Bus Concession Contracts— Lessons from Bogota`s Transmilenio

Bus Concession Contracts—
Lessons from Bogota’s Transmilenio &
the Integrated Public Transit System
(SITP)
Camila Rodríguez Hernández
World Bank, Transport & ICT Global Practice
Agenda
 Basics of Tariff Policy & Lessons Learnt
 Contract Incentive Schemes in Bogota’s
Transmilenio and SITP (citywide reform)
 Conclusions
2
Bogotá: Targeted Corridor—Transmilenio (2000)
3
Bogotá: Citywide Transformation—SITP (2012)
4
Photo Credit: EMBARQ 2010
Tariff Policy—
Competitive Bidding to Identify Cost Recovery
• “Cost Recovery” Principle Formula…
Trunk
Feeder
Fare Collection
Trust Agent
BRT Agency
• Where, each of these elements (except the public sector administrator
costs) are bid out separately:
Trunk & Feeder
Fare Collection
Trust Agent
Local BRT Agency
• Provides public transit services
• Competitive bidding process for trunk and feeder services.
• Automatic fare collection, centralized fleet control/programming
• Competitive bidding process.
• Manages system’s resources and pays different agents
• Receives a percentage over total tariff (fare) sales
• System planning and control
• Fixed payment
Tariff Policy—
Technical Tariff & User Tariff
“Indicative” Technical Tariff
Fare
Collection
6-13%
Agency
4-11%
Trust Agent
<0.5%
Trunk & Feeder
70-90%
• From “Cost Recovery”
Principle, a notional Technical
Tariff is calculated to estimate
the required average revenue
per ticket sold that is needed
to guarantee remuneration of
all of the system’s service
providers
• User Tariff set close to
Technical Tariff and
determined by decree (Mayor
of Bogotá).
Tariff Policy—
Lessons Learnt
Composition of the Technical Tariff – Selected Colombian Cities
Bogotá
Bus Operators
(1)
Barranquilla
Bucaramanga
Cali
Pereira
87.96%
68.6%
67.6%
68.0%
87.2%
Fare Collection
8%
6.0%
13.5%
13.0%
9.1%
BRT Agency
4%
7.0%
6.85%
7.0%
3.5%
Bus Scrapping (2)
--
9.4%
--
3.0%
--
Infrastructure
--
9.0%
11.75%
3.0%
--
0.04%
N/A
0.03%
N/A
0.2%
Transport Authority
--
--
0.27%
--
--
Contingency Fund
--
--
--
6.0%
--
100%
100.0%
100.0%
100%
100.0%
Trust Agent
Total
(3)
• Notion of ‘technical tariff’ as an important information to set user tariff
• Ridership estimates are a key critical input in determining initial technical
tariff
• Bidding process that guarantees efficiency in costs, depends on the
competitiveness of the bidding process
• Tariff “scope creep”: more and more cost elements not directly related to
operations have been loaded on the tariffs
Source: World Bank (2014)
Tariff Policy—Peak/Off Peak Pricing
Ridership in Transmilenio before (May) and after (September) the Differential Pricing Scheme
•
•
•
Transmilenio implemented a differential tariff policy to deal with a crush level peak-load
problem.
But relatively inelastic demand brought in very small changes in either peaking patterns
or total ridership.
Due to contract design (payment scheme tied to IPK), the differential tariff has not
generated further cost savings or operational efficiencies in Transmilenio (which could be
transferred to end-users)
Source: World Bank Study
Tariff Policy—
Bogota Targeted Subsidies for the Poor
• Feb 2014 roll-out. Important step towards targeted subsidies instead of general
sociodemographic subsidies (students, elderly, disabled, etc.)
• Population registered in the National Poverty Targeting System (called SISBEN) with a score
<40 points are eligible to receive a public transit subsidy equal to a 40% discounted fare capped
at 21 trips per month.
• To obtain the card, beneficiaries can register online or visit a city service center. Once their ID
is validated against the SISBEN database, the beneficiary receives the smartcard in person at a
city center in about three business days.
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Source: Webpage explaining the transit subsidy for SISBEN 1 and 2 beneficiaries. http://www.sitp.gov.co/publicaciones/beneficios_de_transporte_para_personas_sisbenizadas_pub
Length of Contract—
Lessons Learnt
Selected Bus Concession Contract
Length Contract
Bogota SITP
Bogota Transmilenio
(Phase1 & 2)
Santiago (Trunk
Operators)
Cost/Km
24
10
(+additional 3)
USD2,85/km
USD 3,42/km
12
USD 2,5/km
Santiago (Feeder)
5
--
London
8
--
Source: World Bank SITP Study (2013)
• Key driver in determining length of contract, is the time it will take
the operator to recoup investment (i.e. fleet)
• Critical contract feature that determines the public sector’s ability to
adjust, and move towards truly ‘competitive bidding’ process
Payment Mechanism—
Transmilenio Trunk Operator
 CTi  Kmi
Inputs included Cost/Km factor:
• Fuel
• Tires
• Lubricants
• Maintenance
• Labor
• Fixed Costs (Fleet, RoI)
• Trunk operators paid on a
Cost/Km logged basis (gross cost
contract); cost factor covers both
variable & fixed costs.
• Caveat--For every km logged,
trunk operator gets paid cost/km
in full, irrespective of the fact that
fixed costs may have been covered
before termination of concession
contract (i.e. higher fleet
utilization rate).
Payment Scheme—
Demand Risk in Transmilenio
Available Remuneration to Trunk
Operators (Disp)/Total Trunk Cost (CT)
vs. IPK
•
Initial TM contracts introduced
demand risk in two ways:
 Trunk operators get paid “last”
 Inverse relationship between
passenger per km index (IPK) and
Technical Tariff:
TT 

1/ IPK
•
Note: Available Remuneration (Disp)= Revenue distributed to Trunk
Operators once all other system agents are paid (Feeder, Fare Collection, Trust
Agent, BRT Agency)
•
Source: World Bank Study Calculations (2013), based on Vasquez (2012).
CTi  Kmi C A  Pas A

 CR
PV
PV
(1  %F  %G)
However, contract terms set a floor
(4.75) and a ceiling (currently 5.08). for
IPK. If IPK is bellow floor, trunk
operator assumes demand risk. If IPK
is above ceiling, trunk operator
captures increased demand windfalls.
New contracts (F3) take out this clause,
and introduce payment scheme based
on Kms logged and fleet in operation.
Payment Scheme—
Bogota’s SITP(citywide reform)
• Payment to TRUNK Operators…
RT  f (Q)Tronccal  TMVT  NoVehT  / 4.3  OEKmTronc  TKMT   CFR  KMStronc 
• Where:
TMVT  NoVehT 
OEKmTronc  TKMT   CFR  KMStronc
•Payment per vehicle in operation;
represents
~ 30% total remuneration
•Payment per km logged; represents ~ 70%
total remuneration
New trunk operator contracts include payment scheme on the basis of number of
fleet in operation and cost/kms logged, and eliminates the IPK factor, largely to
address the aforementioned challenges.
Payment Scheme—
Bogota’s SITP(citywide reform)
• Payment to ZONAL Operators…


f (Q) Zonal   CVehi ,k  Vehi ,k   CKmi ,k  Kmi ,k   CPaxi  Paxi 
k

• Where:
CVeh
i ,k
 Vehi ,k 
•Payment per vehicle in operation; represents
~ 22% total remuneration
CKm
i ,k
 Kmi ,k 
•Payment per km logged; represents ~ 56% total
remuneration
CPaxi  Paxi 
•Payment per passenger transported; represents
~ 22% total remuneration
Initially TranSantiago’s operators received a remuneration per passenger carried
(demand risk) that represented approx. 20% of total remuneration (similar to
Bogota’s SITP); however, this had to increase up to 70% to actually align incentives
and cater to demand.
Penalty & Reward System—
Bogota’s SITP(citywide reform)
• Payment to Zonal Operators…


f (Q) Zonal   CVehi ,k  Vehi ,k   CKmi ,k  Kmi ,k   CPaxi  Paxi 
k

In the SITP, fines & penalties are largely determined by this factor:
f Q   Max(0.40  IR  0.60  IP ,0.97)
• Since the revenue loss for the operator is negligible (at max 3%), the operator
may be better off reducing operating costs by lowering service (regularity and
punctuality), since their income is largely unaffected.
• On the other hand, a penalty system that is too stringent (such as contract
termination) is rarely a credible and enforceable threat for the operator
The incentive structure should include credible, enforceable, and significant
penalties and rewards that align desired service standards to operator’s
performance.
Conclusions
• In terms of tariff policies, the experience in Colombia suggests that tariffs set
at ” cost recovery” should be stripped down to the operating essentials, so as
not to have the users pay for societal benefits. Furthermore, it becomes
increasingly important, particularly after the initial stages of the reform, that
each element or service competent included in the tariff is openly tendered to
ensure efficiency.
• As there are steep learning curves in the initial years of the reforms, it
becomes critical that contractual terms are not unreasonably long, so that
subsequent phases can incorporate the lessons learnt and are truly opened up
to competition.
• In terms of incentive structures in bus concession contracts, the experience
has noted that different reforms calls for different demand risk uptake from
operators, and different payment & reward mechanisms.
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