The Importance of E-Ticketing to Public Transport in Romania - URTP

Financing Urban Transport:The Importance of E-Ticketing Eto PublicTransport in RomaniaMatthew Jordan-TankPrincipal Urban Transport SpecialistEBRD--URTP Conference--Sibiu, RomaniaJune 19, 2009

EBRD BasicsMandate to promote transition to marketeconomiesEncourage environmentally sound andsustainable developmentAAA-rated international financial institutionfounded in 1991, owned by 61 governmentsand two inter-governmental institutionsEUR 20 billion capitalThe largest lender and private equityinvestor in Central & Eastern Europe andCIS

Perspectives on Urban TransportSector in EBRD Region

Urban Transport’shigh stakes• Estimated 1% of totalEuropean regional GDPlost to urban congestionalone (EU Urban TransportGreen Paper 2007)• Growing awareness of UT sector’scontribution to Climate ChangeAgenda• Global car emissions projected todouble from 42 gigatonnes CO2 in2000 to 84 gigatonnes CO2 by 2050(Stern Review, 2007)• Emissions from motorized transportas share of total CO2 emissions incities is estimated to be already over40% in the Bank’s countries ofoperation• Growing need for better efficiency inUT systems

Major Trends for Urban Transport in EasternEurope, Russia and CIS countriesMounting challenges– As GDP per capita income moves beyond$5,000 per year, car ownership increasesrapidly (Chamon & Mauro, IMF, 2008)– Car ownership still growing at 4-6% annually acrossall major cities – will flatten out at 500-600 cars/1000population – we’re only 50% there…– Inverse relationship between growth in private carmodal share growth and decline of public transportmodal share -- steady 1-2%/year since mid-1990s -when will it stabilize?Unsustainable trend: What city can (or wouldwant to) double its road capacity every 10-15years to match growth in auto-kilometers driven?– Negative externalities: Urban air quality andaccidents a growing concernPublic Trans %Car %

Given this context, what questions should webe asking?How can UT systems be made more efficient?How to contribute to sustainable mobility and at the same timefind achievable financing structures?What role do market-based instruments have? For which typeof projects?If the private sector is used, how to secure value for money?How to foster competitive, commercialized managementapproach vs. ‘old-guard’ public sector control?How to leverage constrained public budgets most effectively?

EBRD Approach toUrban Transport Investments NeedsSector NeedOut-dated Public TransportsystemsEBRD ApproachNew efficient rolling-stock backed by Public ServiceContract (PSC)Track/power supply replacement backed by PSCUrban Road Capacity and/orChronic CongestionVery large CAPEX needs fornew road or PT infrastructureInefficient Public TransportTicketingCompetitive route tendering with private sector or“commercialized” public sector operators backed by PSCActive Traffic Management, including parkingmanagement, based on multi-year performance-basedcontractingNew road and/or rehabilitation based on PerformanceBased Management and Maintenance of Roads (PMMR)Road pricing schemes where appropriatePPP structures where appropriateE-ticketing out-sourced on concession/managementcontract basis to private supplier-operator consortia

Why implement e-ticketing enow?Public Transport Operators feel under-compensated byMunicipalities for transporting social (discounted) passengersMunicipalities/Governments feel uncertain how much tocompensate PT operators because paper or cash-basedticketing systems make accurate statistics on passenger countsvery difficult to determineCash leakage/fare evasion weakens the economics of the sectorE-ticketing technology has become mainstream and affordableOperators are less creditworthy without e-ticketing since banksneed to be able to model clear and accurate revenues beforemaking loans

EBRD-Favoured Approach: Institutional &contractual arrangements for E-TicketingE Specialist E-ticketing company as“Service Provider”:– Municipality tenders for long-term (6-10 years)service provision contract to specialist e-ticketing companies– Winning company finances up-front costs(approx. EUR 5M for 1 million population city)– Specialist company installs/operates/maintainsall system hardware and software

lEBRD-Favoured Approach: Institutional &contractual arrangements for E-Ticketing E(cont.)Specialist E-ticketing company as “ServiceProvider”:– Company recuperates its investment and all operationsand maintenance costs by retaining a percentage (5-10%) of daily revenues collected through e-ticketingsystem– Company staffs, operates, collects fare revenues, andmaintains new system– City monitors performance to ensure contractualcomplianceThe approach increases revenues per unit significantly byreducing “cash leakage” & fare evasion by 20-30% whenmoving from coin or coin-based paper ticket systems toelectronic collection)

Contractual & Institutional Set-Up forE-Ticketing with Service ProviderPassengerspayThroughOn-boardvalidatorsMonitorscontract,ensurestransparencyE-ticketingService CoCollectsWeb-based,trackedautomaticallyin real-time= Flow of MoneyMunicipalTransportDept./AuthorityElectronicPaymentClearinghouseCalculatesdistribution ofpayments toaccountsof all partiesby contractualformulaExternalAuditMain Fund(Bank Account)Operator(s)1,2,3,…(~93%)E-ticketingService Co(~6%)Bankfiduciary(~0.5%)CityTransportDept(~1%)

Contractual mechanics of out-sourced model for E-Eticketing systemAn independent fiduciary agent (bank) receives allrevenues processed through the validators.At this stage, the Municipal Transport Authority thentells the fiduciary agent (bank) to pay the variousoperators based on their contractually agreed (PSC)operation plans.The bank as fiduciary agent first keeps itscontractually determined fee (approx. 0.5 percent) ofthe total revenues, and distributes the rest of funds toall involved parties.

Revenue verification of systemrevenuesThe revenues from each particular validator terminalshould match the electronic records of thepassengers entering the system.The electronic records are actually independentlyverified in two locations.The electronic data is downloaded to mainframecomputers/servers at both the e-ticketing companyand the Municipal Transport AuthorityThis sort of electronic verification is an effectivemechanism in building the confidence level of allparties in the fare collection system.

Revenue verification of systemrevenuesRevenue Information FlowComputerServer of e-ticketingcompanyMounted Validatoron Unit 1Mounted Validatoron Unit 2...Mounted Validatoron Unit nRevenue Information FlowComputer server of MuniTransport Authority

Basic example: Estimate for medium-sized Romanian CityIN LEIBASIC PARAMETERS OF PUBLIC TRANSPORT OPERATIONSFLEET SIZEANNUAL PASSENGERSANNUAL SYSTEM REVENUES(ANNUAL VALUE LOST DUE TO FARE EVASION & CASH LEAKAGE)NUMBER OF STAFF EMPLOYED BY OPERATOR IN TICKETING SYSTEM(TICKET SALES AND TICKETING CONTROLS)COST OF RUNNING OLD SYSTEMUP-FRONT INVESTMENT COST OF NEW E-TICKETING SYSTEM FOR(VALIDATORS, COMMUNICATIONS, SOFTWARE, HARDWARE)ANNUAL VALUE OF FEE CHARGED BY E-TICKETING COMPANY(EXAMPLE OF 6% OF ALL SYSTEM REVENUES) -- i.e., COST OF NEWSYSTEM TO PUBLIC TRANSPORT OPERATORANNUAL VALUE OF FEE CHARGED BY FIDUCIARY AGENT (BANK)(0.5%)ANNUAL AMOUNT TRANSFERRED TO MUNICIPAL TRASNPORT DEPT.(OPTIONAL, 1%)ANNUAL BENEFIT OF NEW E-TICKETING SYSTEM TO PUBLICTRANSPORT OPERATOR (NEW REVENUE + SAVINGS FROMELIMINATING INTERNAL COST OF RUNNING OLD SYSTEM - 6% FEETO E-TICKETING CO. - 0.5% TO FIDUCIARY AGENT - 1% TO CITY)CURRENTSITUATIONWITH BASICTICKETINGSYSTEM25050,000,00040,000,00010,000,0001502,160,000SITUATIONWITH E-TICKETINGSYSTEM25050,000,00050,000,00000010,000,0003,000,000250,000500,0008,410,000

Auditing the systemExternal auditing will be done regularly and atrandom.The selected auditor cannot have any contractual orcommercial ties to any of the parties involved in thenew ticketing system, including with the bank, themunicipality, or operator(s)

E-ticketing system should be multi-functional, multi-sectoralSmart cards used across all public transportmodes, and city parking services – an importantsystem integratorIn Hong Kong, the Octopus card permits users tomake purchases at shops as well as pay for publictransport and parking, by allowing up to US$125equivalent of stored value to be placed on the cardOutside payment applications includesupermarkets, convenience stores, fast foodfranchises, vending machines, photocopiers,cinemas, and sports venues

EBRD’s s role in the new e-ticketing esystemsProviding Technical Assistance to cities withsetting up institutional framework, division ofroles between operators and e-ticketingcompany (e.g., who does ticketing control?),technical specifications of new system, andtender documentationOnce the e-ticketing company has beenselected, EBRD can finance the up-frontinvestment of the new system

A few parting comments on lending to the urbantransport systems in current environment(Dedicated & Secure) Cash (Flow) is King:– PSC/e-ticketing/tariff reforms help guaranteesustainability and self-financing of transport companies– EBRD can consider easier access to finance forcompanies/cities if reforms like e-ticketing, PSCs, andcorporate governance measures are implemented thusreducing final burden on municipal finances

THANK YOUContact details:Matthew Jordan-TankEuropean Bank for Reconstruction and DevelopmentLondon Headquartersjordantm@ebrd.com+44 020 7338 6000

www.ebrd.com