1. Leveraging PPPs to finance
infrastructure needs for urban
transport
William Dachs
Gautrain Management Agency
ITSSA Summit;
Cape Town
8 March 2012

2. Stating the Problem
• Cities in Developing Countries have
– Too much demand for existing, limited services
– Rates of growth greater than growth of services
supply
– Increasing inefficiency as a result of urban sprawl
– Increasing inequity
– Increasing congestion
– Increasing noise and air pollution

3. Stating the Problem
• Made worse by
– Disjointed planning
– Poor institutional arrangements
– Limited public financing available
– Inability to manage demand for services
– Disjuncture between public planning and private
finance
– Poor maintenance of existing assets

4. Stating the Problem
“...a society that is hell bent on outstripping
Los Angeles as the low density capital of the
world. The main reasons that such a
scenario is bad are: the increasingly high
costs of providing basic services in a low
density megalopolis and, the forgone benefits
of effective urban agglomerations”
Andrew Marsay - Transport Economist

5. Starting to solve them
• Some basic building blocks
– The key is integrated land use and infrastructure
planning :
1. What will our cities look like in 10, 15 and 20
years time?
2. Where and what infrastructure is needed for
those cities?
3. How do we finance, develop, and maintain those
infrastructure assets?
Only the last question is related to PPPs

6. Sources of Funding
1. Public funds (tax revenue and sovereign borrowing)
2. Domestic Development Finance Institutions
3. Sub-sovereign borrowing and bonds
4. Private Finance (PPP)
• Institutional investors (especially pension funds)
• DFIs
• Infrastructure Funds
• Capital markets
• Debt markets (Banks Corporate (balance sheet)
• Project Finance (limited recourse)
All but public funds need a return!

7. Historic Sources of
Revenue
1. The user pays for the services eg water, electricity,
transport costs
2. The City pays for the services eg road maintenance
contracts
3. The Provincial or National Government provides a
subsidy to either of the above eg public transport
subsidies, ESKOM rebates
• Can have a combination of such sources
• Its actually about which tax payer pays for what and the
application of user-pays-principle

8. Newer Sources of
Revenue
1. Developers pay a once-off capital contribution to cover
the marginal costs of bulk infrastructure required for
their development
2. Betterment taxes (pre-or post development)
3. Land value capture

9. Some options
1. Cities with high land values and high government
ownership of land give land development rights as part
of PPP for transport (eg India, Vietnam)
• Rights in perpetuity of great value
• Property development different risk profile
2. Cities with track record of delivery raise betterment
taxes on land that will be improved by a project (eg
London)
• Must be trust that project will proceed
• Must be demonstrable benefits
3. PPPs to ensure ongoing maintenance by linking
payment to performance

10. Some options
1. Infrastructure Projects are selected for their economic
and social benefits
2. In an urban context these relate to savings in time,
VOC, environmental costs, land use etc
3. These benefits are rarely captured in form of capital
contribution to the project
4. PPPs can address technical sustainability, transfer risk
and improve trust that project will be delivered
5. Benefit capture must be agreed beforehand

11. Some issues
1. PPPs don’t work all the time in all situations
2. There has to be:
• A stable and consistent regulatory environment
• A competitive market
• A revenue stream for the private sector
3. Some examples:
• Europe where PPPs now part of fiscal mess
• SA where investor confidence damaged by e-toll
fiasco
• SA’s renewable energy IPPs a good example

12. Gautrain Case Study

14. Gautrain as a PPP
• Capital Sources – Mix of Public and Private
• Maintenance and Operating Costs - Private
• User Revenue – Private Sector
• Patronage Guarantee - Underwrites Private Sector demand
risk
• Risk Transfer, Value for Money, Affordability
– Innovation, integration, fixed price, date certain
• Performance & Penalty regime
– Availability, reliability, safety & security
– Performance deduction for low performance

15. PPP - Project partners: Equity
PUBLIC PRIVATE
17% 8%
33%
25%
17%

16. Funding
• Gautrain has 5 sources of funding
– DoRA (Division of Revenue Act) money from
central government via the Department of
Transport
– MTEF (Medium Term Expenditure Framework)
from Gauteng Provincial Government
– Private Sector Equity
– Private Sector Borrowing
– Provincial Borrowing

17. Project Financing
Provincial
borrowing
Private Debt 18.4%
9.5%
Equity
1.8%
MTEF
26.1%
DoRA
44.2%

18. Development around Stations

21. Network Integration
Pedestrian
Desire Lines
Park n Ride
Corporate Entrance and Exit
Shuttles
Public Transport
Entrance and Exit
Minibus Metered
Taxi Taxis
Drop-
off
Gautrain
F&D Pedestrian
Buses Entrance
Public
Transport Public Short Term
Transport Parking

22. Gautrain in Urban Context
• Land use planning very well coordinated
• Very strong development around stations
• No capture of benefits before hand
• Ex-post betterment tax vehemently opposed
• Development rights on stations constrained

23. Gautrain – Summary
• Gauteng has gained a ZAR26 billion transport asset
carrying up to 100,000 passengers per day
• Shared costs between five sources
• 15 year concession will end with revenue exceeding
operating costs and assets fully paid for
• Development on budget (to Province) and on time
• World class risk management
• Quarterly reporting on fiscal risks

24. PPP - Summary
• Financing sources can be used smartly
• Planning and intergovernmental coordination key
• Benefits must be identified up-front and ring fenced
• PPPs can help from technical sustainability
• Investors and beneficiaries must trust that the
projects will be delivered

25. Thank You
www.gautrain.co.za
0800-Gautrain