany (ies)

Contract

Privatecompany (ies)

Marketforces


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Typical Arrangement

Each actor should deliver what it does the best

Operate and mainta in the sys tem

Brings private management ski l ls

Adv isor to the PTA

Demand vs of fer opt im izat ion

Ridership maximizat ion

Capital expenditure?

Draf t the Urban Mobi l i ty Plans

Decides fares

Def ines s ervices

Chooses the operator

Supervises services

Capital expendi ture

Guarantees f inancia l v iabi l i ty of

the system

Transport

AuthorityOperator

Contract


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The rationale for Delegated Management

Competition creates incentives to performTo encourage long-term decision-making: long term view on the

evolution of costs and visibility on the required subsidies

To improve transparency and accountability

To improve delivery time and reduce costs

Private model efficiency : cost and delivery

Right set of incentives (penalties etc)

To improve the image and quality of service and to increase

patronage

To benefit from the scale and network effect / Best practices sharing/ Talent and expert pools from being part of an international group

To reform the public sector

Focus on core mission of public authorities

Provide expertise and experience not readily found in public agencies


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Do not reinvent the wheel (new projects) Connection to an international network of operations

Access to innovations, new ideas, and operational solutions

A culture of localization and partnership

Training and empowerment of local personnel

Management of Relationships with Public Authorities

Credibility with a successful operation track record

Comfort for lenders and government,

Optimization of life cycle costs

Identify risks and likely long term issues

Demonstrated ability to implement compact and cost-effective organizations in

challenging environments

Innovations compared to local practice set a benchmark for local operators and

stimulate reform

Specialized training facilities and procedures, industrial tools & software for operations

and maintenance

Knowledge of all major suppliers and solutions (RS manufacturers, ticketing etc)

Choose the best solution and negotiate the best terms

What a professional operator is bringing


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An international solution

Europethe main model

France: road transport (urban and regional)

Germany: rail transport (regional)

UK: London bus and rail franchises

Italy, Spain: road transport, regional rail services

The Netherlands: road (urban and regional) and rail (regional)

Scandinavia: road and rail transport

Eastern Europe (Poland, Czech Rep etc)

Spreading to other continents:

USA Transit and Rail Boston, LA, San Diego, Miami, Austin

South America urban rail- Buenos Aires, Rio de Janeiro; bus Transmilenio,

Transantiago etc

AfricaME: Algeria metro/tram, Morocco bus/tram, Dubai metro-tram etc

Asia-Pacific: Singapore, most of Australia / NZ etc


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Large costs savings for local authorities

In France (still closed), regional train-km cost: 19 on average; in

Germany(open), the average cost of train-km is now about 10

Better quality of service in Germany

Ridership increased: +30% since opening in 1996

Punctuality dramatically improved

Many new services developed: On-board food services, newspapers, music, TV

programs, information and tour commentaries delivered over headsets, bicycles,

Wi-Fi access.

Deutsche Bahn is now globally competitive, commercially operated

and planning IPO


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Risk Sharing

Situation in Asia

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Contracting: allocating risks

Commercial risk:

related to the revenue and the patronage (this includes fare

evasion)

Industrial risk

related to operating expenses (evolution of risk) and

operation (accidents, security, safety)


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Sharing the contract risks

Pure Management

contract/SEM

Gross cost

Net cost

Owners risk

B.O.T.

Public authority

Operator

Public authority

Operator

Operator

Public authority

All partners in the project share

the risks

Operator / Public authority

Operator

(with public subsidy)

(Without public subsidy)

INDUSTRIAL RISK

(on operating costs)COMMERCIAL RISK

(on revenues)


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Operator Shareholding

- Local Government: 55%

- Veolia Transdev: 20%

- State Owned Bank : 11%

- Local Banks : 14%

French Mixed Equity Companies - Montpellier Case Study

- Developped since the 80s for development of tram systems- Nantes, Strasbourg, Grenoble, Orlans, Valenciennes and Montpellier

- Sort of hybrid system, compromise between

Keeping political oversight on transport

Tapping on international / professional expertise

Preventing creation of inefficient SOEs

Ex: Montpellier


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Chinese Modelex Shenyang Tram

Operator Shareholding

- Local Government: 51%

- Veolia RATP: 49%

3 years contract

- Similar model introduced in China for development of countrys firstmodern tram
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Provides top management and experts, subject to Board approval

Proper talent pool

Allows mobility / attractiveness for these executives

As a Minority Shareholder, influence company strategy and raises

financial awareness

Act as the Engineering / Technical support for the Company, in

particular for network extensions, new services development etc

Share Know-How and Best practices / Networking effect (Transcites)

Role of Private Partner in Pure Management Contract

Ex: Montpellier


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Find the balance between initiative and risks

Initiative for O&M company to

design services and fares

Risks covered by

operating companyRisks / costs Risks/ costs & revenues

Gross costs

+ Quality

incentive

Bri t ish rai l

Franchises

PT in France

Authorisation

Deregulated

market

London Bus

Scandinavia

Bogota

US Transit

Canada IC

Spain IC

Chile

UK Bu s (Regions)

Commercial

services

Delegated Management

Public

Management

Management

contracts

Gross Cost Net Cost

PT in Spain

German

Regional Rail

Netherlands,

Eastern Europ eFrench SEM

Shenyang Tram

Hong Kong


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Net cost contract: the trend

SUBSIDY

REVENUE

COSTSPASSENGER

REVENUES

R/D

Operator keeps the revenue

PTA covers the forecasted

difference between costs

and revenues by fixed subsidy

Updating formula to cover inflation

+ Incentives for the operatorIncrease revenues and patronage

Influence on modal shift

Customer orientation

Quality: key factor

Operator in charge of commercial development

Reducing operating costs through more internal

efficiency

- Dependence on external factors: traffic andparking policy, congestion, etc.

Fare policy decided by the authority

Risk of miscalculation

Conditions for success

Market to be monitored by strong & independent

regulator

In-house companies not to be allowed to compete


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But: Fare revenue rarely enough

Nova Group Asian MetrosDelhi, Bangkok, Shanghai, Sing

Guangzhou, HK, Taipei, Beiji


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The public authority should cover the risk it can better

manage

Define the operating rights duration (vs investment)

Protection against competition

Define subsidies schemes (if needed) from the beginning

Cover the risk on inflation

At the end of the day, every uncovered risk will translate into

extra cost

Offer the operators visibility


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A good contract shall include a performance related mechanism

(bonus-penalty system)

Overall satisfaction

Punctuality

Journey times

Cleanliness

Safety record

Staff courtesy

etc

The contract should include provisions for early termination in case of

poor performance

Give the operators incentives to perform


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Risk Sharing

Situation in Asia

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Asiathe Spectrum

China Tram

Vietnam Bus / Metro

China Metro

Indonesia Metro/Bus

Malaysia Metro

Philippines Metro

Thailand Metro

India BusJapan Metro

SGP Metro

Japan BusHK Bus

Singapore Bus

Korea Metro / Bus

India Metro

China Bus

Mongolia

Bus

Public Risk

Control

Initiative for O&M company to

design services and fares

Risks covered by

operating company

HK Metro

Japan Commuter

A tit f d i k h PPP


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An appetite for capex and risk-heavy PPP

but mixed feedbacks

PPP failures (from the SPC perspective)

Bailed-out: KL LRT and KL monorail, Seoul AREX

Restructured: Bangkok Skytrain, SL9, Yongin, Taiwan High Speed Rail

Struggling: Kaohsiung Metro, Busan-Gimhae, Uijeongbu

Stalled: Uisinseol LRT, Manila MRT7

Cancelled: Jakarta Monorail and many others

PPP successes (from the SPC perspective)

Manila MRT-3

So farBeijing L4, KL Airport Express

The jury is still out on Indian PPPbut some likelihood that Mumbai 1 andHyderabad will have to go through restructuring or government bail-out

In first generation PPP, mixed successes from SPC view as very big risk

shouldered by private parties (no MRG, no or low capex subsidies in early

projects)but overall successful delivery and efficient operations


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New schemes more balanced, mostly with shift of ridership risk to public

sector, e.g.:

Korea: (slow) shift to Build Transfer Lease after first generation

projects proved unsustainable

Thailand: PPP Gross Cost the norm from Purple Line onwards (norevenue risk but lease payments indexed on performance)

Philippines: New PPP model under Aquino administration. Still ridership

risk, but shadow toll (MRT7) or can rely on existing traffic figures (LRT1).

India - biggest PPP consumer in the world recently, and generallysuccessful for other utilities, while for Rail much will depend on

performance of Mumbai 1 then Hyderabad

New PPP models are more robust, but still capex heavy


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Delegated Management" in Asia - Macro view

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50

100

150

200

250

300

350

400

450

Concession Greenfield PPPproject

GovernmentDivestiture

O&M / Managementcontract

Transport PPP projects, nb per type (1990-2012)

East and Southeast Asia (exc Japan, Korea) South Asia

Prevailing mindsetprofit is a remuneration of investment no investment, no profit

But service and investing are 2 very different activitiesand the best operators are

rarely the best financiers

Source: World

Bank PPI database


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Real rail O&M contracts in Asia

Singapore, to the 2 local operators

MTRBeijing Daxing (to some extent)

Shenyang tram

Other: Cancelled plans in Chennai and MTR Shenyang

Concessionaires delegating O&MSeoul L9, Mumbai, Hyderabad, Busan-

Gimhae, Uijeongbu

Delegated Management" in Asia Rail


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No pure delegated management case in the bus market in Asia (no assets, service only)

India BRTS with JNNURM financing probably the closest example

A very few casesown buses onlylimited duration license

Seoul (few tendered bus lines)

Transjakarta

Delegated Management" in Asia bus

Private sector

involvementGeneral service

standardAssets on operator

BSTenders

Foreign

operators?

ChinaMostly SOEs, some

private, few JVs++ Bus + Depot No

HK, SGP,Alsa,

Kumho

Korea Only private +++ Bus + Depot No No

IndiaBig operators SOE +

many small private+ Bus + Depot Some (Bluelines) No

India BRTS Only private ++ JNNURM support Yes Serco

Japan Mostly private +++ Bus + Depot No No

Singapore

Private, but

government linked +++ Bus + Depot No

No

Singapore,

City DirectOnly private +++ Bus Yes No

Thailand

(Bangkok)Mixed (dominant

SOE)++ Bus + Depot

Some (BRT, some

new routes)No

Indonesia

TransjakartaOnly private ++ Bus + Depot Some (feeders) No

MalaysiaMixed (Dominant

SOE in KL)

++ (private) / +++

(RapidKL)

Bus + DepotNot yet, possibly

for BRT

No

Vietnam Mostly public + Bus + Depot No Kumho


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Risk Sharing

Situation in Asia

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C l i


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Delegated Management has proven outcomes in transparency / cost-reduction /

service improvement / ridership stimulation / project delivery times

Several financial & contractual schemes are available to reflect different

allocation of risks in function of local authorities priorities

Delegation to private sector does not remove Public Sector Responsibilities.Institutional responsibilities

Control of service Quality

Tariffs to end-user and competition definition,

Delegated Management need capable PTA and experienced operators

In Asia, Operations and Infra (Capex) are still largely perceived as going in pairDelegated Management Model has been slow to gain tractionwith influence from the

Japanese/HK model

Yet these models are very difficult (impossible?) to replicate and very few actors able

There is potentially ample room to deliver tangible benefits with Delegated Management

Conclusion


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Thank you!

delegated management in public transport

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