1

INSTITUTE OF URBAN TRANSPORT (INDIA)

Session 3: Operation and Infrastructure on PPP

Training Workshop on City Bus Planning ,13 16 Oct 2014

Structure of Presentation
Evolution of PPP in bus Transport
Types of contracts
Pros and Cons of Contract
Selection of an appropriate model
Appraisal of Contracts
Problems and Issues
Case Studies

Evolution of Privatization and PPP in Urban Bus

Transport

Stake Holders of Public Transport

Municipalities
Bus
Operators

Government

General
Public

Stake
Holders

Educational
Institutions

Traffic Police

Regulators
(M.V.Dept)
Urban
Development
Authorities

Stake Holders of PT

Municipalities To provide infrastructure such as terminals, bus

shelters, bus bays, Depots etc.

Bus Operators To provide effective

and efficient services at

affordable fares with customer satisfaction.

Traffic police - To give bus priority measures for Public Transport.

Regulators (M.V.Dept)- To avoid unhealthy competition from other

modes like Auto Rickshaws

Stakeholders of PT

Urban Development Authorities For planning long range Public

transport Services and providing infrastructure.

Educational Institutions- To encourage their employees to use the

Public Transport Services by offering Students Bus pass.

General Public- To promote Public transport usage.

Government To lay down policies that promote Public Transport.

Organizational Options

State Transport Undertakings (Public Monopoly)

Municipal Undertakings (Public Monopoly)
Under Company's Act (Private or Public Monopoly)
Private Operators (Private Monopoly)
As Public Private Partnership (PPP) venture (Service Tendering)

Types of City Bus Undertakings - 1

Departmental undertakings directly under the

State Government
Municipal undertakings owned and controlled by
the municipal corporations
State Transport
Undertakings

Companies & Corporations formed under the

Indian Companies Act (1956)

Road Transport Corporations formed under the

Road Transport Corporations Act, 1950

Types of City Bus Undertakings - 2

A. Statutory body formed within an act or law
Advantages

Disadvantages

Formed
under
a
special
enactment and hence has
greater
authority.
Special
powers as may be needed for
managing the city bus service,
such as the powers to acquire
land or penalize violators can be
entrusted to it under the law
setting it up

Long and cumbersome process of

formation. Cannot raise equity from non
government sources. Will have a budget
controlled by State government.

It could also be entrusted

powers to levy fees and earn
revenue

Will be a Government agency. Will be

bound by government HR policies. May
lead to inefficiencies in management.

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Types of City Bus Undertakings - 3

b. Company SPV could be registered under the Companys Act of
1956, which gives it pre defined powers for performing its roles and
functions.
Advantages

Disadvantages

Simplified and quick process of Will require other statutory approvals,

registering. Can obtain private including declaration of scheme and
equity and be privatized.
notification under MV Act, land
acquisition approvals, bus permits
under MV Act etc.
If not privatized will be a government
company and face similar HR issues as
a statutory authority.
Would have adequate authority
to manage the city bus service.

No special powers available and the

company is expected to function based
on a pre set mandate defined in its
Memorandum
and
Articles
of
Association.

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Types of City Bus Undertakings-4

c. Corporation under the Road Transport Corporation Act of
1950.
Advantages

Disadvantages

The RTC is statutorily

empowered
to
operate
road
transport
service
within the state, and
will not require a
specific permit under
the Motor vehicles
Act,
1988.
technology.

Since it would be a road transport corporation (RTC) which is

mandated to be established by the State Government and cannot
be privatized without consequential amendment to the RTC Act,
this will impose the financial burden of the operation of the
company to be on the State Government.
The constitution will have to be in accordance with the provisions
of the RTC Act. The Chairman, the CEO, Chief Accounts Officer,
etc. are to be appointed by the State Government.
The RTC would be required to submit its budget to the State
Government for approval.
Required to maintain accounts as prescribed by the State
Government and audited annually by the controller and Auditor
General (CAG)
The SPV would have to abide by the directions issued by the
State Government (including directions relating to recruitment of
employees)

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Organization Basic Functions

Traffic / operations
Maintenance

Budgeting & finance

Administration
Monitoring & Evaluation

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A Cycle of Privatization in Passenger Transport

Before 1950

RTC Act, 1950

1950-1980

Private
Sector

Public
Sector
1980 onwards

Public Private
Partnership
2005 onwards

Efficacy of public private partnership (PPP) for city bus operations experience from Indian cities, Parashar & Dubey, 2011, European Transport Conference

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Private sector in Passenger Transport: Evolution & Growth

Market Share of
Private Sector

100%

89%

85%
77%

80%

57%
Growth of STUs

40%

Central Funding Support

withdrawn for lossmaking STUS

Increase in Losses of
STUs

Formation of STUs under

the RTC Act of 1950

1996

1991

1981

1976

1971

1966

1961

1956

1951

Nationalization Process
Phased Out

1986

Fleet acquisition of STUs

made limited to
replacement of old buses

20%

STUs asked to
cater to surplus
demand through
private sector

2006

60%

65%

2001

Policy of
Nationalization

7th Five Year

Plan

Efficacy of public private partnership (PPP) for city bus operations experience from Indian cities,
Parashar & Dubey, 2011, European Transport Conference

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Private sector in Passenger Transport: Evolution & Growth

Market Share of
Private Sector

100%

89%

85%
77%

80%

65%
60%

57%

Formation of STUs under

the RTC Act of 1950

7th Five Year

Plan

2006

1996

1991

1.1%
1986

1981

1976

1971

1951

Share of buses in total registered vehicles

1966

11.1%

20%

1.25%

2001

Financial allocation for STUs in budget outlay

1961

7.4%

1956

40%

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Private Sector in Urban Road Transport: Evolution and

Growth

7th Five yr. Plan (1985-90)- Exclusive focus on urban transport

Delinking of urban services from rural/inter city services of STUs

Urban services an unviable proposition

Loss making STUs keep showing interest in rural/inter city services

Options for involvement of Private sector were explored

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Early attempts at privatization in city bus services: Delhi

Cluster Scheme
launched in 2009 on
Gross Cost model.

Gross
Cost
Conceived and launched
in 1964 as Kilometerage
Scheme
Hire Charges not
acceptable to Private
Operators
Scheme failed.

The Blueline Era: Small-scale

private operators given permits
for operation
Unfair practices, unregulated
operations.
Scheme ended in 2009.

Net Cost

Net Cost
Kilometer Scheme relaunched in 1979
with higher acceptable Hire Charges.
Continued successfully until agitation by
DTC workers against collection of fare in
private buses
Eventually converted to Charge n Retain
Net Cost Model.
Got phased out owing to increase in input
costs and infrequent fare revision.

AOCC Scheme launched after

failure of Kilometerage Scheme
Overlap of routes with DTC led
to unfair practices on roads
Scheme called off in 1976.

Gross
Cost
Efficacy of public private partnership (PPP) for city bus operations experience from Indian cities, Parashar & Dubey,
2011, European Transport Conference

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The case for Public-Private-Partnership: Recent trends

Policy thrust towards PPP in city bus operations in 2005

National Urban Transport Policy, 2006

Bus-funding scheme & Jawaharlal Nehru National Urban Renewal

Mission (JnNURM)

A total 140 cities, 50+ Special Purpose Vehicles (SPVs)

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City Bus Operations through PPP: Recent Attempts

Basic philosophy behind PPP:

Distributing

to

each

Public Domain

the

Planning

Private
Domain

functions they are best capable

of performing
Infrastructur
e
Development

Operation

City Bus
Operation
s

Began with Indore Model

Monitoring

Regulation

Efficacy of public private partnership (PPP) for city bus operations experience from Indian cities, Parashar & Dubey, 2011, European Transport Conference

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Type of Contracts

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Type of contract

Service Contracts

Cost Plus
Gross Cost
Route Based

Net Cost

Area Based

Route Based

Area Based

Kilometerage
Cost

Minimum
Cost

Cost per
Passenger

Min. Subsidy/
Max. Premium

Operator states the unit

costs of the service
(cost per km, per hour or
per vehicle day)

Operator states
the whole cost of
operating the
contract

Operators are
repaid based on
the cost per
passenger

Operators states minimum

subsidy required or
maximum premium
offered to the authority

Ex. Helsinki (Finland)

Ex. Goteborg (Sweden)

Ex. London
(before 1993)

AMTS
JANMARG
SITILINK
BOGOTA
Delhi -cluster

Ex. Santiago
(Chile)

Ex. London
(after 1993)
Surat, Rajkot, Indore,
Vadodara, Jodhpur, DelhiBlue Line, Delhi Metro
Feeder, Bhopal

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Cost plus Contracts

The public authority reimburses operating costs plus a

management fee

The fares are collected by the public authority

The operator does not bear either cost or demand risk

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Cost plus Contracts Pros and Cons

Pros

Cons

Contracting is simple

No incentive for operator to reduce

costs, increase patronage or
improve efficiency

Flexibility in change in services

Difficult for SPV to monitor costs

Revenue collection with SPV

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Case Study - Jaipur

SPV contracts and monitors
Buses procured by SPV (funded by JnNURM) and operated by

RSRTC on reimbursement of cost basis

Fare collected by conductors of SPV
SPV has no resources for monitoring
No Fare revision mechanism
Performance parameters- not defined
System sustainability: in loss

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Suitability of the Arrangement: Gross Cost Contract

Authority has the resources to mange the revenue collection activity

effectively
Avoid on-street

competition for passengers

Wants to establish a sustainable procedure to constantly test the

market (flexibility in changing the route, schedule, fleet size)

To facilitate integration between modes
Provide free or discounted interchange between all routes in all areas
Avoid discrimination against concession fare passengers

Greater compatibility with complex subsidy mechanism

Avoid the need to apportion off bus revenues between operators

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Gross Cost Pros and Cons

Pros

Cons

Easy bid process and contract

management

Risk of revenue leakage borne by

public entity

Flexibility in changing schedules

based on needs

No incentive for high ridership

Flexibility in changing fares

Need effective monitoring

Flexibility in changing in services

Financial commitments of public

authority can be high

Limited potential for disputes

Higher cost of staffing, monitoring

operation & revenues

Better integration between

modes/services
Avoid discrimination against
concession fare passengers

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Gross Cost with Incentives

Quality Incentives
Typically gross cost contracts with significant bonuses or penalties

linked to service targets

Revenue Incentives
Typically gross cost contracts with incentives linked to revenue

targets

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Contract Document: Gross Cost Contract

Duration for which the arrangement is valid
Guaranteed km-per day/month/year
Definition of Payable & Non-payable kms
Trigger points and formula for calculation of the escalated consideration
Fare revision Mechanism (Formulae. Period)
Vehicle Specifications- (detailed OR functional specifications??)
Routes, stoppages and minimum frequency of the buses and DEPOT with

infrastructure
Performance standards and quality standards
Enforcement of the standards and norms mentioned above
Extent to which the shared infrastructure can be used by the private

operators

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Case Study Ahmedabad, BRTS

SPV-JanMarg contracts and monitors
Buses procured by operator and operating on gross cost + incentives

basis
Minimum guaranteed kms committed by SPV (72,000 kms per annum)
SPV has financial as well as manpower support from MC

Fare revision linked with change in fuel price & WPI, periodic revision

on 1st April of every year (automatic and free from political

interference)
Cost/km revision wrt change in fuel & WPI
Incentives/penalties linked with pre-defined performance parameters
Change in schedule, fleet size at the discretion of SPV

System sustainability: profit

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Suitability of the Arrangement: Net Cost Contract

The demand for the bus service is established in an accurate and

credible manner

The transport authority does not have the inclination and/ or the
resources to mange the revenue collection activity

The transport authority intends to transfer the demand risk to private

sector and the private sector has the appetite to take and manage the
risk

The authority wishes to give the operator an incentive to increase

revenue and ridership

The authority is comfortable on giving the operator some flexibility to

amend routes and schedule to make the network as attractive as
possible

Not possible in the environment of unregulated externalities and

regulated fare

Not suitable in unregulated IPT market

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Net Cost Pros and Cons

Pros

Cons

Risk of revenue leakage borne by

operator

Risk of passenger capture

techniques being adopted

Effective incentive for high ridership

Need to specify fares and other

details upfront

Financial commitments of public

entity are low

Complex tendering and contracting

process
Difficult to make changes (route,
schedule, fleet size) during contract
period
Potential for disputes high
Cut-corner in services for
maximising the profit

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Contract Document: Net Cost Contract

Duration of contract, Routes, stoppages and minimum frequency of the

buses and DEPOT with infrastructure

Fare revision Mechanism (Formulae. Period) Automatic?

Value Added Services

Moratorium period

Vehicle Specifications- (detailed OR functional specifications??)

Contd..

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Contract Document: Net Cost Contract

Performance standards and quality standards

Enforcement of the standards and norms mentioned above

Extent to which the shared infrastructure can be used by the private

operators

Provisions for amending routes, frequency, fleet size- License fee?

Transparent procedure for distribution of revenues from advertisement,

passes etc.

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Case Study - Bhopal

SPV contracts and monitors for 8 years extendable for 2more years
Moratorium period 4 months
Hand holding support by UMTC
Buses procured by SPV (funded under JnNURM) and contracted to

private operator on net cost basis

No subsidy from SPV
Rationalization of the routes including IPT
Exclusivity provided on routes initially but not enforced

Automatic fare revision formula but not implemented

System sustainability: breaking even

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Particulars

AICTSL-NCC (Indore)

AJL-1- GCC
(Ahmedabad)

AJL-2-GCC
(Ahmedabad)

License Fee/ Payments

Rs. 1,22,785/ annum

EMI derived from Bus

cost/ 60 month loaded
on operator

Performance Guarantee

Rs. 8,59,500/ annum as

Refundable adjustable
Security Deposit

5% of the bus cost

Rs. 3,40,000/ annum as

Refundable Performance
Guarantee
Selection Criteria

Rs X/ bus/ day with floor

price fixed at Rs 400/ bus/
day

Rs per km

Rs per KM

Fare Revenue

100% retained by operator

Pass Revenue

20:80 between AICTSL

and operator respectively

All revenues to be
retained by AJL.

All revenues to be
retained by AJL.

Advertisement Revenue

40:60 between AICTSL

and operator respectively

Operator paid on Rs/

km for operation of
buses with assured
km

Operator paid on Rs/

km for operation of
buses with assured km

Transfer Option

Sales proceeds from bus

auctions to be shared in
60:40 ratio between
AICTSL and Operator

Buses transferred at
the end of contract
period to bus operator

Transferred to operator
on payment based on
the book value at the
end of contract period

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Quality Indicators
Possible quality indicators
Fleet utilization
Vehicle utilization
Up-keeping of the bus
Adherence to Schedule, punctuality
Crew behaviour, driving practices
Customer information
Customer service
Equipment, special services

Rate of accidents

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Selection of an Appropriate Model

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Selection of appropriate model

Selection of contracting model depend on various factors:

Capacity (financial as well as human resource) of public authority
Risk appetite of private operators
Legal and regulatory framework
Competition from informal and IPT sectors

In Indian context gross cost contract with quality/revenue incentives most

appropriate

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Fate,Issues and Problems with Recent PPP Attempts

42

Fate of recent Attempts in PPP

Kota
Jalgaon
Jodhpur
Jaipur
Rajkot

Closed or early
terminated

DMRC feeder
Amritsar

Single operator
Jalandhar

Vadodhra
Ujjain
Indore

Bhopal
Ludhiana (GCC)

No system expansion
since inception

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Recent Attempts in PPP: Issues

Change in the routes by
the operators from the
original routes

Original routes found unviable

No service on unviable
routes

Over crowding of
passengers in peak hours

Underestimation of fleet size

No mechanism for increasing the
fleet size

Adverse for the image of

public transport

Non-adherence to the
schedule & routes

Lack of effective monitoring

Lack of confidence among

the commuters

High risk anticipation

Operators only for viable

routes, Monopoly in service

Lack of infrastructure

Image of the system affected

Life of buses goes down

Absence of dedicated top

level management

Necessity not appreciated

Lack of ownership of the

overall system

Skeleton Staffing in the

SPV

To prevent situation of STUs

Non-delivery of regulatory
functions

Low level of participation

during bidding
Poorly maintained buses

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Root Problems

1.

Absence of Fare policy

2.

Absence of a robust institutional structure

3.

Inadequate operations planning for the system

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Absence of Fare Policy

Private sector doesnt show

much interest

Absence of
Fare policy

Private operator quotes low

license fee

Unwarranted practices post

inception of operations

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Absence of Robust Institutions

Officers having additional responsibilities
with short tenure short vision
Skelton structure of SPVs(2-3 employees
with no job commitment)- ownership

Absence of

Not efficient to deliver the functions-

Robust Inst.

monitoring

Allocation of resources (land, right of

adv.)-maintenance & sustenance
Minimal paid up capital- no financial
independence

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Inadequate Operation Planning

Routes changed after

inception of operations

Inadequate
operations
planning

Operation on only profitable

routes

Only viable routes bid out

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Issues affecting success of PPP model

City does not consider Public Transport as essential service
No Capacity building at SPV
Poor support by local Administration , Police & RTO
Poor understanding of ( PPP) Partnership concept
Lack of commitment to build necessary infrastructure .
No Model concession agreement.
No provision of Viability Gap Funding to Private Operator .
Expectation of High Royalty & Taxes

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Steps to be taken.for sustainable PPP in CBS

Time to have MCA?

Recognizing CBS as Infrastructure project- long term low interest funding,

fuel subsidy
Tax holidays (80 IA)
Fare Policy
Strengthen SPVs (beyond paper)
Provision of Depot (part of master plans)
Safeguard of patronage through amendment in MV Act
Route rationalization incl. IPT

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Development of City Bus Infrastructure on PPP

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City Bus Infrastructure

Require huge investment (Capex)

Operation Cost (Opex)

Maintenance Cost
Longer life than city buses

MAINTENANCE
OPEX
CAPEX

EXPENSES

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Bus Q Shelters

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Bus Q Shelters

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Bus Q Shelters

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Bus Q Shelters

Operating
Expenses

Regular
Maintenance
Expenses

Repayment
of Capex*
Revenue
from
Advertising

Revenue
Share to the
Government

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Win-Win Proposition
PPP projects offer a win-win proposition if the initial steps have been
carried out diligently.

City

City Administration

Private Partner

World Class facilities

& amenities
Enhancement in the
aesthetics of the
cityscape
Employment
Generation for
locals
Feeling of pride &
ownership among
citizens

Infrastructure
development at
ZERO cost
Well maintained
street furniture
formats are seen as
a sign of good
governance
Additional revenue
for development
work

Opportunity to
create a world class
showcase
Introduction of
Global Best
Practices
Return of
Investments

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Need for PPP in Bus Terminals & Depots

Constraints faced by STUs- Lack of Basic Passenger amenities like

clean toilets, covered passenger concourse area, designated parking
lots, robust PIS etc

Heavy O&M costs- for bus terminal buildings and related facilities

Lack of funds for up-gradation and provisioning for modern

technologies and amenities

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Value through PPP

Creation of State-of-Art Infrastructure / Services for Users

Better design / segregation / safe design

Introduction of Best Management Practices for O & M

Self Sustaining through optimum utilisation of valuable land and

available sources of Revenue from Bus Terminals

Additional source of revenue for state undertakings which can be

utilized for CBS / Non PPP able components / small depots

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Modes of Development
Build Operate Transfer (BOT/ BOOT) Contracts
Design frozen by the AD
The bidding Parameter can be Concession Period / Annual
Concession Fee / Upfront Premium / Revenue Share

Private partner has the responsibility for construction and

operations
Ownership is with the private partner for the duration of the

concession
For example, Ludhiana, Amritsar & Jalandhar Bus Stands

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Modes of Development
Design-Built-Finance-Operate-Transfer (DBFOT)
PSP responsible for designing, financing, construction and
operations
Bidding Parameter can be Concession Period / Annual
Concession Fee / Upfront Premium / Revenue Share
Sub leasing rights with the PSP for the concession period
Right to Escrow the revenue for raising the Finances.
Mohali Bus Stand, Himachal Bus Stands ( Una, Hamirpur,
Parwanoo)
Most Preferred mode of development appropriate risks
transferred to PSP

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Recommended Structure & Checks

As DBOT is the most widely followed model, wherein the design
flexibility rests with the PSP, it is recommended to keep certain checks
on the development envisaged by determining Minimum Development

Obligations
While approving the design for Bus Stand following components
to be made intrinsic:
S.No

Components to be Mandatorily Provided in Bus Stand

Bus Bays including the Alighting, Boarding/ Local Bays

Number to be defined

Idle / Night Parking Bays

Number to be defined

Bus Circulation Area

Area in Sqmt

Passenger Concourse Area

Area in Sqmt

Enquiry Office/ Reservation / Ticketing Counters

Number to be defined

Tourist Information Center

Area in Sqmt

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S.No

Components to be Mandatorily Provided

Clock Room / Pass Room

Area in Sqmt

Administrative Block ( to be transferred to AD )

Area in Sqmt

Rest Room for Crew Members

Number of Beds

10

Rooms for Private Operators

Area in Sqmt

11

Waiting Hall (General/ Ladies )

Seating capacity

12

BOT office

Area in Sqmt

13

Control Room / IT room

Area in Sqmt

14

Toilets

Number to be defined

15

Parking for Govt Vehicles

Number of ECS

16

Paid Parking (Two Wheelers / Car Parking )

Number of ECS

17

Open Seating Area

Number of Seats

18

Canteen / Restaurants

Area in Sqmt

19

Dormitory

Number of Beds

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S.No

Components to be Mandatorily Provided

20

Ramp for Handicapped

Slope to be defined

21

Wheel Chairs

Number to be defined

22

Trolleys for luggage

Number to be defined

23

Rooms for Private Operators

Area in Sqmt

24

Police Security Check Post

Area in Sqmt

25

Post Office/ ATM/ First Aid Center

Area in Sqmt

26

Dustbins

Number per bay

27

Display Boards

Number to be defined

28

Digital Clock

As per number of bays

29

Yard Control Area

Area in Sqmt

30

Allowed Commercial within Passenger Concourse

Percentage of concourse
area

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S.No

Components to be Mandatorily Provided in Workshop

Office of General Manager

Area in Sqmt

Cash Branch Office

Number to be defined

Office Space for Support Staff

Number to be defined

Rest room for drivers & support Staff

Area in Sqmt

Dormitory

Number of Beds

Space for Diesel Fueling Station

Area in Sqmt

Automatic Washing provision / Greasing dugs

Number per bay

Water Storage Capacity

Number to be defined

Workshop Shed

Size in sqmt

10

Store room with shelf/ Tool Room

Area in Sqmt

11

Generator Rooms and control room

Area in Sqmt

12

Basis Amenities like toilets/ Canteen / pooja room

Area in Sqmt

65

Thank You

Office Address
1st Floor, Anand Vihar Metro
Station Building,
(Entry adjacent to Gate No 1)
Delhi - 110 092.
Tel.: (91) 11 66578700-09,
Fax.: (91) 11 66578733
www.iutindia.org

Training room (1) with U shape seating arrangement

IUT Member library with reading tables

Training room (2) with group seating arrangement IUT administration section