TA4862-VIE Ho Chi Minh City Metro Rail System - ppiaf

Asian Development Bank 

Public Private Infrastructure Advisory Facility 

TA 4862-VIE: 

Preparing the Ho Chi Minh 

City Metro Rail System - 

PPIAF Study - 

Completion Report 

August 2008

Table of Contents 

Preparing the HCMC Metro Rail System – Completion Report 

Asian Development Bank and PPIAF 

Synopsis ..................................................................................................................................................... i 

1. Introduction .................................................................................................................................. 1 

1.1 Background ........................................................................................................................ 1 

1.2 Objectives of PPIAF Technical Assistance ................................................................... 2 

1.3 This Completion Report ................................................................................................... 2 

1.4 Study Team ......................................................................................................................... 3 

2. Activity 1: Framework for Considering Private Sector Participation (PSP) – Options 

Development ................................................................................................................................ 4 

3. Activities 2 and 3: Financial Modeling Including Risk ........................................................... 8 

3.1 Financial Model ................................................................................................................. 8 

3.2 Financing and Delivery Options ..................................................................................... 8 

3.3 Value for Money (VFM) Test .......................................................................................... 8 

3.3.1. Assumptions and contingencies ......................................................................... 9 

4. Activity 4: Stakeholder Feedback and Implementation Arrangements .............................. 11 

4.1 Key Tasks ......................................................................................................................... 11 

4.2 Key Stakeholders ............................................................................................................. 11 

4.3 Transport Agencies and Functions in HCMC ............................................................ 13 

4.4 Key Laws .......................................................................................................................... 13 

4.5 Institutional Options ....................................................................................................... 14 

4.6 Fares and Ticketing ......................................................................................................... 17 

4.7 Building Technical and Managerial Capacity ............................................................... 20 

Appendix A: Issues and Options for Private Sector Participation and Concession Template 

Working Paper ............................................................................................................................ 22 

Appendix B: Financial Modeling Working Paper ............................................................................ 23 

Appendix C: Stakeholder Feedback and Implementation Arrangements: Institutional Options 

Working Paper ............................................................................................................................ 24 

Appendix D: Fares and Ticketing Working Paper .......................................................................... 25 

References and Bibliography ............................................................................................................... 26 

i

Abbreviations 



ADB Asian Development Bank 

BOT Build-Operate-Transfer 

DOPI Department of Planning & Investment, HCMC 

PC 

DNRE Department of Natural Resources & 

Environment, HCMC PC 

DOF Department of Finance, HCMC PC 

DTUPWS Department of Transport & Urban Public 

Works & Services, HCMC PC 

DUPA Department of Urban Planning & Architecture, 

HCMC PC 

GVN Government of Viet Nam 

HCMC Ho Chi Minh City 

HIFU Ho Chi Minh City Infrastructure Fund for 

Urban Development 

IFI International Financial Institution 

ODA Official Development Assistance 

PC People’s Committee 

PPI Private Participation in Infrastructure 

PPIAF Public Private Infrastructure Advisory Facility 

PPP Public-Private Partnership 

PSP Private Sector Participation 

SOE State Owned Enterprise 

TA Technical Assistance 

ToR Terms of Reference 

MAUR Management Authority for Urban Railways, 

HCMC PC 

ii

Synopsis 



Rail based Mass Rapid Transit (MRT) is a key component of Ho Chi Minh City’s urban 

transport strategy. But MRT is expensive. MRT therefore requires good integration with bus 

services and other modes, convenient access for pedestrians and coordinated land use 

intensification to optimize MRT’s potential. 

Development of MRT of most benefit to the community requires a focus on the development 

of integrated network of services that are well integrated with bus, and that provide the fastest, 

most convenient and affordable journey possible between home and work and all the other 

origins and destinations in the city. 

A focus on how to secure the operation of efficient, high quality, and responsive MRT 

services, and integrated ticketing and fares, is therefore very important and is a necessary 

complement to the implementation of high quality MRT infrastructure. 

Recognizing the importance of efficient MRT operations and services ADB mobilized a grant 

from the Public Private Infrastructure Advisory Facility (PPIAF) to develop appropriate short 

term and longer term implementation and management arrangements for MRT in the context 

of wider urban transport, including options for how best to optimize private sector 

participation in MRT. 

The objectives of the PPIAF technical assistance (TA) therefore included developing (i) a 

framework for considering private sector participation in implementation and operation of the 

Project; (ii) a value-for-money analysis for implementation approaches that involve varying 

degrees of private sector participation, (iii) a detailed financial model reflecting the preferred 

approach and measuring the performance of the project from the points of view of the 

government and private sector participants; and (iv) a stakeholder feedback and a description 

of necessary institutional and contractual arrangements given the preferred implementation 

approach. 

A summary of the work undertaken is contained in the attached report along with copies of 

the key working papers produced by the TA. 

Si

1. Introduction 

1.1 Background 



With a population of approximately 6.1 million in 2004, HCMC is the largest city in Viet Nam 

and its economic hub. HCMC has a total administrative area of 2,095 km2 covering 19 urban 

and five suburban/rural districts. The average population density is about 2,900 inhabitants 

per square km with a central area density of around 45,000 inhabitants per square km (JICA 

2004). Approximately 2.3 million people were estimated to live in the three adjoining 

provinces of Dong Nai, Binh Duong, and Long An which make up the Greater HCMC 

region. Population for the region was forecast to reach 13.5 million by 2020 with 10 million in 

HCMC by HOUTRANS (JICA 2004). 

Current trends are for continuing rapid growth in incomes and motorization, increased 

urbanization, and associated traffic congestion, and related pollution (local and global) and 

crashes, which will to some extent reduce the productivity of region’s, and therefore, Viet 

Nam’s economy. Addressing this considerable challenge requires as its foundation appropriate 

institutional and regulatory arrangements to coordinate land use and transport development 

management, formulation and implementation of transport policies and infrastructure, and the 

delivery of efficient integrated, multi-modal transport services. 

The People’s Committee (PC) of Ho Chi Minh City (HCMC), Viet Nam has initiated studies 

to develop a rail mass rapid transit (MRT) system for the City based on the current MRT 

Master Plan (as approved in January 2007). Prior to early 2008, tTwo lines (MRT2 and MRT3) 

had been proposed for Asian Development Bank (ADB) funding with another line (MRT1) to 

be financed by the Government of Japan 1 . The Government of China, is a developing a 

proposal for an MRT line, there are other proposals including one from China for MRT, 

Malaysian interests to develop a monorail, and for a French consortium to develop a tram 

route. 

ADB has mobilized a PPTA and selected a firm for the following components of the project 

preparation for MRT Lines 2 and 3. The PPTA study, which commenced in May 2007 and is 

to be completed in May 2008, is responsible for providing: 

• An optimized MRT Master Plan which integrates the currently proposed MRT lines into 

a cohesive network with other modes, identifies required supporting policies, and 

develops design parameters for the two project lines. 

• A feasibility assessment and preliminary engineering design for the two project lines. 

The PPTA must confirm the engineering feasibility, and identify social and 

environmental impacts for accurate cost estimation and financial appraisal. 

• A plan to support project implementation, including institutional and staffing 

arrangements, capacity building, financing/funding options, and implementation 

program. 

In parallel, ADB mobilized a grant from the Public Private Infrastructure Advisory Facility 

(PPIAF) to optimize private sector participation in MRT 2 and 3, and to assist the HCMC PC 

to develop appropriate short term and longer term implementation and management 

arrangements for MRT in the context of wider urban transport 

1 During 2007, the JBIC’s role in funding increased with principal or sole involvement in the first three MRT 

lines. 

1

1.2 Objectives of PPIAF Technical Assistance 



The objectives of the PPIAF technical assistance (TA) therefore included developing (i) a 

framework for considering private sector participation in implementation and operation of the 

Project; (ii) a value-for-money analysis for implementation approaches that involve varying 

degrees of private sector participation, (iii) a detailed financial model reflecting the preferred 

approach and measuring the performance of the project from the points of view of the 

government and private sector participants; and (iv) a stakeholder feedback and a description 

of necessary institutional and contractual arrangements given the preferred implementation 

approach. 

This PPIAF TA draws on detailed information on project costs, patronage and revenue 

prepared by consultants undertaking the PPTA. The results of its work were presented in 

conjunction with the work of the PPTA to ensure an integrated and complete business case 

that the HCMC PC and ADB can use to direct implementation and ongoing operations. 

1.3 This Completion Report 

This Completion Report summarizes the key findings and recommendations of the TA. In 

doing so, it draws upon the following reports, working papers or other outputs prepared by 

the TA: 

Table 1.1: Activities and Outputs 

Activity Principal Outputs 

1. Framework for Considering Private 

Sector Participation (PSP) – Options 

Development 

2. Risk and Value-for-Money Analysis 

3. Financial Analysis: Financing Plan & 

Financial Model 

4. Stakeholder Feedback and 

Implementation Arrangements 

• Issues and Options for Private Sector Participation 

& Concession Template Working Paper – 

Vietnamese and English language versions (April 2008). 

Refer Appendix A for English Version. 

• Financial Modeling Working Paper & Model – 

Vietnamese and English language versions (June 2008). 

Refer Appendix B for English Version. 

• Financial Modeling – as above 

• Inception Report – English language version only 

(March 2008) 

• Stakeholder Feedback and Implementation 

Arrangements: Institutional Options Working 

Paper – Vietnamese and English language versions 

(March 2008). Refer Appendix C for English Version. 

• Stakeholder Engagement Plan – English language 

version only (March 2008) – Informal document. 

• Fares and Ticketing Working Paper – Vietnamese 

and English language versions (June 2008). Refer 

Appendix D for English Version. 

The PPIAF TA mobilized on March 3, 2008. Work proceeded intermittently in HCMC and 

the consultants’ home offices over the period to July 2008. Subsequent sections of the report 

discuss identified key issues and priorities and the work program formulated to meet the 

2



requirements of the TA. Several meetings with key agencies were held including the 

Management Authority for Urban Railways (MAUR) of the HCMC PC, other agencies of the 

PC, financial institutions, the PPTA team and the visiting supervising mission from ADB. 

1.4 Study Team 

The PIAF consultant team responsible for preparing this report were greatly assisted by staff 

from the HCMC PC’s: 

• Management Authority for Urban Railways; 

• Department of Planning and Investment; and 

• Ho Chi Minh City Infrastructure Fund for Urban Development. 

Important guidance was also provided by several ADB staff who visited HCMC during the 

inception mission including: Dr Hubert Jenny, Senior Urban Development Specialist, 

Southeast Asia Department, Infrastructure Division; Dr Antoine Kunth, Infrastructure 

Specialist, Southeast Asia Infrastructure Division; Mr Le Dinh Thang, Program/Project 

Implementation Officer, Viet Nam Resident Mission; Mr Jamie Leather, Senior Transport 

Specialist, Energy, Transport and Water Division, Regional and Sustainable Development 

Department, and Yuji Tsujiki Financial Analysis Specialist Infrastructure Division, Southeast 

Asia Department. 

David Margonstern, PADDI (Centres de prospective et’etudes urbaines of the Rhone Alpes 

Region, France), who worked closely with many departments in the HCMC PC provided 

valuable inputs. Close cooperation with the PPTA team was also facilitated by the PPIAF 

team making use of the PPTA team’s office and day to day interaction. 

The consultant study team consisted of: 

• Philip Sayeg, the Urban Transport Planning Specialist /Team Leader; 

• David Bray, Urban Transport Institutional Specialist; and 

• Dr Sudhisakdi Manibhandu, Private Sector Financing Specialist (Public Private 

Partnerships). 

3



2. Activity 1: Framework for Considering Private Sector 

Participation (PSP) – Options Development 

Under this Activity, in accordance with the ToR for the TA, various opportunities to use the 

private sector for implementing and operating rail mass rapid transit (MRT) in HCMC had to 

be considered. The English language version of the Working Paper prepared for the TA 

which is entitled “Issues and Options for Private Sector Participation and Concession 

Template” (contained in Appendix A) provides full details of the work carried out which is 

summarized below. 

Options for private sector participation were considered with a broader view than any 

individual MRT line in HCMC because the ultimate objective of the government is a 

substantial increase in the use of public transport in the city, which in turn requires an 

integrated public transport system. The use of the private sector is not addressed from an 

ideological perspective, but rather as a means for securing the delivery of high quality MRT at 

the lowest possible cost to the community. 

The Working Paper notes that the private sector has been involved in MRT in nearby 

countries in recent years: always for implementation of infrastructure; often for the operation 

of services; and to a lesser extent for investment in MRT assets. It also notes general 

experience that the cost of public sector operation of public transport is higher than with 

private sector operation, and that there is a general worldwide trend to make greater use of the 

private sector for the operation of public transport. 

Consideration was given to the range of factors that affect the manner in which the private 

sector could be involved. These factors have two broad influences. The first is the extent to 

which the private sector could provide finance for implementation of the MRT. In this 

respect, it appears that the current approach to MRT in HCMC is likely to result in fare and 

related revenue that will, at best, cover operating costs and make a small contribution to 

capital costs. Accordingly, the government will need to eventually pay the private sector for 

most of the cost of any capital that the private sector might provide in the first instance to 

implement the project. While the cost of capital to the private sector is generally more 

expensive than the cost of capital for the government, the report notes that this may be offset 

by lower costs that result from the transfer of manageable risk to the private sector and the 

incentive for the private sector to better integrate assets and operations to reduce life-cycle 

costs. 

The second influence is on the form of the agreement between the government and the 

organization that is to operate the MRT system (called the concessionaire). It is essential that 

such an agreement be in place, irrespective of whether the concessionaire is a government or a 

private organization. It is common for such agreements to have a term of around 30 years or 

so, especially where the concessionaire contributes capital investment. There is also a need for 

the agreement to include conditions that provide the operator with the incentive to undertake 

their tasks in a manner that meets the government’s objectives for MRT in HCMC. 

There has been a tendency in the past to use a form of agreement wherein the concessionaire 

keeps fare and other revenue for the MRT line to which the contract pertains and uses the 

revenue to cover its costs. The government may need to provide supplementary financing if 

the revenue available to the concessionaire is insufficient to met the costs. This approach, 

called a Net Cost form of concession, has major limitations. In particular it does not facilitate 

operation of an integrated public transport system and reduces the flexibility of the 

government to develop the transport system and modify its urban transport policies over the 

term of the concession. An alternative approach, called a Gross Cost form of concession, is 

4



strongly recommended. Under it, revenue from fares accrues to the government, which in 

turn pays the concessionaire for the services that the concessionaire provides. Refer Table 2.1 

for a summary of the features of each approach. 

Table 2.1: Summary of Net Cost and Gross Cost Concession Models 

Net Cost Gross Cost 

Infrastructure Government provides civil infrastructure. Concessionaire provides trains and related items such as 

train control & communications systems and depot equipment. 

Risk sharing Concessionaire assumes all patronage risk, 

and shares extra profits (if any) with the 

Authority. 

Risk is shared between the Authority and 

concessionaire. Optimum sharing of risk will minimise 

the concession cost. 

Revenue Concessionaire keeps revenue Fare revenue is given to the Authority 

Services Concessionaire determines services to be 

provided on the basis of profitability. 

Payments Concessionaire meets costs from its own 

revenue. Additional payments may be 

needed from the government if 

concessionaire’s revenue is too low. 

Authority role Authority invites tenders & establishes a 

concession; has only a small role 

thereafter; difficult to vary contract 

conditions. 

Source: Consultant 

Authority sets service standards and the 

concessionaire determines services based on these 

standards. 

Authority pays the concessionaire for services 

provided according to rates set on the basis of 

competitive tendering and quantity/quality of service 

provided. 

Authority invites tenders and establishes a 

concession; has a continuing major role in managing 

the concession agreement; can vary conditions when 

needed. 

The Working Paper describes how this form of concession can be implemented to give the 

concessionaire (or any other operator) the incentive to provide good quality services that meet 

the needs of passengers at the lowest possible cost and with the least need for detailed 

management of the concession contract by the government. 

Four possible implementation options were considered. All four were subject to value-formoney 

analysis as described in Section 3 of this report, to indicate the potential cost to the 

government of delivering Line 2 of the MRT system and the provision of services on the line 

over the long term. The results of this analysis will be presented in a separate report. The 

options are: 

• Government financing, implementation and operation of the MRT. 

• Government financing and implementation of all MRT assets, and engagement of a 

concessionaire to operate MRT services. 

• Government financing and implementation of MRT civil infrastructure, and 

engagement of a concessionaire to finance and provide trains and related electrical and 

mechanical equipment and systems, and to operate MRT services. 

• Private sector financing, implementation and operation of the MRT. 

Key features of each of these four options are shown in Table 2.2. 

5

Delivery of: 

Civil Infrastructure 

and Fixed Equipment 

Trains, train control 

and communications, 

and depot equipment 

Train services and 

infrastructure 

maintenance 

Risk Transfer 

Finance 








maintenance 



Table 2.2: Features of Delivery and Financing Models 

Public 

Enterprise 

Public 

Implementation 

with Operating 

Concession (PIOC) 

Delivered through competitively tendered contracts to the 

government. 

Delivered through competitively tendered 

contracts to the government. 

Contract negotiated 

with an SOE. 

Transfer of risk from 

the government is 

limited to the extent 

allowed in 

construction and 

equipment supply 

contracts. The 

government retains 

risk associated with 

operations through 

its ownership of the 

operator. 

Competitively 

tendered Gross Cost 

contract. 

As for the Public 

Enterprise option but 

can transfer operating 

risk to the 

concessionaire. Some 

patronage risk can be 

transferred through 

the Gross Cost 

concession. The 


operating risk related 

to mismatch between 

trains it provides and 

concessionaire needs. 

Train Supply and 

Operating 

Concession (TSOC) 

Delivered through a 

competitive tendered 

Gross Cost concession. 

The government 

transfers more risk to 

the concessionaire 

than in the PIOC 

option because the 

concessionaire 

purchases trains and 

can therefore bear 

more risk for 

operations because 

they have more control 

over service quality. 

Capital provided by the government. Capital provided by the 

government. 


concessionaire. The 

government pays for 


pays all costs 

incurred by the SOE, 

including working 

capital 

Fare revenue The government 

retains fare and 

other revenue (or 

pays SOE the 

difference between 

costs and revenue if 

the SOE retains the 

revenue). 



pays for operating 

and maintenance 

costs as specified in 

the contract. 

costs as specified in the 

contract (to cover both 

capital and O&M costs). 

Build, Operate & 

Transfer 

(BOT) 

Delivered through 

competitively 

tendered Net Cost 

contract to the 

government. 

Transfers the greatest 

amount of risk from 

the government, but 

the government loses 

flexibility for change 

in policy and for 

public transport 

network integration. 

Capital provided by 

the concessionaire. 

The government will 

need to pay for costs 

as specified in the 

contract (to cover 

both capital and O&M 

costs net of fare 

revenue, where fare 

revenue will be much 

less than the costs). 

Fare revenue accrues to the government. Concessionaire retains 

fare and other 

revenue. 

The Gross Cost form of concession is recommended for the first three options. A Net Cost 

form of concession is appropriate for the last option to allow the concessionaire to manage its 

greater financial exposure in a way that minimizes its risks. In all four cases, the government 

will eventually pay for the total cost of implementing and operating MRT. However, the total 

cost to the government will vary. This occurs because the four options involve different ways 

of allocating and managing MRT responsibilities, and hence the incentive and capacity for 

those involved to manage the associated financial, engineering, operational and patronage 

risks. 

6



The report draws general conclusions about the relative merits of the four implementation/financing 

options, but does not unequivocally recommend any particular approach. Rather, 

the intention of developing and assessing the options is to provide understanding that can 

help the government with its consideration of an arrangement that is appropriate for HCMC. 

Two other key recommendations are made. The first is that there should eventually be at least 

two companies involved in the operation of MRT in HCMC. This puts competitive pressure 

on each operator to improve its performance so that they are not seen to be inferior to the 

other operator(s). It also provides data that the government can use to benchmark the 

performance of the operators so that it can provide feedback to the operators on 

opportunities for improved performance. Finally, it provides the government with flexibility in 

the event that one operator fails to perform, with the capacity for another of the operators to 

take over in the short term if that should become necessary. The second recommendation is 

that international competitive tendering should be used to select the concessionaire, with the 

likelihood that a foreign party will form a consortium with a local enterprise. This will bring 

international experience and expertise to support the development of world class MRT in 

HCMC and provide a sound basis for developing domestic skills in MRT. 

Finally, the report presents an outline of a concession agreement and discusses the actions 

needed to select a concessionaire and establish and manage a contract. 

7



3. Activities 2 and 3: Financial Modeling Including Risk 

There were several strands to the financial modeling work that are summarized below. The 

English language version of the Working Paper prepared for the TA on this Activity is 

contained in Appendix B. 

3.1 Financial Model 

Part of the PPIAF assignment has involved the development of a financial model capable of 

being used in MRT network planning and in project preparation of the HCMC Line 2. The 

model is used to perform two tasks: (i) a value-for-money (VfM) analysis of MRT project 

development options identified in the assignment issues and options analysis for private 

participation in the development of Line 2; and (ii) financial analysis of the HCMC Line 2. 

The second task, ie financial analysis of Line 2, is reported in the PPTA study documentation. 

A technical paper responding to the PPIAF terms of reference describes the financial model 

and the VfM analysis carried out of development options for Line 2. The VfM analysis is 

summarized in the following paragraphs. 

3.2 Financing and Delivery Options 

The Issues and Options study identifies for detailed examination four alternative 

approaches—including private sector participation and public private partnerships (PPP)—to 

project development of Line 2: (i) the project is developed by a state-owned enterprise (SOE), 

with government taking maximum responsibility in project management, financing and service 

delivery; (ii) the service delivery is by a private sector concessionaire, with government 

retaining the remaining project responsibility; (iii) the operating concessionaire supplies (ie also 

finances) the required trains and signaling and communications, and government retains all 

other responsibility; and (iv) the project is developed as a build-operate-transfer (BOT) 

concession, where the private sector take the maximum project responsibility, allowing 

government to play only a monitoring and evaluation role, at least in theory. 

3.3 Value for Money (VFM) Test 

The potential cost to the community of the four options is evaluated and compared in a 

quantitative value-for-money (VfM) test. It is common experience that government generally 

faces a lower financing cost compared to the private sector. At the same time, statistical 

analyses 1 of international transport projects provide well-founded evidence of substantial 

public sector optimism bias (a propensity for actual cost to exceed forecast or for actual 

revenue to fall short of forecast) in project capital cost estimates. Now, common experience 

suggests that, much more than the bureaucratic organization, a private sector enterprise is 

generally under strong motivation to manage uncertainly in project planning and 

implementation. Meanwhile, studies of privatized public transport 2 , especially bus, indicate 

that the private sector can be expected to deliver service at a cost significantly lower than the 

public sector. Thus, in theory, an MRT project development with an appropriate assignment 

of responsibility and risk between government and the private sector concessionaire could 

yield a lower expected cost, risk taken into account, compared to a eg a pure government 

effort. 

1 See references in Financial Model paper. 

2 See Issues and Options paper, Section 2.9. 

8



A VfM test carried out for the four options indicates that option (iii), private sector trains and 

train-related systems supply and service operation, incurs the lowest expected cost to the 

community; with option (ii) the next lowest. The BOT option shows a lower optimism bias 

than all the other options, but, since it uses the concessionaire’s private sector financing for 

the full project investment, it incurs a maximum premium on the government’s financing cost; 

this option turns out to have the highest expected cost to the community, the SOE option 

included. Evidently the BOT option is a doubly inappropriate approach to MRT project 

development. Details of the VfM test methodology, input data and parameters, as well as 

results can be found in the Financial Model paper. 

3.3.1. Assumptions and contingencies 

It is important to understand what assumptions are necessary for, and what contingencies 

would invalidate, the VfM test results. These are summarized below. 

Market competition. VfM requires a competitive tender market for the concession and for 

related sub-contracting of the technology (eg design, construction, systems integration and 

installation, operation and maintenance in MRT service provision) and financing services to 

ensure that payment of concessionaires and sub-contractors is not in excess of a normal riskweighted 

remuneration for effort. This means that an option which has cleared a VfM test 

could at the procurement stage be facing a market failure (eg only one bidder), threatening its 

ability to deliver the anticipated VfM 1 . Thus, transition and emerging countries in particular 

often cannot count on a reliable international supply of private sector financing. The threat of 

market failure in a specialized field such as MRT concessioning and sub-contracting should 

not be dismissed lightly. 

Financial and services market distortions. Here are some examples of distortions that can 

threaten or dilute VfM: 

• Limited recourse financing of a PPP concession promotes VfM because the senior 

lenders, usually financial institutions regulated by a central bank, will for as long as the 

debt is outstanding have an interest in the project which is aligned with the authority 

granting the concession and bring professional skill to the monitoring of the 

concessionaire’s performance. The lenders’ incentive to monitor the concessionaire 

performance is diluted with the lenders’ use of credit risk transfer (CRT) products. This 

practice dilutes the concession authority’s effort to share an exposure to the 

concessionaire’s performance level with the senior lenders, minimizing the monitoring 

cost in the process. 

• Bilateral ODA financing can also introduce distortions in the sub-contracting markets. 

The tying of an ODA loan to supply of goods and services of a national origin restricts 

the competitive tendering for the procurement of MRT consulting and construction 

services and systems supply. An opportunity can be created for vendors to use the 

concessionary pricing of a loan to build in an additional margin on goods and services. 

In the long term, the practice can create a situation where, in a narrow field, the 

potential suppliers tacitly agree to live and let live instead of competing, with adverse 

effect on supply prices and therefore VfM. 

• Partnering developed over time among financiers and sub-contractors while having a 

potential to be an effective project risk management tool for a concessionaire can be 

1 The UK Treasury’s answer to this problem, to give an illustration, is to require any candidate for a PPP 

development to have a back-up public sector option to be activated in the event of a market failure. 

9



abused if allowed to develop into a collusive arrangement, which in the end threatens 

VfM. 

PPP procurement capability. Ability to procure well is important for realizing VfM. The 

balance of opinion, if not of evidence, is that a greater capability is required of the public 

sector in the procurement of a PPP concessionaire than in a conventional public works 

procurement. Ad hoc outsourcing for the required skills leads to limited results. For example, 

legal firms skilled in PPP contracting, forced to make a choice through conflict of interest 

rules, can tend to opt for working for the concessionaire side rather than government. 

Institutional capability building is required. 

10



4. Activity 4: Stakeholder Feedback and Implementation 

Arrangements 

4.1 Key Tasks 

Key tasks carried out under this Activity were: 

• Stakeholder analysis; 

• Concession Template; 

• Analysis of institutional options; and 

• Fares and ticketing analysis and options. 

The outputs of these tasks are 

• Stakeholder Feedback and Implementation Arrangements: Institutional Options 

Working Paper – Vietnamese and English language versions (March 2008). Refer 

Appendix C for English Version. 

• Stakeholder Engagement Plan – English language version only (March 2008) – 

Informal document; 

• Concession Template – refer Section 2 and Appendix A; 

• Fares and Ticketing Working Paper – Vietnamese and English language versions (June 

2008). Refer Appendix D for English Version. 

• Other capacity, likely legal and procurement requirements recognizing the PPIAF team 

did not have any legal resources available to them (covered variously in all outputs). 

4.2 Key Stakeholders 

A list of identified core stakeholders 1 within HCMC is shown in Table 4.1. This list is based 

on the information contained in the Working Paper entitled “Stakeholder Feedback and 

Implementation Arrangements: Institutional Options.” While several stakeholders at national 

and HCMC levels have been identified the most important are shown in bold text in Table 

4.1. IFIs or other bilateral donors have been excluded from the Table. 

Table 4.1: Identified Key Stakeholders 

Stakeholder Responsibility 

National Level 

Ministry of Transport (MOT) Through its different modal administrations and departments (a) plans, 

manages and maintains national infrastructure through its different 

departments and administrations; (b) assists local governments in 

developing transport plans and selecting transport projects; and (c) 

manages public bus transport plans by approving cities master plans 

1 From now on in this paper core stakeholders will be referred to only as stakeholders. 

11



Stakeholder Responsibility 

Vietnam Railways 

Administration (VNRA)— 

under MOT 

Plans and manages the development of the sub sector 

Regulates the sub-sector including national and other rail systems including 

metro or MRT in cities and provinces. Provides oversight of City and 

Provincial rail and MRT Master Plans and is charged with approval of 

technical standards and safety of rail and MRT systems. Main functions of 

relevance to project: 

• Informal MRT Master Plan approval 

• MRT technical standards 

• MRT safety standards & compliance 

Ministry of Finance (MOF) Arranging of finance from external agencies including IFIs and provision of 

finance to local governments. Currently, financial planning aspects of 

future MRT development in Vietnam. 

Transport Development Strategy 

Institute (TDSI)-under MOT 

Department of Planning and 

Investment (DPI)-under MOT 

The Ministry of Natural 

Resources and the Environment 

(MNRE) 

HCMC PC level 

Develops long and medium term transport sector strategies and plans (in 

collaboration with modal administrations) 

Integrates investment plans prepared by modal administrations for 

submission to MPI for inclusion in the PIP and to MOF for inclusion in the 

State Budget. 

Reviews and approves environmental impact assessments for transport 

projects. 

People’s Committee Approves key issues such as fares, opening and closing of routes, 

schedules and subsidies. 

Transport and Urban Public 

Works Services’ (TUPWS) 

Transport and Industry 

Management Department 

(TIMD); and the 

Management and Operations 

Centre for Public Transport 

(MOCPT). 

HCMC Management 

Authority for Urban Railways 

HCMC Investment Fund 

(HIFU) 

Department of Finance 

(DOF) 

District Level and Commune 

Governments 

Urban Planning and 

Architecture Department 

(DUPA) 


Investment (DPI) 

Traffic Police under the 

Public Security Department 

Develops cities’ transport strategies; Plans and manages construction; 

Maintains urban transport infrastructure; Manages bus transport; 

Coordinates planning and implementation of traffic management with 

Police. Main functions of relevance to project: 

• Transport Strategy 

• Traffic management and parking 

• Bus route planning & franchising incl bus-MRT integration 

• Bus system ticketing 

Plans / implements rail-based mass transit plans and has responsibility for 

managing and arranging for operations and maintenance. Main functions 

of relevance to project: 

• MRT civil infrastructure development incl land acquisition 

• MRT rolling stock & E&M supply 

• MRT ticketing 

• MRT operations procurement and/or operations directly 

Arrangement of finance through bond issue for counterpart funds, 

coordination with private sector incl private financial institutions, possible 

shareholding role in a JV operating entity 

Treasury functions such as processing of project-related local expenditures 

including counterpart payments 

Relevant district governments through which a project passes will have a 

role in land acquisition & other facilitation 

Land Use Master Plan preparation and approval of developments. Land 

approvals are separately made by the Department of Natural Resources 

and Environment (DNRE) with little linkage to the Master Plan. 

Investment programming including one year annual budget and five year 

Public Investment Program (PIP) 

Enforces traffic management including the operation of traffic signals in 

coordination with TUPWS 

12

4.3 Transport Agencies and Functions in HCMC 



The HCMC PC is the key agency responsible for planning and delivery (ie here referring to 

regulation, purchasing of services and oversight, and construction of infrastructure) of public 

transport, such as bus, mass rapid transit and supporting land use and transport management 

functions. Within the PC the following agencies have key roles for urban transport: 

• Transport and Urban Public Works Services (TUPWS) which is responsible for 

preparation of city transport strategies, the planning and management of construction, 

maintaining urban transport infrastructure, planning and managing bus transport; and 

coordinating planning and implementation of traffic management with Police. For 

planning and regulation of urban public transport (bus/ other) the Management and 

Operations Centre for Public Transport (MOCPT) of TUPWS is the most important 

agency; 

• Management Authority for Urban Railways (MAUR) 1 – plans and implements rail 

based mass transit infrastructure and responsible for operations; 

• Urban Planning and Architecture Department (DUPA) – Land Use Master Plan 

preparation and approval of developments. The process of planning is normative and 

appears not to reflect market preferences nor what is optimal in terms of infrastructure 

and social services provision. Land approvals are separately made by the Department of 

Natural Resources and Environment (DNRE) with little linkage to the Master Plan. 

Similarly infrastructure planning is made with little reference to the Master Plan. In 

addition, even for individual building and more major developments there are no 

specific standards or guidelines providing certainty to developers on how much Gross 

Floor Area (GFA) they can build or other conditions such as building set back and 

building form; 

• Department of Planning and Investment – investment promotion, coordination of 

investment including development of development assistance from IFIs and bilateral 

sources; and 

• Department of Finance – treasury, budget, investment planning and arrangement of 

sources of finance. 

4.4 Key Laws 

National and city legislation governs the present provision of public transport services, 

currently mainly bus, in HCMC. The laws of most relevance to urban rail or urban MRT are: 

• Railway Law 2005 (NA Order No. 35/2005/QH11); and 

• HC PC Decree 119/ 2007/QD-UBND establishing the Management Authority for 

Urban Railways. 

Railway Law 

Within cities the Railway Law 2005 defines relevant types of urban railway as including metro 

or MRT using a wide variety of technologies. Authority for planning urban railway networks is 

given to People’s Committees (Articles 14 and 15). Master Plans shall be prepared covering a 

detailed period of 10 years and less definitive further 10 year period. Fare setting is the 

responsibility of the PC. 

1 Until September 2007, it was known as the Urban Railway Management Unit and was under TUPWS. 

13



Decree 119/ 2007/QD-UBND establishing Management Authority for Urban 

Railways, HCMC 

The Urban Railway Management Unit (known as the Management Authority for Urban 

Railways) was established in September 2007 by Decree 119. The Authority replaced the 

previous Urban Railway Management Division under TUPWS. MAUR is also under the 

guidance of Central Ministries – branches and Departments – branches of the city. 

The current MAUR structure is shown in Figure 4.1. With new responsibilities for 

management of operations and maintenance, the number of staff in MAUR is increasing. It is 

also understood that it is proposed to revise the current structure of MAUR in the near future 

to better reflect the management and operational functions. 

Source: MAUR 

PMU Line 1 

4.5 Institutional Options 

Figure 4.1: Current Structure of MAUR 

Vice Director 

Nguyen Van Quoc 

Planning and 

Investment 

Technical Quality 

Procurement 

HCMC PC 

Director 

Nguyen Do Luong 

Vice Director 

Tran Thi Anh Nguyet 

Administration 

Finance and 

Accounting 

Organization and 

Training 

Vice Director 

Le Hong Ha 

PMU Lines 2 & 3 

Given the previous discussion, the alternative arrangements for an Authority relate primarily 

to the scope of its functions rather than to the underlying functions themselves. On this basis, 

four options for improved institutional arrangements for HCMC are identified: 

• Option 1: Strengthen the Management Authority for Urban Railways (MAUR); 

• Option 2: Interim Public Transport Authority using increased PC level 

coordination between bus and MRT; 

• Option 3: Integrated Public Transport Authority. Refer Figure 4.2. In this option 

the proposed Integrated Public Transport Authority would be solely responsible for 

ensuring the delivery and operation of a fully integrated public transport system 

(MRT and bus) for HCMC; and 

• Option 4: Integrated Transport Authority. In this option, a wholly integrated 

Authority would plan the multi-modal network, specify the services, program the 

investment (including roads, MRT and bus). 

14



The options are capable of progressive implementation and a summary of their features is 

shown in Table 4.1. A worthwhile and practical option is Option 3 which is illustrated in 

Figure 4.2. In addition to developing integrated bus and MRT services this option would 

enable all public transport ticketing and fares to be integrated as long as MRT and bus 

operating arrangements are consistent. 

Feature Option 1: 

Strengthen MAUR 

Integration of 


in HCMC (1) 

Transport 

outcome 

Table 4.1: Improvement Options 

Option 2: 

Interim PT Authority 

Inc easing Inc easing 

Fairly good MRT 

integration possible 

Description Minimum change to 

current institutional 

responsibilities. 

Examples from 

other places 

Benefits for 

customers 

Hong Kong & 

Singapore in the 1980s 

Ease of use of MRT 

with integrated 

ticketing and easy 

interchanging where 

MRT lines intersect 

possible 

Transport policy & planning (2) 

Introduction 


integration more likely 

As for Option 1 but 

improved direction & 

coordination 

Option 3: 

Integrated PT 

Authority 

Option 4: 

Integrated 

Transport Authority 

Increasing integration � 

Fully integrated PT 

system more probable 

Strong direction and 

purpose for PT 

Bangkok in 1990s Melbourne and 

Brisbane, Australia 





MRT lines intersect. 

Integration with buses 

likely. 

Agency responsibilities 

Passengers able to use 

the PT system as 

though it was a single 

system, with fares, 

tickets, marketing and 

presentation 

integrated. Physical 

integration good. 

Urban planning DUPA DUPA DUPA DUPA 

Fully integrated public 

transport system 


purpose for transport & 

land use 

Hong Kong, Singapore 


better integration with 

land use and road 

network. 

Transport policy TUPWS TUPWS TUPWS Integrated Transport 

Authority 

Strategic transport 

planning 

Financing 

policies 

Fares policy and 

service 

standards 

Regulation (3) 

Safety 

standards 

Environmental 

standards 

Economic 

regulation (5) 

TUPWS TUPWS TUPWS Integrated Transport 

Authority 

DPI & DOF DPI & DOF DPI, DOF with advice 

of Integrated PT 

Authority 

MAUR for MRT; 

TUPWS/ MOCPT for 

bus 

Independent regulator; 

TUPWS for bus 

MAUR for rail; TUPWS/ 

MOCPT for bus 


TUPWS for bus 

Integrated PT Authority 

for MRT and bus 



for bus 

DNRE DNRE DNRE DNRE 

MAUR MAUR/ Interim PT 

Authority 

15 

DPI, DOF with advice 

of Integrated Transport 

Authority 

Integrated Transport 

Authority for MRT and 

bus 



Authority for bus 

Integrated PT Authority Integrated Transport 

Authority



Feature Option 1: Option 2: Option 3: Option 4: 

Strengthen MAUR Interim PT Authority Integrated PT Integrated 

Authority Transport Authority 

Public transport program management (4) 

Program 

coordination & 

direction 

Project planning 

& feasibility 

studies 

Investment 

programming & 

financing 

approval 

MAUR MAUR Integrated PT 

Authority 


Authority 

MAUR/ DPI/DOF/ PC MAUR/ DPI/DOF/ PC Integrated PT 

Authority / DPI/DOF/ 

PC 

Project design MAUR MAUR Integrated PT 

Authority 

Environmental & 

other approvals 

MAUR/ DNRE MAUR/ DNRE Integrated PT 

Authority/ DNRE 

Tendering MAUR MAUR Integrated PT 

Authority 

Contract 

management 

Infrastructure 

maintenance 

MRT service 

design 

Concession 

preparation and 

management 

Service delivery 


Authority 

MRT operators/ 

concessionaires (for 

operations) 

Rail services Operators/ 

Concessionaires 



operations) 



operations) 


Authority 


Authority 

Operators/ 


Operators/ 



Authority 


Authority 


Authority / DPI/DOF/ PC 


Authority 




Authority 


Authority 



operations) 


Authority 


Authority 

Operators/ 


Bus services Operators Operators Operators Operators 

Ticketing and 

fare collection 

Single contract under 

PC 


PC 



Marketing Operators Operators Integrated PT Authority 

and operators 



Authority 


Authority and 

operators 

(1) All options cover the provision of formal public transport in Greater HCMC. (2) Covers setting of policies within which 

agencies do detailed project planning & implementation & provision of services. (3) In the case of public transport, 

regulation relates primarily to safety. Vehicle registration and driver licensing, which are applicable for bus services, are not 

addressed because they are the same for all options. Economic regulation needs to be treated as an integral part of the 

Transport Policy and Planning function, though some aspects such as anti-monopoly regulation will be managed by other 

government agencies. (4) Includes activities to put strategies into practice strategies, including development and 

implementation of projects and arranging for the delivery of public transport and ancillary services. (5) Includes control over 

entry to the market (eg how many buses and companies are allowed) and control of fares. 


16



Figure 4.2: Key lines of responsibility for Option 3 – “Integrated Public Transport Authority” 

Source: Study Team 

4.6 Fares and Ticketing 

An objective for rail mass rapid transit (MRT) in HCMC is that it be convenient to use and 

free of artificial barriers that could be imposed if MRT lines and their method of operations 

were to be done on a “standalone” basis. 

The Working Paper contained in Appendix D presents a discussion of the policy issues 

regarding fares and ticketing systems and recommends an approach to secure both integrated 

fares and an integrated ticketing system primarily for MRT, but also for other public transport, 

as MRT will rely on an integrated public transport system to maximize its performance. 

Fare policy and an associated ticketing system are essential to the success of MRT and the 

broader public transport system. Fare policy is vital because: 

• financially, it affects the number of people who will use MRT, which in turn influences 

fare revenue, MRT operating costs and, ultimately, the viability of MRT lines; 

• socially, the absolute level affects the affordability of public transport to people, while 

alternative fare structures have differential, and thus distributional, effects on the 

community; 

• technically, it influences the form of operating concessions, and the design of the MRT 

system in general and the ticket system in particular; and 

• for the remainder of transport system, the level and structure of MRT fares affects the 

use made of other public transport and the amount of private travel, with consequences 

for the transport system and community as a whole. 

A policy objective for HCMC, as it is in most cities that seek to provide an attractive public 

transport system, should be: 

17



• an integrated ticket and fare system for MRT and, ultimately, the bus system also; and 

• uniform fares for modes of similar quality. 

Fare policy is therefore a matter that needs to be addressed at the outset, because it 

affects passenger demand, design of stations and interchanges, the financial viability 

of public transport, and the form and content of operating concessions. 

Table 4.2 shows that achievement of uniform fares and integrated ticketing is best suited to a 

Gross Cost form of operating contract and that both need an MRT or Public Transport 

Authority with ability to manage more complex concession agreements with more intricate 

financial arrangements. 

Fare (1) 

Table 4.2: Requirements for Uniform and Integrated fares 

Ticket Concession MRT Authority 

Uniform & integrated Must be integrated All concessions on same basis. Need 

revenue settlement system, perhaps with 

fares collected by third party. Gross 

cost (2) form of concession is better. 

Needs an Authority with 

ability to manage more 

complex concession 

agreements with more 

intricate financial 

arrangements 

(1)Uniform fare = same Fare VND/km on all lines; Integrated fare = no second or subsequent flagfall 

Link to cost recovery: (i) how will loss of second flagfall with integrated fares be recovered?; and (ii) 

how will concessionaires be compensated for different level of cost recovery for each line with 

uniform and integrated fares? 

(2) Gross cost concession – all fare revenue is paid to the government with bids made for the amount 

the government should pay for provision of the tasks set out in the concession. Can involve some 

transfer of patronage risk to the concessionaire. Source: Consultant 

It will be exceptionally difficult, perhaps impracticable, to implement an integrated ticketing 

system with each public transport operator supplying their own equipment without a common 

approach. Accordingly, there is a universal movement towards integrated ticketing and fare 

systems that are managed centrally rather than by individual service providers. It is 

recommended that such an approach is essential for HCMC. 

Smartcard 

Reader/Device 

Operator System 

Central System 


Figure 4.3: Integrated Ticketing - Preferred Technical Option 

Line 1 Line 2 Bus BRT Other 

Open Standard Card/Reader Interface 

Open Standard Clearinghouse Interface 

Central 

Clearinghouse 

Phase II 

18 

Non-Transit 

Applications



Moving towards implementation of such an integrated fares and ticketing system requires an 

appropriate framework in which all necessary studies and activities can be undertaken. While it 

is not essential that the fare structure and level be confirmed before commencing the process 

of planning an integrated ticketing system, an early decision will provide clarity and direction 

to future work. In any event, establishing the fare structure and level is essential to the 

development of future MRT lines in HCMC, and is thus a matter than needs urgent attention. 

Accordingly, it is recommended that work commence as soon as possible to examine a range 

of fare structures and levels, and identify the option that best balances MRT financial viability 

and social obligations. 

Experience elsewhere suggests that a practical way forward to implementation of an integrated 

ticket system is to commence with a high level working group that should: 

• recommend a preferred fare structure and level; 

• prepare a functional specification for the ticketing system, identify a preferred 

technology, and estimate likely capital and ongoing operating and maintenance costs; 

• recommend arrangements for an integrated procurement contract that covers both 

implementation and ongoing operation and maintenance of the ticket system, and which 

also considers possible private sector financing of capital costs; 

• recommend institutional arrangements for the management of fares and ticketing for 

MRT in HCMC following implementation of a new integrated ticket system; and 

• present a program for implementation of the recommendations that describes activities, 

costs, schedules and agency responsibilities for government consideration and approval. 

It is recommended that this working group should comprise representatives of the PC’s 

Management Authority for Urban Rail (MAUR), Transport and Urban Public Works Services 

(TUPWS), Department of Planning and Investment (DPI) and Department of Finance or 

could be an embryonic form of the Integrated Public Transport Authority. 

Representatives of organizations and the community who will be affected by the proposals 

should be invited to participate, either as members of a steering committee or an advisory 

panel. A period of about 12 months will be required for the working group to undertake the 

above tasks to the necessary level of detail. The key steps are shown in Figure 4.4. 

Following a positive decision on the working group’s report, it is recommended that the 

government organization that is to be responsible for managing the ticket and fare system 

should be established (at least in the form of a “project office”), and required to prepare: 

• bidding documents; 

• plans to implement the procurement process, including tender assessment, award and 

management procedures; and 

• plans for operation of integrated ticketing across the entire MRT system, including 

current lines, bus and other modes. 

This work is likely to take a further six to twelve months, and will permit the government to 

proceed to formalization of institutional arrangements, implementation of the ticketing system 

and its ongoing operation. Based on experience in other cities, it is expected that it will then 

take about three to four years to tender, contract, deliver, install and commission the ticketing 

system, including establishing arrangements for delivery, sale and use of new smartcard-type 

tickets and management of fare revenue. 

19




Figure 4.4: Steps to Implement Integrated Ticketing & Fares 

Finally, responsibility for developing a suitable integrated ticketing and fare policy to support 

an integrated MRT and public transport system for HCMC rests with the Management 

Authority for Urban Rail (MAUR) in the first instance. The thinking needed to develop an 

appropriate ticketing system and fare policy cannot be outsourced to others. 

4.7 Building Technical and Managerial Capacity 

Depending on the option eventually chosen, with the exception of Option 4 (Integrated 

Transit Authority) the proposed agency will have a key role in working to efficiently and 

effectively connect high level transport policy and plan making done by TUPWS to detailed 

implementation. 

DPI will continue to have an important role in overseeing the performance of the transport 

sector in terms of fiscal monitoring, but would also benefit from having a stronger MAUR or 

Integrated Public Transport Authority to provide economic regulation and technical 

management of MRT (and/or bus) investment programming and management of annual 

MRT operating budgets, and desirably for other public transport. 

Economic regulation and oversight involves issues of pricing including fares, subsidies (and 

community service obligations), competition, concessioning including compliance supervision 

and requires skills in economics and to associated legal and financial impacts. 

Technical supervision of rail MRT and public transport investments and their integrated 

operation including ticketing requires high level knowledge and skills in: 

20



• interpreting transport policy and master plans prepared by TUPWS and central 

government’s MOT and providing appropriate feedback and advice; 

• translating these policies and plans into appropriate forward work programs that can 

result in timely and efficient implementation of MRT, other public transport 

improvements and reforms, and integrative systems; 

• providing appropriate advice to TUPWS/ DPI/ DOF/ DUPA and other agencies as 

required; and 

• appropriate coordination with the Department of Natural Resources and Environment. 

While the PC is acting to strengthen MAUR (under Options 1 and 2) or if it intends to create 

an Integrated Public Transport Authority (Option 3) or an Integrated Transport Authority 

(Option 4) it should be careful to match the skills and capabilities of the people to be engaged 

and /or transferred to the desired new organization and its structure taking full account of the 

needed capabilities in high level economic and technical supervision and oversight. 

21



Appendix A: Issues and Options for Private Sector Participation 

and Concession Template Working Paper 

22



RSC-C71557 (VIE), 

TA4862-VIE 

Ho Chi Minh City 

Metro Rail System: 

Issues and Options 

for Private Sector 

Participation, and 

Concession Template 

April 2008


Executive Summary ................................................................................................................................ 1 

1. Introduction .................................................................................................................................. 3 

1.1 Background ........................................................................................................................ 3 

1.2 Role of the current report ................................................................................................ 4 

1.3 Terminology ....................................................................................................................... 4 

2. Factors Influencing the Structure of MRT Delivery ............................................................... 7 

2.1 Structuring management in the transport sector .......................................................... 7 

2.2 Network integration .......................................................................................................... 9 

2.3 Policy control ..................................................................................................................... 9 

2.4 Implications of low financial cost recovery for the MRT system .............................. 9 

2.5 MRT system components .............................................................................................. 10 

2.6 Participants in MRT provision ...................................................................................... 11 

2.7 Bundling MRT components .......................................................................................... 11 

2.8 Risk transfer ..................................................................................................................... 14 

2.9 Forms of MRT concession – Gross Cost and Net Cost ................................................ 14 

2.10 Using the private sector to minimize the cost of MRT operations .......................... 16 

2.11 Potential roles for the private sector............................................................................. 16 

2.12 Assessing the value of private sector involvement - Value for Money analysis ..... 17 

3. Identification and Assessment of Potential Concession Models ........................................ 19 

3.1 Introduction ..................................................................................................................... 19 

3.2 Recent examples in other cities ..................................................................................... 20 

3.3 Potential implementation models for HCMC ............................................................. 20 

3.4 Next steps ......................................................................................................................... 26 

4. Risk Allocation for Concessioning and Financing Options ................................................ 27 

5. Concession Template ................................................................................................................ 32 

5.1 Key Factors Affecting the Concession Agreement .................................................... 32 

5.1.1. Form of Concession .......................................................................................... 32 

5.1.2. Allocation of Risk .............................................................................................. 32 

5.1.3. Value for Money ................................................................................................ 32 

5.1.4. Structure of Payments to the Concessionaire ................................................ 33 

5.2 Content of the Template ................................................................................................ 35 

5.3 Next Steps to Implement the Template ....................................................................... 37

6. Implementing Competitive Tendering and Concessioning ................................................. 39 

6.1 Probity ............................................................................................................................... 39 

6.2 Market Testing ................................................................................................................. 39 

6.3 Preparation of a Request for Proposals ....................................................................... 39 

6.4 Tendering and Tender Assessment ............................................................................... 41 

6.5 Concession Contract and Implementation .................................................................. 42 

6.6 Concession Management ................................................................................................ 42 

6.7 Schedule ............................................................................................................................ 43 

Appendix A: Bibliography ................................................................................................................ 44 

Appendix B: Summary of Some MRT Concession Arrangements in Other Cities ................ 45 

Appendix C: Additional Issues Related to Use of Net Cost and Gross Cost Concessions ... 47 

Appendix D: Concession Template ................................................................................................ 56 

Appendix E: Presentation and Report Summary ......................................................................... 81

Executive Summary 

This report considers opportunities to use the private sector in implement and operate rail 

mass rapid transit (MRT) in Ho Chi Minh City (HCMC). This matter is considered with a 

broader view than any individual MRT line in HCMC because the ultimate objective of the 

government is a substantial increase in the use of public transport in the city, which in turn 

requires an integrated public transport system. The use of the private sector is not addressed 

from an ideological perspective, but rather as a means for securing the delivery of high quality 

MRT at the lowest possible cost to the community. 

The report notes that the private sector has been involved in MRT in nearby countries in 

recent years: always for implementation of infrastructure; often for the operation of services; 

and to a lesser extent for investment in MRT assets. It also notes general experience that the 

cost of public sector operation of public transport is higher than with private sector operation, 

and that there is a general worldwide trend to make greater use of the private sector for the 

operation of public transport. 

Consideration is given in the report to the range of factors that affect the manner in which the 

private sector could be involved. These factors have two broad influences. 

The first is the extent to which the private sector could provide finance for implementation of 

the MRT. In this respect, it appears that the current approach to MRT in HCMC is likely to 

result in fare and related revenue that will, at best, cover operating costs and make a small 

contribution to capital costs. Accordingly, the government will need to eventually pay the 

private sector for most of the cost of any capital that the private sector might provide in the 

first instance to implement the project. While the cost of capital to the private sector is 

generally more expensive than the cost of capital for the government, the report notes that 

this may be offset by lower costs that result from the transfer of manageable risk to the private 

sector and the incentive for the private sector to better integrate assets and operations to 

reduce life-cycle costs. 

The second influence is on the form of the agreement between the government and the 

organization that is to operate the MRT system (called the concessionaire). It is essential that 

such an agreement be in place, irrespective of whether the concessionaire is a government or a 

private organization. It is common for such agreements to have a term of around 30 years or 

so, especially where the concessionaire contributes capital investment. There is also a need for 

the agreement to include conditions that provide the operator with the incentive to undertake 

their tasks in a manner that meets the government’s objectives for MRT in HCMC. 

There has been a tendency in the past to use a form of agreement wherein the concessionaire 

keeps fare and other revenue for the MRT line to which the contract pertains and uses the 

revenue to cover its costs. The government may need to provide supplementary financing if 

the revenue available to the concessionaire is insufficient to met the costs. This approach, 

called a Net Cost form of concession, has major limitations. In particular it does not facilitate 

operation of an integrated public transport system and reduces the flexibility of the 

government to develop the transport system and modify its urban transport policies over the 

term of the concession. An alternative approach, called a Gross Cost form of concession, is 

strongly recommended. Under it, revenue from fares accrues to the government, which in 

turn pays the concessionaire for the services that the concessionaire provides. The report 

describes how this form of concession can be implemented to give the concessionaire the 

incentive to provide good quality services that meet the needs of passengers at the lowest 

possible cost and with the least need for detailed management of the concession contract by 

the government. 

1

Four possible implementation options are considered in the report. All four will be subject to 

value-for-money analysis under the current study to indicate the potential cost to the 

government of delivering Line 2 of the MRT system and the provision of services on the line 

over the long term. The results of this analysis will be presented in a separate report. The 

options are: 

• Government financing, implementation and operation of the MRT. 

• Government financing and implementation of all MRT assets, and engagement of a 

concessionaire to operate MRT services. 

• Government financing and implementation of MRT civil infrastructure, and 

engagement of a concessionaire to finance and provide trains and related electrical and 

mechanical equipment and systems, and to operate MRT services. 

• Private sector financing, implementation and operation of the MRT. 

The Gross Cost form of concession is recommended for the first three options. A Net Cost 

form of concession is appropriate for the last option to allow the concessionaire to manage its 

greater financial exposure in a way that minimizes its risks. In all four cases, the government 

will eventually pay for the total cost of implementing and operating MRT. However, the total 

cost to the government will vary. This occurs because the four options involve different ways 

of allocating and managing MRT responsibilities, and hence the incentive and capacity for 

those involved to manage the associated financial, engineering, operational and patronage 

risks. 

The report draws general conclusions about the relative merits of the four implementation/financing 

options, but does not unequivocally recommend any particular approach. Rather, 

the intention of developing and assessing the options is to provide understanding that can 

help the government with its consideration of an arrangement that is appropriate for HCMC. 

Two other key recommendations are made. The first is that there should eventually be at least 

two companies involved in the operation of MRT in HCMC. This puts competitive pressure 

on each operator to improve its performance so that they are not seen to be inferior to the 

other operator(s). It also provides data that the government can use to benchmark the 

performance of the operators so that it can provide feedback to the operators on 

opportunities for improved performance. Finally, it provides the government with flexibility in 

the event that one operator fails to perform, with the capacity for another of the operators to 

take over in the short term if that should become necessary. The second recommendation is 

that international competitive tendering should be used to select the concessionaire, with the 

likelihood that a foreign party will form a consortium with a local enterprise. This will bring 

international experience and expertise to support the development of world class MRT in 

HCMC and provide a sound basis for developing domestic skills in MRT. 

Finally, the report presents an outline of a concession agreement and discusses the actions 

needed to select a concessionaire and establish and manage a contract. 

A detailed presentation of issues addressed in the report is presented in Appendix E. 

2


1.1 Background 

The People’s Committee (PC) of Ho Chi Minh City (HCMC) has initiated studies to develop a 

rail mass rapid transit (MRT) system for the City. An MRT Master Plan was prepared as part 

of a Japanese funded urban transport study, HOUTRANS. An updated Master Plan with six 

MRT lines was approved in December 2006. A proposal for two monorail lines is also under 

consideration, as is the use of bus rapid transit (BRT). These systems would complement an 

evolving on-street bus system. 

Two lines (UMRT2 and UMRT3) have been proposed for Asian Development Bank (ADB) 

funding with another line (UMRT1) to be financed by the Government of Japan and one line 

by the Government of China. ADB has mobilized a Project Preparatory Technical Assistance 

(PPTA) to assist the government to develop UMRT2 and UMRT3 (or variations on those 

lines if that should be recommended – termed the Project hereafter). The PPTA, which 

commenced in May 2007 and is to be completed in May 2008, is responsible for providing: 

• an optimized MRT Master Plan which integrates the currently proposed MRT lines into 


develops design parameters for the two project lines; 

• a feasibility assessment and preliminary engineering design for the Project lines - the 

PPTA will confirm the engineering feasibility, and identify social and environmental 

impacts for accurate cost estimation and financial appraisal; and 

• a plan to support project implementation, including institutional and staffing 


program. 

In addition, ADB has mobilized a grant from the Public Private Infrastructure Advisory 

Facility (PPIAF) 1 to assist the government to consider the appropriate role for the private 

sector in implementing and operating the Project, with a view to minimizing the cost of the 

project to the government on a risk adjusted basis and taking advantage of a market oriented 

approach to maximizing the benefits of the Project. The study will provide the following 

outputs: 

• a framework for considering private sector participation in implementation and 

operation of the Project; 

• a value-for-money analysis for implementation approaches that involve varying degrees 

of private sector participation; 

• a more detailed financial model reflecting the preferred approach and measuring the 

performance of the project from the points of view of the government and private 

sector participants; and 

• a stakeholder feedback and a description of necessary institutional and contractual 

arrangements given the preferred implementation approach. 

1 The Public-Private Infrastructure Advisory Facility (PPIAF) is a multi-donor technical assistance facility 

aimed at helping developing countries improve the quality of their infrastructure through private sector 

involvement. For more information on the facility see the website: www.ppiaf.org. 

3

1.2 Role of the current report 

The current report addresses the first of these subjects under the PPIAF study. It is noted that 

the objective for arrangements that are to be adopted for implementation and operation of the 

Project are to: 

• minimize overall costs to the government on a risk-adjusted basis, covering 

‒ initial capital costs for infrastructure; 

‒ ongoing operating and maintenance costs for infrastructure and train operations; and 

‒ costs incurred by the government to manage implementation and operation of the 

Project; and 

• maximize the benefits of the Project, including maximizing MRT patronage. 

The form of construction contracts is generally well understood, and is not addressed in the 

current report. Rather, the focus is on: 

• the operation and maintenance of infrastructure and provision of train services, 

including the role of the private sector in undertaking and financing these activities; 

• the extent to which infrastructure provision and financing can be undertaken by the 

private sector; and 

• the extent to which provision of infrastructure and its financing should be linked with 

subsequent operations and maintenance of the Project. 

Following sections of this report therefore: 

• address some terminological matters to clarify subsequent discussion; 

• present an overview of issues that will affect the role of the private sector with regard to 

the Project, including features of the Project, its potential financial performance and the 

structuring of government responsibilities in the transport sector; and 

• identify a range of private sector roles and screen these to identify four models that will 

be subject to a value-for-money analysis (i.e. the second component of the PPIAF 

study). 

1.3 Terminology 

A range of terminology can be used to describe participants in, and arrangements for, the 

financing, implementation and operation of an MRT line. To avoid confusion, the following 

terms are used in this report: 

• The Authority is the government agency that is responsible for ensuring the delivery and 

operation of the MRT system. 

• The term infrastructure contractor is used to describe the entity (or entities) that constructs 

infrastructure, including the supply of directly associated equipment, under a contract to 

the Authority. As will be described in Section 2.1, the infrastructure contractor should 

be entirely independent of the Authority, i.e. the Authority owns no shares in it. 

• Equipment suppliers may provide electrical and mechanical equipment (e.g. any or all of 

trains, signaling and communications equipment, power supply systems, train control 

systems, escalators, etc.) under contract either directly to the Authority or to an 

infrastructure contractor or a concessionaire. 

4

• Financier who provides or arranges the provision of capital to finance the construction of 

infrastructure or the provision of electrical and mechanical equipment. The financier 

may provide the capital as a grant or loan to the Authority or a concessionaire (who 

would then use it to pay infrastructure contractors and equipment suppliers); the 

Authority or concessionaire would repay the financier on the basis of agreed terms – in 

the case of grants, no repayment would be necessary. It is likely that a number of 

financiers may be involved in the Project. 

• An operator is the organization that delivers train services. It could be part of the 

Authority but, as will be described in Section 2.1, it is strongly recommended that this 

should not be the case. The operator need not necessarily provide the civil infrastructure 

on which the trains operate or even the trains themselves. The operator could be a 

public or a private organization. 

• A concession is a contract between the Authority and a concessionaire, where the latter is the 

organization that delivers train services (i.e. it includes the operator) and any other 

agreed activities. The additional activities could include the construction and ongoing 

operation and maintenance of infrastructure, the provision of trains and the provision 

of finance used to purchase assets. The concession should specify all conditions relating 

to the activities for which the concessionaire is responsible. 

• The operator or concessionaire could be a government entity (preferably a corporatized 

one, i.e. owned by the government but with its own accounts and with its own board) 

but, as will be discussed later in this report it is recommended that it should be a 

substantially or wholly private company. 

• A Net Cost concession involves a concessionaire providing train services and any assets that 

may be agreed, and covering the cost of these from revenue that it is able to collect 

from passengers and other agreed non-government sources. 

• A Gross Cost concession involves the concessionaire providing train services and any assets 

that may be agreed, with the Authority paying the concessionaire the full cost of doing 

so and with the Authority retaining revenue that it is able to collect from passengers. 

• Three forms of agency that undertake commercial operations (i.e. it provides goods or 

services and charges users for them) and in which the government has an interest are: 

‒ a public enterprise is used as a general term to cover government departments that 

undertake commercial operations; 

‒ a state-owned enterprise (SOE) is used more specifically for a commercial business that is 

fully owned by government and which has been corporatized, i.e. it has its own 

board of directors, its own set of financial accounts (with profit and loss, cash flow 

and balance sheet statements) and is intended to operate on a profitable basis; and 

‒ a joint venture enterprise is used for a commercial business that is like a private 

company but in which the government has some shareholding. 

• Public private partnership (PPP) which is a general arrangement whereby, in the case of the 

Project: 

‒ a private sector concessionaire could provide finance, infrastructure and/or services, 

and would be paid for the cost of doing so either through revenue they collect from 

users of the infrastructure or services, from the government, or from other agreed 

sources; 

‒ the PPP is governed by a contract between the Authority and the concessionaire; 

5

‒ the PPP involves the transfer of as much risk to the concessionaire as the 

concessionaire can manage – with the objective that the concessionaire will have the 

incentive to avoid the risk coming to fruition and resulting in them incurring higher 

costs and/or lower revenue than could be the case; and 

‒ with the extent of private sector participation being determined by a value-for-money 

analysis that assesses the extent to which the transfer of risk from the government 

(where it is generally less well managed) is sufficient to offset the generally higher 

cost of capital to the private sector. 

A number of other terms are used with regard to contracts. However, they are usually 

variations on the terms described above. Examples are: 

• A Build Operate Transfer (BOT) contract is a form of PPP. It is generally used where 

the revenue from the project is sufficient to cover the cost incurred by the private sector 

in providing the assets and services involved, but it is possible to use it in other cases 

also. It is generally in the form of a net cost contract. 

• Performance Based Contract (PBC) is to make clear that payments under a contract, 

and its continuation, are subject to performance meeting specified criteria. In practice, 

all contracts can be considered to be performance based. 

• Leases are not unique arrangements that are different to those described above, but 

rather are specific arrangements relating to the financing and provision of assets. 

6

2. Factors Influencing the Structure of MRT Delivery 

This chapter discussed factors that affect the way in which the implementation and operation 

of the Project can be arranged. The lessons from these issues are used in Chapter 3 to describe 

options for HCMC. 

2.1 Structuring management in the transport sector 

The potential role of the private sector in MRT in HCMC needs to be considered in a broader 

context of how government should structure its activities in the transport sector. The activities 

undertaken by transport agencies can be categorized as: 

• policy and planning, which involves identifying future strategic needs and developing 

the policies and plans required to achieve government objectives. It also includes 

monitoring and evaluating the performance of outcomes against government objectives, 

using this information to refine strategies, and identifying strategic resource needs; 

• regulation, which involves establishing and applying technical standards for safety, 

security and environmental performance of public transport, and economic regulation 

needed in response to market failure; 

• program development and management, which involves translating policies, 

strategies and regulatory requirements into specific actions such as programs and 

projects and providing oversight and monitoring of their delivery; and 

• service delivery, which involves delivering, or ensuring the delivery, of transport 

infrastructure and services. 

Policy & 

Strategy 

• Policy framework 

• Strategic planning 

• Regulatory policy 

• Financing & 

pricing policies 

• Performance 

monitoring 

Figure 2.1 Categorizing the Government Transport Functions 

Regulation 

• Setting standards 

• Registration & 

licensing 

• Enforcement 

Effectiveness –“doing the right thing” 

Reports 

Informs 

7 

Program 

management 

• Project planning 

• Investment 

programming 

• Project, financing 

& other approvals 

• Design, tendering, 

& contracting 

• Contract/concession 

management 

• Monitoring & quality 

assurance 

Program 

delivery 

• Infrastructure 

• Services 

• Marketing 

• Finance 

Efficiency –“doing the thing right”

These categories of activity serve two broad objectives: 

• effectiveness, which is related to ensuring that choices are directed to achieving the 

things that the community values, with clear linkages from the desired outcomes to the 

outputs of government activities that are needed to achieve the outcomes to, in turn, the 

controls, services or other outputs that need to be delivered to achieve these outcomes; 

and 

• efficiency, which is to provide the controls, services and other outputs that have been 

decided on at the lowest possible cost. 

This approach has a number of implications for institutional management, for example, it: 

• identifies the need to establish clear policies and implementing strategies so that those 

involved in delivering transport infrastructure and services have an explicit 

understanding of what is expected of them; 

• ensures a productive tension between those responsible for strategic planning, project 

development and delivery; 

• reinforces the need for clear allocation of tasks to agencies to avoid ambiguity about 

which agency is responsible for each of them; 

• indicates the need for performance management systems that are transparent and hold 

managers accountable for delivery of agreed outputs; 

• shows a need to separate conflicting functions, in particular; 

‒ to separate regulatory from operational activities to avoid the conflict of interest that 

arises from an agency regulating itself; 

‒ more generally, to separate decisions on effectiveness from those regarding efficiency 

so that each area of activity is undertaken with a clear focus; and 

‒ to separate commercial activities from non-commercial activities so that the former 

are undertaken in a businesslike way with a unmistakable commercial imperative; and 

• with regard to the potential role of the private sector, it indicates that: 

‒ the role for the private sector is program delivery, which can include a range of 

infrastructure, services, promotion and even finance; 

‒ use of the private sector must occur within a clear framework of policy and strategic 

guidance, regulation and program management, with the government alone being 

responsible for these activities; and 

‒ the choice of whether to use government agencies or the private sector for program 

delivery is a decision that should be based on the approach that has the lowest cost. 

The key consequences of this review of functions for the Project are: 

• the need for a high level group in government that determines the strategic direction for 

public transport in HCMC and sets the framework within which agencies responsible 

for individual components of the public transport system undertake their own specialist 

activities as part of an integrated approach to public transport; 

• the need to separate management and the undertaking of operational activities, with 

government (i.e. the Authority) responsible for arranging for the delivery of 

infrastructure and services and separate entities to deliver these through contracts, in 

particular: 

8

‒ the use of contractors to construct infrastructure; and 

‒ the use of concessionaires to operate services (though, as will be described in later 

sections in this chapter, it is possible to have some infrastructure delivered by a 

concessionaire). 

As a general rule, the all contracts between the Authority and contractors and concessionaires 

should be based on competitive tendering to ensure that the best provider is selected (taking 

account of both quality and price aspects of tenders). 

2.2 Network integration 

The MRT system will ideally be operated as an integrated system from the perspective of 

passengers, irrespective of which agencies develop and/or operate individual lines or parts of 

the system. This will require: 

• integration of physical infrastructure, with passengers able to easily transfer between 

MRT lines, between bus and MRT and by walk access to MRT lines; 

• integrated ticketing for the MRT system so that passengers can use a single ticket such 

as a stored value card to access any part of the MRT system and, ideally, buses and 

water transport also; and 

• ideally, integrated fares so that passengers are not required to pay a second or 

subsequent ‘flagfall’ component when transferring between MRT lines and also with 

other public transport modes. 

It is also expected that the Project will generally involve the use of trains only on lines 

developed under the project, but that the potential will exist for inter-operability with possible 

future lines, i.e. the use of trains that travel on different lines in the MRT system. 

None of these measures requires a single agency to construct and operate the MRT system as 

the desired outcome can be achieved by the Authority setting appropriate technical standards 

and structuring contracts appropriately to ensure the necessary level of integration. 

2.3 Policy control 

The MRT system will have a long life, with for example some infrastructure having a life (if 

adequately maintained) of over 100 years and trains having a practical life of around 35 years. 

Over such periods, demographic and socio-economic conditions in HCMC can be expected 

to change substantially. Government policy priorities may also need to change. It is therefore 

inappropriate for the government to set up arrangements for train operations that prevent it 

from making essential changes, for example to add new lines or to change bus or MRT 

services, the quality of the MRT system, and the structure and level of fares. Equally, the 

government should compensate other parties if the changes in policy should adversely affect 

them. 

2.4 Implications of low financial cost recovery for the MRT system 

Previous analysis of the original proposal for lines UMRT2 and UMRT3 (ADB 2007a) 

suggested that, after taking account of likely revenue (including fares and the limited non-fare 

revenue that could be collected by the operator), there will be a definite need for the 

government to finance the fixed infrastructure for the lines from its own sources, an almost 

certain need to finance rollingstock, and a 35% probability that it would also need to subsidize 

MRT operations on an on-going basis. While it is likely that forecasts of costs and revenue will 

9

change in the course of ongoing work, it seems improbable that the level of cost recovery for 

any proposed line will change so dramatically as to change this overall picture. 

This general conclusion is similar to the situation in other cities in a similar situation to 

HCMC. For example the second MRT line in Bangkok appears to be able to generate 

sufficient revenue to meet its operating costs but not sufficient to also meet the cost of 

rollingstock. In Singapore, the government provided fixed infrastructure and an initial set of 

rollingstock with the concessionaire not expected to meet the full cost of replacing 

rollingstock when this becomes due. In both of these cities, fares are much higher relative to 

the cost of implementing and operating MRT than seems likely to be the case for HCMC. 

It will therefore not be possible for a private sector concessionaire to finance, implement and 

operate the Project and to meet the costs incurred from potential revenue available to the 

concessionaire. Any private sector participation will therefore need to occur on the basis that 

the government will need to make some payment to the concessionaire in addition to the fare 

and other revenue that may be obtained from the Project. 

2.5 MRT system components 

The Project will involve the provision of 2 : 

• fixed infrastructure, which includes civil works and fixed electrical and mechanical 

(E&M) infrastructure 

• rollingstock, i.e. trains; 

• train control and communications systems; 

• a ticket system and associated fare collection and revenue management; 

• operations and maintenance (O&M) of all infrastructure and provision of train services; 

and 

• capital to finance implementation of the Project, including the supply of fixed 

infrastructure, fixed E&M equipment and rollingstock. 

These components are important in two respects: 

• the suppliers of the components will generally be different and will have differing 

interests; and 

• the components can be procured in different combinations. 

The arrangements for implementing and operating the Project need to take account of these 

differences to avoid conflicts that will reduce the effectiveness of the Project and to take 

2 Drawing on ADB (2007), indicative cost components for the Project are: 

• with regard to the initial capital costs, fixed infrastructure, E&M infrastructure, trains and ticketing 

systems could account for about 75%, 10%, 10% and 5% respectively of the total cost of the Project; 

• the initial capital expenditure will be about 90% of total capital expenditure over the implementation 

period and 35 years of operation after allowing for expected re-investment and capacity expansion (on a 

present value basis using a real discount rate of 5%) and 75% of actual real expenditure (i.e. without 

discounting), and 

• allowing for likely re-investment and capacity expansion over a period covering 35 years of operation, 

capital and O&M costs could respectively account for around 70% and 30% of the total cost of 

providing infrastructure and services (on a present value basis using a discount rate of 5%) and 55% and 

45% in actual real expenditure (i.e. without discounting). 

10

advantage of mutual interests that can enhance the prospects for success. These matters are 

discussed in the next two sections. 

2.6 Participants in MRT provision 

Implementing an MRT system and providing services on it will require the Authority to take 

account of four parties whose interests many not necessarily coincide: 

• infrastructure contractors, which are interested only in building the project at a cost – 

ongoing maintenance needs are generally small and will generally be undertaken by 

smaller specialist companies; 

• equipment suppliers for rollingstock and electrical and mechanical equipment (e.g. 

signaling, power supply, escalators, etc.), who will be interested in both supplying and, if 

possible, maintaining the equipment – this recognizes the specialist nature of, for 

example, train maintenance and has the merit of minimizing lifecycle costs by, for 

example, avoiding the delivery of lower quality trains that require expensive ongoing 

maintenance; 

• the operator, who with an operating concession having the correct incentives will wish 

to ensure that the project design will be attractive to customers and will minimize 

operating costs over the life of the operating concession; and 

• financiers of fixed infrastructure and rollingstock, who may be the government if tax 

revenue or public debt is used, or private companies if a public private partnership 

(PPP) approach is taken. 

Developing MRT infrastructure and services requires recognition that these groups need to 

work together for the project to be delivered successfully, but that they have different 

individual interests including different time horizons and risk sensitivities. In particular, the 

infrastructure contractors generally have a short term perspective that covers little more than 

the construction period while financiers and operators have a longer term perspective 

covering the term over which debt is outstanding in the case of the former and the operating 

concession for the latter. 

Contracts can include any one or a mix of the four parties. If a concession encompassed the 

financing, implementation and operation of the entire Project, it would necessarily involve all 

four interests, though to different degrees at different times through the concession. This has 

the merit of internalizing the tensions between the four parties, including allowing them to 

appropriately share project risks, and potentially minimizing overall costs. However, there is a 

risk that the winning concessionaire may not comprise the optimal mix of four parties (i.e. the 

infrastructure contractor, equipment supplier, operator and financiers who are each able to 

offer the lowest cost) and could involve suboptimal compromises between the parties. 

2.7 Bundling MRT components 

The activities described in Section 2.5 can be procured in different combinations to achieve 

the objectives for an efficient and effective Project. Some key issues that affect this bundling 

are: 

• Integrating design and operations: Project design and implementation need to take 

account of operating and maintenance costs if the overall life-cycle cost of the MRT 

system is to be minimized. A single entity could be selected to develop and operate the 

system (i.e. the first four of the above components) and even to provide finance as well. 

There are no such entities in Vietnam with the skills and experience in all aspects of 

11

MRT systems, and few in the world. The range of expertise needed to develop and 

operate an MRT system is so broad that they will require that the entity be a consortium 

that includes a number of companies with skills in various specific areas. However, 

when tendering a consortium may not necessarily secure the best outcome because: (i) 

the large size of the contract would limit the number of integrated consortia that could 

bid; (ii) the winning consortium will not necessarily include the best combination of 

individual companies with specific implementation, operation and financing skills; and 

(iii) the consortium may not fully separate the cost of initial development and ongoing 

operations in a way that provides sufficient transparency to enable the government to 

adequately manage the contract. These limitations are not insurmountable, and can be 

managed with sound tendering, tender evaluation and project management processes. 

• Integrating rollingstock provision and associated systems with MRT operations 

and maintenance: It is possible to arrange for the rollingstock to be provided either: (i) 

as part of the infrastructure contract; (ii) as a standalone contract; or (iii) as part of the 

operations contract. There is merit in the last of these approaches, i.e. with operating 

concessionaire financing, providing and maintaining trains and related items such as 

train control & communications systems and depot equipment because: 

‒ it ensures that the concessionaire has equipment and systems that they judge will 

allow them to provide services that meet their passengers’ needs, with this ability to 

hold the concessionaire more closely accountable for the quality of their services 

allowing the transfer of some patronage risk to the concessionaire; 

‒ it allows the concessionaire to optimize the closely inter-related costs of rollingstock 

and train control and operations, together with other operating and maintenance 

costs and hence to operate efficiently; and 

‒ the financier of the trains (which is likely to be a third party) will place additional 

pressure the operator to perform well and meet the requirements of the concession 

to protect the financier’s investment 3 . 

Nevertheless, it remains important that the government specify key features of the 

equipment (e.g. power supply) if it wishes to allow for inter-operability of trains between 

lines in the MRT system and to avoid excessive mixes of technology in the MRT system. 

A concession agreement would also need to include a clause that provides the 

government with the option to buy the trains in the event the operator failed (or was 

dismissed by the government due to inadequate performance) to ensure that it could 

install another operator who could continue to use the rollingstock. This approach 

would avoid a financier adding a risk premium to allow for the possibility that the trains 

could be returned to them in the event the operator failed or was dismissed. Still, some 

risk needs to remain with the financier if they are to be in a position to pressure the 

operator to perform well. Finally, linking rollingstock supply with the operating 

concession will require that the concession be for a period equal to the life of 

rollingstock (approximately 30-35 years) or provide clear rules for government purchase 

3 In this arrangement, the concessionaire would be a consortium that included a financier as well as an 

operator. The presence of a clause in the operating concession contract that allowed the financier to replace an 

operator that was performing inadequately would be a way to reinforce the mechanism. Notably, the use of 

export credit to finance the procurement of trains and other assets would not result in the desired internal 

pressure on the operator because this finance is based on an agreement between the export credit agency and 

government in Vietnam, i.e. it does not directly link the financier with the operator. If export credit is used, it is 

therefore necessary that the credit is not the sole source of finance for the concessionaire, i.e. the concession 

needs to involve the use of significant other private sector finance to bring a financier into the concessionaire 

consortium who is motivated to monitor and pressure the operator. 

12

or the transfer of the rollingstock to another operator if a shorter concession period is 

used. 

• Packaging infrastructure maintenance: Two practical options for the maintenance of 

fixed infrastructure on an ongoing basis (i.e. after the initial warranty period covered by 

the construction contract) are to: (i) make it the responsibility of the group who operate 

train services; or (ii) package it as a separate contract. The former is preferred because it 

avoids potential boundary disputes between the maintenance and operations contracts 

(e.g. with the operator claiming that limitations in their performance are due to 

deficiencies in infrastructure maintenance). It also draws on the self-interest of the 

operator to ensure that the infrastructure is sound condition so that the system is 

attractive to passengers and that train operations are not impeded by inadequate 

infrastructure maintenance. 

• Separating the ticket system and fare collection from other MRT activities: To 

meet the needs of passengers, the MRT system must be seen by actual and potential 

customers as a seamless system that is easy to use. As an essential element of an MRT 

system is that people transfer between lines to reach a greater range of locations, this 

cannot be achieved if ticketing is undertaken on a line by line basis. The needed 

outcome of an integrated ticketing system can be achieved by either: (i) establishing 

standards for an integrated ticket system that the developer of each MRT line is required 

to adopt; or (ii) removing ticketing from activities undertaken for individual lines and 

implementing it as a separate contract that covers the entire MRT system (potentially 

covering ticketing and also fare revenue collection and management). The latter has the 

advantage that it: 

‒ makes it easier to implement and operate an integrated fare and ticketing system and 

provides greater flexibility for future policy changes (e.g. regarding fare price levels 

and fare structure); 

‒ allows specialization and scale economies in the ticketing and fare revenue 

management systems, which should reduce unit costs; 

‒ facilitates introduction of ticketing products that are part of more general payment 

schemes (e.g. smart cards), with benefits for consumers and possibly also lower costs 

– it requires the ticketing organization to be able to enter into commercial 

arrangements with financial institutions and other entities and make rapid and 

frequent payments to settle accounts as part of its revenue clearing operations; and 

‒ permits establishment of an independent contractor (i.e. the supplier and operator/maintainer 

of the ticketing system) who would amongst their other duties monitor 

patronage 4 . 

• Financing: The government can procure private sector capital to develop MRT 

infrastructure. Preliminary analysis for HCMC (see Section 2.4), and evidence from 

other places, indicates that MRT revenue is unlikely to make a significant contribution 

towards the financing of infrastructure. Hence, there are two ways in which 

infrastructure can be financed: (i) the government uses its own funds (including general 

public debt) to finance the project; or (ii) engage the private sector to both develop and 

finance the project in the first instance and repay them over time for the costs the 

4 It is recommended later in this report that the payment to concessionaires who provide train services should 

be related, in part, to the patronage of their line. Having an independent organisation (i.e. the operator of the 

ticket system) as the source of patronage data avoids the conflict of interest associated with concessionaires 

providing data on patronage that in turn is used to determine the payments made to the concessionaires. 

13

private sector incur. The logic for the latter is that government borrowing capacity may 

be limited, and/or the cost of private sector finance may be less than use of public 

sector funds when account is take for the transfer of risk to the private sector. This use 

of private sector capital together with risk transfer is the essential feature of what are 

commonly called a public-private partnership (PPP) or a private finance initiative (PFI). 

Means for determining if there is merit in using a PPP arrangement is considered further 

in Section 2.12. 

2.8 Risk transfer 

An essential aspect of contracts is the specification of the responsibilities of the Authority and 

concessionaire. Inherent to these responsibilities is the allocation of risk, i.e. the responsibility 

for each party to deal with uncertainty regarding matters related to the activities (such as the 

precise quantity and cost of materials needed in a construction contract, likely MRT patronage 

and MRT operating costs). The Authority will gain the lowest price for a tender by 

transferring to the concessionaire) the risk that the concessionaire can manage. The 

consequences of transferring a different level of risk are: 

• if the Authority transfers less risk, the concessionaire will have less incentive to manage 

the risk – this will increase the chance that the risks will occur and will lead to higher 

costs, which will be passed on to the Authority; and 

• if the Authority transfers more risk than the concessionaire can control, the 

concessionaire can be expected to add some allowance in their tender to allow for the 

possibility that events beyond their control will occur and will result in them incurring 

higher costs – this allowance is sometimes called a risk premium. 

Assigning the optimal amount of risk between the Authority and the contractor/concessionaire 

(and also between the various groups in a contract/concession consortium) 

leaves each in a position to use risk management techniques to minimize the probability that 

the risks will be realized and result in financial loss. Establishing the appropriate transfer of 

risk to contractors and concessionaires is an essential activity for the Authority, and will 

determine the cost that the government will eventually incur for implementation of the Project 

and its ongoing operations. Dealing with the latter (i.e. ongoing operations) can be difficult 

because it needs to consider matters that can change over time, but is also very important 

because the cost consequences of an unsound allocation of risk can be considerable. 

2.9 Forms of MRT concession – Gross Cost and Net Cost 

As indicated in the definition of terms in Section 1.3, there are two principal forms of contract 

for the provision of MRT infrastructure and services; a Net Cost concession and a Gross Cost 

concession. The features of these approaches are summarised in Figure 2.2 (see also Appendix 

C). Assessment of the options indicates that: 

• A Net Cost form of concession has substantial limitations because the need to give the 

concessionaire certainty over the circumstances of their system commensurate with the 

revenue risk transferred to them either restricts government flexibility with regard to 

future MRT development and policy change or requires government to renegotiate 

concession agreements to take account of changes that may need to occur in the future. 

• A Gross Cost form of concession will almost certainly be the best approach for MRT in 

HCMC to give the government the capacity to deliver fully integrated public transport 

(including integrated ticketing and a common fare system) that can also adapt to 

14

changing circumstances over time, acknowledging that it is not possible to identify in 

advance all such changes that could occur over a potential 35 year concession. 

• With a Gross Cost concession there should still be an appropriate transfer of risk to 

concessionaires to minimize costs, encourage good performance by concessionaires and 

minimize concession supervision requirements. 

• Concession supervision needs to focus on key factors that will ensure the government 

achieves value-for-money. 

The government will gain the lowest overall cost by transferring to the concessionaire the risks 

that the concessionaire can manage. As an example, it is evident that an MRT operator can 

have some influence over MRT patronage, for example by providing good service, but that 

other factors beyond the control of the operator also have a substantial influence, for example 

the state of the economy, government policy on other transport modes, government land use 

policy and patronage on other lines in the MRT system. 

Transferring full patronage risk to an operator would result in operators, when bidding for a 

contract to operate the MRT, including higher costs in their tender to protect them against the 

uncertainty of the risks that are beyond their control. It is judged that the concessionaire may 

be able to influence only say 10-20% of their patronage, i.e. a concessionaire providing a poor 

quality of service would have patronage around 80-90% of the patronage of a concessionaire 

providing a high quality of service. This occurs because (a) many passengers will judge that 

they have no choice than to continue to use MRT because road traffic conditions are poor, (b) 

patronage is affected by more general social and economic conditions over which 

concessionaires have no influence, and (c) patronage on any individual MRT line will depend 

on what is happening on the other lines. Transferring this extent of risk to the concessionaire 

will encourage them to provide good services to customers without exposing them to 

excessive financial risk. This can be achieved by linking part of the payment to the 

concessionaire to the number of passengers that they carry on their MRT line. 

Figure 2.2: Summary of Net Cost and Gross Cost Concession Models 

Net Cost Gross Cost 

Infrastructure Government provides civil infrastructure. Concessionaire provides trains and related items such as 

train control & communications systems and depot equipment. 

Risk sharing Concessionaire assumes all patronage risk, 

and shares extra profits (if any) with the 

Authority. 

Risk is shared between the Authority and 



Revenue Concessionaire keeps revenue Fare revenue is given to the Authority 

Services Concessionaire determines services to be 

provided on the basis of profitability. 

Payments Concessionaire meets costs from its own 

revenue. Additional payments may be 

needed from the government if 


Authority role Authority invites tenders & establishes a 

concession; has only a small role 

thereafter; difficult to vary contract 

conditions. 


15 

Authority sets service standards and the 

concessionaire determines services based on these 

standards. 

Authority pays the concessionaire for services 



provided. 

Authority invites tenders and establishes a 

concession; has a continuing major role in managing 

the concession agreement; can vary conditions when 

needed.

2.10 Using the private sector to minimize the cost of MRT operations 

There has been a general tendency for subsidized publicly provided public transport services 

to become inefficient, with around half of increased subsidies for public transport being 

delivered to passengers through improved services and the remainder resulting in less efficient 

service provision, i.e. wasted (Bly et al 1980, 1985). This waste is also evidenced by 

international experience in recent years with the contracting out of operation of bus services 

that were previously operated by a government agency, with the general literature indicating 

that private sector operations achieved savings in recurrent costs (i.e. operating and 

maintenance costs) have generally been in the range of 20% to 50%, with some reports of 

higher savings, for example (Hensher and Wallis 2005), for example: 

• Great Britain: 50%-55% 

• Scandinavia: considerable spread of results (5%-34%), but most in range 20%-30% 

• USA: 30%-46% 

• Australia: 22% (Perth), 38% (Adelaide) 

• New Zealand: about 40% (ex-public operators) and about 5% (private operators). 

Recent work on the cost of operating buses in Bangkok indicates that private sector operation 

would be at least 30% less than with government operation (University of Queensland 2006). 

That is the cost government operation of public transport services is likely to be, 

conservatively, around one-third to one-half more expensive than with private sector 

operation based on competitive tendering. There is, accordingly, a strong case to consider use 

of the private sector for service provision. Given that there is no agency in Vietnam with any 

experience in MRT operations, this has the added advantage that it avoids the high cost and 

complexity of attempting to establish such an organization in the first instance. 

2.11 Potential roles for the private sector 

An essential task for the government is policy, planning and specification of an integrated 

public transport system. Failure to do this, either by neglecting the issues or by assigning 

excessive flexibility to concessionaires and contractors, will almost certainly lead to a suboptimal 

situation in which the cost of MRT and other public transport will be higher and the 

quality and integration poorer than need be the case. It also needs to establish the appropriate 

operating regime that will be implemented through operating concessions. 

To deliver effective and efficient MRT, the government therefore needs to: 

• ensure adequate planning and feasibility has been carried out and that the economic and 

financial business case for proposed new MRT lines or other system components is 

understood; 

• clearly understand the relative merits of alternative approaches to procurement (e.g. 

single or multiple contract, and how equipment and services should best be bundled – 

see the discussion in Section 3.3) when embarking on procurement for construction and 

supply of equipment and be able to clearly specify the key functional requirements for 

the infrastructure and services that will apply irrespective of the procurement method 

used to arrange delivery of them; 

• ensure integrated operations and policy flexibility by keeping control of: 

‒ policy on fare structure and level and the instruments (including ticketing) to 

implement it; 

16

‒ key design features to ensure the system facilitates integrated public transport 

services, for example train specification, power supply, common train control 

systems to permit inter-operability, ease of transfer between stations where lines 

intersect, disability standards so that a disabled person who boards at one station is 

able alight or transfer at another, etc.); 

‒ key operating parameters that govern the services to be provided, for example to 

allow the government to require concessionaires to provide community service 

obligations and to ensure MRT services integrate with other public transport 

services; 

‒ marketing and branding of the MRT system as a whole, while also encouraging 

individual operators to be innovative and promote their own services within the 

desired framework; and 

‒ provision of passenger information through published material (e.g. web sites, 

timetables etc.) and call centers. 

It is essential that government perform these functions because no other group can do them - 

the government’s priority must therefore be with respect to these functions rather than other 

functions (i.e. delivering infrastructure and services) that can be undertaken by the private 

sector. 

Government in Vietnam has considerable experience using the private sector for the delivery 

of civil infrastructure, but much less experience using them for delivery of services. 

Experience in other cities in Asia (e.g. Bangkok, Singapore, Kuala Lumpur, Manila and 

Hongkong) shows that the private sector can implement and operate high quality and effective 

MRT systems. Experience also shows that the private sector can mobilize capital to finance 

infrastructure, even if this has not always been successful in terms of providing the private 

sector with an acceptable rate of return on their capital. The causes for the financial underperformance 

are complex, but can generally be linked to: (a) substantial optimism bias (i.e. a 

tendency by both government and the private sector to under-estimate the cost of projects 

and, even more importantly, the tendency to over-estimate passenger demand for the 

projects); and (b) a failure by government to adequately plan and execute projects and to 

implement the complementary land use and transport developments needed for the best use 

to be made of the MRT projects. 

2.12 Assessing the value of private sector involvement - Value for Money 

analysis 

The decision on whether to use the private sector to undertake an activity can be based on a 

value-for-money (VFM) analysis that takes account of: 

• the cost of establishing a public sector agency to undertake the task if such an agency 

does not already exist; 

• differences in the cost of capital and operating efficiency of the private sector compared 

with the government; and 

• the extent to which responsibility for uncertainty about future conditions is transferred 

to the private sector and the private sector is able to manage the uncertainty so that 

higher costs do not result. 

The cost of capital for government borrowing will generally be less than private finance 

because of the low risk assigned to government (i.e. sovereign) debt and the higher return on 

equity capital sought by the private sector. If all other matters were equal, it would therefore 

17

e better to use government capital in association with private sector implementation of MRT 

infrastructure and private sector option of MRT services to minimize the overall cost of MRT. 

However, other matters are not equal because it is possible that the private sector can, with 

the appropriate transfer of capital risk to them and with a soundly based and managed 

contract, manage the risks to avoid them occurring and incurring financial losses that would 

result as may more readily occur with government financing of the assets. The private sector 

could also be expected to more firmly resist requests for changes in the scope of the project 

than would occur if a government agency was implementing the project. 

Hence, it may be possible to transfer sufficient risk to the private sector that offsets the higher 

cost of private finance and hence makes a PPP approach the lower cost option. This can be 

established using a value for money analysis that compares the cost to the government of 

implementing an MRT project using its own capital. This will be tested in financial modeling 

to be undertaken through the current study. 

18

3. Identification and Assessment of Potential Concession Models 

3.1 Introduction 

The People’s Committee of HCMC, and government more generally in Vietnam, has 

considerable experience in the procurement of civil works through contracts. This experience 

has covered situations where contractors involve some form of government ownership (i.e. 

they are a public enterprise, a SOE or a joint venture) as well as contractors who are fully 

privately owned. The HCMC PC also has experience with contracting the provision of bus 

services to SOEs, joint ventures and private companies. 

Implementing MRT in HCMC will be more complex than this experience to date because of 

issues such as the size of the civil works involved, the cost of operations, the interrelationships 

between fixed infrastructure, trains and operations, and the lack of any 

experience with MRT infrastructure and, in particular, operations. 

Some of the issues that affect arrangements for the implementation and operation of the 

Project were discussed in the previous chapter. This chapter draws on that discussion and 

experience elsewhere to identify several distinct options or models that could be applied in 

HCMC. Several conclusions arising from the discussion in Chapter 2 help to identify some key 

features that need to be considered: 

• there is a central role for government in specifying key design and operating parameters 

for the MRT system – an example of this is where government sets the standards and 

specifications for signaling and communications equipment which ideally should be the 

same for all lines; 

• there is a need to coordinate design and operations – while this does not necessarily 

require that they be integrated within a single supply contract, it is likely to be more 

easily achieved if this is done; 

• the provision and operation of the ticketing system should be contracted separately 

from other infrastructure and services to ensure integrated ticketing and fares; 

• a Gross Cost form of operating concession allows a better integrated system with policy 

flexibility for government and greater certainty for concessionaires; 

• the sustainability of the MRT system will be facilitated if the capital cost of trains, 

reinvestment in life-expired assets over time and MRT operating and maintenance costs 

can be recovered from fare and other MRT-related revenue; and 

• the use of government or private sector financing of capital expenditure in the first 

instance can be assessed on its own merits, i.e. it can be addressed as a separate issue to 

other matters related to MRT development and operations. 

It also demonstrates how the use of private sector capital can be assessed to determine if it 

provides the government with value for money compared with use of government funds to 

provide the necessary capital. 

Firstly, though, brief consideration is given to approaches used in other cities that have 

implemented MRT in recent years. 

19

3.2 Recent examples in other cities 

MRT lines that have been implemented in recent years and which provide insights that are 

applicable to HCMC include those in Bangkok, Manila, Kuala Lumpur and Singapore. While 

somewhat older, Hong Kong is also briefly discussed. 

Three models have been used to implement MRT in Bangkok to date (see also Appendix B): 

• The first two lines, which are elevated and 23.5 km in length, was a design, build, 

transfer, operate and maintain concession in which a private sector consortium financed 

and implemented the system and have the right to operate it over a period of 30 years. 

The private sector gains its revenue from fares and a few other small sources, and 

receives no subsidy. The system has not been able to generate sufficient revenue to meet 

all of its costs, and investors have incurred substantial financial losses. 

• The second line (the Blue Line subway) was implemented by the government as a design 

and build contract for most of the fixed infrastructure using public funds with a separate 

concession for the supply of trains and E&M equipment and for operation of the line 

for 25 years. The concessionaire gains its revenue from fares and a few other small 

sources, and meets its costs from this revenue, i.e. it does not receive any ongoing 

subsidy. Patronage for the line is much lower than forecast, and it seems unlikely that 

the concessionaire will be able to meet its financial obligations in the longer term. 

• A third line (to the new Suvarnabhumi Airport) is currently under construction. The 

government is using a design and build contract to develop all fixed infrastructure and 

to supply an initial set of nine trains using public funds. The form of the concession is 

not yet determined, but it is notable that the provision of some trains will reduce the 

costs that the concessionaire will be expected to cover. 

Work examining the development of future MRT lines in Bangkok (ADB 2007b) has 

recommended that implementation and operational arrangements for future lines should be: 

• government financing of fixed infrastructure through use of public funds with 

implementation of fixed infrastructure through conventional construction contracts; 

• engagement (through competitive tendering) of a private sector concessionaire to 

finance and provide trains and train control and communications equipment, to 

maintain fixed infrastructure and to operate train services over a 35 year period under a 

Gross Cost form of concession with the appropriate transfer of risk; and 

• the government to implement an integrated ticketing system using the private sector to 

the greatest extent and with the government retaining all fare revenue. 

3.3 Potential implementation models for HCMC 

Models for the implementation and operation of the Project in HCMC need to address: (i) 

implementation of the infrastructure; (ii) operation and maintenance of the system; and (iii) 

financing of the system. Four integrated models for these activities, which illustrate the range 

of possible options and their implications, are identified. In all cases it is assumed that the 

government agency which is responsible for delivering the project (called the Authority) 

engages other entities on a contractual basis to undertake the three tasks, though the other 

entities could be a mix of public and private enterprises. The four models are: 

• Public Enterprise. In this approach the Authority would use government finance to 

implement the Project using capital that it arranges (using government tax revenue, 

grants from other levels of government, and sovereign debt), would use competitive 

20

tendering to arrange for construction of fixed infrastructure and the supply of trains and 

associated systems, and would establish a SOE that would operate and maintain the 

system under contract. As the operator would be an SOE, there is no effective risk 

transfer from government (i.e. it can only be transferred between different parts of 

government) and the concession contract would need to be based on payments to cover 

the costs incurred by the SOE. In this arrangement there is no role for the private sector 

other than as civil works contractors and suppliers of equipment. This is the broadly 

model recommended for UMRT1 (though it was proposed for this line that 

maintenance of the line would be undertaken through a separate contract – see Parsons 

Brinckerhoff et al 2006). 

• Public Implementation with Operating Concession (PIOC). In this approach the 

Authority would finance and implement project infrastructure in the same manner as 

the Public Enterprise model, but would engage, through competitive tendering, a private 

company that would provide services. A Gross Cost approach is adopted for the 

operating concession because of the reasons discussed in Section 2.9. (A Net Cost 

concession could be used, but this would reduce the integration of the network and the 

policy flexibility of the government.) In the PIOC approach, the Authority needs to play 

a firmer role in ensuring that the design of the Project takes account of ongoing O&M 

costs so that life-cycle costs are minimized and tries to ensure that trains meet the needs 

of operators. 

• Train Supply and Operating Concession (TSOC). This model uses government 

funds to finance fixed infrastructure that is implemented by contractors through 

competitive tendering, with a separate operating concession that also involves the 

financing and supply of trains and related items such as train control & communications 

systems and depot equipment. As with the PIOC model, a Gross Cost concession is 

adopted. As in the PIOC approach, the Authority needs to play a role in ensuring that 

the design of the Project takes account of ongoing O&M costs so that life-cycle costs 

are minimized, but leaves responsibility for the choice of trains to the operating 

concessionaire. The approach draws on the potential to bundle train supply with 

operations so that more patronage risk can be transferred to the concessionaire. It is the 

approach recommended for future MRT lines in Bangkok (see Section 3.2). 

• Build Operate Transfer (BOT). This model involves the Authority engages a 

consortium to finance, implement and operate the Project through a competitive 

tendering process. In keeping with the greater extent of risk transferred to the 

consortium in this approach, it is likely that a Net Cost approach would be more 

appropriate than a Gross Cost approach, with the tendering process involving the bidding 

consortia indicating the amount that the government would need to pay them to 

finance, implement and operate the Project over the concession period. 

Inherent to these options are: (i) the last two options involve some provision of finance from 

non-government sources, which necessarily requires that the group undertaking the task must 

be either wholly private or a joint venture; and (ii) options that require private sector finance 

for capital investment must transfer related risk to the private sector and allow the private 

sector to manage the risk so that they can be held accountable for outcomes. Features of the 

four procurement models are described in Figure 3.1. 

21

Delivery of: 








maintenance 

Risk Transfer 

Finance 








maintenance 

Figure 3.1: Features of Delivery and Financing Models 

Public 

Enterprise 

Public 





government. 

Delivered through competitively tendered 

contracts to the government. 

Contract negotiated 

with an SOE. 

Transfer of risk from 

the government is 

limited to the extent 

allowed in 

construction and 

equipment supply 

contracts. The 



operations through 

its ownership of the 

operator. 

Competitively 

tendered Gross Cost 

contract. 

As for the Public 

Enterprise option but 

can transfer operating 

risk to the 

concessionaire. Some 

patronage risk can be 

transferred through 

the Gross Cost 

concession. The 


operating risk related 

to mismatch between 

trains it provides and 

concessionaire needs. 


Operating 


Delivered through a 

competitive tendered 

Gross Cost concession. 


transfers more risk to 


than in the PIOC 

option because the 


purchases trains and 

can therefore bear 

more risk for 

operations because 

they have more control 

over service quality. 


government. 


concessionaire. The 

government pays for 


pays all costs 

incurred by the SOE, 

including working 

capital 

Fare revenue The government 

retains fare and 

other revenue (or 

pays SOE the 

difference between 

costs and revenue if 

the SOE retains the 

revenue). 


The government pays 

for operating and 

maintenance costs as 

specified in the 

contract. 

costs as specified in 

the contract (to cover 


costs). 


Transfer 

(BOT) 

Delivered through 

competitively 

tendered Net Cost 

contract to the 

government. 

Transfers the greatest 

amount of risk from 

the government, but 

the government loses 

flexibility for change 

in policy and for 


network integration. 

Capital provided by 


The government will 

need to pay for costs 

as specified in the 

contract (to cover 


costs net of fare 

revenue, where fare 

revenue will be much 

less than the costs). 

Fare revenue accrues to the government. Concessionaire retains 

fare and other 

revenue. 

It would be possible in all of the models for ticketing to be part of the operating concession 

for the Project or for ticketing to be implemented separately for the entire MRT system. It 

would be a little more complex to separate ticketing from the concession in the case of the 

BOT approach or with net cost approaches to concessions because the concessionaires in these 

cases will wish to control all aspects of operation of their line. 

22

An initial indicative assessment of the models is summarized in Figure 3.2 using a system 

whereby three ticks is the highest possible score and a cross means that the model does not 

allow the criterion to be met 5 . Features of the assessment are: 

• Minimizing overall costs. None of the options is a perfect means for minimizing 

overall costs. The BOT model may be best placed to minimize costs, but is scored only 

two ticks because tenderers are likely include risk premiums to allow for risks (e.g. full 

patronage risk) that they cannot manage but which they would be required to assume 

under the model. While the Public Enterprise model might in theory allow costs to be 

minimized, the lesser level of financial discipline that occurs in public enterprises and 

the difficulty in imposing sanctions on a government agency are likely to diminish the 

potential benefit in practice. The PIOC model will perform less well than the TSOC 

model because train supply and financing is separated from operations, which increases 

the chance that the trains will not be as well suited to operations (thus leaving more 

operating risk with the government) and it does not include the added discipline 

resulting from the presence of train financiers in the TSOC model. 

• Provide integrated MRT system for passengers. The BOT approach cannot meet 

this criterion because the line is operated on a stand-alone basis. In contrast, the TSOC 

model transfers patronage risk to the concessionaire to the extent that they can manage 

it and provides incentives for the concessionaire to meet the needs of passengers that 

cannot be provided to the same extent in the remaining options. It is likely that the 

PIOC model will result in slightly less integrated services because of the potential for a 

mismatch between trains selected by the government and the needs of the operating 

concession. The Public Enterprise model should allow a high level of MRT integration 

because all aspects of MRT are under the control of the government. Use of a Net Cost 

concession for the Public Enterprise, PIOC and TSOC approaches would result in 

these options performing poorly against this criterion because the concessionaire would 

be focused on the performance of their line alone and would resist attempts to provide 

a more integrated system that did not provide them with some benefit. 

• Policy flexibility for the Authority. The BOT approach requires that the 

concessionaire be given protection against changes that may affect their revenue, and 

hence considerably limits the changes that government can make over the life of the 

concession in response to changes in circumstances. Conversely, the Public Enterprise 

model gives the government the greatest level of flexibility, with the other options 

giving a high level of flexibility. Use of Net Cost concessions for the Public Enterprise, 

PIOC and TSOC approaches would result in a similar outcome to the BOT approach, 

with the Authority being in the weak position of negotiating with an incumbent 

operator over the duration of the concession for any changes they wanted to make to 

the system. 

• Transfer of civil infrastructure supply risk from the government. The BOT 

approach allows most infrastructure risk to be transferred from the Authority. The 

extent of transfer is a less with the PIOC and TSOC approaches because the Authority 

must coordinate contract management for the supply of fixed infrastructure and other 

aspects of MRT though the government can transfer most maintenance risk to the 

5 Ongoing work under the current study will examine the financial performance of all four models using a 

value-for-money analysis. The role of the current assessment is to indicate the general strengths and limitations of 

the four approaches to guide ongoing development of the most appropriate model for the Project. 

23

concessionaire 6 . The transfer of risk with the Public Enterprise approach is least 

because it remains within government. 

• Transfer of operating risk from the government. The Public Enterprise model 

merely shifts risk within government rather than transferring it from the government. 

The transfer of risk from the government in the other models is linked to the 

concessionaire’s incentive to provide the best level of service (which is in turn related to 

the extent of patronage risk and the capacity to influence the quality and quantity of 

service). Amongst these, the extent of risk transfer is least with the PIOC approach 

because the concessionaire can blame inadequate operating performance on the trains 

and other M&E assets provided by the government. They would be unable to do this in 

the TSOC option because they would be responsible for purchasing the assets. The 

BOT model transfers the greatest level of operating risk to the concessionaire. 

• Transfer of patronage risk from the government. The BOT model allows the 

greatest level of patronage risk to be transferred to the concessionaire because the 

approach gives the concessionaire most control over their system and involves a 

financier who would place considerable pressure on the MRT operator in the 

concessionaire’s consortium to perform well 7 . A lesser level of risk can be transferred to 

the concessionaire in the TSOC approach because the financier’s interest is limited to 

train supply. The risk transfer is much less with the PIOC approach because of the 

absence of this pressure from a financier and because of potential mismatch between 

the trains selected by the government and the concessionaire’s needs. There is no 

effective transfer of patronage risk in the Public Enterprise model because the 

concessionaire (an SOE) is simply another arm of government. 

• Firm contractual basis for operations. The PIOC, TSOC and BOT approaches all 

involve clear and enforceable contracts. It is judged that enforcing contracts under the 

Public Enterprise approach will be less effective because the Authority and the SOE 

concessionaire are both parts of government. 

• Ease of concession management. It is judged that the resources and skills needed by 

the Authority to manage concessions will be least in the case of the Public Enterprise 

approach because it will be the weakest in terms of contractual strictness, but will be 

similar for the other three models. In general, a BOT approach requires a lower level of 

supervision because risks and responsibilities lie primarily with the concessionaire, but 

the need in the Project for a considerable subsidy to be paid to the concessionaire in the 

BOT case would require the Authority to take a more substantial role to ensure that the 

subsidy was being used appropriately. 

6 In the PIOC and TSOC options, the concessionaire who is to operate services could be engaged early in the 

project implementation process so that they can provide input on operating issue to the project design that may 

help reduce life cycle costs. In practice, it will be impractical to do this in sufficient time for the concessionaire to 

be able to substantially influence the engineering design, which will be one of the earliest activities to occur for 

implementation of project infrastructure (see Section 6.7 for more information on the potential time needed to 

engage a concessionaire). Moreover, engaging a concessionaire when the design is incomplete requires additional 

care because: (a) the competitive tendering process (including submission of prices for the cost of providing 

services) that is used to select the concessionaire must be based on a project design that is not fully specified, 

which is likely to result in less optimal bid prices; and (b) to ensure that the concessionaire did not use the 

process to vary the contract prices in their contract in their favour. On balance, it is concluded that it will be 

relatively better for the government to secure advice on operating needs from other sources to optimise the 

engineering design and to independently secure a sound concession contract. 

7 In the extreme, the financier could have “step-in” rights to replace the operator in the event that the operator 

persistently fails to meet their obligations (see the concession template in Appendix D for more information on 

this and similar issues). 

24

Figure 3.2: Indicative Assessment of Delivery and Financing Models 

Criteria Public 

Enterprise 

System Integration 

Public 





Operating 

Concession 

(TSOC) 


Transfer 

(BOT) 

Minimize capital and 

operating costs 

� �� 

Provide integrated MRT 

system for passengers 

�� 

Policy Flexibility for the Government 

Ability for the Authority to 

modify MRT system 

�� 

Risk Transfer from the Government 

Civil infrastructure risk � �� 

Operating risk � � �� 

Patronage risk � � �� 

Management of Operating Concession by the Government 

Firm contractual basis for 

operations 

�� 

Ease of concession 

management 

Incentive for contractor/- 

�� 

concessionaire to do the 

thing right 

Potential Value-for-Money 

Allowing for risk transfer, 

� �� 

associated risk premiums 

and the cost of capital 

� �� 

(1) Using a scale of up to 3 ticks, where 3 ticks indicates the best performance. A cross indicates the model cannot meet 

the criterion. 

Source: Consultants 

• Incentive for contractor and concessionaire to meet the government’s needs in 

the most efficient way. The TSOC approach is judged more likely to encourage the 

contractor and, more especially, the concessionaire to provide the most attractive and 

efficient service to passengers because they have reasonable control over the 

infrastructure and the extent of risk transfer and payment structure under a Gross Cost 

form of concession provides the right incentives for this outcome. The incentive is a 

little less in the BOT case because the concessionaire will be more focused on 

controlling costs and, with the transfer of patronage risk beyond their capacity to 

manage it, may become risk averse and hence less innovative. Similarly, the provision of 

trains to the concessionaire in the PIOC approach and the absence of a financier reduce 

the pressure and opportunity for the concessionaire to be as responsive as in the TSOC 

model. The incentive is even less in the Public Enterprise approach because the 

government will incur any costs that result from a lack of performance by the SOE 

concessionaire. 

• Potential Value-for-Money (VFM). The VFM analysis has not been completed at the 

time of preparation of the current report. However, the judgment is made that of the 

TSOC approach is likely to be best because it transfers an optimum amount of control 

and risk to the concessionaire. The VFM for the BOT approach is reduced by the likely 

allowance for risk premiums by the concessionaire and the higher cost of private sector 

capital. The PIOC option is also likely to perform less well than the TSOC approach 

25

ecause it places less pressure on concessionaires to perform well. The Public 

Enterprise approach is judged to perform less well again because there is little transfer 

of risk from government, there are considerable risks and costs associated with 

establishing an SOE to operate MRT services, and it is likely to be more difficult to 

enforce contracts between government agencies. 

On balance, the TSOC approach appears to perform better across all criteria than the other 

options, with the Public Enterprise and BOT approaches having some particular weaknesses. 

Placing a greater weight on MRT system integration and policy flexibility reduces the relative 

merit of the BOT approach. As indicated previously, the approaches will be reassessed in the 

course of ongoing financial modeling. 

3.4 Next steps 

The assessment undertaken in this chapter suggests that there is potential for a private sector 

role in the Project. It seems that this is unlikely to involve a major role in providing finance 

for the Project (as occurs in the BOT approach). However, there appears to be merit in the 

involvement of private sector financing for acquisition of trains and related mechanical and 

electrical equipment. Similarly, there is a very strong case for use of a Gross Cost form of 

concession agreement because it allows the government greater capacity to modify MRT 

operation in response to future changed circumstance, more easily permits integrated ticketing 

and common fares, and allows the ideal extent of risk transfer to the concessionaire. 

The intention of developing and assessing the four options is to provide understanding that 

can help the government with its consideration of an arrangement that is appropriate for 

HCMC. Other arrangements are possible, and the results of the analysis provide guidance for 

establishing the features of such variations and for the approach that is eventually adopted by 

the government. An essential element of the structuring of the options is the appropriate 

allocation of risk and the use of incentives and penalties so that the concessionaire is 

incentivized to undertake the responsibilities allocated to them by the government at the 

lowest possible cost. 

26

4. Risk Allocation for Concessioning and Financing Options 

Responsibility for managing risk (i.e. uncertainty or the chance that things could occur that 

result in a variety of problems including higher costs) needs to be allocated in a way that 

makes those involved in implementing and operating MRT in Ho Chi Minh City fully aware of 

them and able to manage them to minimize the chance of the problems occurring. Ways in 

which risks could be allocated for the four procurement options described in the previous 

chapter are described in Table 4.1. The allocation of risk is described in contracts between the 

government and other entities that are responsible for various MRT activities. 

Table 4.1: Recommended allocation of risk for each concession option 

Risk Concession Option (1) 

Public 

Enterprise 

Public 



Concession 

(PIOC) 


Operating 

Concession 

(TSOC) 


Transfer 

(BOT) 

Project design 

• Changes in project These changes can occur only under the direction of and with the approval of the 

scope 

• Unexpected 


design issues 

government and should therefore remain the responsibility of the government. 

Civil works procurement 

• Unexpected land These risks are generally beyond the control of contractors and the private sector and 

acquisition & 

resettlement issues 

so the government should bear the financial consequences of them 

• Unexpected The government can allocate most of these risks to contractors, Most of these risks 

changes in 

but may need to be responsible for large unexpected changes. can be allocated to 

construction 

activities and costs 

for original scope of 

works 


• Changes in scope of The government should bear the consequences of any changes in the scope of works 

works 

that it proposes. 

• Latent condition for 

civil infrastructure 

The government should be responsible for such uncertainty. 

• Effect of delayed This risk is under the direction of the government and so the The concessionaire 

construction on government should compensate the concessionaire for 

is wholly responsible 

concession additional costs that the latter incurs as a result of the delay. for managing 

commencement 

implementation and 

should bear the 

consequences of 

delays. 

E&M and train procurement 

• Changes in The risks remains with the government. These risks can be transferred to the 

technology 

• Changes in unit 

costs 

• Delay in E&M and 

train delivery 


• Changes to The ticket system is under the control of the government in The Net Cost 

ticketing system these options. 

concession makes 

that are initiated by 

the government 

risk transfer difficult. 

27

Risk 

Maintenance of assets 

• Changes in 


maintenance needs 


costs for 

maintenance of 


• Inadequate 

maintenance of civil 

assets 



trains and M&E 

assets 

Service provision 

Concession Option (1) 

Public Public Train Supply and Build, Operate & 

Enterprise Implementation 


Concession 

(PIOC) 

The risk remains with 


Most risk can be transferred to the 


Operating Transfer 

Concession (BOT) 

(TSOC) 

Full risk can be transferred to the concessionaire. 

Difficult to transfer 

full risk to the 


because they did 

not chose the 

assets. 

Full risk can be 

transferred to the 


Full risk can be transferred to the 


• Service standards The government specifies safety and security standards, but 

seeks to use the transfer of some patronage risk to the 

concessionaire to minimize the need for detailed specification of 

service standards. 

• Train service 

schedules 


labor costs 


power costs 


costs of other 

inputs 

• E&M and train 

maintenance, 

rehabilitation and 

replacement 

• Industrial, security 

or emergency event 

off the system 

Subject to the transfer of some patronage risk to the 

concessionaire, responsibility for service planning can be 

transferred to the concessionaire, with the concessionaire 

seeking approval from the government for changes. 

Even though the risks 

could be transferred 

to the 

concessionaire, the 

concessionaire is a 

public company and 

so the risk remains 

with the government. 

Can either (a) transfer the risk to the 

concessionaire by using only a single 

escalation factor for future payments, or 

(b) use separate escalation factors for 

each item to avoid the transfer of 

difficult-to-manage uncertainty to the 


Government 

purchase of the 

assets means that 



them should remain 

with the 

government 


specifies only safety 

and security 

standards, with the 

fully transfer of 

patronage risk to 


avoiding the need 

for specification of 

other service 

standards. 

Full responsibility is 



Risk transferred to 


through use of a 

simple cost inflation 

index. 

The risk can be transferred to the 


The risk needs to be shared between the government and the 


28

Risk 

Patronage and revenue 

• Changes in 

patronage due to 

poor service quality 

• Exogenous changes 

affecting patronage, 

e.g. changes to the 


system in HCMC, 

very substantial 

changes in fuel 

prices and other 

changes in socioeconomic 

conditions 

• Change in fare 

policy 

• Fare collection 

security 

• Change in other 

revenue 





Concession 

(PIOC) 

Even though the risks 

can be transferred to 

the concessionaire, 

the concessionaire is 

a public company 

and so the risk 

remains with the 

government. 

Concessionaire bears some risk because 

part of their payment is related to 

patronage. 



(TSOC) 

The changes are beyond the control of a 

concessionaire, but for practical reasons 

need to be shared. Three cases apply: 

(a) can transfer risk of small negative 

consequences to the concessionaire, (b) 

government should bear the negative 

consequences of significant changes, and 

(c) concessionaire gains from changes 

that are beneficial to them may be 

partially recouped though a profit cap. 

Can expect concessionaire to seek to 

protect themselves from downside risk. 

The government retains all fare revenue 

and hence bears the revenue 

consequences of any changes in fares 

policy that it initiates. 

The government can transfer this 

responsibility to a separate fare collection 

concession. 

The risk can be transferred to the concessionaire. 

29 

All patronage risk is 



through a Net Cost 

approach 

The risk is 




has limited capacity 

to change fare 

policy 

The risk is 


concessionaire.

Risk 

Payments to/from the concessionaire 

• Incentives to 

encourage 

concessionaire to 

provide good 

services 

• Improper recordkeeping 

of services 

provided 





Concession 

(PIOC) 

Limited capacity to 

transfer risk because 

government operator 

cannot be held to 

same contractual 

standard as a private 

company. 

The risk remains with 


because the 

concessionaire is 

publicly owned. 

Transfer of risk is 

limited because 

operators can 

blame poor 

performance on 

M&E assets and 

trains that are 

provided by the 

government. 



(TSOC) 

Substantial transfer 

can occur with 


control over 

operating assets 

and patronage 

incentive payment. 

Government needs independent means 

for confirming services provided to 

provide the basis for contract payments. 

• Cost inflation Risk can be transferred to the 

concessionaire to the optimal extent by 

using appropriate price indices to adjust 

concession payments over time. 

• Potential for 

windfall gains to the 


Procurement model 

• Model is 

unattractive to 

potential tenderers 

• Model results in 

productive tension 

between concession 

partners 

Government will 

capture any gains. 

Not relevant because 

operator is publicly 

owned. 

Greatest level of 

transfer. 

Government has a 

limited need 

because payments 

to the 

concessionaire are 

not linked to 

specific service 

provision. 

Risk is transferred 

to the 

concessionaire by 

using an average 

price index. 

Concessionaire may 

not be able to 

manage all of the 

risk, e.g. changes in 

energy prices. 

Potential for windfall gains from operations is very limited. Risk 

of windfall gains is limited by sharing profits from specific 

financing and development activities. 

May be attractive 

because tenderers 

do not need to 

arrange finance and 

they will seek to 

assign asset risk to 


Not relevant 

because 


involves an 

operator only. 

30 

May be less 

attractive to 

tenderers because 

they need to 

arrange finance. 

May be less 

attractive to 

tenderers because 

they need to 

arrange finance and 

bear considerable 

risk. 

Deliberate tension introduced by 

involvement of financier partner who will 

monitor operator performance.

Risk 


performance by 


• Termination of 


Other financial matters 

• Exchange rate 

movements 

• Interest rate 

changes 

• Changes to tax 

legislation affecting 

E&M and train 

assets 

• Changes to tax 

legislation affecting 

operations 





Concession 

(PIOC) 

Risk remains with the 

government because 

the concessionaire is 

publicly owned. 

Government can 

terminate the 

concession, though 

political lobbying may 

make this difficult to 

achieve. 

Risk remains with the 

government. 

Some risk transfer 

through a 

patronage-related 

payment, but the 

concessionaire can 

blame poor assets 

provided by the 

government for 

inadequate 

performance. 



(TSOC) 

More risk transfer 

because of the 

patronage-related 

payment and 


selection of E&M 

assets and trains. 

Greatest transfer of 

risk, though there is 

the potential for the 

transfer of risk that 


cannot manage – 

this would result in 

the added costs 

through risk 

premiums and risk 

averse behavior by 


Government can establish conditions to terminate the 

concession in the case of persistent sub-standard performance 

by the concessionaire. 

Primary risk should be transferred to the concessionaire, which 

can use various instruments to mitigate the risk. Government 

bears some indirect risk through indexation of future payments 

to concessionaires. 

While the concessionaire has no influence over these risks, 

simplicity of management indicates that the risk for nondiscriminatory 

changes to tax should be transferred to the 

concessionaire, noting also that indexation will include some 

effect of tax changes. Government should bear the risk of tax 

changes that primarily affect only concessionaires because the 

consequences of the changes can be more easily identified. 

31

5. Concession Template 

The provision of MRT services and any associated provision of assets and finance for the 

assets should be undertaken on the basis of a sound contract. A legal agreement for a 

concession can be expected to be perhaps a thousand pages or more in length. The purpose of 

the current chapter is to provide an outline (or template) for such an agreement to provide a 

broad understanding of the issues that need to be addressed. 

The template, and discussion in this chapter, is based on a model in which: 

• the government makes available fixed MRT infrastructure to the concessionaire who has 

a duty of care with regard to the infrastructure over the terms of the concession; and 

• the concessionaire finances and supplies certain assets (taken to include trains, train 

control and communications, and depot equipment), operate train services for a given 

period (taken to be 30-35 years), and turn over all assets to the government at the end of 

the concession. 

The template can accommodate variations so that it can be adapted to any of the other three 

concession models discussed in the previous chapter or variations on these models. 

Taken with other discussion in this report, there is sufficient information in the template to 

allow a specialist legal advisors to develop the template into a complete legal agreement. This 

is discussed in the final section of this chapter. 

The template presented in this report is based on a template first prepared for use in Bangkok 

(ADB 2007c). 

5.1 Key Factors Affecting the Concession Agreement 

5.1.1. Form of Concession 

The form of concession (i.e. a Net Cost or Gross Cost form of concession, and variations of 

each of these) will significantly alter the content of a concession agreement. As indicated in 

the previous section, the details of the concession agreement that vary according to the 

concession option are primarily related to the allocation of responsibilities and risk, and 

consequences of these allocations including revenue collection, payment structure and 

concession supervision. The template indicates where the form of concession will alter the 

content of the concession. Notably, the form of concession does not change the structure of 

the template. 

5.1.2. Allocation of Risk 

Allocating risk to the concessionaire to the extent that they can manage it is essential to 

minimizing the cost of the concession. It also affects other aspects of the concession. This 

was addressed in Chapter 4. 

5.1.3. Value for Money 

The objective of using private sector participation through a concession is to achieve costeffective 

provision of MRT services. Where there are choices regarding matters considered in 

this report, for example the form of concession, the allocation of risk or the extent of 

concession supervision, value-for-money (VfM) analysis can be used to determine the option 

that will be most beneficial to the government. 

32

5.1.4. Structure of Payments to the Concessionaire 

The structure of payments to the concessionaire depends on whether a gross cost or net cost 

approach is adopted. The level of payments to the concessionaire will depend on the costs 

that the concessionaire incurs and, in a net cost concession, the extent to which fares and 

other MRT revenue covers the costs incurred by the concessionaire. Some general issues 

related to payments under net cost and gross cost concessions are considered in the remainder 

of this section. While this report recommends the use of a gross cost form of concession for 

the Train Supply and Operating Concession model identified in Chapter 3, a comparison of 

use of a net cost approach and the recommended gross cost approach is presented in Table 

C.1 in Appendix C to provide a better understanding of the differences. The table also 

provides a detailed description of the payment structure. 

Net Cost Concession 

If an MRT project was able to generate revenue that exceeded the costs incurred by the 

concessionaire, a competitive tendering process would result in a willingness by 

concessionaires to make payments to be government. However, current work indicates that 

revenue from fares and other sources in HCMC will not be sufficient to meet these costs. As a 

result, it will be necessary for the government to make payments to the concessionaire to 

supplement the revenue the concessionaire would collect from fares and other sources. It is 

then necessary to establish how the payments should be made. With a net cost concession, 

possible options are: 

• Make a monthly payment subject to the simple criterion that the concessionaire 

provided services during the month. This is not recommended because it would be 

generally judged that the government had insufficient control over ensuring that its 

funds were used appropriately. 

• Another option is to link payments to the provision of specific services. However, as 

full patronage risk is transferred to the concessionaire under a net cost concession, it is 

necessary to give the concessionaire considerable discretion to provide services that they 

judge appropriate subject to meeting safety and security guidelines. This means that the 

payment cannot be directly related to the provision of specific services because such 

services cannot be specified in advance. 

• A third option is to link the payment to patronage, with the government paying the 

concessionaire an amount per passenger carried on the system. It may be necessary for 

the government to engage an independent patronage auditor to verify the 

concessionaire’s estimate of patronage. 

An escalation factor would be needed to adjust the payment made to the concessionaire over 

time. It is likely that the consumer price index (CPI) or an index related to the CPI could be 

used. 

Gross Cost Concession with No Transfer of Patronage Risk 

A gross cost concession automatically transfers much cost management risk to the 

concessionaire, for example by making them responsible for keeping costs within their 

tendered price. 

However, a gross cost concession with no transfer of patronage risk differs substantially from 

a net cost concession. In the latter, the concessionaire needs to manage risks associated with 

demand so that they can secure the revenue on which their profitability depends. By contrast, 

a gross cost concession with no transfer of patronage risk eliminates this incentive for the 

concessionaire to meet the needs of passengers. In its place, it is necessary to use other means 

to ensure that the concessionaire provides services of appropriate quality. This can be done by 

33

setting a central payment level to the concessionaire and using financial penalties and 

incentives for, respectively, substandard and superior levels of performance. Service quality 

criteria could include the cleanliness of stations and trains, the temperature inside trains, 

schedule adherence, ride quality, over-crowding, and the number of customer complaints. It is 

likely that this arrangement will place considerable demands on the government to monitor 

the criteria and to apply the appropriate penalties and incentives. It will not be effective if the 

incentive and penalty payments are not optimal and if it presents the temptation for inspectors 

to act inappropriately. 

The appropriate means for escalating payments over time to reflect the effect of inflation 

could be the same as with a gross cost concession with some transfer of risk, as discussed in 

the next sub-section. 

Gross Cost Concession with Some Transfer of Patronage Risk 

The alternative to using administrative controls in a gross cost concession to get the 

concessionaire to act in the interests of passengers is to transfer some patronage risk to the 

concessionaire. This can be achieved by linking part of the payment from the government to 

the concessionaire to the number of passengers carried on the MRT line. This considerably 

reduces the need for the government to monitor service quality because the concessionaire 

has a financial incentive to provide good quality services. It is not necessary to transfer all 

patronage risk to the concessionaire (as occurs in a net cost contract) as the desired outcome 

of high quality services that meet passenger needs can be achieved with the transfer of only 

some patronage risk. In particular it is noted that: 

• The effect of even a modest transfer of risk can be substantial because the marginal 

passengers attracted to MRT (or lost from MRT) will be those most sensitive to its cost 

and quality of service. The concessionaire must therefore maintain a higher level of 

service than might otherwise be necessary to gain or protect those users who might 

otherwise choose some other option. 

• It is only necessary that sufficient risk be transferred to ensure that the concessionaire 

will face financial difficulty if they were to lose the patronage-related payment. Ensuring 

that concessionaires gained say part of their revenue through the patronage-related 

component achieves this objective 8 . A failure by the concessionaire to carry the 

potential patronage for their line would substantially, if not completely, cut their profits. 

• The transfer of too much patronage risk can result in a perverse outcome if it makes the 

concessionaire risk-averse, wherein the concessionaire does not implement improved 

and innovative practices because they do not wish to take the chance the changes may 

not generate increased revenue that exceeds additional costs associated with the 

changes. 

With regard to escalation of costs over time, it is noted that concessionaires face two major 

cost components that are beyond their control and which will not rise in line with general 

price inflation: 

• The cost of energy, which can vary substantially over time and which may be 

substantially affected in the future by actions directed to reducing greenhouse gas 

emissions. 

8 For example, if it is judged that the concessionaire can influence 15% of their patronage, the remuneration 

structure could be set so that the total payment to them from the government was, say, 10% less if patronage was 

15% less than expected. This variation can be modified as judged appropriate for HCMC, and can include 

bonuses for higher than expected patronage as well as penalties for lower patronage. 

34

• The cost of labor, which can be expected to rise faster than general price inflation and 

which cannot always be offset by productivity gains. 

As a result, there is merit in using a weighted price escalator that takes account of changes in 

energy costs, labor costs and general price inflation and the relative share of costs that can be 

related to each of these factors. 

5.2 Content of the Template 

A review of available concession agreements for the contract provision of public transport in a 

number of other places was been examined for previous work undertaken in Thailand (and 

reported in ADB 2007c). There is considerable variation in the general form of the 

agreements, both in a general structure (e.g. should the provision of government assets to a 

concessionaire be presented in a separate “asset lease” agreement or treated as a section of a 

single agreement) and the manner in which the content is structured. It is also noted that 

many agreements are subject to copyright. 

The previous work in Bangkok judged that it was simpler to have a single legal agreement 

covering all aspects of the concession. Following examination of various arrangements of the 

content of concession agreements, it recommends the following general structure: 

Part I: Introduction 

This part addresses general issues, describes the context for the concession, and defines the 

parties to the contract and other terms through the following sub-sections: 

• Name of the Agreement 

• Date of the Agreement 

• Parties to the Agreement 

• Preamble to the Agreement 

• Definitions 

• The Concession 

• MRT Network and Links 

• Coordination Committee, Representatives and Related Parties 

Part II: Pre-Service Activities 

This part addresses issues that are to occur prior to the operation of MRT services by the 

concessionaire, using the following sub-sections: 

• Conditions Precedent 

• Company Systems 

• Pre-Service Implementation 

• Protection Against Late Service Commencement 

Part III: Services to be Provided 

This part describes the train and related services that the concessionaire is to provide, through 

the following sub-sections: 

• Initial Services 

• Standard of Services 

35

• Changes in the MRT System 

• Changes in MRT Services 

Part IV: Finance and Insurance 

This part addresses financial matters related to the concession, including payments to be made 

by the authority and the concessionaire, management of fare revenue, and other matters, 

through the following sub-sections: 

• Payment and Payment Mechanisms 

• Payment Escalation 

• Fare Policy and Revenue 

• Routine Non-fare Revenue 

• Special Non-fare Revenue 

• Refinancing 

• Taxes and Duties 

• Insurance 

Part V: Early Termination 

This part addresses issues that could result in early termination of the concession and 

treatment of the consequences of such early termination, through the following sub-sections: 

• Conditions for Early Termination 

• Process of Termination 

• Consequences of Termination 

Part VI: Special Events 

This part addresses special events that could affect the concession, through the following subsections: 

• Force Majeure and Exceptional Events 

• Consequences of Force Majeure and Exceptional Events 

• Power of Authority 

Part VII: Assets 

This part addresses issues related to assets provided by the government and the concessionaire 

through the following sub-sections: 

• Civil Infrastructure 

• Assets of the Concessionaire 

• Asset Titles and Transfers 

• Lenders Direct Agreement 

• Asset Transfer Values 

36

Part VIII: Miscellaneous 

This part addresses remaining general contractual issues through the following sub-sections: 

• Rights and Duties Transfer 

• Change of Ownership 

• Dispute Settlement and Resolution 

• Confidentiality 

• Change in Law 

• Authority Step-In 

• Due Diligence Over Contracts and Financing Documents 

• Alternatives and Variants of Project Finance 

• Other Standard Provisions 

The template is presented in Annex D. Each of the above sub-sections is elaborated on to 

provide information that can guide the preparation of a detailed legal contract. Completion of 

the template will need to draw on other information presented in this report, in particular 

Annex 1 and Table 4.1. 

5.3 Next Steps to Implement the Template 

While some sections of the agreement are unaffected by the form of the concession, it is 

recommended that the agreement needs to be developed in an integrated form. Accordingly, it 

is recommended that work to detail the agreement should await a decision on the form of 

concession and the financial performance of the line(s) for which it is to be used. Sufficient 

information will then be available to allow detailed text to be prepared for each of the 

identified sub-sections. 

Five matters need to be considered with regard to the preparation of the concession 

agreement: 

• The agreement is a legal document that requires specialist legal drafting expertise for its 

preparation. It is inappropriate for the concessionaire or anyone associated with the 

concessionaire to undertake any drafting of the document. This will require the 

government to engage the necessary legal experts to draft the agreement. 

• The agreement will contain considerable detail on financial and other technical matters. 

It will therefore be necessary for the government to engage specialist financial, 

engineering, transport operations and similar advisors to support the legal drafters. 

• The agreement will be a substantial document. It is expected that it could take 6-12 

months to prepare the full concession agreement. 

• The agreement is to support the implementation of MRT that meets the community’s 

interests as identified by the government. There will be a need for continuing 

involvement by a senior person who can drive and take responsibility for ensuring the 

preparation of the concession agreement does not, albeit with the best of intentions, 

alter the concessioning approach in a way that compromises it. 

• Tendering requires that potential bidders clearly understand what they will be obliged to 

provide and the conditions of their engagement. This necessitates that the concession 

37

agreement be drafted prior to commencement of tendering so that a draft form of the 

concession can be issued as part of the tender documents. 

The last two of these matters are addressed further in the next section in the context of an 

examination of matters related to seeking, engaging and managing concessionaires. 

38

6. Implementing Competitive Tendering and Concessioning 

This chapter gives brief consideration to the steps needed to implement MRT concessioning, 

covering the steps of ensuring a sound probity system, market testing, preparing tenders, 

calling tenders, assessing tenders and negotiating contracts, and managing concessions. It is 

not intended to provide a comprehensive program of activities, but rather to note issues that 

will be critical to the successful implementation of projects. 

An essential element of seeking and engaging concessionaires is to have a person with 

sufficient authority and motivation to drive and take responsibility for ensuring the process 

achieves the objectives for the MRT project. 

This chapter also draws substantially on ADB (2007c). 

6.1 Probity 

An independent Probity Adviser should be engaged to ensure fairness and equal opportunity 

for all parties involved in tendering, tender assessment and contract negotiation activities. The 

person is likely to be a lawyer, and would be present at all meetings with potential bidders and 

6.2 Market Testing 

The ultimate objective of competitive tendering and concessioning (CTC) is to obtain the 

services of the consortium best able to undertake the task at the lowest practicable cost. This 

will be facilitated by maximizing the level of competition, which in turn requires concessions 

that will be attractive to potential bidders. A high level of competition will ensure that the 

government has the largest possible choice of tenders to consider. This will also increase price 

competition. 

The role of market testing is to identify factors that may make a significant difference in 

attracting market interest in tendering for concessions. It involves informal discussions with 

potential bidders to outline the general features of the intended tender to identify: (i) their 

general interest in tendering; and (ii) the factors that they consider will most affect their 

inclination to bid and the quality of their bid. It is a task that needs to be undertaken with care 

to avoid implications that the tender is being adjusted to favor any particular potential bidder. 

Discussions with at least several potential bidders can alleviate this risk, and should allow 

those undertaking the market testing to identify changes suggested by potential bidders that 

are in their self-interest and those that could serve the government’s interest. 

The outcome of market testing is identification of changes to the proposed concession and 

tendering arrangements that could attract more bidders and result in improved value-formoney 

outcomes for the government. It should be unlikely that major changes to the 

concession and tendering arrangements should be necessary – for this to occur would suggest 

that preparation for concessioning had been severely deficient. However, small changes that 

could reduce bid prices even marginally without compromising the services to be delivered 

can provide financial savings to the government. 

6.3 Preparation of a Request for Proposals 

An invitation to tender for a concession would describe all matters that will eventually be 

included in a concession agreement. The Request for Proposals (RFP) should include a draft 

concession agreement to provide potential bidders with certainty regarding the conditions that 

they would need to meet and to indicate that the government has clarity over what it seeks and 

39

is well prepared to follow through. It is essential that the government indicates in the RFP its 

resoluteness to enforce the conditions of the concession agreement to reduce the risk that a 

tenderer submits an unsustainably low bid price in an attempt to win the contract with the 

intention of subsequently reducing the services they offer or of seeking additional payments 

from the government. 

Some key issues to be addressed in a RFP are: 

• The context to the concession: 

‒ Objectives. The tender would indicate the desired effect on the transport system, 

quality of life outcomes, social objectives and domestic capacity building. 

‒ Urban and transport development plans. The tender would need to describe the 

development context for the project, including forecasts of population, land use, and 

economic activity, and proposed transport infrastructure development plans, 

including giving particular attention to those features that could affect the 

performance of the proposed project. 

‒ Public transport network context. Describe the current and anticipated operational 

context for the proposal, including strategic roles of various public transport modes, 

routes and service schedules, fares policy, the level of fares and ticketing 

arrangements, integration of public transport services, and facilitation of transfers 

between MRT lines and with other modes of public transport. 

‒ Facilities to be provided to the concessionaire. The tender would need to explain 

matters such as the access to land, the scope and quality of physical MRT 

infrastructure that would be provided to the operating concessionaire, the ticketing 

system if it is to be provided by under a separate concession, and the schedule for 

provision of this infrastructure. 

‒ Other. Any other matters that provide the context to the operating concession, 

including special privileges, taxation, law, and other such matters. 

• Services to be provided by the concessionaire: 

‒ MRT assets. Description of any assets that are to be provided by the 


‒ MRT services. Relevant matters include the train services that are to be provided 

and the responsibility of the concessionaire for service planning and the manner in 

which this would be implemented. 

‒ MRT infrastructure. Description of the responsibility of the concessionaire for 

providing assets, ownership of assets provided by the concessionaire, maintaining 

assets it provides and those that are provided by the government, replacing aged 

assets at the end of their economic lives and returning assets to the government at 

the end of concessions. 

‒ Duration of the concession. The period over which the concession will apply and 

any milestones during the concession such as concession reviews and renewal. 

‒ Performance measures. Describe all indicators of performance that will apply to 

the concession. Ideally, performance indicators should relate to contract payments 

and contract renewal. 

‒ Other. A range of other issues will need to be addressed, including insurance, 

security, safety, substitution, MRT industry development, etc. 

40

• Financial and performance arrangements: 

‒ Payment basis. The tender needs to specify the payment structure. It also needs to 

indicate the amounts that the government will specify and those for which tenderers 

need to submit bids. The structure of the financial arrangements and ease of 

assessing bids will be facilitated if the government specifies as many of the variables, 

leaving the tenderer to indicate a minimum number of variables and preferably only a 

single variable. For example, with a gross cost concession with some transfer of risk, 

the tender should specify the patronage related component and the level of bonus 

and penalty payments, with tenderers indicating how much they need to be paid for 

the fixed monthly payment component. Payments would be linked to key 

performance indicators. 

‒ Performance bonds. The role, size, timing and reimbursement of performance 

bonds need to be specified. 

‒ Failure to perform. Describe procedures for advising concessionaires of inadequate 

performance, allowing them to improve performance and sanctions in the event of 

continued non-performance. 

• Information to be provided by the tenderer: 

‒ General competence. General corporate and financial competence. 

‒ Demand and service planning. Expected demand and train services to be 

provided under the concession, and plans for working with various stakeholders on 

an ongoing basis to further develop services. 

‒ Customer and community care. Customer service, safety and security plans. 

‒ Infrastructure. Plans for infrastructure maintenance and reinvestment in life-expired 

assets 

‒ Finance. Financial proposal. 

‒ Implementation. Plans for initiating the concession, including staff recruitment and 

training, trialing and commencement of services, etc. 

Most of these matters mirror issues addressed in the concession agreement. 

It is also common to require: 

• a conforming tender (i.e. a tender that is consistent with the terms and conditions set 

out in the request for tender) from bidders to allow a straightforward comparison 

between the tenders; and 

• to allow tenderers to also submit a non-conforming bid where they believe they can 

offer better value-for-money by varying some aspects of the request for tender. 

6.4 Tendering and Tender Assessment 

The government has well established processes for public tendering that are appropriate to 

tendering of MRT services. The tenders will be more complex than in common for most 

government contracts because it involves a complex and inter-related mix of finance, asset and 

service provision with both the quality and quantity of service being important. Consideration 

could be given to innovative ways of assessing such a multi-dimensional project. One such 

way is a “silo” approach in which specialists in various pertinent areas (e.g. passenger demand, 

infrastructure provision, service provision, finance, etc.) assess the performance of each tender 

41

only with respect to their area of expertise, with a higher level of people drawing together the 

various components to determine the tender that offers the best value-for-money. There is 

also a need to ensure that there are reasonable prospects that the preferred tenderer can 

deliver the promised outputs at the nominated amount to avoid the potential for a tenderer to 

underbid in order to secure the contract. 

Table 1: Example of an Organization Chart for Proposal Assessment 

Reporting 

Advice 

Project Advisory 

Group (from 

various agencies) 

Competitive Tendering 

and Contacting Project 

Management Team 

Technical Support 

(Staff in the Tendering 

Authority etc) 

Approving Authority 

Tendering Authority 

Tender Evaluation Committee 

(representing interests in law, 

finance and passenger 

transport interests) 

6.5 Concession Contract and Implementation 

Probity Advisor 

Proposal 

Opening 

Committee 

Evaluation Teams – one for each evaluation area 

• Service Design 

• Customer Service & Safety 


• Implementation & Management 

• Finance & Corporate Capability 

The government has considerable experience with contract negotiations and initiating 

contracts. For an MRT concession, it may be expected that, in the course of contract 

negotiation, the contracting party will seek to re-allocate as much risk as possible back to the 

government to improve their own financial situation. The government will need to be vigilant 

in this regard. 

6.6 Concession Management 

The agency responsible for concession management needs to blend two approaches to 

concession management. The first is to enforce a performance-based contract that has 

conditions for payments between the government and the concessionaire. The second 

approach is to recognize that the government and the concessionaire need to work in a 

partnership so that MRT can adapt to various changes metropolitan land use and transport 

that can be expected to occur over the duration of the concession. 

42

6.7 Schedule 

A considerable period is needed to arrange for the contracting and implementation of 

operations. Indicatively, allowance needs to be made for the following: 

a) 12 months to draft and approve a concession Agreement; 

b) 12 months to prepare for, invite and assess tenders for a concession contract and to 

negotiate and initiate the contract; 

c) 12 months to draft bidding documents for the purchase of trains and electrical and 

mechanical assets and services, to prepare for, invite and assess tenders for their 

delivery and to negotiate and initiate the contract; 

d) Around 24-30 months for the supply of trains and electrical and mechanical assets and 

services; 

e) 6 months for a concessionaire to prepare for operations; and 

f) 6 more months following receipt of trains and electrical and mechanical assets and 

services for the concessionaire to trial operations. 

Hence, arranging for operations could require: 

• For the Public Implementation with Operating Concession approach (see Section 3.3), a 

total of 3 years, i.e. a) + b) + e) + f). 

• Train Supply and Operating Concession approach, the process would need to 

commence 5.5 to 6 years before the commencement of operations, i.e. a) + b) + c) + d) 

+ f). 

In either case the process to purchase trains and associated assets needs to commence around 

3.5 to 4 years before the commencement of services. 

43

Appendix A: Bibliography 

Asian Development Bank (2006) “Integrating Mass Rapid Transit in Bangkok: Options 

Report”, ADB TA 4676-THA. February 

Asian Development Bank (2007a) “HCMC MRT: Strategic Financial Model Update” TA 

RSC-C61011 (VIE): Ho Chi Minh City Metro Rail System Project, Viet Nam, March 

Asian Development Bank (2007b) “Integrating Mass Rapid Transit in Bangkok – Phase II: 

Final Report”, ADB TA 4904-THA. July 

Asian Development Bank (2007c) “Integrating Mass Rapid Transit in Bangkok - Phase II: 

Concession Template Working Paper”, ADB TA 4904-THA, May 

Bly, P. H., Webster, F. V. and Pounds, S. (1980) “Subsidisation of Urban Public Transport”, 

Supplementary Report 541, Transport and Road Research Laboratory, United Kingdom 

Bly, P. H. and Oldfield, R. H. (1985) “Relationship Between Public Transport Subsidies and 

Fares Service Costs and Productivity”, Research Report 24, Transport and Road Research 

Laboratory, United Kingdom 

Hensher, D. A., & Wallis, I. P. (2005). “Competitive Tendering as a Contracting Mechanism 

for Subsidising Transport: The Bus Experience”, Journal of Transport Economics and Policy, 

39(3), 295-322. 

Parsons Brinckerhoff International and Japan Railway Technical Services (2006) “SAPROF: 

Special Assistance for Project Formulation for Ho Chi Minh City Urban Transportation 

Improvement Project Urban Mass Rapid Transit (UMRT) Line 1, Eastern Section”, 

September 

University of Queensland (2006) “Bus Contracting Reform in Thailand: A Bus Cost Model for 

Bangkok”, May. 

44

Appendix B: Summary of Some MRT Concession Arrangements in 

Other Cities 

Table B.1: Summary of features of existing MRT concessions in Bangkok 

Feature Bangkok Transit System 

(BTS Green Line) 

Total project capital cost 

(Baht bn) 

52 116 

Year opened December 1999 August 2003 

Type of concession • BTO for civil works 

• BOT for the electrical and mechanical 

works 

Concessionaire Bangkok Mass Transit System Public 

Company Limited (BTSC) 

Concession description BMA was responsible for: land acquisition 

& utility diversions; BTSC for financing & 

constructing all other project components 

including operations. Civil works 

transferred to the BMA on a build-transferoperate 

(BTO) basis after construction & 

the electrical & mechanical works to be 

transferred to BMA at the end of the 

concession. Little land incl. in concession 

except Right-of-Way. 

MRTA Initial System Project 

(Blue Line subway) 

• BOT for operating equipment and 

rollingstock 

• MRTA invested in the civil works 

Bangkok Metro Company Limited (BMCL) 

BMCL was awarded a 25-year BOT concession 

in 2000 to furnish and install this 

equipment and operate the system. The 

concession agreement requires BMCL to 

make payments to MRTA from fare 

revenue: a lump sum payment of Baht 

43.567 billion to be paid in annual 

installments from years 11 to 25 of 

revenue service & a % of fare revenues 

annually over the 25 year concession as 

follows, 1% years 1-14, 2% year 15, 5% 

years 16-18, and 15% from years 19-25. 

In addition, a lump sum of Baht 930 

million is due for revenues derived from 

commercial development to be paid in 

annual installments plus an annual 7% of 

revenues from commercial development. 

In addition, an (access charge) to the 

MRTA for use of the route is required to 

be paid to hold the overall concessionaire’s 

rate of return on equity to not more than 

14.75% pa. 

Land for commercial 

development 

- Lat Phrao park & ride site 

Public / Private Ownership 100% private investment. Government paid for civil works (78% of 

cost). BMCL owns operating infrastructure 

and rollingstock (22%). Government has 

option to purchase 25% of the shares in 

BMCL at par value. 

Length of Concession 

As reported ADB (2006) 

30 years including construction period. 25 years after construction period. 

45

Table B.2: Comparison of Melbourne & Singapore concession models 

Melbourne – Net Cost approach Singapore – Gross Cost approach 

• Public transport demand mature & revenue largely 

known 

• Operators accept risk of change in government. 

transport & land use policy 

• Operators take some revenue risk & keep revenue 

• Revenues only cover some costs (remainder of income 

from fixed payments set at the bid stage plus incentive 

payments) 

• Franchisees required to invest to maintain the 


• Some major investment decisions locked in at franchise 

bid stage (e.g. new rollingstock) 

• Others made during the franchise term as State Funded 

Works (“no-net gain, no-net-loss”) 

• Investment decisions subject to normal budget process 

• Franchises short (5-7 years) 

• All standards/deliverables made explicit 

• Partnership approach as well as contractual 


46 

• Demand mature & revenue largely known. 

Government takes revenue risk which is low 

• Operators paid on passenger-km basis 

• Government supplies rail infrastructure & first time 

rollingstock at own cost including ticketing equipment 

& may give grants for subsequent rollingstock 

replacement 

• Operators carry operations, maintenance & 

administration risks & the difference in financing cost 

for asset replacement, between actual and historic 

costs 

• All revenues centrally collected & then service fee 

paid to operators 

• Quality & safety criteria part of bidding 

• Investment decisions subject to normal budget 

process 

• Franchises 10 up to 30 years 

• All standards/deliverables made explicit 

• Partnership approach as well as contractual

Appendix C: Additional Issues Related to Use of Net Cost and 

Gross Cost Concessions 

C.1 A comparison of the features of Net Cost and Gross Cost Concessions 

Table C.1 illustrates how the Train Supply and Operating Concession model discussed in the 

main part of this report could be implemented using net cost and gross cost forms of 

concession. The gross cost concession is strongly recommended by the current study, but the 

comparison is provided in the table to more clearly illustrate the differences between the two 

approaches and to provide more information on the gross cost approach. 

Table C.1: Features of Net and Gross Cost Forms of Concession with the Train Supply 

and Operating Concession Model 

OVERVIEW 

Brief 

description of 

concession 

arrangements 

TSOC approach with a 

Gross Cost concession 

• Government finances and implements civil 

infrastructure delivery using private sector 

contractors. 

• Government engages the private sector to 

provide trains and E&M (electrical and 

mechanical equipment and systems) and to 

undertake O&M (operations and 

maintenance, including operation of train 

services and maintenance of all MRT 

infrastructure) through a concession. 

• Government ‘leases’ civil infrastructure to 


• Government sets safety & service standards, 

service levels, and fare structure & level. 

• The government pays the concessionaire an 

amount that covers the costs the 

concessionaire incurs in providing agreed 

services as established through a 

competitive tender, and with part of the 

payment to the concessionaire is linked to 

the number of passengers carried. 

• The government retains all fare revenue. 

Risk transfer • Concessionaire bears some risk related to its 

investment in E&M and trains, patronage 

risk that is within its control, and the risk 

that agreed price escalators do not 

accurately reflect changes in future costs. 

• Government bears remaining patronage risk 

and the risk that risk that it does not 

increases fares over time. 

• The government bears the risk of poor 

public transport integration. 

47 

TSOC approach with a 

Net Cost concession 

• Government finances and implements civil 

infrastructure delivery using private sector 

contractors. 

• Government engages the private sector to 

provide train and E&M, and to undertake 

O&M through a concession. 

• Government ‘leases’ civil infrastructure to 


• Government sets safety standards & fare 

structure. 

• The concessionaire determines services to 

be provided & retains fare and other 

revenue. 

• Additional payments may need to be made 

by the government to the concessionaire to 

cover revenue shortfall, or the reverse if 

revenue exceeds costs. 

• Concessionaire bears all risks associated 

with their investment and O&M costs and 

future patronage, and is vulnerable to the 

risk that government does not approve fare 

increases. 

• In the event that the concessionaire fails, the 

government bears the cost of securing a replacement 

concessionaire and incurs 

reputation risk associated with allegation of 

a poorly conceived concession. 

• Community bears risk and consequences of 

poor MRT integration.

Concession 

management 

TSOC approach with a TSOC approach with a 

Gross Cost concession Net Cost concession 

• Assignment of some patronage risk to the 

concessionaire encourages them to provide 

good service and reduces the need for 

government administrative control of 

concessionaire performance. 

• Need to monitor concessionaire service 

supply & performance as the basis for 

making contract payments. 

Key issues • No need for concessionaire to include a 

significant risk premium into bid price, 

which will reduce costs to the government. 

• Assigning manageable patronage risk to the 

concessionaire encourages them to 

maximize patronage. 

• Government has full control over future 

transport policy & systems. 

Comment • Reasonably simple to manage provided 

some patronage risk is transferred to the 


• Stronger incentive for good performance by 


• Will ensure good MRT integration. 

• Allows government policy flexibility over 

time. 

DETAILED FEATURES 

Concession Term 

Term • The concession must be for a sufficient 

period to allow the concessionaire to make 

best use of their investment and trained 

staff. 

• A period of 30-35 years, which is similar to 

the life of trains, is appropriate. 

• The term could be for a series of 

automatically renewable periods subject to 

adequate performance by the concessionaire 

– though this would require complex 

arrangements to address the 

concessionaire’s financing of assets. 

Termination 

arrangements 

• Concessionaire provides all system assets to 

the government at the end of the concession 

with appropriate government compensation 

for them. 

• Need arrangement to transfer 

concessionaire’s assets to the government if 

the concessionaire should fail or their 

contract not renewed (with appropriate 

compensation). 

• The concession can be terminated in the 

event of inadequate performance by the 


48 

• Limited need to manage concessionaire’s 

performance given their collection & 

retention of fare revenue and exposure to 

risk. 

• Simple payment arrangements between 

government & concessionaire, but limited 

capacity for government to influence the 

performance of the concessionaire. 

• Concessionaire likely to build premium into 

contract to protect against exposure to risk 

that is beyond their control. 

• Limited ability for government to change 

transport policy & systems during the 

concession except that to the extent conditions 

are anticipated and specified in the 

concession. 

• Simple to manage. 

• A need to make a payment to a 

concessionaire so that they achieve costrecovery 

may be seen to conflict with a 

model that requires only limited government 

involvement in concession 

management. 

• Results in poor MRT integration. 

• Government cannot make further changes 

to MRT delivery & operations over time in 

response to policy or other needs not anticipated 

in the concession agreement 

without re-negotiating the agreement. 

• The concession must be for a sufficient 

period to allow the concessionaire to 

recover the cost of their investment. 

• A period of 30-35 years, which is similar to 

the life of trains, is appropriate. 

• Concessionaire provides all system assets to 

the government at the end of the concession 

with appropriate government compensation 

for them. 

• Need arrangement to transfer 

concessionaire’s assets to the government if 

the concessionaire should fail or their 

contract not renewed (with appropriate 

compensation).



Notes • An obligation for the concessionaire to hand 

over viable assets without compensation 

will encourage the concessionaire to avoid 

investment in life-expired assets and system 

expansion and improvement in later years 

of the concession. 

• Indicates a need for the government to pay 

compensation for assets on the basis of predetermined 

depreciation schedule. 

• Renewable concession terms would each be 

a division of the total contract term of 30 

years, e.g. say 10 years each. 

• Technical complexity of MRT operations 

suggests it is preferable to encourage an incumbent 

concessionaire to improve their 

performance, with replacement a last resort. 

Asset Financing, Implementation and Management 

Fixed infrastructure 

provision 

Initial fixed 

civil works 

assets 

Network 

expansion 

Electrical & 

mechanical 

assets and 

trains 

Government prepares design, calls tenders, 

finances and supervises project 


The Government: 

• Leases fixed infrastructure to the 

concessionaire, at zero rent. 

• Establishes conditions for any necessary 

replacement of life-expired fixed assets 

during the concession term. 

• Monitors infrastructure in accordance with 

the lease and ensures hand-back conditions 

are met. 

The concessionaire: 

• Maintains the infrastructure. 

• Replaces life-expired assets. 

• Hands back infrastructure in good condition 

at the end of the concession. 

• The government finances expansion of 

fixed infrastructure. 

• The concessionaire maintains infrastructure 

and provides additional services with 

payment made on the basis of unit cost rates 

and inflation indices set in the original 

tender. 

The concessionaire: 

• Finances, purchases, operates and maintains 

the assets and any additional assets 

procured during the concession. 

• Hands over all assets in good condition and 

at the end of the concession with 

appropriate compensate(set in accordance 

with pre-established contract conditions) 


The Government: 

• Monitors the condition of assets and ensures 

hand-back conditions are met. 

49 

• An obligation for the concessionaire to hand 

over viable assets without compensation 

will encourage the concessionaire to avoid 

investment in life-expired assets and system 

expansion and improvement in later years 

of the concession. 

• Indicates a need for the government to pay 

compensation for assets on the basis of predetermined 

depreciation schedule. 

As for Gross Cost concession. 


• Government is in a poor position to 

negotiate network and service extensions 

with the concessionaire except to the extent 

that unit rates were agreed in the original 

tendering and the variations are in the form 

of a gross cost arrangement. 

• An existing concessionaire has the 

advantage of incumbency. 

As for Gross Cost concession, though 

compensation might not be paid, depending 

on financial arrangements.



Notes • Concessionaire provision of trains gives 

them more control over service quality and 

brings the financier of the trains into the 

concession to provide another source of 

pressure on the concessionaire to perform 

adequately. 

• Concessionaire provision of fixed M&E 

assets should encourage them to optimize 

life-cycle costs. 

• Transfer of some patronage risk will further 

encourage the concessionaire to provide 

services to meet customer needs. 

• There is a risk that a concessionaire will 

avoid making investments towards the end 

of the concession if the assets must be 

handed over without compensation. 

Government payment for assets at the end 

of the concession would remove this 

disincentive. 

• Need would arrangements to set 

compensation value for concessionaire 

assets in the event of termination of a concession 

during its term. 

Service Specification and Development 

Initial service 

specification 

for tender bids 

Service 

planning 

Service 

approval 

• Government specifies expected conditions 

at the time of opening of the MRT line. 

• Bidders indicate initial service plan and 

conditions for responding to changes in 

demand over time, e.g. when additional 

services would be added. 

• Concessionaire primarily responsible for 

service planning for their MRT line, under 

the guidance of the government. 

• Government must approve all service 

changes because they will affect payments 

to the concessionaire. 

Fares, Ticketing System and Non-Fare Revenue 

As for the Gross Cost approach. 

• Bidder is responsible for assessing potential 

demand and establishing appropriate 

services as the basis for their tender. 

• Government needs to provide precise 

guidance on factors within its influence that 

could affect future demand, e.g. other MRT 

lines, other public transport services, and 

road development. 

• Concessionaire is responsible for service 

planning for their MRT line. 

• Other concessionaires are independently 

responsible for service planning for other 

MRT lines. 

• Government is responsible for service 

planning for other public transport services 

that may affect MRT, possibly constrained 

by conditions in the concession that prevent 

them from doing anything that may 

adversely affect the concessionaire. 

• Concessionaire does not need approval for 

changes in services. 

Initial fares • Set by the government. • Determined by the concessionaire at the 

time of tendering and written into the 

concession agreement (or could be specified 

by the government, with additional 

payments made to the concessionaire if the 

fares do not generate sufficient revenue, or 

the reverse if applicable). 

50



Fare escalation • Determined by the government periodically. • Determined by the concessionaire at the 

time of tendering and written into the 

concession agreement. 

Ticketing 

system 

Fare revenue 

management 

Commercial 

development 

Contract Payment 

Concession 

payments 

Base payment 

formula 

(Note: 

illustrative 

option 

described – 

other options 

exist) 

• Determined by the government at the time 

of tendering. 

• Determined by the concessionaire at the 

time of tendering. 

• Determined by the government periodically. • The responsibility of the concessionaire, 

who collects and retains all revenue. 

• Could be the responsibility of the 

concessionaire, with a revenue sharing 

arrangement with the government. 

• Likely to be very limited opportunities. 

Government pays on a periodic basis (say 

monthly): 

• A fixed amount that is related to assets 

provided by the concessionaire; plus 

• A fixed amount that is related to the 

quantity of train service provided; plus 

• An amount that is related to the number of 

passengers carried would be paid. 

• Penalties or incentives as appropriate to 

ensure the concessionaire provides a 

satisfactory level of service. 

Exposure to patronage risk considerably 

reduces the need for penalties or incentives to 

ensure service quality. 

An alternative is to provide a single ‘unitary 

charge’ related to the quantity of service 

provided (e.g. per passenger place-km) 

subject to agreed quality of service 

conditions – though this may incur risk 

premium because service quantity is not 

entirely under the control of the 


Payment from the government to the 

concessionaire could be: 

• VND “b” /month for initial assets provided 

by concessionaire; plus 

• VND “c1, c2, c3, etc.”, for any additional 

assets to be provided by the concessionaire 

during the concession; plus 

• VND “d” /train-km of service provided; 

plus 

• VND “e” /passenger; plus 

• VND “f1, f2, f3, etc.”, for incentives or 

penalties (i.e. which could be negative or 

positive). 

In the case of a unitary payment, b, c and d 

would not apply and d would be related to 

the quantity of service provided. 

51 

As for the Gross Cost approach. 

Fixed periodic (say monthly) amount paid by 

the government to the concessionaire (or 

from the concessionaire to the government) 

as determined by competitive tender. 

Payment from the government to the 

concessionaire could be: 

• VND “a” /month. 

“a” could be positive (i.e. a payment from the 

government to the concessionaire) or 

negative (a payment from the concessionaire 

to the government) depending on the extent 

to which the concessionaire expects to be 

able to cover their capital and operating costs 

from fare and other revenue they collect over 

the life of the concession. 

An alternative is to link the payment to the 

number of passengers, i.e. VND 

“a”/passenger boarding.

Financial 

amounts 

specified by 


at the 

time of tendering 

(for the 

payment 

structure 

described 

above) 

Amounts to be 

indicated by 

bidders in their 

tender 

(for the 

payment 

structure 

described 

above) 



The government would specify: 

• Basis for sharing property development 

profits. 

• Fare structure and level. 

• Unit value for “e”, i.e. the patronage 

incentive payment. 

• Unit values for “f1, f2, f3, etc.” for each 

incentive or penalty to be included in a 

concession agreement. 

• The basis for values to change over time 

due to inflation, i.e. there is a need for the 

government to specify indexation formulae. 

Bidder would indicate: 

• Amounts for “b”, “c1, c2, etc.”, and “d”. 

• An amount expected to be paid to the 

government from development profits. 

The bidder will need to ensure that the 

combination of “c”, “d” and “e”, with 

appropriate inflation indexation, reflect the 

cost of providing additional assets and 

services as might be required by the government 

in the course of the concession 

Alternatively with a unitary payment, the 

government would specify penalties and 

incentives and bidders would indicate the 

unitary payment they seek to be paid. 

Issues • Need to anticipate variables that could 

change over the term of the concession (e.g. 

length of line, number and quality of 

stations, quantity of service, number of 

trains, etc.). 

• Shifting patronage risk that is within the 

control of the concessionaire to them 

removes the need for substantial monitoring 

of concessionaire performance. 

• Government needs less emphasis on 

penalties and incentives to ensure the 

concessionaire meets desired performance 

standards. 

• Little need for bidders to include risk 

premium because they bear little 

uncertainty. 

52 

The government would specify: 

• Basis for sharing property development 

profits. 

• Maximum rate of return on equity. 

• Basis for sharing profits in excess of 

maximum specified rate. 

Bidder would indicate: 

• An amount for “a”. 

• Initial fare. 

• Fare escalation formula. 

• An amount expected to be paid to the 

government from development profits. 

• Concessionaire likely to include some 

buffer in their tender to allow for risks they 

must carry that are beyond their control.

Concession Management 

Government 

role 

Routine data 

needed for 

contract 

management 

(say monthly) 

Periodic data 

(say biannually) 

Other data as 

needed 



Major role because: 

• Government has considerable freedom to 

change the scope of the concessionaire’s 

activities, with clear information available 

on the financial cost to the government of 

any proposed changes. 

• Shifting patronage risk that is within the 

control of the concessionaire to them 

substantially reduces the need for 

substantial monitoring of concessionaire 

performance standard. 

• Government needs to consider, approve and 

alter concession payments for necessary 

changes in level of service, e.g. additional 

services. 

• Evidence of maintenance of assets leased 


• Evidence of performance with regard a 

minimal number of incentive or penalty 

attributes. 

• Evidence of the number of passengers 

carried. 

• Information to indicate the need for 

additional services, trains and other assets. 

• Evidence of profits from property 

development. 

Minimal role because virtually all investment 

and operational decisions after signing the 

concession agreement are internal to the 


• Evidence of maintenance of assets leased 


• Evidence that maximum rate of return has 

not been exceeded. 


C.2 Concession Supervision 

Net Cost concessions involve relatively little supervision by government because: (i) most risk 

is transferred to the concessionaire and they need to be given the ability to manage that risk; 

and (ii) they are primarily intended for use where the concessionaire uses the revenue that they 

collect to cover their costs, i.e. without recourse to additional financial payments from the 

government. Typical supervision needs with a net cost concession are to: 

• ensure that any civil infrastructure provided by the government to the concessionaire is 

maintained in good condition; 

• approve fare increases, though these should occur automatically in accordance with 

inflation and other provisions in the concession agreement and there should be limited 

technical grounds for government modification to them; 

• monitor safety and security aspects of MRT service; and 

• ensure that the concessionaire makes payments to the government if these are specified 

in the concession agreement. 

It would also be usual for the concessionaire to provide data on their operations for the 

general interest of government, e.g. the quantity of service provided and the number of 

passengers carried. 

53

This form of concession can be useful where government capacity to manage complex 

contracts is limited and where the government is prepared to accept the limitations of net cost 

concessions for flexibility in urban public transport operations and policy. 

Consideration of five factors can help guide consideration of the ideal level of supervision of a 

concession agreement: 

• Capacity to undertake the supervision. There is a need to determine that the 

supervising authority has the capacity to undertake the designated level of supervision or 

can engage and adequately supervise a private company to undertake the task for it. 

Using a form of concession that requires considerable government supervision capacity 

could be counter-productive if the capacity is not present and the concessionaire realizes 

that they can avoid meeting performance criteria set out in the concession agreement. 

On balance, there is a general risk that government supervision capacity is overestimated. 

• Criteria to be monitored. There is a considerable range of performance criteria that 

could be monitored as part of a contract management system. However, data collection 

can be expensive and distracting. A means for reducing the need for contract 

management is to transfer risk to the concessionaire so that there is a self-enforcing 

mechanism for good performance (as occurs with a net cost concession). There is also a 

need for a clear link between each criterion that is monitored and the payment made to 

concessionaires. 

• Safety and security regulation. It is essential that safety and security regulations 

appropriate for MRT be established and monitored. These standards do not relate to 

the quality of MRT service, but rather to specific needs to ensure public safety and 

security. Examples of standards include maximum loading standards to prevent crush 

loadings in which people might be injured and to ensure that trains can be safely 

evacuated in the event of an incident. 

• Implications of a net cost concession that requires subsidy payments. As 

indicated above, there is limited need for monitoring a net cost concession in which fare 

and other such revenue is sufficient to meet the concessionaire’s costs. However, a 

dilemma arises if the concessionaire needs a subsidy from the government because the 

government must make the payment while still giving the concessionaire reasonable 

certainty about their operating environment (e.g. by not changing government policy or 

taking other actions that could adversely affect the concessionaire) and leaving them 

free to manage risk. Thus the government must make payments to the concessionaire 

with limited capacity to link the payments to specific services that are provided. 

• Other data collection. There may also be a desire or need to monitor other aspects of 

concessionaire performance, even though it may not directly affect payments made to 

the concessionaire. However, it is necessary to ensure that the role of the criteria is clear 

and that data is not simply collected and stored un-used in the supervising agency. 

C.3 Trade-offs Between Risk Transfer, Payments and Concession Supervision 

As shown in Figure C.1, the considerable transfer of risk to a concessionaire in a Net Cost 

concession reduces the need for concession management because the concessionaire has a 

strong self-interest in providing good service. In contrast, a Gross Cost concession with no 

transfer of risk requires considerable supervision to ensure that the concessionaire performs 

adequately. Key conclusions that emerge from this review are: 

• Increased supervision requirements associated with Gross Cost concessions are a 

necessary condition for gaining the network integration benefits that they allow. 

54

• The amount of risk to be transferred to a concessionaire needs to take account of the 

extent that the concessionaire can manage the risk (so that the cost of the concession is 

minimized), a desire to use self-enforcing mechanisms that encourage the concessionaire 

to perform well (rather than do so because of pressure from the government), and a 

desire to simplify concession management (by minimizing the government’s supervision 

obligations). 

• Concession supervision should focus on those factors that affect payments made to 

concessionaires, their use of government-owned infrastructure, and more general factors 

(if any) that could influence a decision to terminate a concession due to inadequate 

performance. 

• Concession supervision should recognize the potential for government supervision to 

be implemented less effectively than may be envisaged. 

Figure C.1: Supervision Requirements for Concession Models 

Extent of 

risk transfer 

Need for concession 

management 

Form of Concession 

Net cost Gross cost 

(with some transfer 

of risk) 

Gross cost 

(with no transfer of 

risk) 

Supervision needed as a condition of payment (1) 

Quantity of service 

(e.g. car-km of service) 

Not needed Essential Essential 

Quality of services 

(e.g. maximum load, comfort) 

Not needed Limited need Essential 

Number of passengers Not needed Essential Not needed 

Additional supervision needed for general contractual oversight 

Quantity of service Not needed Not needed Limited need 

Quality of services Limited need Limited need Limited need 

Number of passengers Limited need Not needed Limited need 

(1) Assumes no subsidy payment needed with a Net Cost concession. If a subsidy is needed, then some 

monitoring of, most probably, the number of passengers would be needed. 


55

Appendix D: Concession Template 

This concession template should be read in conjunction with the remainder of this report, and 

in particular Annex C. 

1. NAME OF THE AGREEMENT 

PART I - INTRODUCTION 

The specific name of the agreement needs to be indicated, e.g. “Agreement for [name of the 

project] between [Authority] and [the private sector party]” 

2. DATE OF AGREEMENT 

The date of the Agreement (signing date) should be specified and the effective date should be 

the same date and without the condition precedents to the extent possible. 

3. PARTIES TO THE AGREEMENT 

a. The State Party - full and correct Name/Address/ name and title of the authorized 

person who signed the agreement for the procurement of infrastructure and services 

on behalf of the State/Government according to the documents attached 

(“Authority”). 

b. The Private Party - full and correct Name/Address/ name and title of the authorized 

person who signed the agreement for the provision of infrastructure and services 

according to the documents attached (“Company”). 

Provisions relating to the Company: 

• The Company must be a Special Purpose Company whose objects are limited to the 

business (and any non-business) activities of the concession under the Agreement. 

Reason: Government has an interest in the financial health of the Company as 

concessionaire (and bears certain costs in the event the concessionaire fails). It goes 

against this interest to have the Company exposed to any non-concession risk as could 

occur if the Company was involved in other activities in addition to the concession. 

• Due diligence over the Company’s relevant project contracts e.g. the Company’s various 

agreements concerning the concession project funding (including its agreement with the 

senior lenders), insurance, design, construction, supply and installation, system 

integration, operation and maintenance, consulting and other services used in the 

project. 

Reason: The Authority, while not intending to interfere with the Company’s conduct of 

the concession business (as that would be taking back risk already allocated to the 

Company), needs to assess and have a good understanding of how the Company 

proposes to deliver the concession output. The essential reasons for this include the 

following: 

a. Compensation to the Company for early termination in most cases is a 

function of its outstanding debt under the terms of the financing agreements. 

b. The interests of the Authority and the senior lenders are often common and in such 

cases the Authority can rely on provisions of the loan documents as protection 

against certain risk (e.g. the sinking fund requirement of the lenders also protects the 

Authority against the risk that inadequate funding may be provided for of ongoing 

56

asset maintenance and renewal). The Authority therefore needs to see that the 

financing terms reflect its proposed reliance. 

c. The Authority may need to consider taking over the Company’s contracts with 

its project contractors and service providers or transferring them to another party in 

the event of early termination. Therefore the Authority needs to see that the terms of 

the relevant contracts are consistent with the Agreement in this respect. 

4. PREAMBLE 

The preamble should provide for the clear intention of the state party and the private party. It 

should refer to related documents such as the Terms of Reference and Bidding documents, 

and indicate that acceptance of the intent is required as part of contract acceptance. 

Recitals incorporating the statement of the Authority’s intention should include reference to 

the following basic concepts and principles which underlie this Agreement: 

• The objectives of the concession project. 

• How the concession project fits within the MRT network, and the broader public 

transport system, that is being implemented to provide high quality public transport 

services to the public, and government desire to ensure that, in implementing the 

project, optimal network benefits are maintained. 

• The assets and systems that are needed to provide MRT services, which include “Civil 

Infrastructure” (i.e. civil works, train tracks and stations), “Ticket System” (i.e. ticket 

equipment and media, and operation of the system including revenue management) and 

electrical and mechanical assets (“E&M Assets”, i.e. trains, power supply, 

communications and train control systems). 

• The role of: 

‒ the Authority for implementing Civil Infrastructure and Ticket System and making 

them available to the Company, with the Authority to directly implement Civil 

Infrastructure and the Authority to arrange for the Ticket System through a separate 

contract; and 

‒ the Company for providing E&M Assets, maintaining Civil Infrastructure, using the 

Ticket System, and providing train services. 

• The Authority’s desire that the project be implemented and service be provided based 

on an approach that has been assessed as offering value-for-money, protecting 

consumer interest and exercising due care in preventing private monopoly of a basic 

infrastructure, all in accordance with fundamental state policy. 

• That project risk be allocated between the Authority and the Company in such a way 

that that a risk is managed by the party able to do so most efficiently and effectively. 

• That the determination of the respective Authority and Company roles in delivering of 

MRT services (including any associated delivery of assets) under the contract is based on 

the intention reflected in the forgoing recitals. 

5. DEFINITION 

Definitions of a full list of terms pertinent to the concession are required. They should be in 

alphabetical order, and be consistent with terms used in international bidding documents. 

57

6. CONCESSION 

Key features of the concession to which the agreement is to apply should be summarized and 

cross-referenced to relevant sections of the Agreement where they are addressed in detail. 

Provisions to be addressed should include: 

• general description of the concession model; 

• the term of the concession 

• issues to be addressed prior to commencement of train services (Part II) 

• services to be provided (Part III); 

• payment and other financial arrangements (Part IV); 

• termination conditions and arrangements (Part V); 

• responses to special events (Part VI); 

• provision, ownership, use and maintenance of assets (Part VII); and 

• other general provisions (Part VIII). 

The term of the concession agreement will normally be fixed, as a number of years from the 

agreed contract commencement date. Delay in commencement of train services should 

generally not lead to an extension of the Agreement duration. Keeping the concession expiry 

date fixed increases the incentives for the Company to ensure train services commence on 

time, including placing pressure on the Authority to fulfill its obligations such as providing 

civil infrastructure. A requirement that the Authority pay compensation to the Company in 

the event that the Authority is responsible for the delay (see Section II) is an incentive on the 

Authority not to cause delay. 

7. MRT NETWORK AND LINKS 

It should be noted that the project under the Agreement is part of an MRT network, which is 

itself part of the public transport system of Ho Chi Minh City, and has been designed and is to 

be operated as part of the network to optimize network benefits in the public interest. The 

Company’s rights in the Agreement should be circumscribed by this network objective. It will 

be necessary to establish the rights and obligations of the parties in the case that government 

seeks changes that are in the larger public interest. Such changes could include: 

• issues specific to the MRT network, including changes in the network, changes in 

service patterns, the right of access to depots, inter-operability (third party sharing the 

line), and the ability (or restricted obligation) to coordinate inter-connection with the 

network; and 

• changes to other public transport services, the structure and level of public transport 

fares and fare collection, changes in land use policy and patterns, changes in public 

service obligations, etc. 

The need to so circumscribe the concessionaire’s rights and obligations will have value-formoney 

implications for the government. Concession forms play a part in this issue of valuefor-money. 

Thus it is generally expected that a Gross Cost form of concession, in which 

concessionaires bear at most patronage risk that is within their control, will more easily allow 

such changes to be implemented than the Net Cost form of concession. As a result, the cost 

to government of retaining the system flexibility under the Gross Cost form of concession is 

expected to be less than in a Net Cost form of concession in which renegotiation of the 

concession is needed when such changes are desired. 

58

8. COORDINATION COMMITTEE, REPRESENTATIVES AND RELATED 

PARTIES 

Management committees will be required for oversight of the concession and coordination of 

the concession with other public transport. There will also be representation by parties on 

other committees or organizations. These committees and representations, their roles and 

representation of Authority and Company interests need to be addressed. The committees 

could include: 

1. Coordination Committee. 

There may be a need for a co-ordination committee with a public sector membership for the 

purpose of monitoring and supervising the concession, making periodic progress reports, and 

to bring any problems and their possible solution to the committee’s attention. The Company 

is required to co-operate with the committee in order that the work of the committee can be 

carried out. 

2. Authority/Company Joint Committee. 

The Company may request the setting up of a joint committee with Authority and Company 

membership to assist in co-ordination and interaction with third parties (such as authorities 

for permits, licenses etc.) in the conduct of the concession business. With such a request, care 

must be taken that in responding the Authority is not taking back any risk allocated to the 

Company (e.g. the risk of timely installation of E&M Assets). The Authority’s role on the joint 

committee should be to help facilitate, with the responsibility for the outcome clearly resting 

with the Company. 

3. Authority representation on Company board of directors or other management boards. 

This practice is sometimes proposed but is strongly discouraged. For the Authority to have 

such representative in the Company’s management blurs the line between the parties, exposes 

the Authority to a potential conflict of interest in the management of the Agreement and at 

the very least can lead to a dilution the risk transfer to the Company. A reason sometimes 

cited for the practice is that it provides a channel for information about the Company’s 

operation of the concession. But this is an undesirable way to achieve the objective. Any 

information necessary for the Authority to properly manage the concession should be 

addressed in the Agreement and made an obligation of the Company to provide. 

Similarly, the government or the Authority taking a direct equity interest in the Company is 

discouraged because as it means that the Authority cannot act as an independent supervisor of 

the concession. It is possible that a fully constituted state-owned company could be an equity 

partner in the Company. 

4. Other Relevant Parties. 

The provision also should identify other interested parties relevant to the management of the 

MRT project. The relevant parties may include: 

• a certified independent engineer (possibly pre-service phase only); and 

• an independent monitor of the Company’s performance against service standards. 

PART II – PRE-SERVICE 

9. CONDITIONS PRECEDENT 

Conditions precedent are matters that are central to the ability of the Company to undertake 

the contract but which cannot be delivered on or prior to signing the agreement. 

59

An example of a circumstance where a condition precedent may be needed relates to the 

financing of the project. Lenders providing senior debt financing, which would normally be 

on limited recourse terms (i.e. with no collateral external to the project, particularly 

guarantees), may not be prepared to undergo the expense of conducting due diligence before 

the Company has secured the concession, which would mean the Agreement could only be 

signed without firmly committed financing in place. The need for such due dligence increases 

with the project risk as perceived by the senior lenders, with a corresponding need to conduct 

a more thorough due diligence investigation using costly technical advice. In this respect, the 

probability of conditions precedent will be higher with a Net Cost than a Gross Cost 

concession because of factors such as the difficulty of estimating future patronage. Working 

with a concession model in which risk allocation is clear and easy to assess lessens the need 

for this type of condition precedent. 

Where it is necessary for there to be conditions precedent for the contract, the Agreement 

must ensure that the Authority is not under its concession obligations (or the Company 

granted its concession rights) until the conditions have been met. The Agreement must also 

stipulate a date after which failure to meet the conditions means the Agreement automatically 

lapses. 

10. COMPANY SYSTEMS 

Clauses under this item relate to assets that the Company is to provide that, together with 

assets to be provided by the Authority (addressed in Clause 31), are needed for the provision 

of MRT services by the Company. The following points should be reflected in this clause: 

1. The Authority’s request for proposals (‘RFP’) (or TOR) should stipulate that the 

Company will be fully responsible for the design, financing, construction, procurement, 

installation, testing, commissioning and maintenance of E&M Assets, which are to be 

integrated with the civil works that are to be supplied by the Authority and which are 

needed to deliver the MRT service to the level and standards specified by the Authority 

in the RFP (and any related documents). 

2. Under a carefully drawn up risk allocation plan, the following risks inherent in the 

management and operation of the concession is assigned to the Company: 

a. the risk of budget cost and time over-runs in putting the E&M Assets in place 

and making them ready for the provision of MRT services; 

b. the risk of not meeting the specified quantity and quality of service through a failure 

in the design, whether because of the underlying technology or because of any special 

design feature of the E&M Assets; 

c. the risk of not meeting the specified quantity and quality of service through a 

failure in the maintenance of E&M Assets and their replacement at the end of their 

effective lives; and 

d. the risk of not meeting the specified quantity and quality of service through a failure 

of the Company’s management and operation of the MRT infrastructure provided by 


3. To ensure the integrity of this risk allocation, the Company must be allowed to design, 

deliver and maintain the E&M Assets and operate the line using its own inputs, 

processes and methods without any intervention from the Authority other than with 

regard to matters affecting safety, security, common ticketing and fare systems, and 

interoperability standards for technology and operations determined by the government. 

The extent of interoperability should be determined on the basis of economic evaluation 

60

and value-for-money assessment by the government and specified before the issuance 

of the RFP). 

4. In the process of tender evaluation the Authority (and its advisors) should conduct due 

diligence on a preferred candidate’s detailed proposal to evaluate in detail how, in terms 

of approach and methods, resource inputs, time schedules, management, organization 

and design, maintenance and operations procedures, the candidate proposes to deliver 

the required service outputs. 

5. The winning proposal should be incorporated in the Agreement, and included say in a 

schedule called ‘Project Documents’, so that the Company is bound to deliver on its 

proposal. The Agreement should ensure that the service output specification takes 

precedence over the proposed service inputs described in the Company’s proposal to 

ensure that the Agreement does not imply approval or acceptance by the Authority that 

the Company’s submission will deliver the outputs (and the risk transfer to the 

Company thereby diluted or negated). 

6. In implementing the concession, the Company will not be able to depart from what is 

set out in the Project Documents without the prior consent of the Authority, which 

should be given only after the Authority is satisfied that the Company’s prospects of 

delivery against specified service standards will not be worsened thereby. Again, this is 

part of the Authority’s responsibility to ensure that the agreed risk transfer to the 

Company is not diluted or negated. 

7. As a general rule it is important to be aware that if the Authority becomes involved in 

activities that have been contracted to the Company for the Company to carry out, the 

Authority will resume risk that had been transferred to the Company and will therefore 

assume actual and potential costs that are the obligation of the Company. 

11. PRE-SERVICE IMPLEMENTATION 

The Company will have a considerable program of activities in the period between contract 

signing and the commencement of services (‘Service Commencement’), including completion 

of any conditions precedent, purchase, delivery, installation and testing of M&E Assets it is to 

provide, establishment of an organization and recruitment and training of necessary staff. The 

Authority will want to know that the Company is going to deliver the service on time and 

meet the Authority’s contract requirement. The Company will want to be assured that what it 

is developing will meet the Authority’s requirements and that it will have the necessary access 

to the project site and civil works assets. 

It is necessary to consider to what extent the Authority should be involved during this phase 

and what rights the Authority should have to approve or monitor the Company’s progress 

prior to and on Service Commencement. The Authority’s participation should not involve 

over-stepping a limit beyond which it will both be taking back the project management risk it 

had transferred to the Company. In particular, it would not be appropriate for the Authority 

to adopt the supervisory role it would expect to have with regard to the design and 

procurement of civil works infrastructure. 

This clause should articulate the following matters: 

1. Activities and Access 

Activities should be listed, and linkages with activities of the Authority identified. 

2. Critical dates 

The payment mechanism is designed to encourage Service Commencement to occur as 

planned to avoid the loss of revenue to the Authority and a shortened operational period for 

61

the Company. However where the consequences of a delay beyond a critical date becomes 

more serious, the Authority will need to have some contingency measures, though termination 

should be the last resort (see clause 12). 

3. Permitted design changes 

A mechanism should be specified for the Company to submit design changes that do not 

affect cost or services and which are within permitted parameters of design development that 

the Authority can accept. 

4. Quality management systems 

The Company should have a quality management system to ensure the delivery of its 

contracted responsibilities. The Authority should retain the right to audit the Company’s 

quality management system, including the right to inspect works or activities on or off site to 

test the accuracy and adequacy of the system documentation. The Agreement should provide 

for an appropriate enabling mechanism including provision for the Company and any relevant 

Company party (e.g. contractor etc.) to respond to recommendations arising from an audit but 

no right of termination should result from it. The audit is to be a due diligence tool only, since 

the risk of a poor quality system is part of what is being transferred to the Company. 

5. Acceptance of readiness for service commencement 

There should be an obligation for the Company to demonstrate prior to Service 

Commencement (and where significant service changes occur, e.g. upon the introduction of a 

new asset or procedure) that the Company has procedures (including tests) in place to ensure 

that service specifications in the Agreement will be met. In order not to dilute risk transfer, 

the Authority should not accept stages of work before the Service Commencement date and 

full service delivery. 

12. PROTECTION AGAINST LATE SERVICE COMMENCEMENT 

The objective of this provision is to address the consequences of late commencement of 

services, which may occur because: 

• the Authority has not provided Civil Infrastructure and the Ticket System to the 

Company on the agreed schedule; or 

• the Company has not undertaken pre-service activities in accordance with the agreed 

schedule. 

The clause needs to set out the financial compensation that would be paid to the Company in 

the case of the former situation, but excluding the situation where the delay is sufficient to 

result in termination of the Agreement (which is addressed in Clause 25). 

In the case of the Company being the cause of the delay, it is necessary to ensure that the 

Authority is protected against late service commencement in a way that gives value-for-money, 

taking into account the loss the Authority may suffer from the delay and the necessity and 

cost of contingency measures needed to deal with it. It is important to consider the matter in 

its proper context, i.e. taking account of: 

• the payment mechanism, whereby the Company receives no revenue from the Authority 

until service commencement, means that the Company has a financial incentive not to 

delay; 

• the Company’s senior debt financing, which generally on limited recourse terms (i.e. 

there is no collateral external to the project), which means that the interest of the senior 

lenders is the same as the Authority’s; 

62

• the Company will be using Authority assets (Civil Infrastructure and Ticket System), for 

which the Authority incurs an opportunity cost and hence specific protection beyond 

the regular payment mechanism could be needed; and 

• the Company will include financial allowances in its tender for excessively onerous 

obligations, and which thus will accrue to the Authority, i.e. the Authority will pay for 

such excessive transfer of risk to the Company. 

The usual mechanisms for protection against late service commencement are liquidated 

damages, performance bonds and parent company guarantees. When there are grounds for the 

Authority to look for specific protection, value-for-money should be considered taking into 

account the costs and benefits of the protections required by the Authority. The following 

specific points need to be deal with in the Agreement. 

1. Liquidated damages 

If, as is usual with limited recourse debt financing, senior lenders require contractors to the 

Company who are involved in the pre-service phase to cover debt service for the duration of a 

delay through liquidated damages, the contractors may price this into their contracts with the 

Company but are more likely to be conservative in estimating time to complete their work. 

The Company will pass the cost of such delay to the Authority through their bid price and a 

longer project implementation schedule. For the Authority to require liquidated damages that 

would be paid to itself, when the senior lenders are already applying the same mechanism, 

would result in additional costs being passed on to the Authority via the payment mechanism. 

In general terms this would be like the Authority paying twice for the same specific protection, 

and hence should be avoided. 

2. Performance bonds 

It is usual in a construction project for the Company and the senior lenders to require 

performance bonds from contractors as a guarantee of satisfactory completion of the 

contractors’ work. Contractors will pass on the cost of these bonds though their contracts 

with the Company, which will in turn pass on the cost to the Authority. An Authority 

requirement for an additional performance bond from the Company will lead to extra cost. 

The Authority’s need for performance bonds from the Company needs to be considered in a 

similar manner to liquidated damages. 

3. Parent company guarantees 

Parent company guarantees are not a recommended method of protection against late service 

commencement. Fundamental to the risk transfer mechanism of the Agreement is the careful 

separation of the Company’s financial risk from those of its shareholders arising out of any 

other business activities in which they are involved. The key benefit is that every party 

involved is careful in the analysis and management of project risks. In doing so the action of 

each of them benefits others. For example the senior lenders’ careful evaluation and 

management of their project risk exposure under limited recourse financing also automatically 

benefits the Authority. By contrast, for example, if the lenders relied on the guarantee of a 

substantial shareholder, they could easily pay less attention to the project risk. (There is also a 

value-for-money issue if, for example, the Company already requires its contractors to provide 

parent company guarantees.) 

4. Conclusion 

The forgoing discussion under this Clause highlights the importance for the Authority of 

having a clear understanding of the contractual relationships among the various Company 

parties in order to make a sound value-for-money based decision on specific protection 

63

against late service commencement that it might seek against the Company. This underlines 

the importance of the Authority’s due diligence review of the Project Documents. 

13. INITIAL SERVICES 

PART III – SERVICES 

This clause should specify the obligations and rights of the parties with respect to: 

• MRT services to be provided by the Company, covering train services, marketing, safety 

and security systems, complaints management, etc.; 

• use of the Ticket System that is implemented by the Authority; and 

• maintenance of Civil Infrastructure that the Authority makes available to the Company. 

Risk associated with the provision of MRT services and management of life-cycle costs is to 

be borne by the Company using a system specified by the Company. This requires that the 

concession be in the form of a performance-based contract. The system, its operation and 

services should be described in the RFP in output terms (e.g. train capacity to carry X number 

of passengers per hour during a peak hour). The RFP will require that tenders submit a 

detailed description of planned operations, resource inputs and delivery methods to be used. 

The Authority and its technical advisors need to a conduct a careful due diligence review of a 

submission to assure themselves that the resource inputs, designs and methods are capable of 

delivering the required services. 

The selected bidder’s submission should be attached to the Agreement as one of the Project 

Documents. 

14. STANDARD OF SERVICES 

This clause needs to describe the standard of services to which the Company must adhere. A 

key issue is the extent to which responsibility (i.e. acceptance of risk) for service standards is 

shared between the Authority and the Company. The balance will depend on the approach 

taken to the concession. There is a need to address: 

• Service standards that are set by the Authority, which will include, at a minimum, 

standards to ensure public safety and security (which will include maximum loading 

standards of trains). They can also include more detailed measures that affect the quality 

of service provided (e.g. schedule adherence, passenger comfort, etc.). The transfer of 

patronage risk to the Company reduces the need for more detailed specification of 

service standards because the Company will have the incentive to provide the quality of 

service needed to meet passenger needs. 

• How and by whom the service standards will be monitored and how the Company will 

be formally advised by the Authority of any failure to meet the standards. 

• The consequences of a failure by the Company to comply with the standards need to be 

specified, which may in turn comprise: 

‒ Financial penalties (as described in Part IV) 

‒ Non-financial consequences, e.g. termination of the Agreement if there is an 

accumulation of failures to meet specified threshold service quality standards. 

The Authority will need technical advice from professional advisors with experience in 

designing output MRT service standards. The concession agreement should seek to transfer 

the optimal extent of risk to the Company so that the Company has the incentive to provide 

64

the appropriate quantity and quality of service without excessive intervention and 

management of standards by the Authority. 

15. CHANGES IN THE MRT SYSTEM 

This clause needs to describe how changes in the initial MRT system under this Agreement 

initiated by or through the Authority would be accommodated. Changes could include 

extensions to the MRT network, through-running of trains between different concessions, 

changes in other aspects of public transport that have an effect on MRT, changes in MRT 

ticketing systems, etc. The clause needs to focus on: 

• processes such as how the Company would be informed and how the Company would 

be expected to respond and 

• how financial implications of the changes would be addressed, with reference to Part 

IV. 

The clause would need to be sufficiently broad to be able to accommodate both anticipated 

and unanticipated changes. The clause could vary substantially between a Net Cost and Gross 

Cost form of concession. With a Net Cost concession, there is a need to provide a more 

certain environment for the Company because it bears full patronage risk, and so much more 

detailed consideration needs to be given to identifying how changes that are beyond the 

control of the Company but which affect the Company would be dealt with, acknowledging 

that this is likely to be exceptionally difficult to cover all possible eventualities and that the 

Authority will be in a weak position to negotiate financial compensation to the Company for 

events that are not fully specified. 

16. CHANGE IN MRT SERVICES 

The following issues need to be addressed in this clause: 

• indicate the factors that could require a change in train services (e.g. meeting specified 

service standards given a change in demand or other circumstance, government policy 

objectives, technological change, changes in the extent of the MRT network under the 

Agreement, etc.); 

• who is responsible for initiating and planning service changes, noting that this could 

vary between Gross Cost and Net Cost forms of concession and the cause of the 

change; 

• in what circumstances the Authority must either approve or simply note proposed 

services changes; and 

• who will be responsible for the financial consequences of service changes and, if it is the 

Authority, the basis for estimating the change in payments that must be made (with 

reference to Part IV). 

In doing this, consideration needs to be given to two potential causes of a need to change 

services: 

1. Change due to patronage growth 

Patronage growth is expected to occur during the term of the concession due to population 

growth and changes in economic, social and government policy circumstances. In the Net 

Cost concession, where patronage risk is fully allocated to the concessionaire, the 

concessionaire is responsible for making adequate additional capacity available in response to 

service growth, and would at most simply advise the Authority of planned changes in service. 

In a Gross Cost concession with the appropriate transfer of patronage risk, the Company will 

have the incentive to undertake planning service changes to accommodate patronage growth. 

65

However, as the provision of additional services would result in increased payments from the 

Authority to the Company (see Part IV of this template), the Company should submit plans 

for service changes to the Authority for its review and approval. In the Gross Cost 

concession, service changes will be largely driven by the need to comply with service standards 

(in particular a specified maximum vehicle load capacity which requires that more train service 

be provided as patronage rises). More drafting will be needed in a Gross Cost concession than 

a Net Cost concession to address change in volume of service. 

2. Changes due to other reasons 

Both parties could have other reasons to propose a change in service. The Authority may seek 

a change in service requirement that is not foreseeable at the time the Agreement is made (e.g. 

resulting from a change in MRT or public health and safety policy or a change in law). Where 

the Company wishes to implement changes that involve use of new methods and technology 

and do not have implications for concession payments, the Company should have the right to 

simply advise the Authority prior to implementing the changes. The exception would be in 

with a Gross Cost concession where no patronage risk was transferred to the Company 

because in this case there is no automatic incentive for the Company to consider the effect of 

the changes on their passengers. 

Changes in payments from the Authority to the Company resulting from changes in services 

arising from either Authority or Company initiated changes will be clear in the case of a Gross 

Cost concession, but will need to be established in detail for a Net Cost concession (or the 

uncertain financial consequences to the Authority accepted where this is not possible). 

PART IV – FINANCE AND INSURANCE 

17. PAYMENT AND PAYMENT MECHANISMS 

The essence of this Agreement is the procurement of a service and so payment is made for 

delivery of the service. How payment is made for service constitutes an important part of the 

structuring of risk allocation and hence the incentives for the Company to provide efficient 

and effective services. The clause needs to address: 

• the structure and level of payments to be made by the Authority to the Company (or 

vice versa if appropriate), including: 

‒ the principle payment components, including any patronage related components and 

any incentives and penalties for, respectively, superior or sub-standard service; 

‒ the frequency and timing of payments; 

‒ the source and verification of data on service quantity and quality and patronage that 

is needed to support the payments; 

‒ payments to be made in the event of changes in the quantity of service to be 

provided to accommodate changes in patronage; and 

‒ payments to be made for other identified potential changes e.g. in the extent of the 

MRT network under the Agreement, etc.; 

• any payments that might be made between the Company and other companies 

providing MRT services, for example for use of track or depots; and 

• reference the next clause regarding payment escalation to take account of cost inflation 

over the term of the Agreement. 

66

The nature of payments will vary substantially between Net Cost and Gross Cost concession 

models. This is briefly discussed below and is described elsewhere in this report. For reasons 

implicit to the discussion below and elsewhere in this report, the Gross Cost concession with 

some transfer of patronage risk is strongly recommended. 

1. Net Cost Concession 

Within a specified limit on the financial rate of return to the Company, this concession type 

can have the simplest approach to the basic structure of the payment and payment method, 

with the Company collecting and keeping fares and any other agreed sources of revenue 

initiated by the Company and either making a payment to the Authority or receiving a 

payment from the Authority depending on whether the Company expected the revenue to 

exceed or be less than its costs. The simplicity comes with serious drawbacks (in particular the 

loss of policy flexibility by government and the possible need for the Authority to negotiate 

financial changes to the Agreement from a position of weakness - see the main part of this 

report for a discussion of these matters). 

As there is a strong possibility that the expenses incurred by the Company will be greater than 

the revenue it can collect, a potentially substantial payment to the Company will be required. 

This payment would be a general subsidy and not be related to any particular quantity or 

quality of service (responsibility for which is under the control of the Company other than 

with regard to safety and security standards). It would hence be paid as a fixed amount on a 

monthly or similar basis, which presents problems for public accountability as it would need 

to be made simply on the basis that the Company provided MRT services. More complex 

arrangements are also needed to address the financial implications of changes in public 

transport or public policy that could affect the Company, with unidentifiable or speculative 

changes being exceptionally difficult to accommodate. As a result, the apparent simplicity of 

payments under a Net Cost approach may not be achievable. 

2. Gross Cost concession with no transfer of risk 

This arrangement contrasts with the Net Cost concession by having no transfer of patronage 

(and hence revenue risk) to the Company other than the possible exception of revenue from 

advertising and commercial development. The payment structure would require that the 

Authority pay for MRT services to be available irrespective of the number of passengers using 

the services. The Company would simply carry the risk for delivering the specified quantity 

and quality of service. To make the Company’s payment risk clear to the concessionaire and 

its financiers and other concessionaire parties, the following issues need to be addressed: 

• the criteria for the quantity and quality of service to be provided; 

• unit rates to be paid for the service provided, e.g. an amount per rail-car kilometer of 

service operated per month; and 

• variations in the payment to take account of a failure to provide the specified quantity 

and quality of service delivered by the Company. 

The payment mechanism has to achieve a balance in order to achieve value-for-money. If the 

mechanism imposes risk that the Company is not able to manage, this is likely to result in a 

higher cost in terms of require payment service to the authority, reflecting financiers and 

contractors reaction alike. Similar to the case of service standards, the government will need 

technical advice based on experience of urban transit Gross Cost or similar concessions (e.g. 

in the United Kingdom) to draft the payment mechanism. 

67

3. Gross Cost concession with some transfer of risk 

The payment mechanism in this case is similar to that for the previous option except that part 

of the payment would be related to patronage. This provides the incentive for the Company to 

provide high quality services that meet the needs of passengers without the need for the 

detailed monitoring of service quality that would be needed in the case above. The extent of 

incentive and penalty payments would be substantially reduced. 

18. PAYMENT ESCALATION 

This clause would describe how payments to the Company would change over time due to 

changes cost inflation. Indexation should be with reference to a public domain, long-duration 

price index or indices. It may be appropriate to use a single index such as the Consumer Price 

Index, or to use several price indices that are applied to different elements of the Company’s 

cost structure (e.g. with separate indexation of labor, energy and other items given the 

substantially different rates of cost inflation that can apply to these components) to more 

transparently adjust for changes in costs that are beyond the capacity for the Company to 

manage. Care is needed to avoid blurring risk transfer to the Company to manage its costs. 

19. FARE POLICY AND REVENUE 

This clause needs to describe the basis for setting fares and managing fare revenue to the 

extent necessary for the adopted form of concession (i.e. Net Cost or Gross Cost), including: 

• fare and ticketing policy and systems with regard to public transport in Ho Chi Minh 

City, the MRT system in general, and the MRT line relevant to this Agreement; 

• policy regarding concessional fares for special social groups or special events; 

• policy regarding the right to set special permanent or temporary fares to promote MRT 

use; 

• the initial structure and level of fares; 

• the basis, timing and frequency of changes in the level of fares over time to take account 

of cost inflation; 

• whether the Authority or the Company is responsible for initiating changes in fares; 

• any requirement for the Authority to approve changes in the structure or level of fares 

initiated by the Company, and the criteria on which approval will be based; 

• responsibility for advertising changes in fares; and 

• who will collect fare revenue, and whether fare revenue will be credited to the Authority 

or the Company (noting that it is recommended elsewhere in this report that the 

Ticketing System should be implemented as a separate contract covering the entire 

MRT system at a minimum in the first instance and preferably the entire public 

transport system). 

Some of the contents of this clause will depend on the concession model that is adopted, as 

follows: 

1. Net Cost concession 

Under this concession model, the Company collects and keeps the fare. The Company would 

need to be given automatic (generally annual) indexation of fares to take account of inflation. 

Where integrated ticketing and fares are to be used for the MRT system, a more complex set 

of conditions would need to be specified to address situations where the fare revenue accruing 

to the Company was affected by the interests of the integrated system, for example where a 

68

second ‘flagfall’ change did not apply or where fares where not indexed in the same manner as 

would have applied if the Company has a single ticket system for its own line. The method of 

allocating revenue to the Company from an integrated ticket system would need to specified. 

2. Gross Cost concession 

In this case, fare setting is not the responsibility of the Company and so is not part of the 

Agreement. However the collection is likely to require interfacing with the Company (which 

may be required for example to facilitate implementation of the Ticket System at stations on 

its MRT line). The Authority would need to set out its long term fare policy in the Agreement 

so that the Company could take the account of the effect of fares on patronage for long term 

decisions such as the procurement of trains. It will also be necessary to specify the process 

whereby the Authority would advise the Company of intended changes in fares and the 

Company would need to allow for services changes in response to changes or the lack of 

change in fares. 

20. ROUTINE NON-FARE REVENUE 

This clause prescribes the rights and obligations of the parties with respect to the activities 

forming part of the concession that generate regular revenue from sources other than fares. 

The principal sources of such revenue are rental of commercial retail space at stations and 

advertising. The clause needs to establish who will arrange such activities and to whom the 

revenue will accrue taking account of who has the strongest commercial incentive to generate 

this revenue. 

21. SPECIAL NON-FARE REVENUE 

This clause would address any other potential sources of revenue. The most likely such source 

would be profits from the development of any property that may be deemed integral to the 

project. Where this could occur, the Agreement should indicate the rights of the Authority 

and the Company to initiate and implement such projects and to share resulting profits 

between them. 

22. REFINANCING 

During the initial implementation phase, there are considerable uncertainties such as events 

that can delay completion or have cost implications. These uncertainties cease to exist 

following successful completion of the initial implementation phase. This change affects the 

financing of the Company’s activities. 

The financial structure and other terms agreed with the financiers at the commencement of 

the Agreement will take account of risk during the initial implementation period, for example 

through factors such as the leverage ratio, cash reserve arrangements and interest margins. 

When these risks are superseded at the end of the initial implementation phase, the Company 

can arrange a refinancing of its affairs in recognition that it now faces less uncertainty. This 

produces a benefit by reducing the funding cost for the Company through a combination of: 

• reducing interest margins; 

• reducing or releasing cash reserve accounts; 

• releasing or returning contingent junior capital (i.e. subordinated debt or equity); 

• extending debt maturity; and/or 

• increasing the amount of debt and reducing the need for equity. 

It is important to recognize also that refinancing may not necessary be undertaken with the 

direct involvement of the Company but can occur in another legal entity, relying on rights 

69

eing granted in respect of cash flows, assets or contracts of the Company. Accordingly in any 

adequate treatment of refinancing, account must be taken of such indirect arrangements. 

Established international practice recognizes the need to address refinancing in the Agreement 

and key principles in how refinancing should be treated. These are: 

• Given that a refinancing will normally constitute a material change in the project 

financial structure as original agreed between the parties, the Authority should have the 

right to approve any refinancing unless it is agreed as part of the original financing plan 

set out in the Agreement or does not lead to a gain to the investors compared to the 

original base case plan. 

• The commitment made by the Authority to provide Civil Infrastructure and the Ticket 

System, make payments to the Company and provide certainty for financiers (e.g. with 

the Lenders Direct Agreement (see clause 34) forms the underlying basis for refinancing 

and consequent financial gains that result from refinancing. Without such contract 

terms it is unlikely that the Company could obtain the improved financing term 

especially in regard to leverage and pricing. Therefore the Authority has a right to a 

share in any benefits from refinancing. An equal sharing of the refinancing gain between 

the Authority and the Company is accepted in the UK as standard for Private Finance 

Initiative contracts. 

• In the case where a project performs below the level projected in the Company’s 

proposal and incorporated in the Agreement at the end of the implementation phase, 

refinancing benefits are first applied to restore the expected base case performance 

before the sharing of the benefits. 

The government will need financial specialist technical advice in the drafting of the 

Refinancing clause, particularly with regard to: 

• the coverage of the clause; 

• methods for calculating, sharing and paying benefits; and 

• detection of financial structuring designed to bypass refinancing provisions. 

23. TAXES AND DUTIES 

There is financial risk due to possible changes in general taxes and duties over the duration of 

the Agreement. In normal private sector businesses the financial consequence of such changes 

are passed on to consumers. The indexation of rises in concession payments for inflation 

(clause 18) provides an indirect means for passing on general rises in taxes and duties. This is 

reinforced by indexation of fares (clause 19) in the case of a Net Cost concession. This 

indexation provides a risk mitigation mechanism for the Company and hence allows the risk 

of changes in general taxes and duties to be transferred to the Company. Discriminatory 

change (i.e. any change that specifically affects the business of the Company) would be a risk 

retained by the Authority that would require compensation to be paid to the Company in 

respect of the change. 

24. INSURANCE 

The provision should specify the obligations of the Authority and the Company with respect 

to insurance necessary under the Agreement. The following matters should be taken into 

account in the drafting: 

• significant risk transfer to the Company is built into the Agreement; 

• financing arrangements and the need for the Company to ensure a continuity of service 

means that the Company needs extensive insurance coverage; 

70

• while the lenders will placed extensive insurance requirements on the Company, these 

are for lenders exclusive protection and the Authority cannot rely on the lenders action; 

and 

• the Authority should seek profession insurance advice on key issues, such as: 

‒ what insurance requirements it should impose on the Company as a means of 

managing certain risk; 

‒ what should happen if certain risk becomes uninsurable; and 

‒ insuring that proceeds of claims are correctly applied by the Company. 

In general, it is expected that the Company should be responsible for ensuring it has extensive 

insurance with regard to matters affecting its activities and those affected by its activities. 

More detailed consideration is needed to determine the extent of insurance cover required 

with regard to civil infrastructure for matters that are beyond the control of the Company, 

recognizing that the Company would have claims against the Authority if Civil Infrastructure 

and the Ticket System were not available (e.g. due to some engineering or natural failure). 

PART V – EARLY TERMINATION 

25. CONDITIONS FOR EARLY TERMINATION 

The clause should prescribe how early termination can be caused. Five possible causes of 

termination should be addressed: 

• termination on Authority default; 

• termination on Company default; 

• termination on Force Majeure; 

• termination at Authority initiative; and 

• termination for fraud and corruption. 

Termination of the Agreement is an event with substantial consequences. Therefore two 

general principles should underlie the clauses relating to termination: 

• termination should be used as a last resort with remedial measures including mediation 

used to avoid the need for it to occur; and 

• the act and process of termination should be structured to cause the least impact on the 

continuity of MRT services to the public. 

Following subsections address each of the five conditions for termination: 

1. Termination on Authority default 

The basic principle is that the Company should have the right to terminate the Agreement 

where the Authority acts in a way that makes the agreed relationship impossible or completely 

frustrates the Company’s ability to perform the services specified in the Agreement. In 

specifying the events constituting Authority default giving the Company the right to terminate 

the Agreement, it should be noted that: 

• The Authority’s and the Company’s principal obligations in the Agreement are not 

symmetrical. The Authority makes payments and exercises approval rights with few 

detailed performance and financing related obligations, whereas the Company has 

71

substantial obligations. Accordingly, there are fewer issues that can trigger an Authority 

default. 

• Authority failure to comply with the Agreement provisions before service 

commencement in most cases can be handled as a Compensation Event and any failure 

to make payment when due can be handled in other ways (e.g. late payment interest). 

• The Authority should have an opportunity to rectify any defaults in its performance 

within a reasonable period. 

2. Termination on Company default 

The over-riding principle here is to find a balance between the Authority’s desire to be able to 

change a contractor when service provision is inadequate regardless of the degree of 

seriousness and the Company’s and its financiers’ interest in restricting termination to severe 

defaults and then after all reasonable alternatives have been tried, including Lender’s Step-in 

rights and a rectification period mechanism. From a value-for-money perspective termination 

should be the Authority’s last resort. 

The specification of the events of Company default should include treatment of the following 

situations: 

• Company breach of any obligations materially and adversely affecting the services 

provided; 

• the Company being placed in statutory insolvency process; 

• failure to provide the agree services and cumulative poor performance in service 

provision according to an agreed measurement regime when incentives provided 

through the transfer of risk and payment mechanism fail to produce the desired 

services; 

• non-permitted replacement of Company contractors; and 

• non-permitted refinancing. 

3. Termination on Force Majeure 

The Agreement should specify a time period (i.e. x months) under a force majeure event 

beyond which failure to agree to a solution allows either party to terminate the Agreement. 

The Authority should have the right (for a fixed period indicted by the Authority in the RFP) 

to prevent termination of the Agreement under a force majeure event by paying the Company 

as if the services specified in the Agreement were being fully provided. 

4. Termination at Authority Initiative 

The Authority may wish to terminate an Agreement when circumstances (e.g. a policy change) 

render the contracted relationship untenable and should have the right to do so. The 

conditions for such termination should be specified, including the obligation of the Authority 

to pay compensation to the Company if termination should occur. 

5. Termination for fraud and corruption 

Fraud and corrupt acts involving of the Company, any contractor and the Authority or 

government personnel in respect of the Agreement should constitute grounds for termination 

of the Agreement. However the treatment of this clause needs also to address the financiers’ 

understandable concern regarding the security of their financing for reasons beyond their 

control due to the actions of the Company or third parties and their employees. Consideration 

needs to be give to situations where the fraud or corrupt act has been perpetrated by a 

contractor or a contractor’s employee or even a Company employee without the Company’s 

72

knowledge. In this case, the Company should be allowed to prevent termination by replacing 

that offending party within a specified period (e.g. 30 days). 

26. PROCESS OF TERMINATION 

This cause should describe the process whereby the Agreement would be terminated and 

associated actions. It may involve the financier or lender step-in (to avoid the need for the 

Authority to pay compensation to the Company). The clauses should clearly identify 

processes, notices and time schedules for actions associated with the process of termination. 

Two key issues need to be addressed: 

1. Process of termination 

In the case of termination due to Authority default, there should be a mechanism for the issue 

of a notice of default and rectification period leading to automation termination upon failure 

to rectify and a following short grace period. The Authority’s desire to avoid having to pay 

compensation to the Company is an incentive for the Authority to meet its obligations. 

In the case of termination due to Company default, there should be a mechanism for the 

Authority to serve a notice of termination that allows a reasonable rectification period (if 

rectification is appropriate) for the Company to propose and implement a program of 

remedial measures. 

2. Continuity of service 

The continuity of MRT services during any termination process should be protected, i.e. users 

of the MRT system should be protected from actions of the Authority and the Company to 

the greatest extent possible. This requires that the Authority and Company make the necessary 

arrangements for the continuing provision of services while they seek to resolve the cause of 

the initiation of the process of termination and undertake the process of termination if 

necessary. This may require the Authority to require that the Company continue to operate 

services throughout the termination period or at least until the Authority can arrange an 

alternative service provider to take over from the Company. 

27. CONSEQUENCES OF TERMINATION 

The drafting of this provision should observe the following principles in determining the 

consequences of termination under different conditions. 

The principles address the issues of a) the rationale for making compensation and b) the 

approach and method to calculate the compensation amount. 

1. Rationale for compensation 

a) On Termination on Authority Default 

Where the Authority defaults, the Company should be compensated in full for losses that it 

incurs. 

b) On Termination on Company Default 

In general compensation is not generally paid by the Authority where termination is due to 

Company default. However, compensation should be paid for Company’s assets that are 

required by the Authority for continuing provision of services (e.g. M&E Assets). However, 

the trouble associated with determining and paying such compensation serves to encourage 

financiers to exercise step-in rights that they would have negotiated with the Company to try 

to make the concession work in preference to allowing termination of the Agreement. 

73

c) On Termination for Force Majeure events 

A Force Majeure event is the fault of neither the Company nor the Authority. It is generally 

considered that the parties share in the financial consequences of such an event. However the 

concern of the Company’s financiers not to lose their financial arrangements and right to 

assets following a Force Majeure event is reasonable and should be addressed by the 

Authority. 

d) On Termination by Authority Initiative 

The reasoning is similar to the case of termination on Authority default and should lead to the 

same approach to compensation. 

e) On Termination for Fraud and Corrupt Acts 

The Company’s senior lenders should be protected from losing their financing due to an act 

beyond their control. However the providers of junior capital (i.e. subordinated debt or 

equity) should acknowledge that its relationship to the Company confers a responsibility for 

the Company’s acts and their margin of equity return in principle covers the risk involved. 

f) On Termination for Breach of the Refinancing Provisions 

The Agreement needs to cover breach of refinancing provisions and the recommended 

approach is that the consequences of termination for this cause should have a similar 

treatment as that for Fraud and Corrupt Acts. 

2. Determining the compensation amount 

The approach for each cause for termination should reflect the reasons for termination as 

summarized under 1. above. The calculation of the proper compensation amount in each case 

and the care that needs to be taken to ensure that no more than proper compensation is 

identified is complex because of the need to allow for events such as possible refinancing and 

other causes whereby senior debt and the Authority’s termination liability is increased, or again 

the need to establish a market value or other methods for agreeing the compensation to be 

paid on termination for Company default. The government will need to obtain specialist 

financial and legal technical advice to draft the calculation of compensation on termination. 

PART VI – SPECIAL EVENTS 

28. FORCE MAJEURE AND EXCEPTIONAL EVENTS 

This clause should specify the scope of events that are considered as Force Majeure or 

exceptional where the parties cannot carry out their obligations set forth in the agreement. 

The approach to Special Event should take into account the following considerations: 

• risk should be borne by the party best able to mitigate it, however the risk event occurs; 

• termination is not always the solution to a Special Event (e.g. a replacement 

concessionaire will still not be able to provide a full operation in the event of say 

inadequate service from an electricity authority) and should be a last resort measure; and 

• where termination may be an appropriate measure is in the rare case in which a Special 

Event has a severe effect on the ability of the Authority or the Company to fulfill their 

obligations, neither party is better able than the other to mitigate or manage it and the 

event is likely to be prolonged. 

In particular Special Events should be distinguished in a manner similar to the following. 

74

1. Compensation Events 

Such events are those that occur as a result of an action by the Authority, its representatives or 

the government. In these events, compensation should be paid to the Company. It covers 

situations that differ from an Authority Default. Compensation Events for which the 

Authority should provide compensation are: 

• Authority breach of an obligation (including any breach by a third party for which the 

Authority is responsible) – an example is where agreed actions during the pre-service 

stage that are the Authority’s responsibility and which prevent the Company from 

meeting its service commencement obligation and/or increase the Company’s costs do 

not occur; 

• Authority-initiated changes in service requirement or constraints on inputs; and 

• discriminatory or specific changes in law. 

2. Relief Events 

They are events that prevent the Company from performing its obligations at any time and for 

which it is agreed that the Company bears the financial risk of an increased cost or reduced 

revenue but is given relief from termination for providing the full service required. The risk is 

to be borne by the Company not necessarily because it is within the Company’s control but 

because the Company is in a better position than the Authority to mitigate and manage the 

consequences, for example through a combination of insurance and careful planning. 

Examples of Relief Events are fire, explosion, lightning, earthquakes, riots, strikes and similar 

action, power or other utility failure or shortage, accidental damage or loss to the work being 

carried out. Termination is not an appropriate remedy because any replacement for the 

Company upon termination would be similarly affected and the Authority would not be better 

off. Relief Events are distinguished from Force Majeure Events by being less severe in their 

effect. 

3. Force Majeure Events 

These are events likely to have a catastrophic effect on either party’s ability to perform its 

obligation (and hence are rare), neither party is in a better position than the other to mitigate 

either the occurrence or effect of the events, and the events could be prolonged. Examples 

include war, civil war, terrorism, nuclear or biological or chemical contamination. 

29. CONSEQUENCES OF FORCE MAJEURE AND EXCEPTIONAL EVENTS 

The drafting of this provision should consider the consequences of each type of Special Event 

separately, such as. 

1. Compensation Events 

Since the Authority bears the risk, it should compensate the Company. Termination is not 

appropriate because compensation is an acceptable solution for the Company but is not for 

the Authority (as occurs with a Compensation Event that occurs in the pre-service stage). In 

the case of a commencement of service delay resulting from a Compensation Event, the 

recommended approach is not to compensate the Company by extending the Agreement 

period but rather to keep to the original term and to compensate for the losses (such as 

additional finance charges). An appropriate method of calculating the compensation needs to 

be specified. 

2. Relief Events 

No compensation is paid in this case because the Company bears the risk by agreement but 

there is relief from termination. To qualify for this relief requires the Company to pass a test 

75

of reasonable endeavors to rectify and mitigate the consequences, and failing this test could 

lead to termination. The Authority should not therefore expect to exercises step-in rights. 

Extension of the Agreement owing to a Relief Event is discouraged as this is likely to dilute 

the incentive for the Company to manage the events and restore normalcy. At the same time 

the extension of the Agreement expiry exposes the Authority to any risk it bears under the 

Agreement. 

3. Force Majeure Events 

See Termination on Force Majeure in Part III - Early Termination 

30. POWER OF AUTHORITY 

As the consequences of the Termination and Special event provisions both involve Authority 

Step-In, this provision should specify the scope of power of the Authority regarding the stepin 

process. 

PART VII - ASSETS 

31. CIVIL INFRASTRUCUTRE 

The provision should specify that title to Civil Infrastructure remains with the Authority but 

that rights of use of the assets are assigned to the Company for the term of the Agreement 

(unless early termination occurs) and that the Company has a duty of care with regard to the 

assets but is not responsible for any latent conditions associated with the assets (such as 

design, construction or similar faults). The Company’s obligations to maintain Civil 

Infrastructure are covered under Part III - Services. 

Other matters to be addressed in this clause include the Authority’s rights to inspect Civil 

Infrastructure during the Agreement, a monitoring program to be implemented by the 

Company and to be monitored by the Authority, refurbishment, rehabilitation and reinvestment 

in life-expired Civil Infrastructure during the term of the Agreement and matters 

related to the return of Civil Infrastructure at the end of the Agreement. 

32. ASSETS OF THE CONCESSIONAIRE 

The provision should specify the assets that the concessionaire is providing for the project, 

distinguishing those which remain its property, which may removed from the project site at 

the Company’s convenience, and those to be transferred to the Authority. The time at which 

ownership of assets that are purchased by the Company and which are to become the 

property of the Authority should be specified, e.g. whether ownership transfers to the 

Authority at the time of purchase of the asset by the Company or at the end of the Agreement 

(the former is recommended). The provision should also specify the Company’s rights of use 

of the assets, maintenance obligations, any obligations with regard to refurbishment, 

rehabilitation and re-investment in life-expired assets, and the transfer of assets to the 

Authority at the end of the Agreement. The clause should also specify compensation to be 

paid to the Company for assets that are to be transferred to the Authority at the end of the 

Agreement, covering both assets purchased prior to service commencement and those 

purchased over the term of the Agreement. Such compensation is needed so that the 

Company does not need to meet, over the duration of the concession, the full cost of assets 

that have economic lives that extend beyond the end of the concession. A failure to do this 

would discourage the Company from investing in such assets, which will include trains to 

meet continuing growth in MRT patronage. 

The clause should also provide for survey by the Authority of all project assets except the 

Company’s property on expiration and termination. 

76

33. ASSETS TITLES AND TRANSFER 

The provision should detail the ownership or title of the project assets and user rights during 

and on expiration of the Agreement. It should specify the time when the transfer of the assets 

titles would occur and the procedure for such transfer. 

The clause should also provide for co-operation by the Company with regard to the project 

assets in the event of a lenders’ or Authority step-in to operate to provide service in place of 

the Company and the need of a step-in party to find the required assets present and in a fit 

state for operation. 

34. LENDERS DIRECT AGREEMENT 

A Lenders Direct Agreement is an agreement between the financier of the Company’s assets 

and the Authority with regard to assets purchased and financed by the Company under the 

Agreement. Provision should be made for such an Agreement because: 

• The Authority needs to have the right to the assets provided by the Company in the 

event of a termination of the Company’s activities. 

• The senior lenders will have financed the project on the basis of the project cash flows. 

If the Agreement is terminated the lenders will only have the rights against the 

contractors and to cash amounts in accounts of the Company, and have no rights to sell 

the assets. 

• In many projects financed under such debt security arrangement, the cash in the 

Company accounts and the amounts recoverable by senior lenders making claims 

against the contractors will not be sufficient to allow full repayment of the claims. 

• Hence, the senior lenders have an interest in an opportunity to step-in to rescue the 

project in the event a termination is brought about or even threatened by Company 

default of the Agreement. 

• For the public sector, a senior lenders step-in can be of benefit as it means there is the 

potential for the project to be restored with minimum disruption to the service, which is 

in line with the principle of continuity of service, and without the Authority needing to 

become involved in the rescue operation. 

• This mutuality of interest between the senior lenders and the Authority forms the basis 

of the Lenders Direct Agreement providing for parties rights and obligations in a 

Lenders’ Step-in. 

• The step-in process is to be initiated by a Lenders proposal to the Authority for the 

latter’s approval. 

The key issues to be considered in drafting a Lenders Direct Agreement are: 

• the time when the Lenders should be permitted to step-in; 

• the extent to which they should be obliged to assume liabilities that have been or being 

incurred by the Company; 

• the extent to which they are given the opportunity to rectify a breach on behalf of the 

Company; and 

• the ability for the Lenders to substitute a new concessionaire. 

The drafting should take into account the following considerations: 

• The Company always remains liable under the Agreement, and if a new breach occurs 

during step-in, termination can still occur. 

77

• A balance must be stuck between giving the opportunity to the Lenders to step-in and 

for the Lenders to have seriously considered the likelihood of their mounting a 

successful rescue of the project (to avoid unnecessarily postponing an inevitable 

termination). Accordingly: 

‒ The opportunity to step in should have a time limit (e.g. 30 days from notice of 

termination of the Company, which should be copied to the Lenders). 

‒ Requiring that the Lenders pay the Authority for any existing liability under the 

Agreement of the Company at the time of step-in provides this necessary test of the 

Lenders seriously. 

• However requiring as a pre-condition for step-in that the Lenders duplicate the 

Companies Agreement liabilities has a disincentive effect and would be priced into the 

Lenders’ and ultimately the concessionaire’s pricing, and is not recommended. 

• During step-in the Lenders should not have any liability for losses to the Authority. 

• The justification for the approach in the last two points is that if termination occurs due 

to the action of the stepped-in Lenders any damage or claim will be reflected in the 

compensation amount for Termination on Company default. 

35. ASSET TRANSFER VALUES 

In the event that a concession is terminated, the Authority needs to ensure that train services 

can continue. If the Authority needs to pay compensation for these assets, there is a need to 

have a pre-established means for valuing the assets given that there is no ready market for 

most of the assets. Such a value will also be needed to determine the compensation to be paid 

for the remaining value of assets transferred from the Company to the Authority at the end of 

the concession. This clause would set out the basis for setting the value of assets at any time 

during the Agreement. 

PART VIII – MISCELLANEOUS 

36. RIGHTS AND DUTIES TRANSFER 

The provision should specify the period when the rights and duties of each parties would be 

transfer during and on expiration of the Agreement. 

37. CHANGE OF OWNERSHIP 

An Authority may be concerned about changes in the Company’s shareholders, particularly 

where such changes lead to a change in ownership which gives cause for concern for 

particular, agreed reasons. If this is the case then it may seek to impose restrictions on the 

ability of shareholders to transfer their shareholdings in the Company. Shareholders will 

usually object to such restrictions other than restrictions on transfers of equity prior to the 

date of Service Commencement. As a general rule, it should not be necessary for the 

Company to contain other restrictions on the transferability of equity other than a need to 

inform the Authority. 

The provision should specify that in case there is change of ownership of the Company, the 

Company must notify the Authority within a specific timeframe. 

38. DISPUTE SETTLEMENT AND RESOLUTION 

In the event where there is a dispute between parties in any circumstances, this provision 

should specify the method of dispute settlement and resolution. 

78

39. CONFIDENTIALITY 

The Company will be concerned to protect its confidential business information and the 

Authority should allow for that. 

At the same time, as a public project, it is necessary that public auditing can be undertaken. 

The provision should specify that the Company must disclose any information regarding the 

project for financial auditing and an indication that any trade secrets accessed in this manner 

remain confidential. Any other matters related to confidentiality and public release of 

information should be specified. 

40. CHANGE IN LAW 

This clause need to address the types of change in law that can have a specific impact on the 

Company’s cost that are not foreseeable prior to Agreement signing. Principles to be observed 

in the drafting of this clause, which deals with potential changes in law during the concession, 

are: 

• The cost impact of the change in law in not of a nature that can be passed on through 

automatic changes in payments from the Authority to the Company (e.g. through cost 

indexation). 

• The Company may not be able to manage efficiently a particular change in law impact 

on its cost, in which circumstance transferring the risk to the Company may not provide 

value-for-money to the government. 

• A distinction between a discriminatory change in law (i.e. one specifically affecting the 

project, or the Company or the type of concession) and a general change, which can be 

used to guide how the risk of the consequences of a change in law should be allocated. 

• Value-for-money remains the ultimate test in how the change in law risk is allocated 

between the Company and the Authority, with no more risk transferred to the Company 

than the Company can reasonably manage. 

41. AUTHORITY STEP-IN 

The provision should prescribe the conditions and process for an Authority step-in, which in 

principle should occur under the following circumstances: 

• at the Authority initiative under a (rare) circumstance in which state power is more 

effective than ordinary business operation (e.g. a civil war or another Force Majeure 

event); and 

• during the process of termination of the Company for a cause under the which the 

Authority would prefer not to have the Company continuing to operate (such as e.g. 

under termination for fraud or corrupt acts or breach of the Refinancing provisions). 

42. DUE DILIGENCE OVER CONTRACTS AND FINANCING DOCUMENTS 

Due diligence of the Project Documents is less of a provision in the Agreement than a 

requirement in the pre-Agreement stage. The Authority should stipulate the nature and form 

of documents to be submitted with proposals to aid the due diligence process. The need for 

the Authority and its MRT technical, financial and legal specialist advisors to conduct a 

thorough due diligence of the preferred bidder’s proposal is explained in earlier parts e.g. Part 

II – Pre-Service. 

43. ALTERNATIVE AND VARIANTS OF PROJECT FINANCE 

Alternatives and innovations in financing are a legitimate business means for a Company in 

carrying out a project. This is a specialist subject and it is recommended that the government 

79

obtain financial specialist and also legal specialist technical advice in the drafting of this 

provision, which should be made standard across the MRT concession contracts. 

44. OTHER STANDARD PROVISIONS 

The concession contract also needs to include appropriate clauses that deal with general issues 

such as the following: 

• Intellectual Property Rights 

• Amending the agreement (terms) 

• Governing Law 

• Governing language 

• Land interests 

• Third party rights and obligations (if any) 

80

Appendix E: Presentation and Report Summary 

81

� Focus 

HCMC Metro Rail System 

1 

ISSUES FOR 

PRIVATE SECTOR PARTICIPATION 

Structure of this presentation 

6 March 2008 

� Assumes that the government will use private sector (including joint venture) contractors to 

construct works. 

� Focus is therefore on use of the private sector for provision of finance & for MRT operations. 

� Part A 

� Introduction to PPIAF technical assistance 

� Part B 

� Experience in other places 

� Part C 

� Key issues for MRT institutional arrangements 

� Part D 

� Principal technical issues related to private sector participation in MRT in HCMC 

� Part E 

� More detailed features of a concession agreement for the operation of MRT in HCMC 

� Part F 

� Outline template for a concession agreement 

2 

6 March 2008

Part A 

3 

PUBLIC PRIVATE INFRASTRUCTURE 

ADVISORY FACILITY (PPIAF) 

TECHNICAL ASSISTANCE 

Role & Scope of PPIAF Technical Assistance 

PPTA: engineering 

design & feasibility 

PPIAF: options for 

private involvement 

4 

The Project 

• Uses detailed information on costs, costs patronage & revenue 

prepared by PPTA 

• Integrates with PPTA to ensure complete business case to 

manage implementation and operations 

6 March 2008 

6 March 2008

Four objectives for PPIAF Technical Assistance 

1. Identify options for private sector participation in MRT 

2. Assess benefits of each option 

3. Financial analysis & financial model 

4. Recommend implementation approach 

� contractual & institutional 

� for whole MRT network 

5 

6 March 2008 

1. Framework for Considering Private Sector Participation 

(PSP) –Options Development 

� PSP options will be identified after considering factors that influence 

MRT delivery: 

� Transport system management principles 

� Policy control: fares, ticketing, MRT & bus network integration etc 

� Low financial cost recovery 

� Participants in MRT provision – including contractors, equipment suppliers, 

concessionaires/ operators, & financiers 

� Bundling MRT components – achieve internal synergies (e.g. operations & 

maintenance) ) & p productive tensions (financier ( interest in efficient ops.) p ) 

� Risk transfer – identifying what risk an operator can control and what it cannot to 

ensure costs are minimized 

� Forms of MRT operating concession 

� Potential roles for the private sector 

� Output: Working Paper 

6 

6 March 2008

2. Risk and Value‐for‐Money (VfM) Analysis 

7 

� Financial analysis will be undertaken to estimate the VfM of each private 

sector participation option: 

� To determine if f the private sector can deliver infrastructure f and services at lower 

cost than the public sector 

� To help the government to choose from amongst a range of possible procurement 

options balancing cost, benefits and risks 

� Identification of a risk matrix by stakeholder for effective risk 

management: 

� Project design 

�� Project implementation and capital assets 

� Maintenance and operations 

� Revenue 

� Procurement model 

� Other financial 

� Output: Working Paper 

6 March 2008 

3. Financial Analysis: Financing Plan & Financial Model 

� A financial model will be developed to: 

� Present the financial projections from the perspectives of: (a) the MRT 

operator/concessionaire; and (b) the government 

� Cover a period of about 30 years (to be defined) 

� Allow for easy entry of input data 

� Include clear and detailed assumptions 

� To the extent possible with available data, indicate the performance of individual 

lines and combinations of lines 

� Present projected financial statements (i.e. income & expenditure, cash flow and 

balance sheet) for the HCMC MAUR & for potential private sector or corporatized 

government participants 

� Output: Working Paper & financial model (spreadsheet) 

8 

6 March 2008

4. Stakeholder Feedback & Implementation 

� This activity centers on the interests and needs of stakeholders during 

implementation & operation: 

� Capacity of relevant government agencies to administer public & private 

partnerships in urban transport 

� Institutional arrangements ‐ propose options for future 

� Steps needed to introduce integrated fares and ticketing 

� Institutional & financing responsibility implications 

� Tender procedures (broad) 

� Ticketing system supply arrangement 

� Outline content of possible operating concession agreement 

� Responsibilities related to management of private sector 

� Comment on legal issues that must be considered 

� Other procurement issues 

� Output: Various 

9 

Financing MRT in HCMC 

� Initial capital cost 

� Lines 1, 2 and 3 could be around US$3‐4 billion 

� Th The cost for f all ll MRT lines li will ill be b much h more 

10 

6 March 2008 

� Sources of initial capital 

� Government grants 

� Loans 

− Government domestic borrowing 

− Government international borrowing, e.g. Asian Development Bank & export credit agencies 

� Private sector capital 

�� Need to make effective use of all sources if full MRT system is to be built 

� Sources of funds to repay government borrowing & private sector capital 

� Fare revenue 

� Non‐fare MRT revenue 

� Property development 

� Other non‐MRT sources, e.g. existing govt. revenue and new (hypothecated) taxes 

6 March 2008

10% 

10% 

Indicative distribution of MRT costs 

Share of Initial Capital Expenditure 

5% 

75% 


E&M infrastructure 

Trains 

Ticketing 

Share of Initial Capital and Ongoing 

Capital over 35 Years 

25% Capital Expenditure 

for initial project 

implementation 

75% 

Capital expenditure 

for re‐investment 

and capacity 

expansion over 35 

years 

11 

45% 

Part B 

12 

(values do not include 

discounting of future costs) 

EXPERIENCE IN OTHER PLACES 

Share of Capital and O&M Costs 

over 35 Years 

55% 

Capital cost (excl. 

Interest) 

O&M 

6 March 2008 

6 March 2008

Examples of MRT experience in other Asian cities 

13 

� Sources of finance for initial investment 

� Government only (Singapore, Hong Kong, Manila) 

� Private sector only (Bangkok, (Bangkok Kuala Lumpur, Lumpur Manila) 

� Mix (Bangkok) 

� Provision of services and infrastructure maintenance 

� Government corporation (Hong Kong, Manila, Singapore) 

� Private sector (Bangkok, Kuala Lumpur, Manila, Singapore) 

� Some insights 

� General shift over time from public sector operators to private sector operators 

� Fare revenue generally meets O&M costs, sometimes train costs, but rarely other capital costs 

� Non‐fare MRT revenue is very small (in range of 2‐8% of fare revenue) 

� Income from property development significant only in Hong Kong –a special case 

� Can use the private sector to operate services and maintain infrastructure (O&M) –and also 

to finance some assets 

� Use of the private sector need not be limited to activities where cost recovery is possible – 

they can undertake activities through conventional payment‐for‐service contracts 

Four lessons from Bangkok ‐ 1 

� Patronage and revenue have been well below expectations 

� Results from optimism bias, i.e. basing plans on ideal and hopeful outcomes 

� Green line (elevated) 

14 

6 March 2008 

� Concessionaire pays for all capital and operating costs and expected to recover these 

costs from fares and other sources of revenue 

� Revenue appears to meet operating costs, cost of trains, but not all fixed 

infrastructure costs 

� Blue line (underground) 

�� Government paid for fixed infrastructure infrastructure, and concessionaire for trains and other 

electrical and mechanical equipment 

� Appears that revenue is insufficient to meet the concessionaire’s costs 

� Potential cost recovery for future lines likely to be less than for the first 

two lines 

6 March 2008

Poor physical integration: 

- of MRT lines 

- with bus 

- with urban environment 

Inconvenient & unsafe travel – 

500 metres transfer between MRT 

lines 

Lessons from Bangkok ‐ 2 

15 

Lessons from Bangkok 3 

� Separate ticket system and fare structure for each line 

� Confusing for passengers 

� Must buy separate tickets for each line 

� More expensive for passengers who transfer (see example below) 

16 

• Bht 25 on BTS 

• Bht 22 on Blue 

Line 

• Bht 32 for BTS 

& Blue Line 

• Bht 30 for Blue 

Line & BTS 

6 March 2008 

6 March 2008

� Integration 

Lessons from Bangkok 4 

17 

2 smart card ticketing systems are NOT compatible 

Card A Not compatible Card B 

General lessons from MRT in other cities 

18 

6 March 2008 

� Integration is essential for the system to be attractive to passengers. 

�� Achieving physical integration of infrastructure should be simple simple, but is surprisingly difficult difficult. 

� Fare, ticket and service integration is not given sufficient importance. 

� Integration problems increase as new MRT lines are added. 

� Optimism bias 

� General experience is that costs are under‐estimated and patronage is over‐estimated. 

� Can lead to concession contracts that are unrealistic and unsustainable because revenue from 

fares and other sources is less than expected. 

� Financial viability 

� Substantial government financial subsidy is needed. 

� Government management 

� Government should retain policy control over the MRT system –this does not require the 

government to operate services. 

� Use the private sector for operations O&M and capital where this provides value‐for‐money 

� Poor decisions in the past are difficult to change. 

6 March 2008

H 

i 

s 

t 

o 

r 

i 

c 

Part C 

19 

KEY ISSUES FOR MRT INSTITUTIONAL 

ARRANGEMENTS 

General evolution in public transport 

management in other places 

Dispersed public transport service 

provision 

- Limited role by government for 

service planning p g & integration. g 

- Services provided by the private 

sector, and sometimes infrastructure 

also. 

- Limited or no government subsidy. 

Alternative, 

direct route 

for change 

Objective: 

avoid poor 

service and 

high cost of 

centralized 

approach 

20 

Typical development 

approach in 

the past 

Objective: 

improve and 

integrate public 

transport 

6 March 2008 

Centralized public transport operator 

- Government agency. 

- Integrated service planning and provision. 

- SServices i and d iinfrastructure f t t provided id d bby th the 

government agency. 

- Increasing costs & decreasing service 

quality. 

Trend in 1990s, 

e.g. Europe, 

S. America, 

NZ & Australia 

Objective: better services 

and reduced unit costs 

through effective use of the 

private sector 

Public transport management government 


- Integrated fares, ticketing and services. 

- Services provided by private operators under contract to the 

government. 

- Government pays contractors for services using performance 

based contracts with appropriate incentives and penalties. 

6 March 2008

Ideal structure for management in the transport sector 

� Need separate 

high level 

strategic direction 

� Separate 

management 

from the actual 

undertaking of 

operational 

activities 

� Government 

to arrange for the delivery 

of infrastructure and services 

� Separate entities to deliver 

infrastructure and services 

through contracts 

Policy & 

Strategy 

• Policy y framework 



• Financing & 



monitoring 

21 

Regulation 



licensing 


Effectiveness –“doing the right thing” 

Reports 

Informs 

Program 

management 



programming 



• Design Design, tendering tendering, 

& contracting 

• Contract/concession 

management 

• Monitoring & quality 

assurance 

Program 

ddelivery li 


• Services 

• Marketing 

• Finance 

Efficiency –“doing the thing right” 

6 March 2008 

Key issues for government policy direction and control 

� Issues related to the structure of a concession to provide services 

� Same general issues apply whether operator is government or private 

� PPossible ibl concession i period i dlik likely l to bbe around d 35 years 

� Equal to the life of trains 

� Over this period 

� Demographic and socio‐economic conditions will change substantially 

� Government policy priorities may also change 

� Cannot foresee all changes that might occur 

� Government therefore needs to establish concessions so that it can make essential 

changes in the future, future for example to 

� Add new lines 

� Change bus or MRT services or the quality of the MRT system 

� Change the structure and level of fares 

� Accommodate other economic and social changes that might occur 

22 

6 March 2008

Key issues for MRT integration 

� An effective MRT system requires 

� Integration of public transport services 

− With bus routes and other public transport services supporting the MRT system 

� Integration and good design of physical infrastructure 

− With passengers able to easily transfer between MRT lines, and between bus & MRT 

− With passengers able to easily walk to and from MRT stations 

− with passengers able to park motorcycles and transfer to MRT 

� Integrated ticketing for the MRT system 

− So that passengers can use a single ticket such as a stored value card to access any part of 

the h MRT system and, d ideally, id ll bbuses and d water transport also l 

� Ideally, integrated fares 

− So that passengers are not required to pay a second or subsequent ‘flagfall’ component 

when transferring between MRT lines and also with other public transport modes 

� Operation of trains between lines is not essential but can be useful 

23 

Part D 

24 

PRINCIPAL TECHNICAL ISSUES RELATED 

TO PRIVATE SECTOR PARTICIPATION 

IN MRT IN HCMC 

6 March 2008 

6 March 2008

General arrangement for implementing and operating MRT 

� Full private sector involvement 

� Possible arrangement 

25 

− Private sector finances and implements the MRT line 

− Operates the MRT line and retains revenue from it for a term (say 30‐40 years) 

− Transfers the MRT system back to the government at the end of the term 

� Low cost recovery for MRT lines in HCMC would require the government to also 

make payments to the private sector so that the private sector can meet its costs 

� As discussed in Part E, this arrangement is not favoured 

� Better approach will be for the government to 

� Finance and implement most infrastructure 

− It is assumed that implementation will use private companies selected through competitive 

tendering and undertaking works through sound contracts 

� Use a separate entity to operate MRT services (and possibly provide some assets) 

− Requires a contract to manage the provision of MRT services on each line –this is the focus 

of the rest of this presentation 

6 March 2008 

A contract (a concession) to operate MRT services 

� Features of the contract: 

26 

� The contract is commonly called a concession and the holder of the contract is called the 



� It would be between the government (e.g. represented by the Management Authority for 

Urban Railways or a similar agency) and the operating company. 

� The company could be a government agency or a private company, where the latter could 

include joint ventures between a fully private company and a government enterprise. 

� It describes the responsibilities of the government and the concessionaire with regard to the 

provision of services, management of infrastructure and financial matters. 

� The concessionaire could be involved in infrastructure design and provision. 

� It would ld be b for f a period i dof f time. ti 

� It would transfer from the government financial risk (i.e. uncertainty) that can be better 

managed by the concessionaire. 

� Issues related to ticketing and management of fare revenue also need to be considered. 

� Issues related to payment arrangements to the concessionaire and other contractual 

conditions are addressed in Parts E and F of this presentation 

6 March 2008

Fifteen questions that can help establish the 

general features of a concession agreement 

27 

1. Is it possible to deal with infrastructure delivery now and address operations later? 

2. Should a single agency develop and operate the MRT, or should these activities be separated? 

33. Should there be only one operator for all lines in the MRT system, system a separate operator for each line, line 

or something else? 

4. If the concessionaire is a government agency, should it be a department or a state‐owned enterprise? 

5. Is it better that the concessionaire be a government‐owned enterprise or a private company 

(including a joint venture between a private company with a government enterprise)? 

6. Should the concessionaire be selected on the basis of domestic or international competitive bidding? 

7. Should the concessionaire be involved in the design & implementation of fixed infrastructure? 

8. Should the concessionaire select trains and related equipment & systems? 

9. Should the concessionaire select and finance trains and related equipment & systems? 

10. Should the concessionaire finance fixed infrastructure? 

11. Should the concessionaire maintain fixed infrastructure? 

12. Should a MRT operating concession be for a long or short period? 

13. How much financial risk can be transferred from the government to the concessionaire? 

14. Should ticketing be implemented as a single contract for the entire MRT system? 

15. Should concessionaires keep fare revenue or give it to the government? 

The questions are addressed on following slides 6 March 2008 

Some reasons in favour 

1. Is it possible to deal with infrastructure delivery now 

and address operations later? 

28 

Some against 

� Infrastructure ast uctu e is s a large ageaand dco complex p e matter atte � Need eed to co consider s de ope operational at o a issues ssues toget together e 

that will absorb all government resources for 

the immediate future 

� It will take longer to arrange and implement 

infrastructure than to do the same for 

operations 

with infrastructure so that the project design 

ensures total MRT costs are minimized 

� Need to consider if any assets and their 

financing should be combined with operations 

to determine infrastructure works packages 

� Will take longer to arrange operations if some 

assets are involved in the concession 

� Project preparation for the ADB loan needs to 

cover both infrastructure delivery and 

operations 

Conclusion: Operating arrangements need to be determined at the same time as infrastructure 

planning. 

6 March 2008

2. Should a single agency develop and operate MRT, 

or should these activities be separated? 

� A single agency that both develops and operates MRT might allow better integration 

� But this does not occur in practice 

� Slide 21 shows best practice p is to separate p functions 

� Separation ensures decision making is more transparent, and avoids conflict of interest and inefficiency 

that occurs within a single agency 

� Conclude that should separate service management from service operations 

� Establish a contractual relationship 

− Sometimes called “purchaser‐provider” or “regulator‐operator” approach 

� Need an government to 

− Set technical standards 

− Structure the contract for train operations and infrastructure maintenance so it achieves integration, service quality 

and other desired outcomes 

� Also need an agency to enforce safety standards 

− It is usual for this to be a separate rail safety government 

� Future slides assume MRT operations are provided through a concession 

� The concessionaire is the business that is responsible for meeting the conditions of the concession 

� The concessionaire includes the entity that operates services 


29 

3. Should there be only one operator for 

all lines in the MRT system? 

30 

Some against 

6 March 2008 

� Easier as e to epadope expand operations at o s to new e lines es by 

� Attracting g existing g operators p from other pplaces 

drawing on skills and resources in the existing 

agency 

� Economies of scale (i.e. unit costs decline as 

the organisation gets bigger) will result in lower 

costs 

will bring more diverse and better skills 

� Limited evidence for economies of scale in 


� Single operator (i.e. a monopoly operator) will 

become inefficient 

� Very difficult for the government to replace 

the operator if it performs inadequately 

� Several operators (say 2‐3) 

� Allows comparisons to be made 

� Allows flexibility and protection in case problems 

emerge 

� Can only have one operator on any individual 

line 

Conclusion: Having 2‐3 operators for the system provides flexibility and assists management of the 

system. 

6 March 2008

4. If the concessionaire is a government agency, should it be a 

department or a state‐owned enterprise? 

Some reasons in favour of a department 

31 

Some against 

� A depa department t e t ca can be more oeeas easily y co controlled t o ed by 

� A depa department t e t does not ot have aest strong o g incentives ce t es 


� A department might have lower costs because 

government salaries are low 

to behave in a commercial manner 

� The close link between government and a 

department 

� Reduces transparency in decision making 

� Introduces conflicts of interest 

� A state‐owned enterprise has an incentive to 

minimize overall costs 

� A state‐owned enterprise p can be more easily y 

equitized at some future time 

Conclusion: If publicly operated, the operator should be an arm’s length commercial enterprise. 

Some reasons in favour of a government 

operator 

� A go government e e t ope operator ato ca can be more oeeas easily y 

controlled by the government 

� A government operator may have lower costs 

because government salaries are lower 

6 March 2008 

5. Is it better that the concessionaire be a government‐owned enterprise 

or a private company (including a joint venture with a govt. enterprise)? 

32 

Some against 

� Control is exercised through g a contract in both 

cases, so direct control is not an issue 

� Lower government salaries are likely to be 

offset by larger numbers of employees and 

other higher costs 

� International experience shows that 

government operators are typically 30%‐50% 

more expensive than private sector operators 

� The private sector is better at managing risk 

and controlling costs 

� Can draw on private sector specialist skills and 

experience 

� Modern practice is to use a private sector 

operator 

Conclusion: Use of a private sector company to operate services will almost certainly be better than 

use of a government operator. 

6 March 2008

6. Should the concessionaire be selected on the basis of domestic or 

international competitive bidding? 

Some reasons in favour of domestic 

competitive bidding 

33 

Some reasons in favour of international 


� A go government e e t may ay feel ee it t has as more oeco control t o � There is no current domestic enterprise p with 

over the concessionaire 

skills in MRT operations 

� A concessionaire may have lower costs because � A foreign company is likely to form a 

it does not have to pay international costs 

consortium with local companies to reduce 

costs and meet government objectives 

� A consortium will be a more effective means 

for developing domestic skills in MRT 

operations than external training because it 

will occur in a more programmed and 

sustained manner 

� A consortium is especially important if trains 

and related equipment and services are to be 

provided by the concessionaire 

Conclusion: The concessionaire should be selected on the basis of international competitive bidding 

to obtain the best combination of skills and lowest cost. 

6 March 2008 

7. Should the MRT concessionaire be involved in the design and 

implementation of fixed infrastructure? 


� It t is s more oelikely eyto to result esu t in lower o e life‐long e o gcosts costs � It t is s ddifficult cutto to aarrange a gebecause because tthe eope operator ato 

because both initial capital costs and ongoing 

costs are taken into account 

34 

Some against 

must be selected at the same time as the 

infrastructure design engineers 

� It is more difficult to get sound financial 

tenders from potential operators when the 

project design is not finalised 

Conclusion: It is not essential subject to use of international standards for infrastructure design and 

taking account of operational issues in the design of fixed infrastructure. 

6 March 2008

8. Should the MRT concessionaire select trains and related items such as 

train control & communications systems and depot equipment? 


35 

Some against 

� It t ggives estthe eope operator ato bette better co control t o oe over tthe e � The e ope operator ato may ay se select ect tthe emost ost epes expensive e 

quality of service that they provide 

trains rather than the trains that offer the best 

� It allows the operator to minimize train capital value 

costs and other O&M costs 

� It prevents the operator blaming the 

equipment provided to them by the 

government for poor service provided by the 

operator 

Note: It is usual for there to be a 

� It allows some patronage risk to be transferred separate depot for each MRT line line. 

to the concessionaire ‐ this reduces the need 

This reduces dead running and 

for use of administrative measures in contract increases the accountability of the 

management and hence simplifies contract 

operators. 

management 

Conclusion: Trains & related infrastructure are essential to operator performance. Operators should be responsible 

for choices regarding them so that operating risk and some patronage risk can be transferred to the operators. 


6 March 2008 

9. Should the MRT concessionaire select and finance trains and related items 

such as train control & communications systems and depot equipment? 

� Four ou reasons easo s pese presented tedoon tthe epe previous oussde slide � It t may ay reduce educe tthe enumber u be oof pote potential t a 

� It also introduces a new potential source of operators if they have trouble raising capital 

capital for investment in the project 

� It brings a financier into the concession, with 

the financier able to put pressure on the 

operator to perform well over the life of the 

concession to protect the financier’s interest 

� It ensures that the concessionaire will seek the 

trains that will enable it to minimize it overall 

costs 

� The concessionaire will seek to reduce the high 

cost of trains provided through export credit 

finance 

36 

Some against 

Conclusion: Best for the concessionaire to both select and finance trains so that costs can be 

minimised and the transfer of risk to the concessionaire can be maximised. 

6 March 2008

10. Should the concessionaire finance fixed infrastructure? 


� The e co concessionaire cess o a e ca can ta take e geate greater � It t may ay limit t tthe epoo pool oof poss possible b e 

responsibility for ensuring the success of the 

entire project 

� It could provide a net financial benefit to the 

government if the higher cost of private sector 

capital can be offset by the transfer of more 

financial risk to the concessionaire 

37 

Some against 

concessionaires by eliminating those who 

cannot raise the necessary capital 

� The government may not get the best 

consortium of infrastructure and finance 

providers and MRT operator 

� The concessionaire may seek greater certainty 

to protect their investment, which will 

compromise p the transfer of risk and/or / reduce 

network integration and policy flexibility for 


Conclusion: It is unlikely that private sector capital will provide a lower cost outcome, but this can be 

tested with a value‐for‐money analysis. 

6 March 2008 

11. Should the concessionaire maintain fixed infrastructure? 


38 

Some against 

� The e co concessionaire cess o a e will co contain ta tthe epeop people e who o � The e co concessionaire cess o a e oonly yhas as aan interest te est in tthe e 

will be most aware of problems with 

infrastructure because they use it every day 

� The concessionaire has an interest in fixing 

infrastructure problems so that their services 

are not disrupted or their costs increased 

Conclusion: The concessionaire should maintain fixed infrastructure. 

infrastructure for the term of the concession, 

and may not take a long term view 

6 March 2008

12. Should an MRT operating concession be for a long or short period? 

Reasons for a short period 

(say up to 10 years) 

39 

Reasons for a long period 

(say 35 years) 

� A concessionaire can be more certain of costs over � The concessionaire can take a long g term view, , e.g. g 

a shorter rather than a longer term, and so need 

not include risk premiums to allow for uncertainty 

over future costs 

� A concessionaire can be replaced sooner if they 

do not perform well 

� The concession can make arrangements to 

compensate the concessionaire for assets they 

have purchased that have an economic life that is 

l th th i t 

they can develop staff skills and invest in 

worthwhile equipment and services that have a 

payback period that is longer than the concession 

term 

� A combination of suitable contract conditions and 

use of price indices will allow costs to be adjusted 

over the term of a longer concession 

� A concession can include terms for early dismissal 

f i i if th d t f ll 

� A longer term concession avoids the cost of 

selecting a new concessionaire more frequently 

� A longer term is more consistent with provision 

and financing of trains by the concessionaire 

longer than the concession term of a concessionaire if they do not perform well 

Conclusion: A longer term concession is preferred, especially if trains are provided and financed by 

the concessionaire. A 35 year concession would be similar to the life of the first set of trains. 

6 March 2008 

13. How much financial risk can be transferred 

from the government to the concessionaire? 

40 

� Meaning of financial risk transfer 

� Financial risk is the uncertainty about how costs might turn out in practice 

� Transfer of financial risk means making the concessionaire responsible for the costs, i.e. they cannot ask the 

government for more money if costs turn out higher than expected 

� Overall costs of MRT will be higher if too much or too little risk is transferred to the concessionaire 

� If transfer too much risk 

− The concessionaire will become risk averse (i.e. very cautious), which will reduce innovation and responsiveness by 

them to market needs 

− Bidders for a concession will include ‘risk premiums’ (i.e. extra allowances) in their bids to protect them against higher 

costs that result from risks that they cannot manage 

� If transfer insufficient risk 

− The concessionaire will not manage the uncertainty as well as they might because they can pass on cost increases to 


� Obj Objective i iis to transfer f to the h concessionaire i i risk ikthat h they h can manage and d hhence avoid id occurring i 

‐ examples 

� Transfer operating cost risk, but protect the concessionaire from longer term uncertainty by using indices to 

adjust contract payments for changes in unit costs (e.g. energy prices, labour costs, etc) 

� Transfer some patronage risk to make concessionaire response to consumer needs. But recognise that the 

concessionaire may be able to influence only about 10% or so of their patronage (the remainder is 

attributable to factors such as what happens elsewhere in the network and socio‐economic conditions) 

� Addressed in more detail in a separate paper 

6 March 2008

14. Should ticketing be implemented as a single contract 

for the entire MRT system? 


41 

Some against 

� A ssingle gesyste system aods avoids interface te ace pobe problems s � GGives esco considerable s de ab e responsibility espo s b ty to a ssingle ge 

between lines 

contractor, with greater risk if the system is 

� Allows the best technology to be used for the not optimal 

entire MRT system rather than the technology � An additional contract that needs to be 

selected by those bidding for each line 

managed 

� Makes it easier to expand the system to include � Could be managed by coordination between 

more lines, the bus system and ferries when various public transport operators 

appropriate 

� Not essential if government does not wish to 

� Allows the technology to be more easily 

updated 

� Establishes an independent contract that 

makes revenue management & patronage data 

more transparent 

have an integrated public transport system 

Conclusion: Integrated fares and ticketing is essential for a successful public transport. A single ticket 

system implemented through a single contract is likely to provide the best outcome. 

6 March 2008 

Some reasons for concessionaires 

keeping fare revenue 

15. Should concessionaires keep fare revenue 

or give it to the government? 

42 

Some reasons for the fare revenue to be 

paid to the government 

� The e co concessionaire cess o a e ca can use tthe efare aerevenue eeueto to � It t is s likely eytthat attthe efare aerevenue eeuewill be 

meet their costs 

insufficient to meet concessionaire costs, so 

� Requires an accounting system to transfer there will still be a need for a means for the 

funds between concessionaires where 

government to pay additional funds to the 

passengers transfer between MRT lines 


� Best suited to situations where fare revenue is � The ratio of fare revenue to cost will vary 

sufficient to meet the costs incurred by a between lines, requiring different levels of 

concessionaire and where a “gross cost” form government payment to concessionaires 

of concession is used (see ( slide 30) ) � Works well where an integrated g ticketing g 

system is used, and revenue is collected by the 

enterprise that operates the ticket system 

� Best suited to a “net cost” form of concession 

(see slide 30) 

Conclusion: See later discussion of forms of concession. 

6 March 2008

Conclusions to these fifteen questions 

Question Conclusion 

1. Is it possible to deal with infrastructure delivery now and address operations 

later? 

2. Should a single agency develop and operate the MRT, or should these 

activities be separated? 

Operating arrangements need to be determined at the same time as infrastructure planning. 

43 

These activities should be separated, with operations undertaken through a concession contract. 

3. Should there be only one operator for all lines of the MRT system? Having 2‐3 operators for the system provides flexibility and assists management of the system. 

4. If the operator is a government agency, should it be a department or a state‐ 

owned d enterprise? t i ? 

5. Is it better that the concessionaire be a government‐owned enterprise or a 

private company (including a joint venture with a government enterprise)? 

6. Should the concessionaire be selected on the basis of domestic or 

international competitive bidding? 

7. Should the MRT operator be involved in the design and implementation of 

fixed infrastructure? 

8. Should the MRT concessionaire select trains and related equipment & 

systems? 

9. Should the MRT concessionaire select and finance trains and related 

equipment & systems? 

If publicly operated, the operator should be an arm’s length commercial enterprise. 

Use of a private sector company to operate services will almost certainly be better than use of a 

government operator. 

The concessionaire should be selected on the basis of international competitive bidding to 

obtain the best combination of skills and lowest cost. 

It is not essential subject to use of international standards for infrastructure design and taking 

account of operational issues in the design of fixed infrastructure. 

Trains and related infrastructure are essential to operator performance. Operators should be 

responsible for choices regarding them so that operating risk and some patronage risk can be 

transferred to the operators. 

Best for the concessionaire to both select and finance trains so that costs can be minimised and 

the transfer of risk to the concessionaire can be maximised. 

10 10. Should the MRT operator finance fixed infrastructure? It is unlikely that private sector capital will provide a lower cost outcome outcome, but this can be tested 

with a value‐for‐money analysis. 

11. Should the MRT operator maintain fixed infrastructure? The concessionaire should maintain fixed infrastructure. 

12. Should the MRT operating concession be for a long or short period? A longer term concession is preferred, especially if trains are provided and financed by the 

concessionaire. A 35 year concession would be similar to the life of the first set of trains. 

13. How much financial risk can be transferred from the government to the 

concessionaire? 

14. Should ticketing be implemented as a single contract for the entire MRT 

system? 

Transfer an optimal amount of risk so that concessionaires do not include risk premiums in bids 

and effectively manage costs and revenue they can control. 

Integrated fares and ticketing is essential for a successful public transport. A single ticket system 

implemented through a single contract is likely to provide the best outcome. 

15. Should concessionaires keep fare revenue or give it to the government? Will be linked to the ideal form of a concession –considered in more detail in Part E. 

Implications of these conclusions 

44 

6 March 2008 

� Seems likely that a good arrangement will be that 

� The concessionaire should be a private company selected through international 


� The concessionaire should provide and finance trains and related equipment and 

systems, as well as operating train services and maintaining fixed infrastructure 

� The concession should be for a reasonably long period 

� Operating risk and some patronage risk should be transferred to the concessionaire 

� A single ticketing system should be used for the whole MRT system, and it should be 

implemented as a separate contract 

� But 

� There is a need to confirm these matters through a value‐for‐money analysis 

� There are a number of more detailed matters that need to be considered in 

designing a concession for the provision of MRT services 

− this is addressed in the next part of the presentation 

6 March 2008

Part E 

45 

MORE DETAILED FEATURES OF A 

CONCESSION AGREEMENT FOR THE 

OPERATION OF MRT IN HCMC 

Introducing two forms of concession agreement 

46 

“Net Cost” concession “Gross Cost” concession 

6 March 2008 

Infra‐ Government provides civil infrastructure. Concessionaire provides trains and related items such as 

structure train control & communications systems and depot equipment. equipment 

Risk sharing Concessionaire assumes all patronage 

risk, but shares extra profits (if any) with 


Risk is shared between the government and 



Revenue Concessionaire keeps revenue Fare revenue is given to the government 

Services Concessionaire determines services to 

be provided on the basis of profitability. 

Government sets service standards and the concession‐ 

aire determines services based on these standards. 

Payments Concessionaire meets costs from its Government pays the concessionaire for services 

Government 

role 

own revenue. Additional payments may 

be needed from the government if 


Government invites tenders & 

establishes a concession; has only a 

small role thereafter; difficult to vary 

contract conditions. 



provided. 

Government invites tenders and establishes a 

concession; has a continuing major role in managing the 

concession agreement; can vary conditions when 

needed. 

6 March 2008

Net cost concession 

Assessment of “net cost” and “gross cost” concessions 

est su ted ee 

� Concessionaire can recover their costs from fares 

and other such sources 

� The concessionaire has a high level of control over 

their costs and revenue 

� Where there the concessionaire has the potential 

for major property development 

� The government can accept limited policy control 

over the MRT line for the duration of the 

Gross cost concession 

� Best suited where � Best suited where 

concession 

� The government wishes a form of contract that 

requires only limited oversight 

47 

est su ted ee 

� Concessionaire cannot recover costs from their 

own revenue sources 

� The concessionaire has only a limited level of 

control over their costs and revenue, such as a 

single line in an MRT system 

� The government wishes to retain policy control 

over the MRT system 

� The government has the capacity to manage a 

performance based contract 

Conclusion: To give the government policy control and to take account of low cost recovery and limited 

property development opportunities in HCMC, a gross cost form of concession is strongly recommended. 

6 March 2008 

Putting it together ‐ four possible concession approaches 

Delivery of: 

Civil Infrastructure and Fixed 

Equipment 

Trains, train control and 

communications and depot 

equipment 


infrastructure maintenance 

Risk Transfer 

Public 

Enterprise 

Public Implementation with 

Operating Concession (PIOC) 

48 

Train Supply and Operating 


Delivered through competitively tendered contracts to the government. 


government. 

d Contract negotiated d with h an SOE. Competitively l tendered d d Gross 

Cost contract. 

Transfer of risk from the 

government is limited to the 

extent allowed in construction 

and equipment supply contracts. 

The government retains risk 

associated with operations 

through its ownership of the 

operator. 

As for the Public Enterprise 

option but can transfer operating 

risk to the concessionaire. Some 

patronage risk can be transferred 

through the Gross Cost 

concession. The government 

retains operating risk related to 

mismatch between trains it 

provides and concessionaire 

needs. 

Delivered through a competitive 

tendered Gross Gross Cost Cost concession. 

The government transfers more 

risk to the concessionaire than in 

the PIOC option because the 

concessionaire purchases trains 

and can therefore bear more risk 

for operations because they have 

more control over service quality. 

Build, Operate & Transfer 

(BOT) 

Delivered through competitively 

tendered Net Cost contract to the 

government. 

Transfers the greatest amount of 

risk from the government, but 

the government loses flexibility 

for change in policy and for 

public transport network 

integration. 

Finance 

Civil Infrastructure and Fixed 

Capital provided by the government government. Capital provided by the 

Capital provided by the 

Equipment 

government. 

concessionaire. The government 

Trains and Train Control and 

Capital provided by the government. 

will need to pay for costs as 

Capital provided by the 

Communications Equipment 

specified in the contract (to cover 

concessionaire. The government 

both capital and O&M costs net 


The government pays all costs The government pays for pays for costs as specified in the 

of fare revenue, where fare 

infrastructure maintenance incurred by the SOE, including operating and maintenance costs contract (to cover both capital 

revenue will be much less than 

working capital 

as specified in the contract. and O&M costs). 

the costs). 

Fare revenue The government retains fare and 

Fare revenue accrues to the government. Concessionaire retains fare and 

other revenue (or pays SOE the 

difference between costs and 

revenue if the SOE retains the 

revenue). 

other revenue. 

6 March 2008

Indicative assessment of concession options* 

Criteria Public 

Enterprise 

49 

Public Implementation 




Operating Concession 

(TSOC) 


Transfer 

(BOT)** 

System Integration 

Minimize capital and operating costs � �� 

Provide integrated MRT system for 

passengers 

Policy Flexibility for the Government 

�� 

Ability for the government to 

modify MRT system 

Risk Transfer from the Government 

�� 

Infrastructure supply risk � �� 

Operating risk � �� 

Patronage risk � � �� 

Management of Operating Concession by the Government 

Firm contractual basis for 

operations 

�� 

Ease of concession management �� 

Incentive for contractor/concessionaire 

to do the thing right 

Potential Value-for-Money 

Allowing for risk transfer, associated 

� �� 

risk premiums and the cost of 

capital 

� �� * 

* It is currently planned to subject all options to a full financial value-for-money analysis. The present analysis is intended to be indicative. 

** The BOT option may allow moderate value-for-money, but does not provide the government with the flexibility to meet other public interests. 

6 March 2008 

Further information on two key approaches to 

Project implementation 

50 

Public Enterprise Model Private Sector Participation Model (TSOC) 

Implementation of: 

• Civil infrastructure & 

Delivered through competitively 

fixed equipment DDelivered li d th through h competitively titi l 

tendered contracts with the government 

government. 

• Trains and train 

control equipment 

• Train services & 

infrastructure maint. 

Risk transfer 

tendered contracts to the government. 

A state owned enterprise is established and a 

concession negotiated with it. 

Delivered through a competitively 

tendered concession contract between 

a concessionaire and the government. 

Transfer of risk from the government is limited 

to the extent allowed in construction and 

equipment supply contracts. 

SSource of f finance fi ffor project j t iimplementation l t ti 

• Civil infrastructure & 

fixed equipment Capital provided by government 

• Trains and train 

through grants and loans. 

control equipment 

• Train services & 

infrastructure maint. 

The government pays for O&M costs 

as specified in the contract. 

Fare revenue Fare revenue accrues to the government. 

The government can transfer some project 

integration risk, most operating risk and some 

patronage risk to the concessionaire. 

Capital provided by government 

through grants and loans. 

Capital provided by the concessionaire. 

The government makes payments to the 

concessionaire to cover both capital 

and O&M costs. 

6 March 2008

Recommended features of a private sector 

participation model –payment arrangements 

� Payment from the government to the concessionaire 

51 

� Primarily related to the quantity of service and assets provided by the concessionaire, but also 

linked to the quality of service and to patronage 

� Patronage and service quality related payment should transfer manageable risk to the 

concessionaire and incentivize them to provide high quality services 

� Allows for cost escalation 

� May need separate escalation for energy, labor and other items 

� Allows for anticipated and unexpected transport developments 

� Unit costs to pay for variations that might occur, e.g. line extensions and changes in MRT 

services and other public p transport p services 

� Concession management 

� In addition to providing the incentive for concessionaires to minimize costs and meet 

passenger needs, transferring appropriate risk has the benefit of 

− Reducing supervision needs by incentivizing the concessionaire to perform well without the need for 

direct government supervision 

52 

6 March 2008 

Payment structure for a gross cost operating concession 

� Contract payment could be equal to the sum of the following 

� two components that cover the cost of providing agreed services: 

− a fixed payment (F) for a given quantity of service (which could include a payment to cover the cost of 

assets provided by the concessionaire such as trains, or these could be paid as a separate item); plus 

− a demand, i.e. patronage‐related, payment (D); plus 

� a service variable component (S) to allow for changes in the quantity of service that might be 

required over time; plus 

� a bonus payment (B) if to reward performance in excess of an agreed level; less 

� a penalty (P) for inadequate performance against agreed criteria; less 

� additional revenue (O) that the concessionaire might be able to generate from non‐ 

operational activities activities, eg e.g. from property development development, advertising advertising, etc etc. 

� Total payment = F + D + S + B ‐ P –O 

� For bidding 

� the government would specify D, B and P 

� tenderers would indicate F, S and O 

6 March 2008 

** March 2008

Summary of recommended approach 

with a private sector participation model 

Role of government Role of the private sector 

53 

�� Ensures design of infrastructure takes 

�� Private sector consortiums bid for 

account of operations 

operating concessions (including supply 

� Finance and manage implementation of of trains etc.) and a ticket/fare collection 

fixed infrastructure 

concession 

� Select operating concessionaire and ticket � Concessionaires coordinate with fixed 

supply and fare management concession infrastructure contractors to install their 

� Manage concessionaires and make 

respective assets 

payments according to their respective 

� Ticket/fare concessionaire pays fare 

contracts 

revenue to the government 

� Concessionaires provide services in 

accordance with their contracts and are 

paid accordingly by the government 

Part F 

54 

TEMPLATE OF A CONCESSION AGREEMENT 

AND STEPS TO IMPLEMENT A CONCESSION 

6 March 2008 

6 March 2008

Contents of a Concession Agreement ‐ 1 

� Part I: Introduction 

� Addresses general issues and the parties to the contract: 

− Name of the Agreement; Date of the Agreement; Parties to the Agreement; Preamble to 

the Agreement; Definitions; The Concession; MRT Network and Links; Coordination 

Committee; Representatives and Related Parties 

� Part II: Pre‐Service Activities 

� Addresses issues that are to occur prior to the operation of train services: 

− Conditions Precedent; Company Systems; Pre‐Service Implementation; Protection Against 

Late Service Commencement; 

� Part III: Services to be Provided 

� Addresses the train and related services that the concessionaire is to provide: 

55 

− Initial Services; Standard of Services; Changes in the MRT System; Changes in MRT Services 


� Part IV: Finance and Insurance 

� Addresses general issues and the parties to the contract: 

56 

6 March 2008 

− Payment and Payment Mechanisms; Payment Escalation; Fare Policy and Revenue; Routine 

Non‐fare Revenue; Special Non‐fare Revenue; Refinancing; Taxes and Duties; Insurance; 

� Part V: Early Termination 

� Addresses issues that could result in early termination of the concession and 

treatment of the consequences of such early termination: 

− Conditions for Early Termination; Process of Termination; Consequences of Termination; 

� Part VI: Special Events 

� Addresses special events that could affect the concession: 

− Force Majeure and Exceptional Events; Consequences of Force Majeure and Exceptional 

Events; Power of government; 

6 March 2008

� Part VII: Assets 


57 

� Addresses issues related to assets provided by the government and concessionaires : 

− Civil Infrastructure; Assets of the Concessionaire; Asset Titles and Transfers; Lenders Direct 

Agreement; Asset Transfer Values; 

� Part VIII: Miscellaneous 

� Addresses remaining general contractual issues, e.g.: 

− Rights and Duties Transfer; Change of Ownership; Dispute Settlement and Resolution; 

Confidentiality; Change in Law; government Step‐In; Due Diligence Over Contracts and 

Financing Documents; Alternatives and Variants of Project Finance; Other Standard 

Provisions. 

� Establish a probity process 

Implementing a concession 

6 March 2008 

� To ensure transparency in the preparation and conduct of tendering, assessment of tenders, 

and contract negotiation 

� Use market testing to identify modifications that will increase market interest 

� Ensure that changes do not compromise public interest 

� Objective is to get good competition that should result in lower tender prices 

� Prepare Request for Tender 

� Clearly set out roles and responsibilities of the Authority and the concessionaire 

� Set out payment arrangements 

�� Indicate information to be provided by bidders 

� Require consistent information for a conforming tender 

� Encourage bidders to submit innovations as variations or alternatives to the conforming 

tender 

� Design tender evaluation process 

� Invite tenders 

58 

6 March 2008



Appendix B: Financial Modeling Working Paper 

23

ASIAN DEVELOPMENT BANK AND PUBLIC PRIVATE INFRASTRUCTURE ADVISORY FACILITY 

RSC-C71557 (VIE), 

TA4862-VIE: 

Ho Chi Minh City Metro Rail System – 

MRT FINANCIAL MODEL and VALUE FOR 

MONEY ANALYSIS 

Technical Paper 

July 2008

1. INTRODUCTION 

1.1 The PPIAF Technical Assistance 

1. ADB has mobilized a grant from the Public Private Infrastructure Advisory Facility 

(PPIAF) to review the options for private sector participation and public-private partnerships for 

the Ho Chi Minh City (HCMC) Metro Rail System Project. The assignment is with a view to 

minimizing the costs on a risk-adjusted basis, optimizing institutional arrangements, and taking 

advantage of a market oriented approach to maximizing the benefits of the Project. This work 

supplements an ADB Project Preparatory Technical Assistance (PPTA) to advise HCMC 

People’s Committee on the integrated development of the first two MRT lines in HCMC. 

2. The objectives of the PPIAF study, which has been implemented in co-ordination with 

the PPTA work, are addressed in the following key study outputs: (i) a framework for 

considering private sector participation in implementation and operation of the Project; (ii) a 

value-for-money analysis for implementation approaches that involve varying degrees of private 

sector participation, (iii) a detailed financial model reflecting the preferred approach and 

measuring the performance of the project from the points of view of the government and 

private sector participants; and (iv) a stakeholder feedback and a description of necessary 

institutional and contractual arrangements given the preferred implementation approach. 

1.2 The present report 

3. Outputs (i) and (iv) are described in three companion working papers: Issues and 

Options for Private Sector Participation and Concession Template (“Issue and Options” paper); 

Stakeholder Feedback and Implementation Arrangements—Institutional Options; and Fares and 

Ticketing. The present report, the final of the series, describes study outputs (ii) a value-formoney 

analysis for implementation approaches that involve varying degrees of private sector 

participation, and (iii) a detailed financial model reflecting the preferred approach and measuring 

the performance of the project from the points of view of the government and private sector 

participants. 

4. A financial model for the HCMC MRT is provided along with the present report. The 

model has been developed keeping in view the following requirements. The financial model will: 

(i) present the financial projections from the perspectives of (a) the unit operating the HCMC 

project assets in a ring-fenced manner and (b) the government and potential private sector 

participants, international financing institutions (IFIs) or corporatized government participants 

involved in sponsoring the project; (ii) cover a period of about 30 years, the approximate lifecycle 

of rolling stock, a key operating asset; (iii) allow for easy entry of input data and include 

clear and detailed assumptions worksheets which may be modified easily to allow for data 

updating and the sensitivity testing of implementation schedule, capital and operating and 

maintenance cost, fare tariff and patronage; (iv) present projected financial statements (balance 

sheet, income and cash flow statements) for the HCMC operating unit and for potential private 

sector or corporatized government participants; and (v) to the extent possible, comment should 

be provided on the total cost and revenue, the bankability of the proposed MRT project and 

possible subsidy requirements, with necessary sensitivity analysis. 

5. The present working paper describes the model and its use in MRT network planning 

and project preparation. Using the model, a detailed analysis was made of the performance of 

the HCMC MRT project selected and planned under the PPTA. A report of the analysis appears

in the PPTA feasibility study final report. Again with the use of the model, section 3 of the 

present report presents a value-for-money analysis to determine the potential for the lowest cost 

among four major alternative approaches to project delivery and financing. The alternatives are: 

(i) a state owned enterprise or conventional public sector model where government takes all the 

responsibility and risk; (ii) government provides all the infrastructure and equipment, with a 

concession for operation and maintenance by the private sector; (iii) government provides fixed 

infrastructure but a private sector operator provides trains and train related equipment such as 

train control, signalling etc; and (iv) the private sector provides all the project assets in addition 

to providing operation and maintenance. The rationale for the alternatives is discussed in detail 

in the Issues and Options paper. 

1.3 Glossary 

6. In this paper certain words are used with a defined meaning indicated below. 

External support—payment by government towards the cost of an undertaking in which the 

compensation from direct beneficiaries is insufficient. This term is preferred to ‘subsidy’. 

‘External support’ a) highlights the interventional nature of the payment, and so raises the 

question of the goal and purpose of a public sector intervention, and b) is free of the popular 

connotation of inefficiency that surrounds the word ‘subsidy’. 

Finance—to finance an undertaking means to provide resources for use during a period of an 

earnings shortfall (or in the extreme case nil earnings), in the expectation and against a promise 

of repayment out of surplus cash earnings. Debt financing means a loan or a similar 

arrangement, involving a principal sum to be paid back with interest. Equity financing refers 

to money invested against expected compensation in the form of a dividend or capital 

appreciation. 

Financier—a party engaged in financing an undertaking for a risk-weighted compensation. The 

term financier can refer either to a creditor or an equity investor. 

Fund—to fund an undertaking means to pay for the cost of carrying it out. A private sector 

undertaking (eg a restaurant business) usually has its cost paid for by its direct beneficiaries (the 

diners). MRT is an example of an undertaking where, with very few exceptions, direct 

beneficiaries (principally the travellers) cannot afford to carry the whole of the funding. 

However the external or indirect social benefits are seen to be such that they are considered 

sufficient justification for external support. 

Private sector participation (PSP)—see under public-private partnership. 

Project—this word may be used in context to refer specifically to a line or a collection of lines in 

an MRT network. 

Public-private partnership (PPP)—an arrangement formalised in a legal agreement between 

government and a private sector entity for sharing the responsibility and risk in implementation 

and operation in a specific project. The private sector enters into the arrangement expecting to 

be compensated for its effort and risk; the government should do so in order to incur the least 

cost, risk taken into account, in comparison with alternative approaches to the undertaking (see 

value-for-money). The term PPP usually implies that a significant share of the project risk is 

borne by the private partner: it will be used in this sense throughout this report. In MRT, this 

level of risk sharing is usually demonstrated by the private sector operator financing eg the trains 

4

and related equipment, and being exposed to the project risk in doing so. In this paper an 

arrangement whereby the public sector provides financing for all infrastructure and equipment 

and the privates sector plays a pure operating role is not considered a PPP but is referred to by 

the more general term private sector participation (PSP). 

Value-for-money (VfM) analysis—an analysis to identify and compare from the perspective of 

the government on behalf of the community, the net cost, risk taken into account, of alternative 

ways of carrying out the key activities of design, construction and procurement, financing and 

operation. The alternative ways are distinguished by how the public and private sector share the 

responsibility and with that the risk in each key activity. The conventional public sector 

financing and delivery option is the one in which the public sector is wholly responsible and 

carries all the risk in the project. This alternative is sometimes called the Public Sector 

Comparator. The alternative indicated by the analysis to incur the least cost is said to be valuefor-money 

or VfM. Considerations relating to achieving VfM in MRT projects are also looked 

at in its qualitative aspects in the Issues and Options paper. 

2. FINANCIAL MODEL 

2.1 The aims of MRT financial modelling 

7. In the logical framework of MRT programme development and project design, two main 

aims in financial modelling can be distinguished. 

8. For MRT network development. The goal here is an effective and efficient MRT 

service network, among other qualities meeting the required net social benefits criteria 1 . The 

outcome is a strategic plan to develop an MRT network of this description, with indications of 

lines to be implemented, investment and operation phasing, and prospective requirement for 

external support. 

9. For MRT project preparation. The goal is an effective and efficient project, ie a line or 

a collection of lines in an optimised MRT service network, where preferably the project itself 

meets the required net social benefit criteria used to evaluate the whole network. The outcome 

is (i) a funding plan for an effective and efficient project, with identification for any prospective 

requirement for external support and its delivery; and (ii) a basic financing plan for the same 

project. Proceeding from this, the outcome of a value-for money (VfM) analysis is a 

combination of government and private sector involvement in project financing and delivery 

expected to incur the least cost to government. Where more than one level of government is 

involved in the project, the plans identify the role of each government in the financing and 

delivery and in sourcing the external support. 

2.2 The model 

10. The financial model developed under the present assignment is contained in two 

spreadsheets, each of which can be operated independently of the other. The first (the ‘strategy 

model’) is designed for use in HCMC MRT network development planning. The second (the 

‘project model’) is designed for use in Line 2 project preparation. They differ in detailed features 

reflecting the different intended impact and outcome as described in 2.1, but share the same 

basic logical structure. 

1 This evaluation is the subject of an economic analysis, which is addressed in the PPTA report. 

5

2.3 Model logical structure 

Figure 2.1. MRT financial model logical structure 

MRT network development plan; or 

Outcome project plans for investment, financing & funding 

(including external support) 

Performance indicators: eg FIRR, external support needs, 

Outputs operating/fare box ratio, credit ratios, investment yield rates etc 

Projected financial statements (balance sheet, income & cash flow ) 

Calculations Revenue O&M Investment Financing 

model cost model model model 

Patronage Strategy Rolling stock Capital 

model inputs* capital cost structure 

Fare tariff 

Inputs Project Infrastructure Finance cost 

Non-fare model inputs* capital cost & other terms 

revenue 

Investment Financiers' 

External schedule roles 

support 

*Data vary depending on different method of O&M cost modelling used. 

Source: this Study 

11. The financial model has four core elements, namely a revenue model, an operating and 

maintenance (O&M) cost model, an investment model and a financing model. These four core 

elements receive input data and calculated outputs, such as pro forma financial statements and 

quantitative indicators of financial viability and operating performance for individual lines or 

collection lines in an MRT network option, or for a project scenario. The input data can vary 

according to the scenario being considered. 

12. For transparency and amenability to model audit, the model has been developed on a 

spreadsheet programme. The model makes use of the organizational and management tools 

available in the programme for greater user convenience. Among other things the model 

employs a system of colour-coding of cells and contents: (i) a data input cell is signalled by red 

font and yellow highlight; (ii) blue font signals active linkage to other places in the spreadsheet in 

one of two ways: through cell-naming, and under a book-marking hyperlink function (to enable a 

“jump” to the cell being bookmarked); (iii) the remaining cells are in the default font and cell 

colours. A ‘guide to the model’ page in the strategy model is shown in Table 2.1. 

2.4 Strategy model 

a. Strategy model input 

13. Overview. The Strategy model has to facilitate evaluation of strategy options (or 

scenarios) for MRT network development. This type of analysis can involve many different 

alternative sets of input data and assumptions, corresponding to the options being examined. 

The input sets comprise data on patronage, fare and non-fare revenue, operation and 

6

HCMC MRT Project 

Guide to Financial Model 

Notes: 11/06/08 

(1) Contents 

Table 2.1 Guide to the strategy model 

Worksheet Name: Description Function and/or contents: 

1_Control Control page To select required Scenario (segment combination) or line segment. 

2_Capital_cost_input Project Capital Cost: Input Page Project base capital cost input in year 2008 prices; by line segment, with break-up into 

land acquisition, depots, civil works, fixed electrical and mechanical systems, 

rollingstock. 

3_Scen_input Scenario: Input Page To define Scenarios and other segment combinations and input construction start and 

finish dates. 

4_Passenger_input Passenger Demand: Input Page Passenger demand input by segment and by Scenario/other segment combination, for 

the years 2011 and 2021. This includes daily passenger boarding, daily passenger 

kilometres, and peak passenger per hour per direction (pphd). 

5_Train_op_input Train Operation Parameters: Input 

Page 

6_Other _input Other Financial Model Assumptions: 

Input Page 

Input train operation parameters (e.g. line length, number of stations, capacity per car, 

spare rollingstock, peak, off-peak operating hours, headway etc). 

Assumptions for the financial model other than those covered by the above input pages. 

This includes a selection of concessioning options. 

7_ INTENTIONALLY LEFT BLANK INTENTIONALLY LEFT BLANK 

8_Schedule Construction Schedule and Cost 

Distribution Worksheet 

Worksheet outputting annual distribution of project capital cost 

9_Rollingstock_plan Rollingstock Capacity Plan Rollingstock capacity plan 

10_OM_cost Annual O&M Cost Calculation of annual O&M cost 

11_OM_unit_cost O&M Cost Model Model of O&M unit cost by MRT resource 

12_Financials Main Financial Model Work sheet Proforma financial statements (income statement, statement of cash flow, and balance 

sheet) with supporting schedules, return on investment calculations and other analytical 

results. 

13_Results Summary of Results Summary of investment and financial plans and return on investment and other key 

results. 

14_Sensitivity Sensitivity Analysis Worksheet This worksheet collects the results of sensitivity tests. Note (4) of this Guide explains 

how to carry out a sensitivity test. 

15_Tables Summary of Tables Tables containing highlights of the financial analysis 

16_Index Index Aid to spreadsheet search. Index gives name box reference(s). 


maintenance (O&M) cost, investment cost for infrastructure (ie civil works and related electrical 

and mechanical (E&M) equipment and fixtures) and for trains and train-related E&M. The 

model has separate data input page(s) organised with this need in mind. Furthermore, an O&M 

cost model which derives annual cost from quanta of parameters recognised as having influence 

on O&M cost, and a standard cost rate per unit of parameter quantum, is sued to generate the 

O&M cost data for the strategy model. The model structure accommodates and accepts 

alternative project implementation schedules and disbursement plans; downstream incremental 

investment in the rolling stock fleet and other equipment; and renewal capital spending (ie 

refurbishment and other major periodic maintenance, and replacement of life-expired 

equipment). The model has a study time horizon beyond the construction period of 25 years 

during which an individual segment of the MRT network is serving passengers. The strategy 

model is also designed, given appropriate input data, to generate output for the VfM analysis. 

Taking all into account, other required parameters include cost of capital, economic life cycles 

and depreciation periods by category of assets, price escalation factor, parameters relating to 

concession payment structure etc. 

14. Specific input information. 

Scenarios. Scenarios are defined in the worksheet “3. Scen_input” in terms of MRT line 

segments they contain, by the presence of the digit “1” against the selected segments. The same 

7

page also contains input data for line lengths and date of start and completion of the 

construction period. See Table 2.2 for illustration. 


Scenario: Input Page 

Line/Segments 

Table 2.2 Scenarios samples 

Scenario 9 Scenario 10 HCMC MRT Trend Case 

Selected Construction Selected Construction Selected Construction 

Segments Length 

(km) 

Start End Segments Length 

(km) 

Start End Segments Length 

(km) 

Start End 

MRT1 : Ben Thanh - Suoi Tien 1 MRT1 19.7 2008 2013 1 MRT1 19.7 2008 2013 1 MRT1 19.7 2008 2013 

MRT2 : Ben Thanh - Thamluang 1 MRT2 10.2 2010 2015 1 MRT2 10.2 2010 2015 1 MRT2 10.2 2010 2015 

MRT3 : Highway13 - Tan Kien 1 MRT3 24.0 2010 2015 1 MRT3 24.0 2010 2015 1 MRT3 24.0 2010 2015 

MRT4 : Sai Gon Bridge - Can Giuoc 1 MRT4 17.0 2010 2015 1 MRT4 17.0 2010 2015 1 MRT4 17.0 2010 2015 

MRT5 : Ben Cat - Nguyen Van Linh 1 MRT5 24.0 2010 2015 1 MRT5 24.0 2021 2024 

MRT6 : Ba Queo - Phu Lam 1 MRT6 6.0 2021 2024 


Capital cost and implementation schedules—initial capital investment. The input data on 

estimated base capital cost are in five categories: land acquisition and resettlement, civil works, 

depot, E&M systems, and rolling stock. These are input into the worksheet “2. 

Capital_cost_input”. See Table 2.3. The capital cost estimate for rollingstock investment is 

dependent on a rollingstock capacity plan, which is aimed at meeting the requirement of the 

anticipated peak-hour demand, when passenger traffic is at a maximum. The capacity plan is 

worked out in the worksheet named “9_Rollingstock_plan” using train operation parameters 

from the page “5_Train_op_input”. 


Project Capital Cost: Input Page 

(USD million, at year 2008 prices) (excluding rollingstock) 

Segment 

Code 

Line/Segment 

Total Capital 

Costs 

Table 2.3 Base capital cost estimate 

Local Foreign 

Land acquisition Depots Civil works E&M systems 

Local Foreign Local Foreign Local Foreign Local Foreign 

MRT1 Ben Thanh - Suoi Tien 1,115 680 435 111 - 45 67 507 273 17 95 

MRT2 Ben Thanh - Thamluang 871 515 356 125 - 25 35 351 251 14 70 

MRT3 Highway13 - Tan Kien 1,876 1,097 779 188 - - - 854 460 56 319 

MRT4 Sai Gon Bridge - Can 813 496 317 81 - 33 49 370 199 12 69 

Giuoc 

MRT5 Ben Cat - Nguyen Van Linh 1,148 701 448 115 - 46 69 523 281 17 98 

MRT6 Ba Queo - Phu Lam 287 175 112 29 - 11 17 131 70 4 24 


Using construction dates data from the worksheet 3_Scen_input, the allocation of initial base 

capital cost to estimated annual disbursements appears in the worksheet “8_Schedule”, as shown 

in Table 2.4. 

Capital cost and implementation schedule—subsequent capital investment. The model 

calculates from the initial capital cost data the required subsequent investment, such as additions 

to the rolling stock fleet, and replacement or major refurbishment of exhausted assets. 

Capital cost and implementation schedule—downstream capital cost. The downstream 

costs, including project management consulting and project development cost, price escalation 

8

and interest during construction, are calculated in the model using data and parameters in the 

worksheet “6_Other_input”. 

Table 2.4 Base capital cost estimate 

HCMC MRT Project (USD million, at year 2008 prices) 

Construction Schedule and Cost Distribution Worksheet (excluding rollingstock) 

Case: 11 HCMC MRT Trend Case 

Sub-case: 0 All line segments in HCMC MRT Trend Case 

Segment 

Code 

Line/Segment 

Length 

(km) 

Construction 

Start End 

Year 

2007 2008 2009 2010 2011 2012 2013 2014 2015 

MRT1 Ben Thanh - Suoi Tien 19.7 2008 2013 - 111 167 334 334 111 56 - - 

MRT2 Ben Thanh - Thamluang 10.2 2010 2015 - - - 87 131 261 261 87 44 

MRT3 Highway13 - Tan Kien 24.0 2010 2015 - - - 188 281 563 563 188 94 

MRT4 Sai Gon Bridge - Can Giuoc 17.0 2010 2015 - - - 81 122 244 244 81 41 

MRT5 Ben Cat - Nguyen Van Linh 24.0 2021 2024 - - - - - - - - - 

MRT6 Ba Queo - Phu Lam 6.0 2021 2024 - - - - - - - - - 


Patronage. Data are input at the page “4.Passenger_input”. The current data on this page 

come from the Trend Case of the Master Plan Study 2 , except for Line 2, which uses the most 

recent update for the PPTA study. 

Table 2.5 Train operation parameters 

HCMC MRT Project Case: 11 HCMC MRT Trend Case 

Train Operation Parameters: Input Page 

Subcase: 

0 

All line segments in HCMC MRT Trend 

Case 

Train system resources Train operation 

Line Length (km) 

Elevated 

Under 

Total 

& atground 

Grade 

% of UG 

to total 

line 

length 

(%) 

No. of Stations 

Elevated 

Under 

& at- Total 

ground 

Grade 

Avg. 

speed 

(km/h) 

2015 

Headway Car/train 

(min) (cars/train) 

MRT1 : Ben Thanh - Suoi Tien 19.70 2.60 17.10 13% 3 11 14 30 3.0 6 

MRT2 : Ben Thanh - Thamluang 10.24 8.46 1.78 83% 8 - 8 30 5.0 3 

MRT3 : Highway13 - Tan Kien 24.00 11.00 13.00 46% 11 7 18 30 3.0 3 

MRT4 : Sai Gon Bridge - Can Giuoc 17.00 - 17.00 0% - 14 14 30 3.0 3 

MRT5 : Ben Cat - Nguyen Van Linh 24.00 - 24.00 0% - 26 26 30 3.0 3 

MRT6 : Ba Queo - Phu Lam 6.00 - 6.00 0% - 7 7 30 3.0 3 

Spare 1 : n/a - n/a - - 0.00 0% - - 0 0 - 3 

Spare 2 : n/a - n/a - - 0.00 0% - - 0 0 - 3 

Total 100.94 22.06 78.88 22 65 87 

Off-peak-hour headway 1.49 times peak headway 

Total week-day operating hours (05:00 - 

24:00) 

19.00 hours / day 

Operation hours (peak) 4.50 hours / day 

Operation hours (off-peak) 14.50 hours / day 

Week-end & holiday operating hours 


19.00 hours / day (assuming service on week-end & holiday will be as all day off-peak, with no peak 

hours) 

Train operation parameters. Parameter inputs in worksheet “5_Train_op_input”, together 

with the patronage data, influence the rolling stock capacity plan and the operating and 

infrastructure resources required for delivery of an MRT service. These in turn generate the 

2 See PPTA technical paper HCMC Master Plan Ridership and Revenue Forecast Study, January 2008, by MVA- 

Systra. 

9

additional rolling stock investment and the ultimately the operating and maintenance recurrent 

cost. A section of the worksheet 5_Train_op_input appears in Table 2.5. 

Unit operation and maintenance cost, by MRT service resource. For the strategy model, in 

order to project O&M cost for projects while dispensing with the need for detailed estimates of 

energy consumption, manpower planning etc, a model of the unit O&M cost for each of six 

MRT service resources is used. The O&M cost model 3 is shown in Table 2.6. The model unit 

costs are given for each of two limiting cases, namely: a) a pure underground line and b) a line 

with an all elevated or at grade vertical alignment. The higher average cost per train-hour for an 

underground line is largely accounted for by a need for greater security-related spending on 

manpower and insurance. At the same time air-conditioning (a non-tractive power requirement) 

is largely responsible for the greater unit cost per underground station. For lines with a mix of 

vertical alignments, the two unit costs are modelled as a weighted average of the two limiting 

cases. The model unit costs reflect the best judgement of current operating costs for the 

Bangkok operating MRT systems 4 , adjusted for the lower Vietnamese labour cost for station 

Table 2.6 O&M cost model 


O&M Cost Model 

Description of cost Distribution of cost 

Resource Train- hours Car- hours Car- km Peak cars Station Line Length Total 

Unit (m hrs./year) (m hrs./year) (m km./year) (traincars) (stations) (km.) 

Manpower - Train drivers 100% 100% 

Manpower - Other operatives 100% 100% 

Manpower - Station staff (incl. security) 100% 100% 

Energy - Traction power 67% 33% 100% 

Energy - Other power (Depot, stations, and others) 10% 10% 80% 100% 

Other service operations - Control room staff 100% 100% 

Other service operations - Coin handling 50% 50% 100% 

Other service operations - Shuttle bus service 100% 100% 

Repair and maintenance - Management staff 50% 20% 30% 100% 

Repair and maintenance - Maintenance contract 50% 50% 100% 

Admin. and general - Divisional HO staff 25% 75% 100% 

Admin. and general - Utilities and others (incl. Marketing) 25% 75% 100% 

Admin. and general - Insurance 25% 25% 25% 25% 100% 

Trainhours 

Car- hours Car- km Peak cars Station Line Length 

(X1) (X2) (X3) (X4) (X5) (X6) 

Y(O&M cost) = a1X1 + a2X2 + a3X3 + a4X4 + a5X5 + a6X6 

Coefficient values (2008 USD ') 

a1 a2 a3 a4 a5 a6 

Elevated and at-grade (EL & G) 37.9 44.8 1.4 0.1 m 0.3 m 0.003 m 

Underground (UG) 48.2 44.8 1.4 0.1 m 0.9 m 0.003 m 


security staff and other position not requiring specific MRT skills. The annual O&M cost is 

obtained by summing the six products a iX i (i=1,..,6) of unit cost and annual MRT service 

resource quantity. 

3 The idea of the O&M unit cost model comes from ADB 2006 

4 Bangkok Mass Rapid Transit Public Company (BTS) operates a wholly elevated system, Bangkok Metro Public 

Company (BMCL) a wholly underground transit. Both are private sector organizations. 

10

Other parameters. Model parameters beside the MRT-specific information input such as 

patronage and capital and O&M costs are located in worksheet 6_Other_input. These 

parameters include an annual price escalation factor of 5%, and parameters relating to alternative 

concession forms, costs of different types of capital (eg loan and equity), for both public and 

private sector. The parameters determining the concessionaire’s remuneration are intended to 

simplify its modelling. With the Gross Cost Concession, for example, in which the 

concessionaire’s charge to the government may be structured to remunerate delivered service 

quality, which bears on patronage levels, as well to provide available quanta of MRT operating 

resources, and perform maintenance, the contract fee may be designed to vary eg with both the 

quanta of passenger-kms and car-kms. For simplicity of treatment this is done in the model by 

specifying a “unit charge generator” as a single number. This in conjunction with an input 

percentage split generates one unit charge to be applied to passenger-kms and another one to 

car-kms to calculate the concessionaire’s annual charge revenue. In actual practice design of 

concession payment schemes in MRT and generally in public transport is a complex subject in 

which governments should seek specialist technical advice. 

b. Strategy model output 

Table 2.7 Public sector project entity projected financial statements 


Financial Projections Case: 11 HCMC MRT Trend 

Case 

11/06/08 Sub- 0 All line segments in HCMC MRT 

(In USD million unless 

otherwise indicated) 

case: 

Gross 

Cost 

Trend Case 

Con.0 Con.1 Con.2 Con.3 Con.4 Con.5 Con.6 Y1 Y2 Y3 Y4 Y5 Y6 Y7 

Public sector 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

FINANCIAL STATEMENTS 

INCOME STATEMENT 

Revenue 

Fare revenue 1 - - - - - - - 24 28 92 106 124 143 166 

Non-fare revenue - - - - - - - 1 1 5 5 6 7 8 

Concession fee - - - - - - - - - - - - - - 

Total revenue 

Expense 

- - - - - - - 25 30 96 112 130 151 175 

Unit charge generator 1 - - - - - - - 90 173 207 227 250 276 305 

expense 

Pure O&M cost 0 - - - - - - - - - - - - - - 

Revenue-related cost 1 - - - - - - - 3 3 8 8 9 10 10 

Total expense - - - - - - - 93 177 214 236 259 286 315 

Gross earnings - - - - - - - (68) (147) (118) (124) (130) (135) (140) 

Less: Depreciation and 

amortization 

- - - - - - - 151 180 211 211 213 215 216 

Earnings before interest and 

tax 

- - - - - - - (219) (327) (329) (335) (342) (350) (357) 

Less: Interest expenses - - - - - - - 136 136 131 125 120 114 109 

Less: Installment paid by Gov.(interest 

- - - - - - - - - - - - - - 

portion) 

Profit before tax - - - - - - - (355) (463) (460) (460) (462) (464) (465) 

Less: Corporate tax 0% - - - - - - - - - - - - - - 

Net profit after tax - - - - - - - (355) (463) (460) (460) (462) (464) (465) 

Earning before interest, tax, 

depreciation (EBITDA) 

- 

- 

- 

- 

- 

- 

- 

(68) 

(147) 

(118) 

(124) 

(130) 

(135) (140) 

11

Table 2.7 (Cont’d) 


Financial Projections Case: 11 HCMC MRT Trend Case 

11/06/08 Subcase: 

0 All line segments in HCMC MRT Trend Case 


Gross Con.0 Con.1 Con.2 Con.3 Con.4 Con.5 Con.6 Y1 Y2 Y3 Y4 Y5 Y6 Y7 


Cost 

Public sector 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 


BALANCE SHEET 

Assets 

Current assets 

Cash and short-term 

investments 

- - - - - - - (204) (679) (1,124) (1,575) (2,032) (2,495) (2,963) 

Accounts receivable - - - - - - - - - - - - - - 

Total current assets - - - - - - - (204) (679) (1,124) (1,575) (2,032) (2,495) (2,963) 

Operating assets - 117 301 1,101 2,156 3,662 5,556 6,558 7,551 7,551 7,602 7,656 7,712 7,712 

Less : Accumulated 

depreciation 

- - - - - - - (141) (311) (513) (714) (917) (1,121) (1,328) 

Net operating assets - 117 301 1,101 2,156 3,662 5,556 6,416 7,240 7,038 6,888 6,739 6,591 6,384 

Net capitalized expenses - 1 7 24 64 135 248 238 228 218 208 198 188 178 

Total Assets - 118 308 1,124 2,220 3,797 5,803 6,450 6,789 6,132 5,521 4,905 4,284 3,600 

Liabilities & Equity 

Liabilities 

Current liabilities 

A/C payable and current 

liabilities 

0 0 0 0 0 0 0 0 0 0 0 0 0 0 

- - - - - - - - - - - - - - 

Long-term debts 

Long-term loans - 105 271 991 1,941 3,296 5,000 5,000 4,809 4,612 4,410 4,202 3,989 3,770 

Government Bonds - - - - - - - - - - - - - - 

Total long-term debts - 105 271 991 1,941 3,296 5,000 5,000 4,809 4,612 4,410 4,202 3,989 3,770 

Other liabilities - Installment - payables - - - - - - - - - - - - - - 

Total liabilities - 105 271 991 1,941 3,296 5,000 5,000 4,809 4,612 4,410 4,202 3,989 3,770 

Equity 

Government equity - 13 37 134 279 501 803 1,805 2,799 2,799 2,850 2,904 2,960 2,960 

Retained earnings - - - - - - - (355) (818) (1,278) (1,739) (2,201) (2,665) (3,130) 

Total equity - 13 37 134 279 501 803 1,450 1,980 1,520 1,111 703 295 (170) 

Total liabilities & equity - 118 308 1,124 2,220 3,797 5,803 6,450 6,789 6,132 5,521 4,905 4,284 3,600 

12



Financial 

Projections 

Case: 11 HCMC MRT Trend Case 

11/06/08 Sub- 0 All line segments in HCMC MRT Trend Case 



case: 

Gross 

Cost 

Con.0 Con.1 Con.2 Con.3 Con.4 Con.5 Con.6 Y1 Y2 Y3 Y4 Y5 Y6 Y7 

Public sector 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 


STATEMENT OF 

CASH FLOW 

NPV Total 

Earnings before 

interest and tax 

- - - - - - - (219) (327) (329) (335) (342) (350) (357) 

Less: corporate tax - - - - - - - - - - - - - - 

Add: depreciation and 

amortization 

- - - - - - - 151 180 211 211 213 215 216 

Cash flow before 

capital requirements 

(2,204) - - - - - - - (68) (147) (118) (124) (130) (135) (140) 

Less: Installment - 

principal portion 

0 0 - - - - - - - - - - - - - - 

Movement in working 

capital 

- - - - - - - - - - - - - - 

Capital expenditures NPV Total 

Rollingstock 289 387 - - - - - - 387 - - - - - - - 

Civil works 2,893 3,610 - 82 129 558 737 1,052 1,052 - - - - - - - 

E&M systems 539 673 - 15 24 104 137 196 196 - - - - - - - 

Land acquisition 440 549 - 12 20 85 112 160 160 - - - - - - - 

Depots 269 335 - 8 12 52 69 98 98 - - - - - - - 

Total initial capital 

expenditure 

4,430 5,556 - 117 184 799 1,056 1,506 1,894 - - - - - - - 

Interest during 

construction 

194 248 - 1 5 17 40 71 113 - - - - - - - 

Additional rollingstock 3,191 6,763 - - - - - - - 501 730 - 51 54 56 - 

Refurbishment of 

rollingstock 

238 756 - - - - - - - - - - - - - - 

Replacement of E&M 

equipment 

777 2,350 - - - - - - - - - - - - - - 

Additional land 

acquisition 

209 408 - - - - - - - 53 28 - - - - - 

Additional depots 128 249 - - - - - - - 33 17 - - - - - 

Additional civil works 1,376 2,682 - - - - - - - 350 184 - - - - - 

Additional E&M 

equipment 

257 500 - - - - - - - 65 34 - - - - - 

Total capital 

expenditures 

10,800 19,511 - 118 189 816 1,096 1,577 2,006 1,002 994 - 51 54 56 - 

Free cash flow 

Debt service: 

(13,004) (25,743) - (118) (189) (816) (1,096) (1,577) (2,006) (1,070) (1,140) (118) (175) (183) (192) (140) 

Interest paid - - - - - - - 136 136 131 125 120 114 109 

Debt principal 

repayment 

- - - - - - - - 191 197 202 207 213 219 

Total debt service - - - - - - - 136 327 327 327 327 327 327 

Less: Installment - 

interest portion 

- - - - - - - - - - - - - - 

Cash flow after debt 

service 

- (118) (189) (816) (1,096) (1,577) (2,006) (1,206) (1,468) (445) (503) (511) (519) (468) 

Cash shortfall 

funded by: 

Initial Total 

Long-term loans 5,000 5,000 - 105 166 719 950 1,355 1,704 - - - - - - - 

Government Bonds 0 0 - - - - - - - - - - - - - - 

Government cash 

support 

803 14,511 - 13 24 97 145 222 302 1,002 994 - 51 54 56 - 

Total funding 19,511 - 118 189 816 1,096 1,577 2,006 1,002 994 - 51 54 56 - 

Net cash flow - - - - - - - (204) (474) (445) (451) (457) (463) (468) 

Cash balance - - - - - - - (204) (679) (1,124) (1,575) (2,032) (2,495) (2,963) 


13

Table 2.8 Private sector project entity projected financial statements 



11/06/08 Subcase: 





Cost 

Private Sector 


INCOME STATEMENT 

Revenue 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Fare revenue - - - - - - - - - - - - - - 

Non-fare revenue - - - - - - - - - - - - - - 

Unit charge generator 

revenue 

- - - - - - - 90 173 207 227 250 276 305 

Total revenue - - - - - - - 90 173 207 227 250 276 305 

Less: Concession fee - - - - - - - - - - - - - - 

Operating revenue after 

concession fee 

- - - - - - - 90 173 207 227 250 276 305 

Operating and Maintenance 

cost 

- - 101 126 235 255 276 300 325 

Pure O&M cost 1 - - - - - - - 101 126 235 255 276 300 325 

Revenue-related cost 0 - - - - - - - - - - - - - - 

Gross earnings - - - - - - - (11) 47 (28) (27) (25) (24) (21) 

Less: Depreciation and 

amortization 

- - - - - - - - - - - - - - 


tax 

- - - - - - - (11) 47 (28) (27) (25) (24) (21) 

Less: Interest expenses - - - - - - - - - - - - - - 

Add: Installment paid by Gov.(interest 

portion) 

- - - - - - - - - - - - - - 

Profit before tax - - - - - - - (11) 47 (28) (27) (25) (24) (21) 

Less: Corporate tax 28% - - - - - - - - 10 - - - - - 

Add: Subsidy - - - - - - - - - - - - - - 

Net profit after tax - - - - - - - (11) 37 (28) (27) (25) (24) (21) 

Earning before interest, tax, 

depreciation (EBITDA) 

- - - - - - - (11) 47 (28) (27) (25) (24) (21) 

14




11/06/08 Subcase: 





Cost 



BALANCE SHEET 

Assets 

Current assets 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

Cash and short-term 

investments 

- - - - - - 62 51 116 115 113 111 108 104 

Accounts receivable 0.00% - - - - - - - - - - - - - - 

Inventory 0.00% - - - - - - - - - - - - - - 

Total current assets - - - - - - 62 51 116 115 113 111 108 104 

Other assets - Installment - Receivables (net) - - - - - - - - - - - - - - 

Operating assets - - - - - - - - - - - - - - 

Less : Accumulated 

- - - - - - - - - - - - - - 

depreciation 

Net operating assets - - - - - - - - - - - - - - 

Net capitalized expenses - - - - - - - - - - - - - - 

Total Assets - - - - - - 62 51 116 115 113 111 108 104 

Liabilities & Equity 

Liabilities 

Current liabilities 

A/C payable and current 

liabilities 

0 0 0 0 0 0 0 0 0 0 0 0 0 0 

0.00% - - - - - - - - - - - - - - 

Long-term debts 

Long-term loans - - - - - - - - - - - - - - 

Total long-term debts - - - - - - - - - - - - - - 

Total liabilities - - - - - - - - - - - - - - 

Equity 

Paid-in capital - - - - - - 51 51 51 51 51 51 51 51 

Cash deficit support - - - - - - 11 11 39 67 92 116 137 153 

Legal reserves - - - - - - - - 2 2 2 2 2 2 

Retained earnings - - - - - - - (11) 24 (4) (32) (57) (81) (101) 

Total equity - - - - - - 62 51 116 115 113 111 108 104 

Total liabilities & equity - - - - - - 62 51 116 115 113 111 108 104 

15




11/06/08 Subcase: 





Cost 



2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 

STATEMENT OF CASH 

FLOW 

NPV Total 


tax 

- - - - - - - (11) 47 (28) (27) (25) (24) (21) 

Less: corporate tax - - - - - - - - (10) - - - - - 

Add: depreciation and 

amortization 

- - - - - - - - - - - - - - 

Cash flow before capital 

requirements 

253 - - - - - - - (11) 37 (28) (27) (25) (24) (21) 

Add: Installment 0 0 - - - - - - - - - - - - - - 

Movement in working capital - - - - - - - - - - - - - - 

Capital expenditures NPV Total 

Rollingstock 0 0 - - - - - - - - - - - - - - 

Civil works 0 0 - - - - - - - - - - - - - - 

E&M systems 0 0 - - - - - - - - - - - - - - 

Land acquisition 0 0 - - - - - - - - - - - - - - 

Depots 0 0 - - - - - - - - - - - - - - 

Total initial capital 

expenditure 

0 0 - - - - - - - - - - - - - - 

Interest during construction 0 0 - - - - - - - - - - - - - - 

Additional rollingstock 0 0 - - - - - - - - - - - - - - 

Refurbishment of rollingstock 0 0 - - - - - - - - - - - - - - 

Replacement of E&M 

equipment 

0 0 - - - - - - - - - - - - - - 

Additional land acquisition 0 0 - - - - - - - - - - - - - - 

Additional depots 0 0 - - - - - - - - - - - - - - 

Additional civil works 0 0 - - - - - - - - - - - - - - 

Additional E&M equipment 0 0 - - - - - - - - - - - - - - 

Total capital expenditures 0 0 - - - - - - - - - - - - - - 

Free cash flow 

Debt service: 

253 972 - - - - - - - (11) 37 (28) (27) (25) (24) (21) 

Interest paid 0 - - - - - - - - - - - - - - 

Debt principal repayment 0 - - - - - - - - - - - - - - 

Total debt service - - - - - - - - - - - - - - 

Cash flow available for 

dividend 

- - - - - - - (11) 37 (28) (27) (25) (24) (21) 

Dividends - - - - - - - - - - - - - - 

Cash flow after debt service 

and dividends 

- - - - - - - (11) 37 (28) (27) (25) (24) (21) 

Cash shortfall funded by: Initial Total 

Long-term loans 0 0 - - - - - - - - - - - - - - 

Paid-in equity 51 51 - - - - - - 51 - - - - - - - 

Total funding 51 - - - - - - 51 - - - - - - - 

NPV Total 

Add: Subsidy 0 0 - - - - - - - - - - - - - - 

Cash deficit support 103 170 - - - - - - 11 - 28 27 25 24 21 16 

Net cash flow - - - - - - 62 (11) 65 (1) (2) (2) (3) (5) 

Cash balance - - - - - - 62 51 116 115 113 111 108 104 


15. Table 2.7 shows a sample of the strategy model output of public sector project entity 

projected balance sheet, income and cash flow statements. Table 2.8 shows a sample of 

16

projected private sector project entity financial statements. These are not necessarily 

generated under the same concession payment assumptions as for Table 2.7. 

16. Testing project performance. Using the strategy model, five of the six HCMC MRT 

lines identified in the Master Plan Study 2008, but not studied in detail under the PPTA, have 

been tested for indicative performance. Line 2, being the subject of detailed study and 

evaluation under the PPTA, is not included in this initial test of performance. The patronage 

forecast for the five lines tested is sourced from the Master Plan Study 2008, as described in 

paragraph 14, which assumes a fare of VND 4,000 per boarding. The capital cost estimates for 

the lines have been sourced from an ADB March 2007 review 5 of the HCMC MRT network 

plan; the review provides the unit project cost by main category shown in Table 2.9. The O&M 

costs have been generated using the O&M cost model. The line lengths are as indicated in Table 

2.10 6 , with Line 1 assumed to have a 2.6 km total underground section (or sections), Line 3 to 

have 11 km underground, while lines 4,5 and 6 are assumed to be all elevated. 

17. Table 2.10 show the five lines’ indicative performance. Their negative net present value 

(NPV) of free cash flow confirms the need for external support, in line with common 

international experience of MRT. The fact that adding Lines 5 and 6 in 2025 is consistent with a 

subsequent improvement of the farebox ratio for all the lines indicates that the lines are mutually 

supportive, or are (for example) at least without overlaps between lines so as to cause new lines 

to take away passengers from existing lines. The results shown in Table 2.1 should be 

recognised as outputs of an initial analysis making use of readily available data; their value lies 

rather more in the suggestions they make for examination in a more refined study and analysis. 

Table 2.9 Estimate of unit capital cost for testing HCMC MRT lines performance 

(Year 2006 constant prices) 

Land acquisition cost 


-elevated 

Fixed infrastructureunderground 

Rolling stock 

Per line km Per line km Per line km Per train car 

US$2.34 million US$40 million US$ 100 million US$ 2 million 

Source: ADB 2007 

Table 2.10 Indicative HCMC 5 MRT lines performance 

MRT Line NPV(5%) of free cash flow 

(US$ million) 

Estimated farebox ratio 

2016 2026 2036 

1: Ben Thanh - Suoi Tien (19.7 km) (3,484) 0.24 0.53 0.55 

3: Highway13 - Tan Kien (24 km) (3,861) 0.24 0.37 0.40 

4: Sai Gon Bridge - Can Giuoc (17 km) (2,041) 0.27 0.41 0.45 

5: Ben Cat - Nguyen Van Linh (24 km) 1 (1,929) - 0.60 0.68 

6: Ba Queo - Phu Lam (6 km) 1 (682) - 0.26 0.33 

Source: This Study 

1 Assumed roll-out date 2025 

2.5 Project model 

18. Overview. The project model has been developed for the financial evaluation of HCMC 

MRT Line 2. As planned in the feasibility study and preliminary engineering design under the 

5 ADB TA RSC-C61011 (VIE): Ho Chi Minh City Metro Rail System Project, HCMC MRT Strategic Financial 

Model Update, March 2007, by Bray D and Sayeg P. 

6 Source: Vietnam News Agency 2008, press releases. 

17

PPTA 7 , this is an MRT service with a 10.24 km long service track, including 8.46 km 

underground, with 11 station stops between Ben Thanh and Tham Luong. The model input 

data from the study include the passenger demand forecast, fare assumption, investment cost, 

operating and maintenance cost, financial structure, pricing and other terms of the financing, 

financiers’ roles, project delivery (eg concessioning) approach, applicable tax and duty rates, 

physical and price contingency factors, construction term, analysis period slightly over 30 years in 

the present study), economic life-cycles of project assets and depreciation rates. Unlike the 

strategy model, the Line 2 project model O&M cost data are from engineers’ estimates. These 

are built up from detailed calculations of, for instance, traction and non-traction consumption 

rates and prices of energy, work force requirement and payroll rates, material and consumable 

usage and prices 

19. The project model is specifically constructed to distinguish and analyse the possible 

difference of roles between the Government of Vietnam (GOVN) and HCMC in project 

financing and funding , as provided in the Railway Law and the Law and Decree on the State 

Budget 8 . 

20. The Line 2 financial model input data, outputs, and outcome in terms of the project 

plans for investment, financing and funding (including the sourcing of external support), are 

described in Chapter 8 of the PPTA Study report. 

2.6 Model operation and management 

21. Generally, an MRT financial model may be found useful in three areas: financial 

evaluation, financial budgeting, and in procurement and concessionning. Appendix 1 touches on 

practical aspects in operation and management of the model in each of these three applications. 

3. PROJECT VALUE-FOR-MONEY (VFM) ASSESSMENT 9 


22. Doing what the community rationally considers to be desirable at the least cost to is 

acting in the public interest and is therefore an imperative for governments. In the present 

context a VfM assessment addresses the question of choosing, from among identified 

alternatives, one likely to be the least cost method of delivering an MRT project in HCMC. 

23. The VfM assessment was introduced into the international practice of PPP for the 

purpose of making an informed decision between a conventional public sector and a PPP 

undertaking of an infrastructure project. However, once clearly understood its methods can be 

seen to have broader application in choosing among many kinds of options involving different 

risk characteristics. The key objective is simple: to select from several project development 

options the most efficient, ie one incurring the lowest cost to the public. However, 

complications arise because of uncertainty in the cost and revenue or benefit streams of an 

infrastructure project, which has characteristically long gestation (usually more than 10 years). 

Additionally, in land transport, studies have found a tendency for pronounced negative variance 

7 See ADB TA 4862-VIE: Ho Chi Minh City Metro Rail Study, Final Report 2008 (“PPTA Study”) 

8 Railway Law 2005 No. 35/2005/QH11, Chapter V (on urban railways), and Law on the State Budget 2002 No 

01/2002/QH1 and Decree No 60/2003/ND-CP especially Article 5. 

9 This section draws on ADB 2007a and ADB 2007b. 

18

etween forecast and outturn. The objective then has to be restated as finding from among 

alternative modes of project delivery one that offers the least cost, risk taken into account. 

Table 3.1 Alternative approaches for VfM testing: summary of approach features 

Responsibility and 

risk 

Financing 

Civil works and fixed 

equipment 

Trains with related 

systems & equipment 

Passenger service 

with maintenance of 

civil works & 

equipment 

Delivery 

Civil works and fixed 

equipment 

Trains with related 

systems & equipment 

Passenger service 

with maintenance of 

civil works & 

equipment 

Payment/funding 

State owned 

enterprise (1) 

Government sourced 

working capital 

Private sector 

operating concession 

(2) 

Government sourced capital 

Concessionaire 

sourced working 

capital 

Government procures by competitive tender 

Via SOE’s contract 

with government 

Through Gross Cost a 

contract by 

competitive tender 

Private trains E&M 

supply w/operating 

concession (3) 

Build-operatetransfer 

(BOT) 

(4) 

Government sourced 

capital Concessionaire 


sourced capital 

sourced capital 

Concessionaire Concessionaire 

sourced working sourced working 

capital 

capital 

Government procures 

by competitive tender 

Through Gross Cost 

contract by 


Through Net Cost 

contract by 


Fare revenue Revenues collected Paid to government Paid to government 

Other revenue under a separate Paid to government/ Paid to government/ Concessionaire retains 

arrangement 

shared 

shared 

Payment from Gross Cost contract Concessionaire receives competitively bid Competitively bid 

government 

Risk 

style payment payment from government. 

external support 

Investment cost-civil 

Government transfers 

works and fixed 

equipment 

Investment cost-trains 

& related systems & 


some risk to the 

private sector via the 

design, construction 

and equipment supply 

contracts 



private sector in the 



contracts 


private sector in the 



contracts 

Transferred to private 

sector 

Transferred to private 

equipment 

sector, except for 

Service operating cost Contracting transfers Transferred to private 

agreed indexation 

& all maintenance some risk to SOE but sector, except what is 

costs 

state ownership retained through 

means ultimate indexation 

recourse to 

government 

b Transferred to private 

sector, except what is 

retained through 

plus the indexation 

risk of government 

provided trains not 

matching operator 

needs 

Revenue Risk transfer to SOE Some patronage risk is transferred to private Transferred to private 

for a similar purpose sector linked to an incentive payment to keep up sector, except for any 

as in (2)-(3) seems 

less effective, perhaps 

because it is realised 

that government is not 

likely to let an SOE fail 

financially 

service quality standards 

agreed fare indexation 

Source: adapted from Figure 3.1 in Issues and Options paper, this Study 

Notes: 

a 

For a description of the Gross Cost and Net Cost concession forms see Section 2.9 Issues and Options paper, especially 

Figure 2.2. 

b 

In the context of a concession agreement, indexation embodies the principle of allowing the price of a good or service to be 

adjusted upward or downward to keep its original purchasing power parity. 

24. This section reports on a VfM assessment carried out on the four alternatives identified 

in the Options and Issues paper 10 . Their key features are summarized in Table 3.1. They range 

10 See Issues and Options paper Section 2 for a detailed discussion. 

19

from a state-owned enterprise (SOE) approach (1), in which government plays the maximum 

role in the project financing, delivering and funding, taking consequently the full investment, 

operating and revenue risk; through increasing levels of private sector participation—from a 

Gross Cost operating concession (2), to a Gross Cost concession, with operator supplied rolling 

stock along with train-related E&M systems and equipment (3), to a full build-operate-transfer 

(BOT) role under a Net Cost operating concession (4), in which government retains little more 

involvement in the project than contract monitoring and evaluation. In the analysis a common 

assumption of an integrated public transport system is made for all the options. Accordingly, in 

the SOE option, ticketing is assumed to be under a common ticketing authority separate from 

the SOE, and an arrangement similar to a Gross Cost contract with a private sector concession 

aire is assumed to be in place. The methodology for carrying out the VfM analysis is set out in 

Section 3.1. 

25. For the analysis, risk is understood to refer to a probability distribution, or in practice a 

range of probability ratios, for an occurrence with variable possible financial impact, usually 

adverse, quantifiable in monetary terms. The data for the analysis should include not only 

estimates for risk but also how it is priced, meaning how in a contested market one side would 

be willing to remunerate and the other side to be remunerated for parting with or respectively 

taking on a given risk. In consequence, robust market competition to undertake a task with a 

specific risk becomes a fundamental assumption in the analysis. The outputs of the analysis are 

presented and discussed in Section 3.2. Section 3.3 draws conclusions. 

3.2 Methodology 

26. Overview. A VfM analysis is carried out to evaluate from the government’s (ie the 

community’s) perspective the net cost, risk taken into account, of alternative approaches for 

carrying out the key project activities of design, construction and procurement, financing and 

operation. As shown in Table 3.1, the options are distinguished by the way the public and private 

sectors share the responsibility together with the risk in each key project task. The VfM analysis 

is carried out as far as possible using a quantitative method, supplemented by a qualitative 

assessment where a quantitative approach is not possible. The analysis is based on forecast cash 

flows expressed in nominal values. For each option, the output of the analysis is an expected 

net present value of the cost to government of ensuring the delivery of the Line 2 service for the 

duration of the concession, including the valuation of risk retained by the government. 

27. Financial modelling of the PSP options including PPP. The forecast cash flows for 

each option are obtained from projected financial statements—balance sheet, income and cash 

flow statements—calculated for each year of an approximate 30 year concession period covering 

implementation plus service provision and maintenance activities. Except in the SOE option, 

two sets of projected financial statements are generated for each option, one set to report the 

government’s financial position in the project and the other the private sector participant’s. In 

carrying out the analysis for the PSP options including PPP, the following principles have been 

observed: 

(a) By either receiving financial payments from the government or else by paying excess 

revenue to government, the private sector concessionaire achieves an acceptable rate of 

return at a minimum cost to government. 

(b) The private sector concessionaire’s financial plan is based on a limited recourse 

arrangement (ie the lenders cannot rely on any loan security—in particular shareholder 

guarantees—beyond that provided in the project), with a proportionate share of debt and 

equity in the total capital employed (as measured by a debt-to-equity or a leverage ratio), 

20

an average interest rate and a rate of return on equity that reflect the opportunity costs of 

the lenders and equity sponsors, taking into account the project risk of each option. 

(c) The analysis presents the total cost to the government for each option. 

28. Base project costs and revenues. The VfM analysis carried out makes use of the best 

estimates obtained from the PPTA study of the Line 2 fare and non-fare revenues, investment 

and O&M cost, and also the assumed life-cycles and depreciation rates of categories of civil 

works and equipment 11 . In considering the various options, the analysis treats the effects of the 

different concession forms on the concessionaire’s cash flows in the following way: 

(a) Under a Net Cost concession there is a payment from the government to the 

concessionaire in consequence of the project’s funding shortfall. 

(b) Under a Gross Cost concession, the project fare and non-fare revenues, being separate 

from the concession, are treated as revenues of the government; the concessionaire’s 

revenue is made up of payment from the government for the concessionaire’s share of 

the cost and risk in delivering the project. 

(c) The different concession forms have variable effects on (i) the financing costs of the 

concessionaire, including the capital structure and the costs of debt and equity; and the 

incentive for the concessionaire to maximise patronage. These variable effects relate to 

the perception of different levels of risk embedded in each concession form. 

29. The private sector financing and delivery arrangements. The private sector 

concessionaire is assumed to be organised as a special purpose vehicle (SPV), with a legal and 

financial standing separate from its lenders, equity sponsors, and subcontractors. In particular, 

its assets and liabilities wholly derive from the concessionaire’s role and responsibility in the 

project; this is necessary in order to exclude any risk that is not project risk. The concessionaire’s 

relationship to other parties having an involvement in the project is illustrated in Figure 3.1. In 

Figure 3.1, the role, responsibility, rights and remuneration of the concessionaire or SPV are 

formalised in a concession agreement (1) 12 . Under (2), with the government’s express 

recognition under the terms of the concession agreement, the concessionaire’s system design, 

construction and operation and maintenance responsibility and risk are allocated to 

subcontractors with expertise in each field. In (3), under the project financing agreement, the 

financing responsibility and risk are allocated among senior lenders (the senior debt will be on 

limited recourse terms), any subordinated lenders, and equity sponsors (ie shareholders). In 

practice, the senior lenders exercise strong control over the concessionaire’s fund flows until the 

senior debt is repaid. For example, disbursements are made by lenders direct to the design, 

construction and/or equipment subcontractors; during the service phase, the concessionaire’s 

remuneration is held in a reserve account, from which payments may be made only under the 

lenders’ supervision, and so on. Finally, under (4), the concessionaire, through the operation and 

maintenance subcontracts, provides service on Line 2 to the travelling public. 

11 See PPTA study Final Report. 

12 The Issues and Options paper elaborates the underlying principles of a concession agreement. 

21

Figure 3.1 Private sector concessionaire financing and delivery arrangements 

(3) 

Senior lenders 

Subordinated 

Debt & equity 

Government 

Source: adapted from S Gawlic , UNESCAP undated 

SPV – project 

company 

Users/ 

the public 

(1) 

(4) 

(2) 

Design, build 

subcontractors 

Operating 

subcontractor 

Others eg 

insurers 

30. Financing assumptions. The financing assumptions for the private sector 

concessionaire, such as leverage ratio, cost of borrowing and equity are shown by concession 

type in Table 3.2. In the present study, it is judged that the experience of PPP concessions in 

MRT and other infrastructure in Thailand provides a meaningful comparison and may be drawn 

on for assumptions relating to financing cost for a hypothetical private sector MRT 

Table 3.2 VfM Analysis Financing Assumptions 

Private sector financing Net Cost Concession Gross Cost Concession 

Debt-to-equity ratio (times) 2.0 1 5.0 2 

Loan terms 

-Grace period Construction period plus 2 years 3 

-Term including grace period 15 years 3 

-Interest rate 6.95% 4 

Return on equity 13.5% 5 12.75% 6 

Public sector financing 

Loan terms 

-Grace period 7 years 7 

-Term including grace period 27 years 7 

-Interest rate 3.95% 8 

Cost of public sector equity 5% 9 

Source: this Study, drawing on ADB 2007a 

Notes: 

1 Based on a comparison with Bangkok Blue Line concessionaire’s current capital structure 

2 Based on a comparison with UK light rail transit (LRT) concessions eg Nottingham Express Transit. 

3 Based on a comparison with Bangkok financial market indications for projects in Thailand 

4 For an equivalent US Dollar currency borrowing. The interest rate is based on average market rate for government borrowing 

plus a 3% risk premium 

5 At a premium of 8.5% above the cost of municipal bond financing, this is comparable with the Blue Line concessionaire’s cost 

of equity 

6 Based on a comparison with market rates of 12-13% for Thailand IPP projects (PPP power generation concessions, which 

have similar relevant features to MRT Gross Cost concessions with respect to the sharing of usage or demand risk). 

7 Average ODA terms 

8 Lowest ODA US Dollar equivalent loan interest rate. Raising the rate to the middle range does not alter the analysis results. 

9 Cost of US Dollar commercial borrowing rate. 

22

concession in the HCMC context. 

31. Discount rate. A rate of 4% is used for the common discount rate to obtain the cost to 

government of the project development options. 

32. Risk and optimism bias. Risk impacts the expected net financial cost to government 

of an MRT or another infrastructure project through a variance of the outturn from what was 

anticipated when the decision was made to go ahead by any combination of the following: (i) 

capital cost overrun through actual cost and/or construction time exceeding plan; (ii) operation 

and maintenance cost overrun; and (iii) revenue underperformance. By establishing statistics of 

capital and O&M cost overruns and revenue shortfall in a particular sector of infrastructure on 

projects implemented by the conventional SOE approach, it is possible to take into account the 

risk of pure public sector implementation, in addition to the basic net financial cost of a project. 

For example, a 2002 review commissioned by UK Treasury of large British public sector 

procurements found clear evidence for the phenomenon known as ‘optimism bias’, in a 

pronounced tendency for capital cost (and construction time or ‘work duration’) to exceed what 

was anticipated the time of the decision in each of the project types as shown in Table 3.3 13 . 

Table 3.3 Optimism bias in UK Treasury 2002 review of large public projects 

Project type Works duration overrun Capital cost overrun 

Non-standard buildings 1 39% 51% 

Standard buildings 4% 24% 

Non-standard civil engineering 15% 66% 

Standard civil engineering 34% 44% 

Equipment/developmemt 54% 214% 

Source: UK Treasury 2002 

Note: 

1 ’Non-standard’ means more complex, difficult or innovative, when compared to standard projects. 

Based on the study results, the UK government has made it a rule that optimism bias be 

explicitly recognised in the business case preparation and review, a requirement institutionalised 

in UK Treasury issued guidance on appraisal and evaluation of public projects 14 . 

33. Optimism bias in land public transport projects. In land transport, international 

studies of project development have found rigorous statistical evidence of the same optimism 

bias. Figure 3.2 illustrates this tendency with respect to capital cost for a sample of 58 

international rail projects, where the average cost escalation is 44.7% 15 . A similar tendency has 

been statistically established for rail transport demand forecasting. In analyses involving 25 

projects, 72% of the sample are found to show more than 40% shortfall in outturned traffic 

compared to the forecast current at project approval time. Meanwhile the overall average actual 

traffic is 51% below forecast 16 . 

13 The UK experience is instructive because Britain has been among the most active countries employing PPP to 

deliver infrastructure and public services since the mid 1990s. By March 2006, Britain had over 700 PPP projects 

(USD 91 billion equivalent in total value), compared to eg Korea, another active PPP practitioner, with 64 projects 

(USD 24 billion equivalent) by December 2005. See ADB 2007b. The published evidence on optimism bias has 

mostly been associated with public sector projects. Limited disclosure has inhibited attempts at finding rigorous 

evidence on optimism bias in the private sector. 

14 UK Treasury 2003. 

15 Flyvbjerg et al, 2002. 

16 Flybjerg et al, 2005. 

23

34. With service operation, sound evidence from comparative international studies of public 

transport supports an expectation of greater cost efficiency with private sector provision 

compared to public ranging between 30% and 50%. Details are reported in Section 2.10 of the 

Issues and Options paper. 

35. Optimism bias parameters. Specific details have not been found on the extent of 

optimism bias in Vietnam but anecdotal reports show a familiarity with the phenomenon. The 

parameters for optimism bias used in the present analysis are set out in Table 3.4. For capital 

cost, the statistics for the public sector is based on the international studies of rail transport 

public works reported in 32. For operating and maintenance cost, the statistics are based on the 

relative cost of public and private sector operation quoted in 33, with an assumed minimum 

optimism bias of +10% for the private sector O&M cost. The statistics imply an expectation of 

Frequency (%) 

Figure 3.2 Optimism bias on capital cost in rail transport projects 

40 

30 

20 

10 

Source: Flyvbjerg et al 2002. 

0 

-80 -40 0 40 80 120 160 200 240 280 

Cost escalation (%) 

RAIL PROJECTS 

a substantially larger propensity to cost overrunning in implementation and operation of a public 

transport project, when compared to the private sector. This is consistent with a difference in 

approach to resource allocation and management of activities as between government and the 

private sector. The commercial approach needed in service delivery and financing appears to 

Table 3.4 Allowances for optimism bias in MRT projects 

(% difference from the best estimates) 

Public sector 

implementation 

or operation 

Private sector concessionaire 

implementation or operation 

Gross Cost Net Cost 

Cost 

Capital cost +45% +15% +15% 

Operation and maintenance cost +40% +10-20% +20% 

Patronage 

For operating years 1&2 -55% -50% -50% 

For operating year 3 and after -33% -30% -30% 

Source: based on international studies on delivery of public transport projects 

24

thrive on incentives that appeal to self interest, which is how the private sector operates. It has 

been rarely seen to sit well within government, whose principal goals are defined by the public 

interest. The difference in relative optimism bias is much less in demand forecast, although 

some can still be expected. Government and private sector concessionaires both make use of 

specialist transport demand modelling services. At the present state of the discipline, forecasting 

transport demand is recognised to be a difficult exercise in assessing a multiplicity of complex 

influences on a traveller facing trip choices. The size of the optimism bias allowance being 

assumed reflects the statistical record of the performance in forecasting summarised in 32. 

36. The optimism bias parameters in Table 3.4 are the same as those suggested in a recent 

ADB technical assistance (TA) to the Government of Thailand on standardisation of feasibility 

study methods to assess financing and delivery options for Bangkok MRT extension projects 17 . 

37. Other uncertainty. Other uncertainty unrelated to optimisms bias includes unexpected 

changes concerning prices, law and regulations, tax, and early termination of a concession. This 

will need to be assessed qualitatively for its potential effects on the cost to government of the 

project development options. The qualitative assessment is based on considerations taken up in 

the Issues and Options paper, especially in the elaboration of the concession contract 

standardisation in Section 5 and Appendix D. The considerations indicate that the other 

uncertainties can be managed so that their impact is invariant across the options, at least from an 

initial perspective, and can therefore be ignored for the purposes of the current analysis. 

3.3 Analysis results 

38. VfM analysis results. The analysis results are highlighted in Table 3.5. The base cost 

Table 3.5 Highlights of the VfM analysis 

(US$ million, NPV discounting at 4%) 

SOE 

(1) 


O&M only 

(2) 


train equip- 

ment supply 

& O&M (3) 

Base cost 

Government concession payment 570 570 1,563 3,137 

Fare and non-fare proceeds (1,148) (1,148) (1,148) 0 

Government debt service 954 954 786 0 

Government non-debt financing 441 441 86 0 

Government non-debt financing cost 221 221 71 0 

Total base cost 739 739 1,058 3,137 

Adjustment for corporate income tax (43) (43) (222) (912) 

Base cost, tax-adjusted 696 696 836 2,225 

Adjustment due to risk 

Capital cost overrun 622 622 466 207 

O&M cost overrun 174 87 43 87 

Revenue shortfall years 1& 2 22 20 20 20 

Revenue shortfall years 3 502 457 457 457 

Total risk adjustment 1,320 1,186 986 771 

Expected cost to the community 2,016 1,881 1,822 2,996 


to government is taken net of the proceeds from fare collection and non-fare revenue. The base 

cost includes the variable concession payment ( the SOE option is included under this term) 

17 ADB 2007a 

BOT 

(4) 

25

depending on each option. The net base cost is the same in the SOE option as in Option (2), in 

which a private sector operating concessionaire delivers service on Line 2 under public financing 

of all capital cost. Meanwhile, with a BOT concession, the government collects no revenue and 

makes only the one payment to the concessionaire (on account of the Line 2 funding gap). The 

adjustment for tax is to eliminate transfer payments; for simplicity, taxes other than corporate 

income tax payable by the concessionaire have been ignored in the analysis. The risk adjustment 

is added to the base cost to arrive at the expected cost to the community. 

39. A comparison of the expected cost to the community across the four options ranks the 

SOE alternative above the BOT and below the other two PSP options. Looking at the base cost 

only, the substantially lower SOE cost compared to the BOT reflects a lower public sector 

financing cost in both project investment and O&M working capital. By comparison there is a 

maximum transfer of the project risk from the government to the private sector concessionaire 

which saves the community a substantial amount of optimism bias—the risk adjustment in the 

SOE case is almost double that of the BOT option. But further comparison shows that the 

BOT has an expected cost that is almost 50% above the SOE: the higher financing cost of BOT 

make the risk transfer not VfM. Option 3, in which the concessionaire supplies its own train and 

associated systems in addition to operating the service, shows a higher base cost compared to 

Option 2 and the SOE alternative. This is a reflection of the higher private sector financing 

cost for the equipment supplied. When risk is taken into account, Option 3 shows a lower 

expected cost to the community compared to Option 2, that is, it is indicated to have the better 

value for money. 

40. Sensitivity test. The analysis assumes the public cost of debt to be a middling US 

Dollar equivalent ODA loan rate (approximately 4%). A test carried out shows that if instead 

the lowest end of US Dollar equivalent ODA loan interest rates, ie approximately 3%, is used, 

the relative ranking of the four options remains unchanged (Table 3.6). The discount rate used 

for the latter scenario is 3%. 

Table 3.6 VfM analysis sensitivity test: outputs at 3% public debt cost 

(US$ million, NPV discounting at 3%) 

SOE 

(1) 


– O&M only 

(2) 


– train equip- 

ment supply 

& O&M (3) 

Base cost 653 653 1,103 3,847 

Base cost , tax-adjusted 598 598 820 2,707 

Total risk adjustment 1,533 1,368 1,133 917 

Expected cost to the community 2,130 1,965 1,952 3,623 


3.4 Assumptions and contingencies 

41. It is necessary to understand more precisely under what assumptions and contingencies 

are the VfM test results valid. These assumptions and contingencies are as follows. 

42. Market competition. In the analysis, the level of government payment to the private 

sector concessionaire is assumed to be obtained in a competitive market for the concession and 

for all sub-contracts, including the provision of financing. This is the rationale for modelling the 

government payment in all the options at no more than cost recovery, represented by the best 

estimates of capital and O&M cost and fare and non-fare revenue, plus the indicated private 

BOT 

(4) 

26

sector financing costs under different options in Table 3.2. VfM requires a competitive tender 

market for the concession and for related sub-contracting of the technology (eg design, 

construction, systems integration and installation, and operation and maintenance in MRT 

service provision) and in addition financing services. The reason is to ensure that payment of 

concessionaires and sub-contractors is not in excess of a normal risk-weighted remuneration for 

effort. Now an option which has cleared a VfM test could at the procurement stage be facing a 

market failure (eg only one bidder), threatening its ability to deliver the anticipated VfM . Thus, 

transition and emerging countries in particular often cannot count on a reliable international 

supply of private sector financing. The threat of market failure in a specialised field such as 

MRT concessioning and sub-contracting should not be dismissed lightly. It will be important 

to have alternatives at hand, which means having the ability to switch for example to a PSP 

concession for a private sector O&M concessionaire only, should a market sounding suggest that 

only one candidate would tender for a private sector concession in train and related E&M 

systems supply and operation. 

43. Financial and services market distortions. Here are some examples of distortions 

that can threaten to dilute VfM. 

(a) Limited recourse financing of a PPP concession promotes VfM because the senior 

lenders, usually financial institutions regulated by a central bank, will for as long as the 

debt is outstanding have in the project an interest that is aligned with the authority 

granting the concession, and will bring professional skill to the monitoring of the 

concessionaire’s performance. However the lenders’ incentive to monitor that 

performance is diluted with the lenders’ use of credit risk transfer (CRT) products or 

similar instruments for insure lenders against project risk. This practice can significantly 

reduce the benefit the government gains in transferring to the senior lenders a part of its 

risky exposure to the concessionaire’s performance. 

(b) Bilateral ODA financing can also introduce distortions in the sub-contracting markets. 

The tying of an ODA loan to the supply of goods and services of a national origin 

restricts the competitive tendering for the procurement of MRT consulting and 

construction services and systems supply. An opportunity can be created for vendors to 

use the concessionary pricing of a loan to build in an additional margin on goods and 

services. In the long term, the practice can create a situation where, in a narrow field, the 

potential suppliers tacitly agree to live and let live instead of competing, with adverse 

effect on supply prices and therefore VfM. 

(c) Partnering developed over time among financiers and sub-contractors while having a 

potential to be an effective project risk management tool for a concessionaire can be 

abused if allowed to develop into a collusive arrangement, which in the end threatens 

VfM. 

44. PPP procurement capability. Ability to procure well is important for realising VfM. 

The balance of opinion, if not of evidence, is that a greater capability is required of the public 

sector in the procurement of a PPP concessionaire than in a conventional public works 

procurement. Ad hoc outsourcing for the required skills leads to limited results. For example, 

legal firms skilled in PPP contracting, forced to make a choice through conflict of interest rules, 

can tend to opt for working for the concessionaire side rather than government. Institutional 

capability building is required. 

45. Conclusions. Under normal competitive market conditions and assuming a government 

adequately provided with PPP procurement capability, the value-for-money (VfM) test on the 

four development options for Line 2 ranks as the best value the concession for private sector 

operation and maintenance with concessionaire supply of trains and train-related equipment. In 

27

order of preference based on VfM, the other options are ranked as follows: the private sector 

O&M concession with government supply of infrastructure and train equipment and systems 

comes second; the SOE option third; and the BOT option last. It is emphasised that this result 

assumes that competitive markets are in place for the private sector concessionaire, subcontractors 

and financiers. The government procuring authority is recommended to take 

precautionary measures in preparing a concession contract for bidding. For instance, options 

should be kept open and market soundings be taken for any sign of potential market failure 

(only one bidder) in the lead up to tendering. Finally, having adequate PPP procurement 

capability is crucial to success. 

28

REFERENCES 

Asian Development Bank, 2006, Integrating Mass Rapid Transit in Bangkok (TA 4676-THA) 

____________________, 2007a, Integrating Mass Rapid Transit in Bangkok Phase II: Final 

Report (TA 4904-THA) 

____________________, 2007b, Promoting PPP in Bangkok Mass Transit and Other 

Infrastructure (TA 4676-THA) 

Flyvbjerg B, Skamris Holm M, Buhl S, 2002, Underestimating Costs in Public Works Projects, 

Journal of American Planning Association, 68:3 

_______________________________, 2005, How Accurate Are Demand Forecasts in Public 

Works Projects?, Journal of American Planning Association, 71:2 

HM (UK) Treasury, 2002, Review of Large Public Procurements in the UK, study by Mott 

MacDonald 

_______________, 2003, The Green Book: Appraisal and Evaluation in Central Government. 

29

APPENDIX 1. MODEL OPERATION AND MANAGEMENT 

1. The model will be found useful in three main areas: in financial appraisal, in financial 

planning and budgeting, and in procurement/concessioning. How the model can be operated 

and managed is best explained in the context of its application in each of the three areas. 

I. The Model and Financial Appraisal 

2. Financial appraisal is a part of the set of activities making up the public sector 

Table A1. Using the model for financial appraisal 

Element Description Comment 

Data input 

Model output/results 

Model operating steps 


The key input data are the following. 

1. Definition of scenarios and constituent lines 

and line segments; 

2. Forecast of patronage and revenue; 

3. Estimated capital costs and investment 

schedules; and 

4. Estimated O&M costs. 

The following are the key indicators. 

1. Financial internal rate of return (FIRR) 

calculated on the free cash flow projection, some 

times called the “project FIRR”; 

2. Present value (discounting at the social time 

preference rate) of the projected free cash flow 

steam—this measure of viability is indispensable 

when the FIRR measure cannot be obtained (which 

happens for instance when the free cash flow 

series is all negative); and 

3. The projected time series of free cash flow or 

some form of proxy (such as EBITDA—earnings 

before interest, tax, depreciation and amortisation) 

for detail such as a time-profile of the viability gap or 

cost-recovery shortfall. 

1. See that the model is populated with the 

correct input data (if the “factory-default” set of 

input, supplied with the model, is not being used); 

2. Select Scenario and Case; 

3. Select the “SOE” concessionning option in the 

6_Other_input worksheet; 

4. Go to the 13_Results worksheet, Public Sector 

column, to look up the financial viability indicators. 

A first-order forecast or 

estimate of the key model 

input variables is 

sufficient for the strategic 

and development 

programming purposes. 

However, patronage 

impacts MRT capacity 

planning besides 

revenue; so demand 

forecasting error has a 

potential multiplier effect. 

Financial appraisal 

involves the revenue, 

O&M cost and investment 

models but not the 

funding model (financial 

appraisal preceeds 

considerations of 

funding). 

strategic planning and development programming and preparation of the MRT network. In 

financial appraisal the aim is to obtain quantitative indicators of the financial viability (or self- 

30

sustainability or ability to recover cost) of an element of a contemplated MRT network. These 

indicators are contrasted and compared across network scenarios, or across elements of a single 

scenario, to help assess potential financial impact, including implications for public funding, and 

in this way supply information to the process of strategic decision-making and shaping of the 

MRT network programme. To serve the purposes outlined above, the required characteristics of 

the financial model key data input and the input itself, the model results or output and the steps 

in operating the model are shown in Table A1. 

II. The Model and Financial Planning 

3. Whether as a part of the business case preparation, which can take in a ten- to thirty- 

years time horizon, or of a medium term five-year forward view, or whether for institutionalised 

budgetary purposes, effective financial planning for an MRT project depends on a clear view of 

the complex inter-relationships among many factors. The financial model provides a structured 

framework for viewing the quantitative aspects of these complex inter-relationships. It sorts the 

factors involved and their relationships into four groups, under the designations: revenue model, 

O&M cost model, investment model and funding model. The output of the four main models 

supply the exogenous or input lines to the pro forma financial statements. 

a. Revenue model 

4. Relationships. Revenue is made up of the proceeds of fare collection and rental of 

space for advertising and other commercial purposes. The non-fare revenue is modeled as a 

simple percentage of fare revenue. Daily fare collection is the product of forecast daily boarding 

passengers and the fare tariff. Typically the forecast is based on a working day. With integrated 

fare (only one flagfall is paid regardless of the number of transfers between lines), the fare 

collection consists of a flagfall fare element and a distance-related element. Flagfall fare 

collection is the flagfall fare times the number of boarders net of transfer passengers. The 

flagfall fare collection may be distributed or shared between lines in the network in proportion to 

each line’s share of passenger-kilometres out of the network total passenger-kms. Distance fare 

collection is distance(km)-related fare times the average trip length in km times the number of 

boarders. Annual fare revenue is the daily fare collection annualised across the number of 

working-day equivalents in a year (typically, fewer passenger trips are expected on non-working 

days). The model takes 330 days as the “annualisation factor”. 

5. Model input. Daily boarders, the subset boarders transferring from another line, average 

trip length (passenger-kms i.e. kilometres travelled by boarding passengers divides by the number 

of boarders), fare tariff distinguishing flagfall and distance-related fare elements, annualisation 

factor (330), non-fare revenue percentage (7%). 

6. Model output. Daily and annual fare and non-fare revenue. 

b. O&M cost model 

7. Relationships. Operation and maintenance cost is the sum of the costs to provide the 

six MRT operating and infrastructure resources shown in Table 6, where an individual resourcerelated 

cost is modelled as the annual cost to provide one unit of the resource in question times 

the resource quantum. The unit costs are explained in 3.2. The operating resources, namely the 

train- and car-hours, and train- and car-km, ultimately depend on certain parameters set in the 

train-operating plan. The parameters are: (i) operating speed (km per hour) during peak, offpeak 

hours; (ii) daily operating hours broken up into peak and off-peak; (iii) frequency of trains 

per one peak, off-peak hour, usually expressed as the time in minutes between two successive 

31

trains going in one direction (“headway”); (iv) Line length (km). Daily train-hours respectively 

car-hours are daily train-kilometres respectively daily car-km divided by the train operating speed, 

the car-km being the train-consist (e.g. three cars per train) times the train-km. Daily train-km 

are the sum of the daily round-trip distance—i.e. two times the line length—travelled by peak or 

off-peak trains, where the number of peak, off-peak trains are the number of peak, off-peak 

trains per hour multiplied by the respective number of peak, off-peak hours. The number of e.g. 

peak trains per hour is 60 (minutes) divided by the peak headway. Given a daily service, the 

quanta of daily operating resources are annualised at 365 days. 

8. Model input. Unit O&M costs per MRT operating or infrastructure resource, number 

of stations, line length, operating speed peak/off-peak hour, daily operating hours peak/offpeak, 

headway peak/off-peak, annualisation factor 365 days. 

9. Model output. Daily and annual O&M cost. 

c. Investment model 

10. Relationships. The engineers’ estimate of the cost to create the MRT infrastructure and 

operating assets including any necessary land acquisition, given as a constant price number (e.g. 

in years 2005 Baht), together with input on the construction schedule, yields the basis for 

forecast capital spending during the construction period. Conversion from constant to current 

prices makes use of an assumed 3% annual price escalation factor. The model utilises the 

engineers estimate for all categories of assets except rollingstock, for which it makes use of just 

the engineers’ price estimate and specification of car passenger carrying capacity . The 

acquisition schedule for units of rail cars is generated by the model using peak passenger demand 

data from the patronage forecast, car pacity, and parameters from the train operating plan. The 

model is constructed to allow for construction scheduling variability. To specify a construction 

schedule, input (in worksheet 8_Schedule) construction start and completion dates and an 

estimated progress of work/disbursement pattern. The engineers’ cost estimate covers the 

hardware. An allowance is made for the project software cost—project development and project 

management consulting service—as a percentage (typically 5%) of the estimated hardware cost. 

Interest during construction, a capitalised expense, is also a capital cost in private sector projects. 

Within the typical time horizon of a business case, more capital cost is incurred to replace 

exhausted E&M systems including intelligent transport systems or ITS, refurbish used rail cars 

(after 15 years at a cost equal to one-third of the acquisition cost) and augment the rollingstock 

fleet to serve a growing patronage. The model generates a depreciation schedule for all categories 

of capital assets, based on their economic life (typically, 50 years for civil works including 

trackwork, 30 for rollingstock and depot and 15 for fixed E&M systems) using the straight line 

method. The software cost is combined with the cost of hardware by category and depreciated 

together. 

11. Model input. Engineers’ estimate of capital cost during the construction period, 

detailing at least the cost for each of the asset categories of civil works (viaduct and/or tunnelling 

and stations and trackwork), fixed E&M systems including ITS, depot, and rail car price and 

passenger capacity (worksheet 2_Capital_cost_input); construction start and completion dates 

and disbursement schedule; peak passenger demand (4_Passenger_input); train operation plan 

key parameters (5_Train_op_input); economic life of assets by category and depreciation 

policy. 

12. Model output. Projected annual capital expenditure and annual depreciation. 

d. Financing model 

32

13. Relationships. What roles are decided on for the public and private sectors in an MRT 

project have a bearing on the way the project is financed At one end of the spectrum is the role 

combination in a Gross Cost Concession approach, which implies government direct funding for 

all the assets, while at the other extreme there is the total private funding of all the assets 

consequent upon a Build-Operate-Transfer or its variant Build-Transfer-Operate concession 

(such as the BTS situation). In between would be a DBOM (Design-Build-Operate-Maintain) 

concession, which implies some form of delayed payment by the public sector for assets 

designed and built and initially financed partly or wholly by a private sector concessionaire. The 

model also includes a pure public sector investment and operation typical of a state owned 

enterprise (SOE) as a technical option. Through the worksheet 6_Other_input, the model is 

configured to accept any one of a selection of five concession forms as an input. The model 

generates debt-servicing schedules (i.e. annual interest payment and repayment of principal) 

given an input interest rate and debt repayment structure. For the private sector, inputting a 

leverage ratio (i.e. debt as a percentage of value of assets being funded) for the initial project 

investment (respectively investment during the operating stage) automatically determines the 

amount of debt funding for investment. Meanwhile, in terms of working capital, accounts 

receivable are based on a 60-day collection time, accounts payable are based on a thirty-day 

payment period for expenses connected with O&M cost, and an allowance for stocks (spare 

parts principally) is made equal to 0.25% of gross fixed assets value. 

14. Model input. Key concession forms and associated method of funding MRT assets; 

interest rate and debt amortisation structure; private sector leverage ratio and collection and 

payment periods as well as a stocks/gross fixed assets ratio and corporate income tax structure. 

15. Model output. Annual debt servicing schedule (both interest and principal payments); 

private sector debt principal and input equity, accounts receivable, accounts payable, stocks, 

annual tax payment. 

III. The Model in Procurement/Concessioning 

16. Suppose that some element of the MRT network has been approved for implementation 

under a chosen concession type and that the time has come to address the question of 

procurement of the MRT capital assets and operation and maintenance. Here, too, the model 

can find useful application. The model has been developed to simulate the implementation of 

MRT network elements under four broad types of concession: (i) Gross Cost Concession; (ii) 

Design-build-operate-maintain (DBOM) Concession; (iii) Net Cost Concession; (iv) Designbuild-operate-transfer 

(DBOT) Concession. Fare and non-fare revenues do not figure in the 

concession in the first two concession types, the concessionaire being compensated directly by 

the government. With the remaining two concession types, the concessionaire finds its 

compensation out of its fare and commercial revenue collection plus government viability gap 

funding to meet any shortfall. The model incorporates pro forma financial reporting for the 

different concessions as highlighted in Table A2. To select the concession form with which to 

operate the model, enter the appropriate concession code in the worksheet 6_Other_input. Use 

the Index to navigate among the public/ private sector pro forma financial statements and 

supporting schedules in the worksheet 12_Financials. 

17. Table A3 illustrates the model’s potential application in the main stages of procurement/ 

concessioning of an MRT line or larger network element. 

33

Public sector 

financial 

statements 


(concessionaire) 

financial 

statements 

Table A2. Illustrative MRT financial reporting under four concession types 

Gross Cost DBOM Net Cost DBOT 

MRT Assets— 

BSA 1 

Fare and nonfare 

revenue— 

ISR 3 


operating 

charge—ISE 4 


operating 

charge—ISR 

O&M cost—ISE 

MRT Assets—BSA 

Liability under “HP” 

contract—BSL 2 

Fare and non-fare 

revenue—ISR 


operating charge— 

ISE 

Claim on public 

sector under HP 

contract—BSA 


operating charge— 

ISR 



Concession fee 

receipt—ISR, or 

Viability gap 

compensation 

paid—ISE 


revenue—ISR 



payment—ISE, or 

Viability gap 

compensation— 

ISR 


BOT concession 

liability—BSL 


receipt—ISR, or 

Viability gap 

compensation 

paid—ISE 

Project capital 

cost—BSA 


revenue—ISR 



payment—ISE, or 

Viability gap 

compensation—ISR 

Notes: 1 Balance sheet asset; 2 balance sheet liability; 3 income statement revenue; 3 income statement expense 


34

Illustrative 

objectives and 

tasks 

Financial 

model 

application 


Table A3. Using the financial model in MRT procurement/concessioning 

Preparation and issue of 

request for proposal 

1. Set procurement 

objectives: required MRT 

network element at best 

value for money (VfM); 

government control of fare 

policy; consistency with 

MRT network-wide 

integrated fare and ticketing 

arrangement. 

2. Determine bid 

variable(s) which would best 

secure objectives in 1. 

3. Determine bid 

evaluation method to secure 

objectives in 1. 

4. Prepare bid terms of 

reference, scope of work 

and associated 

documentation to go out 

with request for proposal 

1. In the VfM review, use 

the model (with updated 

input) to determine the 

base-case, or most 

probable cost, of e.g. 

turnkey MRT capital assets; 

operation and maintenance 

in a Gross Cost 

Concession; singlepackaged 

capital assets and 

operation and maintenance 

in a DBFOM (design-buildfinance-operate-andmaintain) 

concession etc. 

(N.B. the financial model 

alone cannot complete the 

VfM review, which further 

requires analysis and 

pricing of the risks under 

alternative public-private 

risk allocation scenarios.) 

2. The TOR should 

require that proposals 

include submission of a 

financial model, in both 

electronic and hard copies, 

of a specified format, to 

support the financial bid. 

Procurement/concessioning stage 

Proposal evaluation Negotiation of 

concession contract 

1. Evaluate and rank 

proposals using the chosen 

evaluation method*. 

2. Short-list highest-ranked 

proposals. 

* The potential VfM of a 

proposal depends on these key 

factors: qualification (capability 

and experience) of 

concessionaire; risks 

transferable to and incentives 

of concessionaire. 

For each proposal the model 

(with suitably updated input) 

can help to answer the 

following questions. 

1. Is the bid supported by 

sound financial planning? 

2. Are the bidder’s model 

input data 

reasonable/realizable? 

3. How are the bidder’s 

prospective returns on 

investment (and therefore its 

incentive to help produce the 

VfM)? 

Negotiate with shortlisted 

proposals, starting 

with the highest ranked, 

in order to better 

achieve the set 

procurement objectives. 

At each step of the 

negotiations, through 

appropriate input 

updating, the model can 

be used to work out the 

financial implications for 

each side of the 

negotiating table. 

35



Appendix C: Stakeholder Feedback and Implementation 

Arrangements: Institutional Options Working Paper 

24






PPIAF Study - 

Working Paper 

Stakeholder Feedback and 


Arrangements: Institutional 

Options 

March 2008


Summary ........................................................................................................................................................................ i 

1. Introduction .................................................................................................................................................................... 1 

1.1 Background and Purpose................................................................................................................................. 1 

1.2 Development Context...................................................................................................................................... 2 

2. Current Institutional and Regulatory Arrangements ............................................................................................... 5 

2.1 National and Local Responsibilities............................................................................................................... 5 

2.1.1. National..............................................................................................................................................5 

2.1.2. Local....................................................................................................................................................6 

2.2 Current Funding Arrangements ..................................................................................................................... 8 

2.3 Key Policies and Regulatory Provisions......................................................................................................10 

2.3.1. Policy.................................................................................................................................................10 

2.3.2. Key Laws..........................................................................................................................................11 

2.3.3. Laws Governing Involvement of the Private Sector in Urban MRT Operations and 

Related Investment.........................................................................................................................................14 

2.3.4. Other Relevant Laws and Decrees ..............................................................................................16 

2.4 Transport Agencies and Functions in HCMC...........................................................................................17 

2.5 A Framework for Analyzing Institutional Functions ...............................................................................19 

2.5.1. A Hierarchy of Transport Organization.....................................................................................19 

2.5.2. Structuring Transport Activities...................................................................................................21 

2.6 Diagnosis ..........................................................................................................................................................23 

3. Factors Affecting the Role & Structure of an Apex Public Transport Agency and Relevant Functions.....25 

3.1 Policy Framework ...........................................................................................................................................25 

3.2 Hierarchy and Structure.................................................................................................................................26 

3.3 Key Public Transport Management Functions..........................................................................................26 

3.4 Other Issues .....................................................................................................................................................27 

4. Potential Institutional Arrangements for Delivering Integrated Public Transport ..........................................29 

4.1 Institutional Options ......................................................................................................................................29 

4.2 Assessment of Options..................................................................................................................................35 

4.3 Building Technical and Managerial Capacity .............................................................................................36 

4.4 Legal Basis for Integrated Transport or Integrated Public Transport...................................................37 

5. Some Lessons on Organizational Structure for Efficient MRT ..........................................................................38 

5.1 Overview of Lessons from Other Cities.....................................................................................................38 

5.2 Guidance for HCMC’s MAUR.....................................................................................................................39 

Appendix A: Trends in the Management & Provision of Public Transport.........................................................44 

Appendix B: Review of Other Arrangements for Management & Provision of Public Transport..................46 

Appendix C: Scoping of the Possible Content of an Integrated Public Transport Law..............................................59 

References and Bibliography...................................................................................................................................................63 

i

Abbreviations 



DAF Development Assistance Fund 

FDI Foreign Direct Investment 


PC 







HCMC PC 











PRG Partial Risk Guarantee 





HCMC PC 

ii

Summary 

Si

PPIAF TA for HCMC MRT 

Summary 

1 

WORKING PAPER 

STAKEHOLDER FEEDBACK & 

IMPLEMENTATION ARRANGEMENTS: 

INSTITUTIONAL OPTIONS 

4 Objectives for PPIAF TA 

1. Identify options for private sector participation in MRT 

2. Assess benefits of each option 

3. Financial analysis & financial model 

4. Implementation approach 

� contractual including PPP & institutional 

� for whole MRT network 

2 

9 March 2008 

1

Problems if MRT is not treated as a Network 

Poor physical integration: 

- of MRT lines 

- with bus 

- with urban environment 

Inconvenient & unsafe travel 

– long transfer between MRT lines 

3 

Problems 

Bangkok MRT fares differ for each line 

4 

• Bht 25 on BTS 

• Bht 22 on Blue 

Line 

• Bht 32 for BTS 

& Blue Line 

• Bht 30 for Blue 

Line & BTS 

9 March 2008 

9 March 2008 

2

Problems 

2 smart card ticketing systems are NOT compatible 

5 

Card A Not compatible Card B 

9 March 2008 

Principles for Integration & Efficient Operations 

� MRT is a network of services 

� not separate MRT lines 

� O&M of MRT is just as important as the infrastructure 

� Whole of life cost of O&M will be equal to initial infrastructure cost 

� Common ticketing and fares 

� In London, Hong Kong and Singapore etc ticketing and fares are separated 

from the O&M for each line 

� Common approach for MRT O&M on all lines in the network 

� To ensure integration, accountable operations & policy control 

� A standard contract/concession type for any operator (private, public or JV) 

� O&M concession should exclude ticketing system 

� Integration of MRT and other public transport 

� Need a coordinating authority at PC level eg Singapore LTA, London TfL 

� Need legal basis for integrated public transport 

6 

9 March 2008 

3

Provision and Management of Public Transport – recent 

experience 

H 

i 

s 

t 

o 

r 

i 

c 

Dispersed public transport 

service provision 

- limited role by government for 

service planning & integration 

- services & sometimes 

infrastructure provided by the 


- limited or no government 

subsidy 

Alternative 

direct route 

for change 

7 

Development 

approach in 

the past 

Objective: 

Improvement & 

integration of 


Centralized public transport 

authority 

- government agency 

- integrated service planning & 

provision 

- services provided by the 

authority or other government 

agencies 

- substantial subsidies needed 


eg Europe, 

S. America, 


Objective: innovation 

& reduced unit costs 

through effective use 

of the private sector 

Public transport management authority 

- government agency 

- integrated service planning (with 

operators and others) 

- services provided by private operators 

under contract to the authority 

- various forms of payment arrangements 

between the authority and contractors 

9 March 2008 

Structuring Authority Functions – Level of Government 

Strategy Level Function Agency 

“For the city” 

National ministries 

“Of the city” 

“In the city” 

Based on World Bank (2002) 

8 

• National roads 

• Public enterprise 

• Tax levels 

• Intergovernmental transfers 

• Regulation & competition 

policy 

• Vehicle registration & safety 

•Urban structure planning 

•Strategic transport planning 

•Local road management 

•Public transport planning & 

procurement 

•Traffic management 

•Law enforcement 

•Road safety 

• Public transport operations 

• Road construction & 

maintenance 

Local / regional government 

Local government/ Private 

9 March 2008 

4

Diagnosis 

� GVN’s agencies undertake those “for the city” functions such as 

national railway lines and highways as is desirable 

� HCMC PC is very heavily involved in “of the city” as is considered 

desirable by Figure 2.2 dealing with essentially local functions for 

HCMC citizens 

� Local HCMC firms and agencies are also extensively involved in “in 

the city” functions as is desirable 

� Conclusion: HCMC is fortunate that the PC has a fair degree of 

autonomy for key local functions 

9 

9 March 2008 

Structuring Authority Functions - Institutional 

Focus is on clear separate policy, regulation, system 

management & operations (ie service delivery) 

Policy & 

strategy 




• Financing and 



monitoring 

Regulation 



licensing 


Effectiveness – “doing the right thing” 

Reports 

Informs 

10 

Program 

management 



programming 




contracting 

• Concessioning 

• Monitoring & 

quality assurance 

Service 

delivery 


• Services 

• Information 

Efficiency – “doing the thing right” 

9 March 2008 

5

Diagnosis 

� Policy and strategy can be strengthened and more closely linked 

to budget processes 

� Regulatory functions can be improved. The capacity/authority of 

public regulatory agencies need to be strengthened 

� Program management can be improved eg bus subsidies are 

growing rapidly 

� Regulatory and service delivery functions are compromised by 

involvement of the PC in both 

� Service and other contracting delivery can be improved 

11 

9 March 2008 

Structuring Authority Functions - Policy Needs 

12 

� Key policy needs that influence the role and nature of institutions 

in the transport sector are: 

� Defining desired outcomes 

� Linking land use and public transport development 

� Coordinated, multi-modal transport planning 

� Public transport service standards and planning 

� Integration of public transport services 

� Investment planning and decision-making 

� Role of the private sector 

9 March 2008 

6

Key Public Transport Management Functions 

13 

� Core functions for an Authority that includes MRT are: 

� project planning and programming, including preparation of business case for 

projects, coordinating projects, and budget programming 

� coordinating requests for funding for infrastructure development and, where 

needed, subsidies for service provision 

� infrastructure delivery, which will includes establishing financing 

arrangements, the manner for delivering projects, and taking account of lifecycle 

costs and management 

� public transport services delivery – through concessions (to private sector or 

other) or other business-like arrangements 

� fare policy, ticketing, and revenue management, which would be a minor 

activity if there was no integrated fares and ticketing but is otherwise more 

complex 

� passenger information and marketing 

Other issues 

14 

9 March 2008 

� Level of government. HCMC PC &other provincial governments in the region 

could be involved in the Authority through an advisory committee. 

� Community involvement. Can be achieved through, for example, their 

involvement in various advisory committees of a Authority. 

� Metro rail ie MRT expertise. Special expertise is needed to manage the 

development & operation of MRTbecause of its special characteristics 

� Funding policy. Government will need to continue finance fixed 

infrastructure for future rail lines in HCMC. Fare revenue will be inadequate 

to recover all operating and maintenance costs 

� Extent of public transport integration. The effectiveness of an MRT system 

will be maximized through integration with other public transport services 

and integration of ticketing and fare systems for public transport. Achieving 

this adds technical and institutional challenges, and requires the Authority to 

have a broader capacity than simple delivery of rail mass rapid transit lines 

with private or public delivery of rail services. 

9 March 2008 

7

4 Institutional Strengthening Options 

� Option 1: Strengthen MAUR 

� Option 2: Interim Public Transport Authority 

� Option 3: Integrated Public Transport Authority 

� Option 4: Integrated Transport Authority 

15 

Option 1: Strengthen MAUR 

16 

Increasing 

integration 

9 March 2008 

Advantages: 

• MAUR exists 

• Has breadth of 

powers needed 

• Transport policy 

set by TUPWS 

• Clear delineation 

for MRT policy 

setting & service 

procurement 

Disadvantages 

• Linkage with bus & 

other policy can be 

strengthened 

9 March 2008 

8

Option 2: Interim Public Transport Authority 

17 

Features: 

• Same as 

Option 1 

• Except 

improved 

outcome 

possible 

through PC 

level 

coordination 

Option 3: Integrated Public Transport Authority 

18 

9 March 2008 

Features: 

• Similar to 

Option 1 but 

MAUR 

converted to a 

Public 

Transport 

Authority 

• Improved 

coordination 

outcome likely 

9 March 2008 

9

Option 4: Integrated Transport Authority 

19 

Closing Comment 

� HCMC PC has a single Authority for MRT already 

20 

Features: 

• Completely 

integrated 

transport 

authority 

9 March 2008 

� The PPIAF team will work with the HCMC PC including MAUR staff 

� to refine the proposed options for effective & efficient MRT development 

9 March 2008 

10


1.1 Background and Purpose 



Master Plan (as approved in January 2007). 

Two lines (MRT2 and MRT3) have been proposed for Asian Development Bank (ADB) 

funding with another line (MRT1) to be financed by the Government of Japan. The 

Government of China, is a developing a proposal for an MRT line, there are other proposals 

including one from China for MRT, Malaysian interests to develop a monorail, and for a 

French consortium to develop a tram route. 




� An optimized MRT Master Plan which integrates the currently proposed MRT lines into 



� A feasibility assessment and preliminary engineering design for the two project lines. 



� A plan to support project implementation, including institutional and staffing 


program. 

In parallel, ADB is mobilizing a grant from the Public Private Infrastructure Advisory Facility 

(PPIAF 1 ) to optimize private sector participation in MRT 2 and 3, and to assist the HCMC PC 


arrangements for MRT in the context of wider urban transport. The scope of the PPIAF 

technical assistance (TA) therefore covers developing (i) a framework for considering private 

sector participation in implementation and operation of the Project; (ii) a value-for-money 


participation, (iii) a detailed financial model reflecting the preferred approach and measuring 


participants; and (iv) a stakeholder feedback and a description of necessary institutional and 

contractual arrangements given the preferred implementation approach. 


prepared by consultants undertaking the PPTA. The results of its work will be presented in 



1 The Public-Private Infrastructure Advisory Facility (PPIAF) is a multi-donor technical assistance facility aimed 

at helping developing countries improve the quality of their infrastructure through private sector involvement. 

For more information on the facility see the website: . 

1

While the MRT system will be developed by the PC, the GVN will also be involved through 

various approval processes and possibly financing also. It is therefore necessary to establish in 

detail the roles for various agencies of these governments for project approval and 

implementation, and the manner in which integrated MRT development in HCMC will be 

managed. 

This Working Paper presents the initial proposals for appropriate institutional 

arrangements in HCMC based on identified needs, and an analysis of the strengths 

and weaknesses of the current situation. The focus of the work is on the institutional 

arrangements for the development and operation of optimal MRT in the long term taking into 

the needs for integration with other public transport and land use developments. 

The appropriate institutional arrangements need to be planned at the same time the possible 

modalities for financing and operation are being considered. Hence, this Working Paper on 

institutional arrangements was prepared in conjunction with the separate but 

complementary paper on Private Sector Participation Options. 

1.2 Development Context 

With a population of approximately 6.1 million in 2004, HCMC is the largest city in Viet Nam 

and its economic hub. HCMC has a total administrative area of 2,095 km2 covering 19 urban 

and five suburban/rural districts. The average population density is about 2,900 inhabitants 

per square km with a central area density of around 45,000 inhabitants per square km (JICA 

2004). Approximately 2.3 million people were estimated to live in the three adjoining 

provinces of Dong Nai, Binh Duong, and Long An which make up the Greater HCMC region 

which is illustrated in Figure 1.1. 

Population grew at a rate of 2.5% pa from 1989 to 2001 to reach a population of 5.285 million 

in 2001. Annual growth appears to have accelerated from 2001 to 2004 as shown in Table 1.1 

but it appears the apparent quickening is due to possible definitional changes over time and 

differences between data sources. In this regard, MVA Asia (2005) stated that: 

“Over the last few years, HCMC population growth has increased from 2.18% in 2000 to 8.65% in 

2004… Natural growth has been reducing over the years while migration growth has increased. A large 

part of the Year 2004 apparent growth might be due to data being collected from different data sources 

explaining the large increases between Year 2003 and Year 2004.” 

2

Source: JICA (2004) ie HOUTRANS 

Figure 1.1: Greater HCMC Area 

Table 1.1: Historic Ho Chi Minh City Population 

Population 2000 2001 2002 2003 2004 

Average population (‘ 000) 5,175 5,285 5,449 5,630 6,117 

Overall growth rate % pa with 

components of: 

2.18% 2.13% 3.10% 3.32% 8.65% 

Natural growth 1.37% 1.3% 1.27% 1.15% 1.1% (est) 

Migration growth 0.82% 0.77% 0.90% 1.20% 1.4% (est) 

Other growth 0.00% 0.06% 0.93% 0.97% 6.15% (est) 

Source: MVA Asia 2005 

Population in the three adjoining provinces which in addition to HCMC make up Greater 

HCMC grew from 1.949 million in 1995 to 2.244 million by 2002 according to HOUTRANS 

(JICA 2004) which represents a growth rate of 2.0% pa. Residential developments and 

industry are spreading from the northern and northeastern parts of HCMC in the southern 

areas of Binh Duong province and in and around Bien Hoa City of Dong Nai province. 

Population for the region was forecast to reach 13.5 million by 2020 with 10 million in HCMC 

by HOUTRANS (JICA 2004). MVA Asia (2005) for TEWET’s 2005 demand and revenue 

update took a more pessimistic view assuming the 2020 HCMC population would likely reach 

7.7 million up from the estimate of 7.2 million for the region in the 2003 study. 

Currently, the HCMC region spreads out over an area roughly 50km in radius with 

development beyond the central area concentrated along major road corridors with large areas 

of agricultural or low intensity use in-between. The current dispersed structure has been made 

possible by the relatively high level of motorization, specifically motorcycle ownership as 

described below. 

The PC’s plan for HCMC is to formalize and intensify the current mono-centric urban 

structure into a poly-centric arrangement with several activity or business centers located 

3

around the central area along key corridors. Major expansion of the current road network is 

also proposed: 

� 46 km of elevated urban expressways are intended to strengthen accessibility of the city 

center; 

� The primary arterial network would be extended from 206 km (within HCMC) to 476 

km forming the backbone of the urban area road network. Projects comprise 

construction and improvement of three ring roads, widening of existing primary roads, 

and construction of new roads; and 

� The secondary road network would be greatly improved overall in order to form a basic 

traffic distribution network. 

These road projects without major travel demand management measures are considered likely 

to disperse land use, and make private travel more necessary and more attractive. 

Current trends are for continuing rapid growth in incomes and motorization, increased 

urbanization, and associated traffic congestion, and related pollution (local and global) and 

crashes, which will to some extent reduce the productivity of region’s, and therefore, Viet 

Nam’s economy. Addressing this considerable challenge requires as its foundation appropriate 

institutional and regulatory arrangements to coordinate land use and transport development 

management, formulation and implementation of transport policies and infrastructure, and the 

delivery of efficient integrated, multi-modal transport services. 

4

2. Current Institutional and Regulatory Arrangements 

Central and local government policies on transport infrastructure provision, in some cases its 

operation of services, and its regulation of transport infrastructure and services undertaken by 

the private sector have an important influence over transport outcomes. Authoritative plans 

with realistic financing, sound institutional and regulatory arrangements, and adequate 

resources (human and financial) are therefore important for obtaining a well planned 

transport system that is constructed to a high standard, is operated and maintained efficiently, 

and provides attractive services that are financially sustainable. 

This section of the Working Paper provides a review of current relevant laws, policies and 

plans and a description and analysis of current institutional and regulatory arrangements. 

2.1 National and Local Responsibilities 

Vietnam has a unitary system of government characterized by dual subordination 2 . Central 

government has decentralized considerable responsibilities to provincial and local 

governments over the last decade. Hence, HCMC has considerable powers for developing 

policies, plans, making investments, raising finance and regulation and operation of transport 

services. Nevertheless, while considerable power is subordinated to local governments moving 

decisions and outcomes closer to local communities, there remains the need to refer back to 

central government for comment and often approval for key decisions. 

People’s Councils (PC) are elected at the provincial, district and commune levels with the last 

elections held in April 2004. The People’s Council is the highest state institution at the 

regional and local levels and is responsible to the electorate at each level and the National 

Assembly at the national level. The People’s Council elects a People’s Committee to serve as 

the executive institution. People’s Councils have formal practical oversight over People’s 

Committees (TI, 2006). 

Ho Chi Minh City is a municipality that exists at the same level as Vietnam's provinces. It 

therefore has a similar political structure to its provinces, with a People's Council of 95 elected 

deputies, and a People's Committee (PC) of 13 members chosen by the council, being the 

principal local governmental entities. The relevant roles and responsibilities for planning of 

transport and so on of national and HCMC and other local agencies is described below based 

on World Bank (2005): 

2.1.1. National 

� MOT prepares long term transport strategies, five year plans for inclusion in the Public 

Investment Program (PIP) and one year plans for inclusion in the annual State Budget 

for national transport infrastructure. MOT’s Transport Development Strategy Institute 

(TDSI) develops the long term transport sector strategies and plans. “These plans 

typically identify investments and total costs for the next five to ten years and are prepared 

to meet the development goals without much attention to budget constraints. Provincial 

and city governments participate in the identification and definition of national projects in 

their provinces.” 

� “The long term transport strategies and plans are used as a basis for preparing 5 year 

investment programs that also include annual projected expenditures and potential sources 

2 Oversight and accountability function according to a system of dual subordination. Ministerial departments and 

agencies at each level of government report horizontally to the associated People’s Council and vertically to the 

parent agency, depending on the particular sector in which they operate (TI 2006). 

5

of financing. These plans are submitted to MOT’s Department of Planning and 

Investment (DPI) for inclusion in the PIP but according to World Bank (2005) the 

selection criteria are unclear. DPI then collates the different investment lists with the 

expected sources of financing and MOT submits a comprehensive list to the Ministry of 

Planning and Investment (MPI).” 

� PIPs are also prepared without constraints of resource availability. MPI identifies available 

and potential sources of financing to fund the PIP. But gaps remain. Individual projects 

require approval of the National Assembly but not the PIP as a whole. Projects of 

national importance (eg national security) are approved by the National Assembly; those 

costing over VND 400 billion are approved by the Prime Minister; and those costing less 

than VND 400 billion are approved by MPI. Road and other transport projects costing 

less than VND 400 billion also have to be approved by the Viet Nam Land 

Administration (VLA) before submission by MOT to MPI if the roads fall under VLA’s 

management. Feasibility studies are typically the basis for granting these approvals. The 

Ministry of Natural Resources and the Environment (MNRE) reviews and approves 

environmental impact assessments for transport projects. 

� “The annual investment program prepared by MOT and submitted to MPI to secure the 

annual budgetary appropriation does not always include the projects that were listed in the 

PIP. Some projects are added while others are removed. Typically, projects listed in the 

PIP require a larger budget than is allocated to MOT in the annual State Budget”. 

2.1.2. Local 

� In HCMC, as in other cities, the Transport and Urban Public Works Services 

(TUPWS) of the PCs develop transport strategies, long-term plans, five year plans and 

annual plans for the cities, districts, and communes and submit them for approval to the 

PC. The current plans place an emphasis on the development of new urban rail and mass 

rapid transit systems. In provinces, the provincial Departments of Transport (PDOT) 

provide the same functions as TUPWS. During preparation of these plans, the city 

authority must consult the Ministry of Transport (MOT) and obtain their 

recommendations, but are not obliged to follow them. This system of dual and upward 

checking is commonly called dual subordination 3 . In the case of urban projects, the 

Ministry of Construction must usually be consulted. 

� Article 15 of the Railways Act 2005 requires HCMC PC, and other key cities and 

provinces, the responsibility to formulate urban railway infrastructure development plans 

after submitting to people council of the same level for initial approval and then submit to 

the Minister of Transport for approval. The authority, which approves railway 

infrastructure development plans …. shall have right to amend the plans when necessary . 

Article 14 of the Railways Act requires plans to be reasonably definitive for the first period 

of 10 years and more indicative for a further period of 10 years. HCMC has an MRT 

Master Plan for the year 2025 which was approved by the Prime Minister in January, 

2007. 

� District and commune governments are subject to more binding dual subordination. The 

transport plans of districts and communes have to be approved by their respective local 

level PCs as well as by the TUPWS. 

3 Oversight and accountability function according to a system of dual subordination. Ministerial departments and 

agencies at each level of government report horizontally but upwards to the associated People’s Council and 

vertically to the parent agency, depending on the particular sector in which they operate (TI, 2006). 

6

Table 2.1 summarizes the key agencies related to land and in particular urban transport and 

the roles they play. 

Table 2.1: Policy, Regulatory and Oversight Responsibilities 

Sector Ministry/Administration Responsibility 

Through its different modal administrations and departments 

(a) plans, manages and maintains national infrastructure 

Ministry of Transport (MOT) 

through its different departments and administrations; (b) assists 

local governments in developing transport plans and selecting 

transport projects; and (c) manages public bus transport 

Transport 

Transport Development Strategy 

Institute (TDSI)-under MOT 

plans by approving cities master plans 

Develops long and medium term transport sector strategies 

and plans (in collaboration with modal administrations) 

Urban 

Transport: 

HCMC 


Investment (DPI)-under MOT 

Integrates investment plans prepared by modal administrations 

for submission to MPI for inclusion in the PIP and to MOF for 

inclusion in the State Budget. 

People’s Committees Approves key issues such as fares, opening and closing of 

routes, schedules and subsidies. 

Transport and Urban Public 

Works Services’ (TUPWS) 

Transport and Industry 

Management Department 

(TIMD); and the Management 

and Operations Centre for Public 

Transport (MOCPT). 

Traffic Police under the Public 

Security Department 

HCM City Management 

Authority for Urban Railways 

Railways Vietnam Railways Administration 

(VNRA)—under MOT 

National 

roads 

Local roads: 

(Provincial, 

District and 

Commune) 

Vietnam Railway Corporation 

(VRC) 

Vietnam Expressway Corporation 

(VEC)-under MOT 

Vietnam Road Administration 

(VRA)—under MOT 

VRA operates through 4 Regional 

Road Management Units 

(RRMUs) 

Designated Provincial Departments 

of Transport (PDOTs). 

Develops cities’ transport strategies; Plans and manages 

construction; Maintains urban transport infrastructure; 

Manages bus transport; Coordinates planning and 

implementation of traffic management with Police 

Enforces traffic management including the operation of traffic 

signals in coordination with TUPWS 

Plans / implements rail-based mass transit plans and has 

responsibility for managing and arranging for operations 

and maintenance. 

Plans and manages the development of the sub sector 

Regulates the sub-sector including national and other rail 

systems including metro or MRT in cities and provinces. 

Provides oversight of City and Provincial rail and MRT Master 

Plans and is charged with approval of technical standards 

and safety of rail and MRT systems. 

Sole provider of rail services on national rail network 

Manages enterprises that carry out construction and mainten- 

ance activities, and other commercial activities unrelated to rail 

Mandated by MOT: (a) develop, finance, manage and maintain 

expressways; (b) collect toll revenues; and (c) invest in off road 

construction and services (such as rest areas) 

Plans and manages the development of the national road network. 

Maintains the national road network 

Mandated by MOT/VRA to manage half of the national road 

network 

VRA Performs a central planning and advisory role for the local road 

network. 

Provincial Departments of 

Transport (PDOTs), 

Develops provincial, district and commune transport strategies. 

Plans and manage the construction of provincial road networks. 

Maintains provincial road networks. Supports district 

and commune governments in planning the maintenance of 

their networks 

Approves provincial transport strategies and plans. 

Provincial People’s Committees 

(PPC) 

District Departments of Transport 

(DDOTs), and Communes 

Peoples’ Committees (CPC) 

Approves district and commune transport plans. 

Support Vietnam Land Administration Approves Category B and C projects (less than VND 400 bil- 

7

Sector Ministry/Administration Responsibility 

(VLA) lion) before MOT submission to MPI if land falls under its man- 

agement. 

Ministry of Natural Resources Reviews and approves Environmental Impact Assessments of 

and the Environment (MNRE) national transportation projects. 

Ministry of Planning (MPI) Approves Category B and C projects (less than VND 400 billion) 

for inclusion in PIP and State Budget. 

Ministry of Finance (MOF) Implicitly approves maintenance budgets of MOT’s modal administration 

(except for VRC) before inclusion in the State 

Budget. 

Prime Minister’s Office Approves Category A projects (more than VND 400 billion) 

Administrative authority over VAC, Vinalines, VRC, Vinashin. 

Approves projects of national importance such as national 

security and defense projects. 

National Assembly 

Implicitly approves all national transport investments included 

in the annual State Budget. 

Source: Edited from Table 2, Annex 1 of World Bank (2005). 

2.2 Current Funding Arrangements 

More generally the capacity of HCMC PC to meet recurrent obligations is of interest. 

All taxes and all charges are administered at national level including property and fuel taxes. 

There are no local taxes. Provincial and City tax departments are responsible for collecting 

taxes. Initial enquiries indicate that information relating to the HCMC PC’s capacity to meet 

ongoing financial obligations is currently sparse: 

� The PC has four main sources of income: (i) grant allocations from central government 

which represent its share of national tax collection 4 according to agreed formula (ii) own 

source revenues, including (a) profits from its own business activities, and (b) bonds etc 

that it raises and which it must in time repay; (iii) grants from the national government 

(which will include some IFI finance); and (iv) loans from IFIs to the national government 

that are on-lent to the PC and which the PC must repay. 

� Business activities (Item (ii)a) may include development or auction of underutilized lands 

but the potential to raise significant income from this source appears to be limited as 

considerable land holdings are under the control of State-owned enterprises and 80% of 

revenue that can be realized from such activity must be remitted to MOF which is likely to 

reduce the enthusiasm for such projects. The City may also develop or participate in 

commercially-oriented projects such as toll roads which if successful may generate returns. 

� The Ho Chi Minh City Infrastructure Fund for Urban Development (HIFU) 5 managed 

the first municipal bonds (Item (ii) b) issued by the HCMC PC. In a loan approved in June 

2007 the World Bank will provide a line of credit to HIFU to invest in cost recovery 

4 The revenues from some taxes are retained 100% at the central level, some other taxes are assigned 100% to 

provinces, and revenues of remaining taxes are shared between the central government and the provincial 

governments where the taxes are collected. District and commune governments can collect certain fees such as 

waste collection and school tuition fees, but there are no local taxes. It is understood that around 15% to 17% of 

all taxes collected in HCMC are assigned to the PC for funding of local administrative costs and maintenance 

activities. 

5 The Ho Chi Minh City Infrastructure Fund for Urban Development (HIFU) was established in 2003 to 

aggregate and managing funds from a variety of sources, to finance a range of infrastructure projects and to 

provide a legal structure for organizing joint ventures with private investors (Coulthart et al, 2006). 

8

oriented municipal infrastructure investments in partnership with the private sector. In 

identifying potential investments HIFU will work with the Department of Planning and 

Investment (DPI) and other departments to identify investment needs in HCMC, as 

described in HCMC master plan, which can be financed via public private partnerships. 

HIFU will then work with the city departments to put in place effective project structures 

and then invite private investors to participate in the projects (World Bank 2007). In 

November 2007, the Chairman of HCMC PC requested HIFU to be the key City Agency 

responsible for arranging finance for MRT Line 2. 

� Other sources of income include revenue from equitization of State Owned Enterprises. 

The amount of revenue received from this source by HCMC is unknown but in general 

for Viet Nam the amount of revenue is low. 

� Information on budgeted income and expenditure appears to be available for the PC 

either from MOF or the PC. Budgeted or actual historic outturn expenditure by type may 

also be available but at the time of writing the PPIAF team has not sighted this 

information. 

� What is missing is a reliable forward program of committed funding of all types 

(administration, recurrent expenditure and planned investment) to enable reliable financial 

planning. This information gap has significant consequences for any reliable assessment of 

the City’s capacity to meet recurrent obligations of MRT or any other equally important 

project or program. This apparent significant weakness at PC level was described by 

World Bank (2006) as existing at national level also. This is due to there being no reliable 

process of forward recurrent expenditure and investment programming (nor the ongoing 

operating and maintenance liabilities of this investment) at national or local government 

levels. 

� Further complicating these problems is (a) an identified high need for future urban 

infrastructure several orders of magnitude higher than in the 1990s (Coulthart et al 2006); 

(b) lack of realistic integrated sectoral planning, spatial and project planning caused by 

fragmented responsibilities between and among national and local agencies (c) project 

feasibility studies of inadequate quality leading to unreliable cost estimates and inadequate 

prioritization; and fragmented responsibilities for investment versus maintenance and 

operations. Consequently, Coulthart et al (2006) identified the need for cities and 

provinces to reduce their reliance on the state budget and to start the transition away from 

concessional donor financing for urban infrastructure services. This would involve 

diversification of the financing sources for infrastructure development focusing on 

increasing the role of the private sector. 

Detailed analysis of this issue is not within the scope of the PPIAF work. ADB is proposing 

to carry out a TA on the City’s Socio-Development Framework which will include a 

component on municipal finance. 

It is noted that as at early 2008, the Ministry of Finance had embarked on preparation of the 

future investment, funding and implementation plan for MRT in Vietnam. ADB and JBIC 

have both proposed to Ministry of Finance that IFI lending for MRT infrastructure be given 

as grants to local governments but finance for trains etc be on lent. 

9

2.3 Key Policies and Regulatory Provisions 

2.3.1. Policy 

As described above, HCMC (and Hanoi) have major responsibilities for city level urban 

transport although the central (ie national) government retains great influence through its role 

as the approving authority for major plans and investments. 

At a national level the Transport Sector Development Strategy (TSDS) to 2020 has been 

developed to support the ten year (2001-2010) Socio Economic Development Strategy 

(SEDS) and the Comprehensive Poverty Reduction and Growth Strategy. World Bank (2005) 

states “… SEDS strongly endorses the development of public transport services and long 

term transport planning in large cities and cites the rising rate of traffic accidents as a 

concern”. 

World Bank (2005) reports that TSDS lists the following policies that govern the 

implementation of the development strategy including: 

� “Targeting domestic and foreign sources of finance, both private and public, and 

charging users for the construction and maintenance of infrastructure whenever 

possible. 

� Encouraging private sector participation by speeding up the equitization of stateowned 

enterprises and separating state management from operations and business. 

� Ensuring transport safety and environmental protection in all transport related 

business. 

� Utilizing new technologies and processes in construction and operations.” 

For both HCMC and Hanoi a key focus is to promote and develop public transport, and to 

develop road infrastructure to alleviate congestion, and as appropriate open up new areas for 

urbanization (World Bank 2005). The city’s master plan focuses on bus system development 

through 2010 and significant investments in urban rail by 2020 and has set the goal of raising 

the public transport mode share to 20% by 2010 and 44% by 2025 6 rising from around a 5% 

share in 2007. 

Both cities aim to limit to limit the ownership and use of motorcycles but despite some steps 

in this direction the overall impact of this policy is likely to be muted. 

Current transport policies for HCMC are contained in a variety of documents and decrees. 

MVA (2006) amplified their understanding of current policies of the HCMC PC in relation to 

public transport: 

� “to very significantly increase the number of trips served by public transport, 

� to contain the growth in public subsidies to the public transport system to an acceptable 

level, 

� to avoid the city having to purchase buses from its own funds in future 

� to encourage the participation of private companies in the provision of urban bus 

� services, and 

� protect the most vulnerable social groups from the adverse impacts of any fares 

increases.” 

6 Current demand modelling by the PPTA Team indicate likely mode split may be around 20-25% at 2025. 

10

Noting that some of the policies were contradictory MVA (2006) concluded that an 

appropriate compromise will be needed to meet future needs in HCMC. 

2.3.2. Key Laws 

National and city legislation governs the present provision of public transport services, 

currently mainly bus, in HCMC. These are described in more detail in the next section. 

The laws of most relevance to urban rail or urban MRT are: 

� Railway Law 2005 (NA Order No. 35/2005/QH11); and 

� HC PC Decree 119/ 2007/QD-UBND establishing the Management Authority for 

Urban Railways. 


Within cities the Railway Law 2005 defines relevant types of urban railway as including metro 

or MRT using a wide variety of technologies. Authority for planning urban railway networks is 

given to People’s Committees (Articles 14 and 15). Master Plans shall be prepared covering a 

detailed period of 10 years and less definitive further 10 year period. 

Article 15 states “The Provincial People’s Committees shall assume the responsibility to 

formulate urban railway infrastructure development plans after submitting to People’s Council 

of the same level for initial approval and then submit to the Minister of Transport for 

approval. The authority, which approves railway infrastructure development plans …. shall 

have right to amend the plans when necessary .” Ultimately the Prime Minister shall approve 

the Master Plan. 

Article 16 on urban railway policies recognizes that urban rail is a key urban public transport 

mode, that central government will “support the total investment for approved railway 

projects with State budget” and each year “ the Government shall extract an amount from the 

State Budget to support expenses for public transport services in cities including urban railway 

transport”. 

Article 58 on “basic requirements for construction of urban railway infrastructure” reinforces 

urban railways will be constructed according to technical standards stipulated by the Minister 

of Transport, that urban railways will “…ensure the connection to other urban public 

transport modes and the national railway for easy transit of the passengers.” This confirms 

Article 9 which gives the Inspectorate of the Ministry of Transport responsibility for 

inspection of railway activities (implies certification of both technical standards and standard 

of safety). 

Article 61 on “urban railway infrastructure management and maintenance” states that 

“…people’s committees shall stipulate the management, maintenance of the urban railway 

infrastructure invested by organisations and individuals” and that “the urban railway enterprise 

shall be responsible to maintain state financed infrastructure through public tender or public 

service orders by provincial people’s committees”. 

Article 74 on “railway transport controlling” provides the power to sign “… to sign contracts 

with railway infrastructure operators on using railway infrastructure for railway transport; to 

sign contracts with railway transport operators on supplying controlling and other services 

related to railway transport.” 

11

Article 83 defines “railway business activities” as covering “railway transport operation and 

supplying services supporting railway traffic” and Article 84 provides for a level playing field 

to be provided for all operators. 

Article 85 defines “railway infrastructure business” as the activity to invest, manage, and 

maintain infrastructure for selling, giving concession of, leasing or collecting fee from using 

railway infrastructure system and to provide railway supporting services and other services on 

the base of exploiting their managed railway infrastructure capacity” and that “organisations 

and individuals using railway infrastructures owned by the State or other organisations for 

their business activities must pay fees or charges for such usages”, and further that “railway 

infrastructure invested by the State shall be allocated to enterprises through tender, orders or 

plans”. 

Article 93 on “railway transport fare, price of ticket” states that “fares for passenger… 

transportation on railways are set by railway transport enterprises” thus (railway transport 

enterprises are interpreted to be operators – refer Article 91 on Passenger Transportation 

Contracts). Where the operator is operating on the urban rail network then to ensure policy 

control is retained by the PC, the operating contract or agreement between the PC and the 

operator will need to clarify that the PC sets fares. The review by the PPTA’s legal team has 

since confirmed that fare setting control is retained by the PC. 

Decree 119/ 2007/QD-UBND establishing Management Authority for Urban 

Railways, HCMC 

The Urban Railway Management Unit (known as the Management Authority for Urban 

Railways) was established in September 2007 by Decree 119. The Authority replaced the 

previous Urban Railway Management Division under TUPWS. MAUR is also under the 

guidance of Central Ministries – branches and Departments – branches of the city. 

The Decree provides that the Authority is an administrative unit which has to ensure by itself 

a part of its operation cost; has legal entity; has its own stamp and is entitled to open bank 

account at the City Treasury according to provisions of law. 

Key responsibilities assigned to the Authority are: 

“ 

1. To provide the city People’s Committee with consultancy regarding the master plan 

for construction, operation and exploitation of urban railway lines of the city; the 

development of the urban railway network according to the transport planning up to 

2020. 

2. To be Investor and to manage, operate urban railway lines of the city. 

3. To carry out the role and function of a direct partner to foreign partners in 

transactions relating to the project. 

4. To prepare documents, materials, contents of negotiation and together with related 

agencies to help the city People’s Committee negotiate treaties and other agreements 

with sponsors relating to projects constructing urban railway lines of the city. 

5. To develop detailed programmes, plans and implementation schedule of component 

projects; to organize the effective management, operation, use of sources of the 

project and to deal with problems arising during projects implementation. 

6. To guarantee adequate data according to requirements of foreign partners for the 

management, operation phase of the project following the programmes, plans 

approved by competent authorities. 

12

7. To fully execute legal provisions of the State during the management and operation of 

the investment project and related issues according to international practice and 

provisions of Vietnamese laws. 

8. Strictly execute the financial report regime, regimes on accounting, statistics, auditing, 

balancing according to current provisions and requirements of foreign partners in 

compliance with the signed contents. 

9. To ensure the cooperation with functional agencies and other related projects of the 

city in order to effectively carry out the project. 

10. To import, export materials, equipment for construction and operation of approved 

projects. 

11. To prepare annual plan for capital use, disbursement (domestic capital and loan source 

from foreign countries) following requirements of project schedule and in compliance 

with the domestic financial mechanism and requirements of foreign partners in order 

to guarantee project implementation schedule. 

12. To ensure full compilation and implementation of contents, processes in the fields of 

train operation, exploitation management after construction phase is completed. 

13. The Urban Railway Management Unit is allowed to establish Project management 

units and subordinates to manage and operate projects when they are brought into use 

or to employ qualified organizations which have experiences and financial capability 

for management, operation of urban railway lines when construction is completed. 

14. To associate with or join domestic or foreign organizations or to employ experienced 

experts in order to train, improve professional knowledge in the fields of project 

management and operation, exploitation organization. 

15. To co-operate with local authorities, related individuals, organizations to settle issues 

relating to compensation, assistance, resettlement, relocation. 

16. To ensure the implementation of the archive information, confidentiality and report 

regime according to provisions. 

17. To carry out other tasks authorized or assigned in writing by the Chairman of the city 

People’s Committee.” 

It is noted that Decree 119 provides the Authority with wide powers but creates unusual 

incentives in that: 

� It has to find a portion of its operating cost; 

� It can carry out the role and function of a direct partner to foreign partners in 

transactions relating to the project; and 

� It can be both an investor, regulator and operator of MRT services and a partner to 

foreign investors. 

According to a HCMC PC regulation the current MAUR structure is shown in Figure 2.1. 

With new responsibilities for management of operations and maintenance, the number of staff 

in MAUR is increasing. It is also understood that it is proposed to revise the current structure 

of MAUR in the near future to better reflect the management and operational functions. 

Guidance and suggestions on how a new structure may be derived is provided in Section 5. 

13

Source: MAUR 

Figure 2.1: Current Structure of MAUR 

2.3.3. Laws Governing Involvement of the Private Sector in Urban MRT 

Operations and Related Investment 

MVA (2006) identified the following national legislation that requires any organization or 

individual wishing to carryon business in public passenger transport “…must satisfy the 

requirements of the following national legislation, whichever is appropriate to the status of the 

applicant: 

� Law on Enterprises, 1999; 

� Law on Foreign Investment in Vietnam, 2000; 

� Law on Cooperatives, 2003; and 

� Law of State-Owned Enterprises 2003. 

The approval is specific to the business of public passenger transport. Foreign investment is 

permitted through Business Cooperation Contracts or Joint Venture with a Vietnamese 

Partner. The rules of investment are administered by the Ministry of Planning and Investment 

who are the licensing authority”. 

National and municipal legislation governing public transport (ie bus) services and also the 

role of the authority also comprises both national and municipal legislation: 

� “Decree of the Government No.92/2001/ND-CP of December 11, 2001 “Conditions 

for Carrying on the Motor Vehicle Transport Business”; 

� Government Decree 24/2000/ND-CP of 31 July 2003 “Regulations on Foreign 

Investment in Vietnam”; 

� Government Decree No. 27/2003/ND-CP of 19 March 2003 providing amendments 

and additions to Decree 24/2000; and 

� Government Decree No. 31/2005/ND-CP of 11 March 2005 on “The Manufacture 

and Provision of Goods and Services for Public Utilities' (including buses)”. 

14

MVA (2006) also reports that the HCMC PC has also enacted the following decisions to 

manage and regulate bus services: 

� Saigon Bus was established by Decision 5350/QD-UB of HCMC PC of 1 October 

1997; 

� Decision No. 4196/QD-UB-NC “Establishment of MOCPT (under TUPWS)”; 

� Decision No. 355/1998QD-UB-NC, “Approval for organization and activity 

regulations of MOCPT (TUPWS)”; 

� Decision No. 321/2003/QD-UB of 30 Dec 2003 “Issuing the Regulation for 

Management of Public Passenger Transport by Bus in Ho Chi Minh City;” and 

� Decision 49/2005/QD-UB of HCMC PC “Amendment of Decision No. 

321/2003/QD-UB of 30 Dec 2003”. 

These laws and decrees would appear also to be largely relevant to the approval of an urban 

MRT operator even if they invest in some of the equipment such as trains, as bus operators 

also invest in the buses they operate. 

A law with apparent, but little practical relevance to the participation of the private sector in 

urban railways, where there is investment contemplated is the (Draft) Decree on Investment 

in the Form of Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) and Build- 

Transfer (BT) Contracts 2005 7 . 

New BOT Decree, dated 11th May 2007 

The new BOT decree does not address “social” services such as those that have limited scope 

for cost recovery such as MRT. That is, it does not obviously cover PPP possibilities in MRT. 

The law also allows for government to invest in a project delivery organization which creates a 

conflict of interest. 

Chiplunkar (2006) in his review of the then draft BOT Law concluded: 

� “there is a need to review basic philosophy in BOT 

� Approval mechanism by govt. for design and construction inputs, supervision during 

construction etc. must be appropriate to risk transferred eg if design risk is with private 

sector, monitor the performance not approve the design... 

� Risk transfer to private sector not efficient due to above...” 

And that: 

� “...that options for PSP to be need to be made more flexible to include variations of 

BOT.” 

7 Proposed to replace (a) Decree 77/CP dated June 18, 1997 of the Government issuing Regulations on 

investment in the form of Build-Operate-Transfer (BOT) contracts applicable to domestic investments (b) 

Decree 62/1998/ND-CP dated August 15, 1998 of the Government issuing Regulations on investment in the 

form of Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) and Build-Transfer (BT) Contracts 

applicable to foreign investments in Vietnam; and (c) Decree 02/1999/ND-CP dated January 27, 1999 of the 

Government on amendment of and addition to a number of articles of the Regulations on investment in the 

form of Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) and Build-Transfer (BT) Contracts 

applicable to foreign investments in Vietnam. 

15

2.3.4. Other Relevant Laws and Decrees 

Other generally relevant laws are: 

� Law on Procurement. No. 61/2005/ QH11 – regulating procurement activities to select 

bidders for the provision of consulting services, goods and civil works of amongst 

others things investment projects using State funds of 30% or more and for major 

reconstruction and maintenance; 

� Law on Construction which took effect July 1, 2004; 

� Draft Unified Enterprise Law – to ensure a level playing field between any type of 

operator (eg State or private); and 

� Draft Law on Management and Use of State Assets (in Vietnamese language) – the 

PPTA’s legal team have been requested to review this Draft Law to check the relevance 

in relation to use of a possible Gross Cost / availability style operating contract for 

MRT. 

Table 2.2 summarizes the main legal and regulatory provisions governing the transport sector 

in Viet Nam. 

Table 2.2: Main Legal and Regulatory Provisions Governing the Transport Sector 

Sector Legal Provision Purpose 

Transport 

Roads 

Railways 

Urban 

Transport 

Transport Sector Development Strategy To 

2020 (PMD No.206/2004/QD-Ttg) 

Responsibilities of Ministry of Communication 

and Transport (Gov. Decree No.34/2003/ND-CP) 

Road Transport Plans To 2010 and Orientation 

to 2020 (PMD No.162/2002/QD.TTg) 

Road and Traffic Law (NA Order No. 

26/2001/QH10) 

Management of Road Infrastructure (Gov. 

Decree No.186/2004/ND-CP) 

Establishment of Vietnam Investment and 

Expressway Development Corporation (VEC) 

(MoT Decision No. 3033/QD-BGTVT, October 

2004) 

Vehicle inspection -nationwide 

(Ministry of Transport Decision No. 4134/2001/QD- 

BGTVT) 

Establishment of Vietnam Railway Corporation- 

VRC 

(PMD No.34/2003/QÐ-TTg) 

Establishment of Vietnam Railway 

Administration-VNRA 

(Decree No. 34/2003/ND-CP) 


(NA Order No. 35/2005/QH11) 

Mass Transit Master Plan to 2025 

(Approved January 2007) 

Public (Bus) Transport 

(Decisions No. 02/2001/CT-UB, No. 45/2002/QD- 

UB and Official letters No. 89/UB-DT and No. 

16 

Articulates Vietnam’s transport policies, set priorities and 

defines some targets for transport infrastructure, 

services and industries. 

Specifies functions, responsibilities, and organization of 

Ministry of Communication and Transport. 

Sets out government policy for national, provincial, 

urban and rural roads. 

Establishes traffic and road safety rules, defines six 

classes of roads and the responsibilities for their 

financing and administration. 

Establishes technical standards for the definition of the 

different road classes; and defines procedures for 

infrastructure planning and project approval. 

Specifies the broad responsibilities for VEC. 

Organizational and operational charter of the company 

to be established by the Board of Directors. 

Defines rules and procedures for 4-wheel motor vehicles 

to undergo regular vehicle inspection for technical safety 

and environment protection 

Establishes the corporation as the operator of rail 

services. 

Places policy, development and regulatory functions in 

VNRA. 

Regulates railway activities, including investment, 

construction, and management of infrastructure, 

management of vehicles and participants on train 

operations including 3 rd party operators, railway traffic, 

safety. Delegates rail and MRT responsibility to Cities 

and Provinces. 

Master plan that lays out investment strategy including a 

focus on bus development until 2025. 

Plan to promote public transport. Describes ‘Model Bus’ 

scheme on pilot routes with increased frequencies new 

(government subsidized) buses and associated

Sector Legal Provision Purpose 

1637/UB-DT) improvements in infrastructure. 

Establishing the Management Authority for 

Urban Railways 

(HC PC Decree 119/ 2007/QD-UBND). 

Decision 5350/QD-UB of HCMC PC of 1 October 

1997 

17 

Urban rail and MRT preparation, construction, and 

arrangement of operations and maintenance. Updating 

of Urban Rail including MRT Master Plan. 

Establish Saigon Bus 

Decision No. 4196/QD-UB-NC Establishment of MOCPT (under TUPWS) 

Decision No. 355/1998QD-UB-NC Approval for organization and activity regulations of 

MOCPT (TUPWS) 

Decision No. 321/2003/QD-UB of 30 Dec 2003 Regulations for Management of Public Passenger 

Transport by Bus in Ho Chi Minh City 

Decision 49/2005/QD-UB of HCMC PC Amendment of Decision No. 321/2003/QD-UB of 30 Dec 

2003 

Decision No: 101/ QD-TTg of 22 January 2007 Mass Rapid Transit master plan 

Urban traffic congestion prevention program 

Decision No. 72/2005/QD-TTG 

5 point program on urban traffic congestion prevention. 

Includes enhancing public transport while restraining 

private vehicle ownership and use. 

Source: Updated from Table 1, Annex 1 of World Bank (2005). MVA (2006) provided information on various 

decisions affecting bus transport 

2.4 Transport Agencies and Functions in HCMC 

The HCMC PC is the key agency responsible for planning and delivery (ie here referring to 

regulation, purchasing of services and oversight, and construction of infrastructure) of public 

transport (bus) and mass rapid transit and supporting land use and transport management 

functions. Within the PC the following agencies have key roles for urban transport: 

� Transport and Urban Public Works Services (TUPWS) which is responsible for 

preparation of city transport strategies, the planning and management of construction, 

maintaining urban transport infrastructure, planning and managing bus transport; and 

coordinating planning and implementation of traffic management with Police. For 

planning and regulation of urban public transport (bus/ other) the Management and 

Operations Centre for Public Transport (MOCPT) of TUPWS is the most important 

agency; 

� Management Authority for Urban Railways (MAUR) 8 – plans and implements rail 

based mass transit infrastructure and responsible for operations – refer Section 2.2.2; 

� Urban Planning and Architecture Department (DUPA) – Land Use Master Plan 

preparation and approval of developments. The process of planning is normative and 

appears not to reflect market preferences nor what is optimal in terms of infrastructure 

and social services provision. Land approvals are separately made by the Department of 

Natural Resources and Environment (DNRE) with little linkage to the Master Plan. 

Similarly infrastructure planning is made with little reference to the Master Plan. In 

addition, even for individual building and more major developments there are no 

specific standards or guidelines providing certainty to developers on how much Gross 

8 Until September 2007, it was known as the Urban Railway Management Unit and was under TUPWS.

Floor Area (GFA) they can build or other conditions such as building set back and 

building form; and 

� Department of Planning and Investment – investment promotion, coordination of 

investment including development of development assistance from IFIs and bilateral 

sources; 

� Department of Finance – treasury, budget, investment planning and arrangement of 

sources of finance. 

There are a further 19 Departments within the HCMC PC and these are: 

� Department of Industry; 

� Department of Tourism; 

� Department of Natural Resources and Environment; 

� Department of Education and Training; 

� Department of Science and Technology; 

� Department of Labor, War Invalid and Social Affairs; 

� Department of Foreign Affairs; 

� Department of Agriculture and Rural Development; 

� Service of Trade; 

� Department of Justice; 

� Department of Culture and Information; and 

� Department of Construction. 

� Department of Health; 

� Department of Physical Culture and Sports; 

� Department of Post and Telecommunication; 

� HCMC Customs Bureau; 

� HCMC Tax Bureau; 

� HCMC Statistics Bureau; and 

� HCMC Department of Fire Brigade. 

The key functions of national and local government with respect to transport are mapped by 

the main transport agencies responsible for rail MRT, bus and other public transport, roads 

and traffic and street management and shown in Table 2.3. This table confirms the important 

role of the HCMC PC for urban transport in the city. While further comment is made later in 

Section 4 of this Working Paper on the appropriateness of the allocation of functions, it can 

be seen that at present, the regulatory (including service specification) and operational 

arrangements for urban mass rapid transit are defined as belonging to the newly created 

MAUR thus confirming the important role of this PPIAF financed TA in providing 

appropriate advice on how best to establish appropriate arrangements. 

18

2.5 A Framework for Analyzing Institutional Functions 

2.5.1. A Hierarchy of Transport Organization 

World Bank (2002) provides a helpful means for ensuring a coherent approach to transport 

planning and management, noting that urban transport strategy operates at three levels (refer 

Figure 2.2): 

� Strategy for the city – which is the concern of the GVN and HCMC PC and other 

local governments in the region, which have the responsibility for formulating regional 

development policy, for allocating intergovernmental funding transfers, and for 

establishing the legal framework within which lower-level authorities and agencies 

operate; 

� Strategy of the city – which is the concern of HCMC and other local governments as 

they are responsible for determining their own internal priorities, supplementing the 

resources available from local sources, and allocating the resources at their disposal to 

achieve city objectives – it is also the concern of citizens who may not be well heard or 

represented through the local political process; and 

� Strategy in the city – which is the concern of implementing agencies, both private and 

public sector, who have the responsibility for performing tasks for which they are 

responsible, and who may have some degree of technical autonomy in undertaking these 

duties. 

19

Table 2.3: Current Main Transport Agency Functions in HCMC 

Functions Transport sector agencies 

Policy and Planning 

Rail (interurban) 

MRT Other Public 

Transport 

Policy and Planning VNRA MAUR TUPWS with advice of 

its Management and 

Operations Centre for 

Public Transport 

(MOCPT) 

Program development and management for infrastructure provision 

20 

Roads & 

Road Vehicles 

TUPWS – local 

VRA – national 

VEC – 

expressways 

TDSI/ MOT 

Design VNRA, consultants MAUR, consultants TUPWS TUPWS, VRA, 

VEC, 

consultants 

Construction preparation & 

management including land 

acquisition 

VNRA, contractors MAUR, consultants TUPWS TUPWS, VRA, 

VEC, 

contractors 

Delivery of works VNRA, contractors MAUR, contractors TUPWS TUPWS, VRA, 

VEC, 

contractors 

Maintenance VNRA, contractors MAUR, contractors TUPWS TUPWS, VRA, 

VEC, 

contractors 

Financing Government 

budget / private 

finance 

HCMC budget/ 

IFIs/ bilateral 

sources/ private 

finance/ MAUR 

investment 

Service delivery, including operations & maintenance 

Provision of services VRC MAUR to arrange 

and can participate 

in operations by 

Decree 119; other 

private or foreign 

partners 

anticipated 

Ticketing/ tolls and 

marketing 

PC Budget / MOCPT 

investor role 

Saigion Bus Company, 

(SGB 100% Stateowned)/ 

Saigon Star 

JV of SGB & overseas 

investors, Citranco a 

private company with 

shareholding by SGB, 

and many Cooperatives 

(private) 

PC / national 

budget, tolls/ 

private finance 

for BOT 

expressways 

UPWS, VRA, 

VEC, 

contractors 

VRC MAUR to arrange MOCPT plus operators TUPWS, VRA, 

VEC 

Service specification & fares VRNA/ VRC MAUR to arrange TUPWS/ MOCPT VEC for tolls Na 

Contracting VRNA/ VRC MAUR to arrange MOCPT TUPWS, VRA, 

VEC 

Contract compliance VRNA/ VRC MAUR to arrange MOCPT TUPWS, VRA, 

VEC 

Financing Government 

budget/ user fees 

MAUR to arrange Government subsidy 

and revenue from 

passenger fares 

Private for BOT 

expressways/ 

government 

budget 

Regulation & enforcement VRNA/ VRC MAUR to arrange MOCPT/ Police PC Police for 

for vehicle 

registration & 

MOT/ TUPWS 

for driver 

licensing 

Certification and safety MOT Inspectorate MOT Inspectorate Nil As above Na 

Source: Table 2.2 (JICA 2004); Table 2.1 (above), MVA (2006) and consultant interviews; Na means Not Applicable. 

Traffic & Street 

Management 

TUPWS & its 

Urban Transport 

Management 

Division (UTMD) 

TUPWS & UTMD 

TUPWS & UTMD 

Saigon Traffic 

Management 

Company 

Saigon Traffic 

Management 

Company 

Government 

budget 

PC Police / 

TUPWS’ Public 

Benefit Enterprise 

Na 

Na 

Na 

Na 

PC Police

These general principles are observed in a general sense with the current split of 

responsibilities in HCMC PC and Central Government (ie GVN). Further discussion is 

provided in the next section dealing with diagnosis. 

Figure 2.2: Allocation of Strategic Functions 

Strategy Level Function Agency 

“For the city” 

“Of the city” 

“In the city” 

Source: World Bank (2002:154) 

• National roads 

• Public enterprise 

• Tax levels 

• Intergovernmental transfers 

• Regulation & competition 

policy 

• Vehicle registration & safety 

•Urban structure planning 

•Strategic transport planning 

•Local road management 

•Public transport planning & 

procurement 

•Traffic management 

•Law enforcement 

•Road safety 

• Public transport operations 

• Road construction & 

maintenance 

21 

National ministries 

Local / regional government 

Local government/ Private 

2.5.2. Structuring Transport Activities 

In addition to consideration of the “vertical” distribution of transport functions between 

levels of government, the “horizontal” distribution of functions within any given level will 

have a substantial impact on the effectiveness and efficiency of activities in the transport 

sector. The activities undertaken by transport agencies can be categorized as (see also Figure 

2.3): 

� policy and planning, which involves identifying future strategic needs and developing 

the policies and plans required to achieve government objectives. It also includes 

monitoring and evaluating the performance of outcomes against government objectives, 

using this information to refine strategies, and identifying strategic resource needs; 

� regulation, which involves establishing and applying technical standards for safety, 

security and environmental performance of public transport, and economic regulation 

needed in response to market failure; 

� program development and management, which involves translating policies, 

strategies and regulatory requirements into specific actions such as programs and 

projects and providing oversight and monitoring of their delivery; and 

� service delivery, which involves delivering, or ensuring the delivery, of transport 

infrastructure and services.

Policy & 

strategy 




• Financing and 



monitoring 


Figure 2.3: Categorizing Government Transport Functions 

Regulation 



licensing 


Effectiveness – “doing the right thing” 

Reports 

These categories of activity serve two broad objectives: 

� effectiveness, which is related to ensuring that choices are directed to achieving the 

things that the community values, with clear linkages from the desired outcomes to the 

outputs of government activities that are needed to achieve the outcomes to, in turn, the 

controls, services or other outputs that need to be delivered to achieve these outcomes; 

and 

� efficiency, which is to provide the identified controls, services or other outputs that 

have been decided on at the lowest possible cost. 

This approach has a number of implications for institutional management, for example, it: 

� identifies the need to establish clear policies and implementing strategies so that those 

involved in delivering transport infrastructure and services have an explicit 

understanding of what is expected of them; 

� ensures a productive tension between those responsible for strategic planning, project 

development and delivery; 

� reinforces the need for clear allocation of tasks to agencies to avoid ambiguity about 

which agency is responsible for each of them; 

� indicates the need for performance management systems that are transparent and hold 

managers accountable for delivery of agreed outputs; 

� shows a need to separate conflicting functions, in particular; 

o to separate regulatory from operational activities to avoid the conflict of interest 

that arises from an agency regulating itself; 

22 

Informs 

Program 

management 



programming 




contracting 

• Concessioning 

• Monitoring & 

quality assurance 

Service 

delivery 


• Services 

• Information 

Efficiency – “doing the thing right”

o more generally, to separate decisions on effectiveness from those regarding 

efficiency so that each area of activity is undertaken with a clear focus; and 

o to separate commercial activities from non-commercial activities so that the 

former are undertaken in a businesslike way with a unmistakable commercial 

imperative; and 

� indicates that the private sector can be used to deliver services within a clear framework 

set by government, and that the choice of whether to use government agencies or the 

private sector to deliver services is a decision that should be based on the approach that 

has the lowest cost. 

2.6 Diagnosis 

Figure 2.2 shows a general allocation of functions that supports transport integrity, minimizes 

the overlap between levels of government and community institutions, and which draws on 

the respective strengths of these institutions. Comparing current participating agencies with 

the allocation of functions in Figure 2.2: 

� GVN’s agencies undertake those “for the city” functions such as national railway lines 

and highways as is desirable; 

� HCMC PC is very heavily involved in “of the city” as is considered desirable by Figure 

2.2 dealing with essentially local functions for HCMC citizens; 

� Local HCMC firms and agencies are also extensively involved in “in the city” functions 

as is desirable. 

Although approvals or comment need to be made from the centre (ie national level) what is 

proposed and the execution of “of the city” and “in the city” functions is local. Provincial and 

city government transport authorities prepare their plans that are then approved by the 

People’s Committees and Councils and are then submitted to MPI. These transport authorities 

request and receive recommendations on their plans from MOT but are not obliged to follow 

them. 

World Bank (2005) confirms this analysis while noting some problems by stating that “…the 

decentralization of the last decade has been a positive step in moving decision making closer 

to those most affected by their outcomes. Not unexpectedly, decentralization has resulted in 

difficulties in coordination across different levels of government. While subject to dual 

subordination, decentralization has afforded local governments considerable autonomy in 

decision making…At present there is no coordinating mechanism to ensure consistency 

between national and local plans, and the adherence of local plans to broad planning 

guidelines”. 

Problems also exist in the vertical distribution of “effectiveness” functions (policy and 

strategy, regulation) and “efficiency” functions (program management, service delivery): 

� Policy and strategy is weak. World Bank (2005) identifies that the inadequate policy 

and planning framework is a major deficiency. At the planning level, there tends to be a 

gap between broad government strategies and detailed sectoral plans, as well as a 

fragmentation in the responsibilities for developing plans often resulting in long lists of 

“wish lists” many of which are not consistent, viable or have the required financing. 

Some of the projects that get implemented were not in the plan. The basis for the 

selection of the projects that end up being implemented is not clear. Agencies at PC 

level do not appear to get involved in early formal coordination with each other but do 

so at the PC level where scope for optimization is limited. Feasibility studies are 

23

excessively focused on technical matters and not on demand or pricing matters. The 

planning process can also be characterized by suboptimal resource allocation at various 

levels with misallocation between new investment and maintenance, among modes and 

among different investments within each sub sector. The separation of planning and 

budgeting decisions creates a “disconnect” between planning for new investment and 

maintenance”. Section 2.2 confirms these observations of the World Bank 

� Regulatory functions need to be improved. The capacity/authority of public 

regulatory agencies in Ho Chi Minh City needs to be strengthened (World Bank 2005). 

� Program management is poor. Bus routes are allocated to operators in an ad-hoc 

manner even though operators receive significant subsidies which are likely not 

sustainable nor audited (World Bank 2005). 

� Regulatory and service delivery functions are compromised by involvement of the 

PC in both. For example, some bus operators providing bus services are directly owned 

by the PC. Construction firms also are units of the PC competing for contracts 

procured by the PC. Project Management Units responsible for implementation on 

behalf of PCs and donor agencies are weak and resultant construction quality is poor as 

is time performance. This comment also potentially applies to the new Management 

Authority for Urban Railways under Decree 119 of HCMC PC. 

� Service eg bus and other contracting delivery is of less than desirable efficiency 

and quality. 

Overall, World Bank (2005) summarizes the main challenges facing the transport sector in 

Viet Nam as “(1) how to increase efficiency in both resource utilization and service delivery, 

(2) how to achieve adequate and sustainable financing and (3) how to facilitate growth for 

future urbanization.” These challenges are formidable given the rapid growth of the economy, 

associated motorization and related congestion, emissions and crashes. 

Other problems noted by World Bank (2005) and JICA (2004) relevant to urban transport are: 

� Rigid planning process, lack of cross boundary coordination between local 

governments, unstructured peri-urban growth, distorted land markets; 

� Poor traffic organization as a result of a lack of a traffic management culture and 

fragmentation of responsibilities between different elements of the PC’s Public Works 

Department (responsible for planning, designing, implementation and some elements of 

enforcement) and the traffic police (responsible for operations and most enforcement); 

and 

� Resettlement is a major source of implementation delay in transportation projects due to 

(a) lack of sufficient resources (b) inadequate capacity for managing resettlement policies 

(c) limited awareness and lack of transparency leading to inequity in resettlement, may 

delay implementation; and (d) the differences in resettlement regulations between GVN 

and donors. 

24

3. Factors Affecting the Role & Structure of an Apex Public 

Transport Agency and Relevant Functions 

3.1 Policy Framework 

The development and provision of public transport in HCMC needs to be guided by clear, 

sound policies. This needs to occur within a hierarchical framework of an urban transport 

strategy for the metropolitan region, which in turn fits within an urban development strategy. 

It is not the role of the current review to review or establish these policy frameworks. 

However, it is noted that ambiguity in them will almost certainly result in unclear and probably 

conflicting public transport policies, and hence in public transport that fails to achieve its 

potential. As it is generally difficult to attract people from car or motorcycle travel to public 

transport, deficiencies in the provision and management of public transport will have long 

lasting, if not permanent, detrimental effects on the economic, social and environmental 

performance of HCMC. 

Some key policy needs for public transport that influence the role and nature of institutions in 

the transport sector are: 

� Defining desired outcomes. Above all other things, it is necessary to be clear about 

the outcomes that the government wishes with regard to the provision of public 

transport. The outcomes should to be defined with reasonable preciseness and 

prioritized so that those charged with managing public transport are able to make 

decisions on investment and services needed to achieve them. 

� Linking land use and public transport development. Public transport needs to 

respond to the travel needs of people, and hence be closely linked to the locations to 

and from which people need to travel. Land use also needs to be sufficiently flexible 

that it can respond to the improved accessibility offered by, in particular, new MRT 

facilities. There is a need to monitor the patterns and rate of urban development to 

ensure that the proposed extensions remain pertinent and to assist in re-prioritizing the 

network development program. There is also a need for explicit policies with regard to 

land use controls and development to ensure that property developments make best use 

of the improved accessibility offered by the rail lines. 

� Coordinated, multi-modal transport planning. The future MRT lines will gain some 

of their demand from walk-in patronage. Their full potential will, however, only be 

achieved if they are supported by complementary transport services such as feeder buses 

and motorcycle and car access. Even so, the rail lines can meet only a part of public 

transport travel demand, and there will remain a major need for buses and more local 

forms of public transport to serve travel needs that cannot be met by the MRT lines. 

� Public transport service standards and planning. Many cities in developed countries 

have had a single public transport agency that has been responsible for planning and 

providing public transport. The trend in many countries in the last decade or two to 

contract out public transport service provision suggests that there is a worthwhile role 

for service providers in the planning of services (eg routes and schedules) in association 

with communities and their representatives (eg Larwin 2005, Preston 2005, van de 

Velde 1999, Wallis and Lupton 1999). This allows operators to shift resources so that 

services are both cost-effective and meet passenger needs. If service planning is to be 

dispersed, be it somewhat or substantially so, there is a need for a central authority to 

establish minimum standards to which operators and others must comply, for example 

25

locations to which feeder bus services should be provided, hours of service operations, 

and the location of bus stops. 

� Integration of public transport services. A rail line can only provide direct services to 

people traveling between locations along the line. This will be a relatively small share of 

total travel. Even in cities with a dominant Central Business District (CBD) and hence a 

greater ability for people to travel directly, it is common for up to about one-quarter of 

trips by public transport to still involve a transfer, eg Singapore about 25% of trips 

involve a transfer, while the share is 33% in Adelaide and 40% in Melbourne. In cities 

such as London, New York and Tokyo where land use is more distributed and the 

public transport system more complex, an even higher share of people need to 

interchange to undertake their journey. The ease of these interchanges can do much to 

improve the attractiveness of public transport to people and hence attract patronage. 

Three factors support this: improved physical linkages; a common ticketing system; and 

an integrated fare system. 

� Investment planning and decision-making. There is a need to ensure that proposed 

investment projects represent the best value to the community. This requires that 

problems be clearly identified and alternative approaches to address the problems be 

considered. The estimation of project benefits needs to take account of network effects 

in the public transport system and externalities such as reduced environmental impacts. 

� Role of the private sector. World Bank (2007) identified the need for, and recognition 

by GVN that, an increased role for private sector finance and operations of 

infrastructure including transport is needed in future. At the same time the need to 

reduce the proliferation of State Owned Enterprises engaged in all aspects of 

infrastructure delivery and operations or at the least to enhance their efficiency is 

warranted. The new BOT law is a sign of this recognition as is the current partial role 

for private firms to operate bus services in HCMC. 

3.2 Hierarchy and Structure 

The identified framework for analyzing institutional functions set out in Section 2.5 can also 

be used to assign the key public transport including MRT functions defined below. 

3.3 Key Public Transport Management Functions 

One conceptual arrangement for an Authority is to be responsible for all aspects of public 

transport, from policy through to being the agency that operates services. This approach of a 

public monopoly is an arrangement that no longer represents good practice because of the 

lack of separation of conflicting responsibilities and because monopoly provision of services 

results in higher costs and reduced quality than is possible with other delivery mechanisms. 

Accordingly, this model is rejected from the outset. The focus is instead on arrangements that 

more clearly separate policy, regulation, system management and operations and which seek to 

make best use of the private sector to reduce unit costs and improve service quality and 

innovation. 

Taking account of the discussion in previous sections, the responsibilities of an Authority 

most clearly relate to the provision of efficient public transport. On this basis, the core 

functions for an Authority that includes MRT are: 

� project planning and programming, including preparation of business case for projects, 

coordinating projects, and budget programming; 

26

� coordinating requests for funding for infrastructure development and, where needed, 

subsidies for service provision; 

� infrastructure delivery, which will includes establishing financing arrangements, the 

manner for delivering projects, and taking account of life-cycle costs and management; 

� public transport services delivery – through concessions 1 or other business-like 

arrangements; 

� fare policy, ticketing, and revenue management, which would be a minor activity if there 

was no integrated fares and ticketing but is otherwise more complex; and 

� passenger information and marketing. 

The “effectiveness” function needs to be the responsibility of a different and independent 

agency probably located at City or Regional Level to provide the policy direction and strategic 

planning framework for public transport development in HCMC that the Authority is to 

deliver in the most efficient manner. 

3.4 Other Issues 

Other issues that assist in defining the scope of the activities, and hence the form, of an 

Authority include: 

� Level of government. HCMC’s geographical area of authority is less than the entire 

region of Greater HCMC. While local government involvement in an Authority is 

important, looking to the long term, it may not be appropriate for this reason for the 

HCMC PC to be the level of government to which the Authority should be responsible. 

It is common in other countries for an Authority to be responsible to a level of 

governments with a broader responsibility than the city (eg to state governments in 

Australia or regional groupings of local government in the USA) where there is no local 

government authority for the city as a whole. In the first instance, HCMC PC and other 

provincial governments in the region could be involved in the Authority through 

membership of an advisory committee. 

� Community involvement. Gaining cooperation and insights from a range of groups in 

the community, for example, business, disabled, environmental and others, can improve 

the effectiveness of public transport (eg Booth and Richardson 2001). This can be 

achieved through, for example, their involvement in various advisory committees of a 

Authority. 

1 The general experience is that provision of public transport services by the private sector under contract to an 

Authority results in lower costs than provision of services by the Authority and other government agencies. 

Wallis and Hensher (2005) reports that competitive tendering for the provision of bus services “resulted in unit 

cost reductions mostly in the range of 20% to 50%. It is noted that the extent of these savings is influenced both 

by the cost efficiency of the previous monopoly) service provider, and by numerous factors relating to the design 

and management of the competitive process and the existence of a strong market of potential suppliers”. There 

has been only limited experience with the competitive tendering of former government provided train services, 

with no known studies reporting on cost savings. 

Various contractual arrangements between an Authority and the private sector can be used to provide services, 

including gross cost service contracts, net cost service contracts, management contracting, franchising and 

concessions (World Bank 2002). The principal differences between these contractual arrangements relate to the 

allocation of responsibilities for provision of assets, planning of public transport services, and payment 

arrangements. The allocation of financial risk between the Authority and contractors can vary within each of 

these contracting arrangements. 

27

� Metro rail ie MRT expertise. Special expertise is needed to effectively manage the 

development and operation of mass rail transit because of its special characteristics, 

including high frequency of service, technology and safety standards that reflect the 

intensity of human activity associated with them, and integration with other public 

transport modes and urban activity in general. The expertise is also different to that 

pertinent for other types of railway operations such as freight and commuter or regional 

passenger services. Seeking to develop this expertise in more than one agency is both 

wasteful and likely to result in no agency having effective capacity for some time. There 

is no agency in Viet Nam currently involved in urban rail MRT. 

� Funding policy. The initial financial analysis of this PPIAF study and experience and 

from other places, indicates that the Government will, with little doubt, need to 

continue finance fixed infrastructure for future rail lines in HCMC. Fare revenue is 

needed to finance other infrastructure and provision of services but is likely to be 

inadequate to recover all operating and maintenance costs. There may be some, though 

limited, opportunity to develop land or air-rights associated with rail lines. Thus, the 

capacity for an Authority to generate revenue that can be used to service debt will be 

limited to modest property prospects and any additional hypothecated taxes that 

government might impose and assign to the Authority. The latter could include 

“betterment taxes” (ie a tax on the increase in property values attributed to rail projects) 

or charges for use of roads along which rail lines are located – though these are difficult 

to apply in practice - or more general taxes such as an annual property tax or surcharges 

on vehicle registration fees or fuel tax. The capacity for the Authority to independently 

borrow will depend on the extent to which it can gain secure and significant revenue 

from these sources. But at present these taxes or charges are specified by national laws 

and any revision would apply nationally, and would be equally be to all infrastructure 

types and programs, in every local government. Even if this was possible, the question 

remains as to whether it is worthwhile developing the high level of expertise in 

Authority needed for it to gain independent access to capital markets. In the end it may 

be simpler and more cost-effective to leave fund generation to PC’s HIFU and /or DPI 

with MOF equivalent other than with respect to development of land and air-rights that 

are assigned to the Authority and which it may be able to develop in a way that is 

supportive of the rail system. 

� Extent of public transport integration. The effectiveness of an MRT system will be 

maximized through integration with other public transport services and integration of 

ticketing and fare systems for public transport. Achieving this adds technical and 

institutional challenges, and requires the Authority to have a broader capacity than 

simple delivery of rail mass rapid transit lines with private delivery of rail services. 

28

4. Potential Institutional Arrangements for Delivering Integrated 

Public Transport 

4.1 Institutional Options 

Given the previous discussion, the alternative arrangements for an Authority relate primarily 

to the scope of its functions rather than to the underlying functions themselves. On this basis, 

four options for improved institutional arrangements for HCMC are identified: 

� Option 1: Strengthen the Management Authority for Urban Railways (MAUR). 

Refer Figure 4.1. Currently, the MAUR is solely responsible for coordinating all 

proposals for urban rail system development, including those by potential donors. To 

date, however, MAUR has taken what appears to be a somewhat passive role regarding 

rail line proposals in which all are welcomed irrespective of investment cost, operating 

and maintenance cost characteristics, ability to meet demand and cost recovery. MAUR 

is also responsible for planning and implementing rail based mass transit infrastructure, 

and arranging MRT operations, but requires strengthening in these yet to be performed 

functions as it will in specifying and procuring an appropriate MRT operator or 

operators to provide integrated MRT services. Land acquisition and resettlement 

problems delay many projects and require specialist expertise. Given the planned 

volume of new MRT lines in future, the current dedicated land acquisition and 

resettlement function within MAUR may need to be strengthened. This Option 1 

therefore requires a strengthened MAUR that goes beyond treating MRT as a series of 

construction projects ie an Authority for MRT or Metropolitan Transit Authority 

(MTA). In this option, MAUR would be responsible for ensuring the planning and 

arrangement of operation for a fully integrated passenger rail system for HCMC. As an 

Authority MAUR would (a) plan effectively by seeking to meet demand (b) consider the 

whole of life attributes of proposed MRT; (c) arrange construction and operations (d) 

procure contractors for construction of civil works; (e) procure services to be operated 

so that they are all on the same basis; and (f) plan and program works and budgets in a 

disciplined manner. It would take overall transport policy and transport guidance from 

TUPWS of which its predecessor organization was a part. This option would enable 

MRT ticketing and fares to be integrated as long as MRT operating concessions are 

consistent. An independent rail safety regulator is also envisaged as required by the 

Railways Act. A revision to the current Decree 119 establishing MAUR does not appear 

to be required except where the Decree authorizes fundamental conflicts of interest 

between regulator and operator functions and so on. Future operators whether private, 

joint venture (between government and private) and wholly government should be kept 

at “arms length” and operate under a clearly defined contractual structure. This option is 

similar to the Mass Rapid Transit Authority in Bangkok, Thailand although in Bangkok 

two other agencies also provide similar functions thus hampering network integration. It 

is understood that MAUR is currently proposing to revise its organizational structure 

and comment and recommendations on an appropriate revised organizational 

arrangement are provided below. 

� Option 2: Interim Public Transport Authority. Refer Figure 4.2. This option builds 

on Option 1 (Strengthened MAUR) and proposes also a high level permanent 

committee at the PC level most likely chaired by the Chairman of the PC (or the Vice 

Chairman) to provide strong direction from the top and improve coordination 

horizontally between TUPWS and MAUR and with other important departments such 

as Department of Planning and Investment, Department of Finance and Department of 

Urban Planning and Architecture. This arrangement has existed in the past in Bangkok, 

29

Thailand, through the standing Committee for Management of Land Transport, chaired 

by the Prime Minister. While currently inactive the Committee’s function was more 

important when fragmentation of various agencies under different ministries existed. 

Currently, almost all relevant agencies including two agencies responsible for urban rail 

or MRT are under the authority of the Minister of Transport. A third MRT authority is 

the Bangkok City government which although under the purview of the Minster of 

Interior, is largely independent. 

� Option 3: Integrated Public Transport Authority. Refer Figure 4.3. In this option 

the proposed Integrated Public Transport Authority would be solely responsible for 

ensuring the delivery and operation of a fully integrated public transport system 

(MRT and bus) for HCMC. This option would enable all public transport ticketing 

and fares to be integrated as long as MRT and bus operating arrangements are 

consistent. The proposed new Authority would take overall transport policy and 

transport guidance from TUPWS as for previous options. It would create a new formal 

structure in which civil works design and procurement and services would be arranged 

by new Engineering Design and Procurement and Operations Divisions respectively. 

Care would be taken to ensure that in a single organization (as for Option 1) that policy 

and operational functions are sufficiently separated to avoid a conflict of interest. Under 

this option, close links would be developed with TUPWS (as for Options 1 and 2) and 

with the Department of Planning and Investment, Department of Finance and 

Department of Urban Planning and Architecture. [Under this option TUPWS would 

give up its responsibility for bus service planning and contracting and construction and 

maintenance of bus facilities, but would retain its road planning and construction 

functions]. As a true apex organization the proposed Authority would be staffed 

by very senior and respected official to direct the organization and cultivate the 

needed relationships for the new organization to fulfill its potential. This is a 

common arrangement for public transport system management around the world eg 

Brisbane, Australia and Stockholm, Sweden. An independent rail safety regulator and 

possibly a new bus safety regulator is also envisaged – the rail safety regulatory functions 

are a Ministry of Transport responsibility but the bus safety regulation function could be 

developed as a new skill at PC level within the proposed Integrated Public Transport 

Authority. 

� Option 4: Integrated Transport Authority. Refer Figure 4.4. In this option, a 

wholly integrated Authority would plan the multi-modal network, specify the 

services, program the investment (including roads, MRT and bus) in conjunction 

with the PC and Department of Planning and Investment and Department of Finance, 

and procure the services to be operated so that they are all on the same basis, thus 

enabling integrated fares and ticketing and integrated investment according to overall 

need. A close coordinating role with the Department of Urban PLanning and 

Architecture is also envisaged to coordinate land use developments at MRT stations and 

in conjunction with new road developments. As for Option 4 it is envisaged that very 

close coordination between DPI and the Authority would exist. This is a common 

arrangement for transport system management (eg Singapore, Hong Kong, London ) 

around the world. An independent rail safety regulator is also envisaged. 

The nature of each of the improved institutional options and the allocation of the 

responsibilities of proposed agencies are elaborated in Table 4.1. Linkages with other agencies 

are shown in Figures 4.1 to 4.4 respectively. 

30



Table 4.1: Improvement Options 

Option 2: 


Integration of 


(1) 

in HCMC 

Increasing Increasing 

Transport 

outcome 


integration possible 

Description Minimum change to 

current institutional 

responsibilities. 

Examples from 

other places 

Benefits for 

customers 

Hong Kong & 

Singapore in the 1980s 





MRT lines intersect 

possible 

Transport policy & planning (2) 

Introduction 


integration more likely 


improved direction & 

coordination 

31 

Option 3: 

Integrated PT 

Authority 

Option 4: 

Integrated 


Increasing integration � 

Fully integrated PT 

system more probable 


purpose for PT 

Bangkok in 1990s Melbourne and 

Brisbane, Australia 





MRT lines intersect. 

Integration with buses 

likely. 

Agency responsibilities 

Passengers able to use 

the PT system as 

though it was a single 

system, with fares, 

tickets, marketing and 

presentation 

integrated. Physical 

integration good. 

Urban planning DUPA DUPA DUPA DUPA 

Fully integrated public 

transport system 


purpose for transport & 

land use 

Hong Kong, Singapore 


better integration with 

land use and road 

network. 

Transport policy TUPWS TUPWS TUPWS Integrated Transport 

Authority 

Strategic transport 

planning 

Financing 

policies 

Fares policy and 

service 

standards 

Regulation (3) 

Safety 

standards 

Environmental 

standards 

Economic 

regulation (5) 

TUPWS TUPWS TUPWS Integrated Transport 

Authority 

DPI & DOF DPI & DOF DPI, DOF with advice 

of Integrated PT 

Authority 

MAUR for MRT; 

TUPWS/ MOCPT for 

bus 


TUPWS for bus 

MAUR for rail; TUPWS/ 

MOCPT for bus 


TUPWS for bus 


for MRT and bus 



for bus 

DNRE DNRE DNRE DNRE 

MAUR MAUR/ Interim PT 

Authority 

Public transport program management (4) 

Program 

coordination & 

direction 

Project planning 

& feasibility 

studies 

Investment 

programming & 

financing 

approval 


Authority 


Authority 

MAUR/ DPI/DOF/ PC MAUR/ DPI/DOF/ PC Integrated PT 

Authority / DPI/DOF/ 

PC 

DPI, DOF with advice 

of Integrated Transport 

Authority 


Authority for MRT and 

bus 



Authority for bus 

Integrated PT Authority Integrated Transport 

Authority 


Authority 


Authority 


Authority / DPI/DOF/ PC



Option 2: 


32 

Option 3: 

Integrated PT 

Authority 

Project design MAUR MAUR Integrated PT 

Authority 

Environmental & 

other approvals 

MAUR/ DNRE MAUR/ DNRE Integrated PT 


Tendering MAUR MAUR Integrated PT 

Authority 

Contract 

management 


maintenance 

MRT service 

design 

Concession 

preparation and 

management 

Service delivery 


Authority 



operations) 

Rail services Operators/ 




operations) 



operations) 


Authority 


Authority 

Operators/ 


Operators/ 


Option 4: 

Integrated 



Authority 




Authority 


Authority 



operations) 


Authority 


Authority 

Operators/ 


Bus services Operators Operators Operators Operators 

Ticketing and 

fare collection 


PC 


PC 



Marketing Operators Operators Integrated PT Authority 

and operators 



Authority 


Authority and 

operators 

(1) All options cover the provision of formal public transport in Greater HCMC. (2) Covers setting of policies within which 

agencies do detailed project planning & implementation & provision of services. (3) In the case of public transport, 

regulation relates primarily to safety. Vehicle registration and driver licensing, which are applicable for bus services, are not 

addressed because they are the same for all options. Economic regulation needs to be treated as an integral part of the 

Transport Policy and Planning function, though some aspects such as anti-monopoly regulation will be managed by other 

government agencies. (4) Includes activities to put strategies into practice strategies, including development and 

implementation of projects and arranging for the delivery of public transport and ancillary services. (5) Includes control over 

entry to the market (eg how many buses and companies are allowed) and control of fares. 

Source: Consultant


Figure 4.1: Key lines of responsibility for Option 1 – “Strengthen MAUR” 

Figure 4.2: Key lines of responsibility for Option 2 – “Interim Public Transport Authority” 


33

Figure 4.3: Key lines of responsibility for Option 3 – “Integrated Public Transport Authority” 


Figure 4.4: Key lines of responsibility for Option 4 – “Integrated Transport Authority” 


34

4.2 Assessment of Options 

For the purpose of evaluating these options, the following criteria are judged to best reflect 

the outcomes that are desired from changed institutional circumstances are: 

� Clarity of public transport management, eg ability to ensure consistent direction and 

priorities for public transport, a focus on core functions, involvement of transport users, 

and the risk of BITA reverting to inertia given its comprehensive role. 

� Appropriateness of the institutional structure, eg clear allocation of responsibilities, 

accountability for outcomes, separation of potentially conflicting functions, links with 

key partners, and ease of implementation. 

� Ability to deliver projects and services, eg businesslike, prepare programs, secure 

funding, tender, award and supervise concessions. 

� Ability to meet passenger needs, eg integration of fares and services, provision of 

information on services, integration with land use. 

An assessment of the options with respect to these criteria is shown in Table 4.2. While the 

assessment unavoidably involves judgment, it is intuitively evident that Option 3 (Integrated 

Public Transport Authority) is the most appropriate in for ensuring integrated public transport 

including MRT and bus system development and services for HCMC. Option 4 (Integrated 

Transport Authority) carried Option 3 a step further and integrates all transport including 

roads. 

All options assume use of one or more private sector operators or a corporatized government 

operator (not proposed by us) to efficiently deliver MRT services, with continued use of the 

private sector for delivery of bus services. 

As a practical matter in the first instance a strengthened MAUR (Option 1) is an important 

first step for institutional improvement and is documented below. 

35

Clarity of strategic direction� 

Ensure consistent directions & 

priorities 

Table 4.2: Comparison of Institutional Options 

Existing 

arrangements 

Option 1: 

Strengthen 

MAUR 

36 

Option 2: 

Interim PT 

Authority 

Option 3: 

Integrated 

PT Authority 

Option 4: 

Integrated 

Transport 

Authority 

- �� 

Focus on core functions � �� 

Involvement of transport users - -� �� 

Risk of inertia - -� -� �� 

Appropriateness of the institutional structure� 

Clear allocation of responsibilities � �� 

Accountability for outcomes - �� 

Separation of conflicting functions - �� 

Links with key partners - �� 

Pace/extent of change Na� � �� 

Ability to deliver projects and services� 

Businesslike arrangements - �� 

Ability to prepare and manage 

programs 

- �� 

Secure funding - �� 

Project implementation - �� 

Concession management - �� 

Ability to meet passenger needs� 

Ticket and fare integration - �� 

Marketing and information - �� 

Integration of public transport and 

land use 

Conclusion Change 

needed 


- -� -� �� 

Fair for 

Integrated 

MRT 

4.3 Building Technical and Managerial Capacity 

Fair for 

Integrated 

Bus and 

MRT 

Good for 

Integrated 

Bus and 

MRT 

Good for 

Integrated 

Transport 

Depending on the option eventually chosen, with the exception of Option 4 (Integrated 

Transit Authority) the proposed agency will have a key role in working to efficiently and 

effectively connect high level transport policy and plan making done by TUPWS to detailed 


DPI will continue to have an important role in overseeing the performance of the transport 

sector in terms of fiscal monitoring, but would also benefit from having a stronger MAUR or 

Integrated Public Transport Authority to provide economic regulation and technical 

management of MRT (and/or bus) investment programming and management of annual 

MRT operating budgets, and desirably for other public transport. 

Economic regulation and oversight involves issues of pricing including fares, subsidies (and 

community service obligations), competition, concessioning including compliance supervision 

and requires skills in economics and to associated legal and financial impacts. 

Technical supervision of rail MRT and public transport investments and their integrated 

operation requires high level knowledge and skills in:

� interpreting transport policy and master plans prepared by TUPWS and central 

government’s MOT and providing appropriate feedback and advice; 

� translating these policies and plans into appropriate forward work programs that can 

result in timely and efficient implementation of MRT, other public transport 

improvements and reforms, and integrative systems; 

� providing appropriate advice to TUPWS/ DPI/ DOF/ DUPA and other agencies as 

required; and 

� appropriate coordination with the Department of Natural Resources and Environment. 

While the PC is acting to strengthen MAUR (under Options 1 and 2) or if it intends to create 

an Integrated Public Transport Authority (Option 3) or an Integrated Transport Authority 

(Option 4) it should be careful to match the skills and capabilities of the people to be engaged 

and /or transferred to the desired new organization and its structure taking full account of the 

needed capabilities in high level economic and technical supervision and oversight. 

The ADB/ PPIAF and PPTA team will later identify the scope of capacity building activities 

for the future. 

4.4 Legal Basis for Integrated Transport or Integrated Public Transport 

An important complementary measure to a preferred institutional arrangement to achieve 

integrated transport or public transport only would be a new law 1 to mandate that all agencies 

are responsible for achievement of an integrated transport or public transport system. 

In Appendix C we have identified the possible outline content of a new law to achieve 

integrated public transport. This is not to say achievement of integrated transport is not 

desirable however. 

1 This is a development of the concept recommended by MVA in 2006 for BRT in which they recommended the 

need for a “White Paper” ie a high level policy on public transport. 

37

5. Some Lessons on Organizational Structure for Efficient MRT 

5.1 Overview of Lessons from Other Cities 

A review was undertaken of institutional and delivery arrangements for public transport in 

other cities. Tables B.1 and B.2 summarize institutional and delivery arrangements for public 

transport in other cities that either have some similar arrangements to key Asian cities eg 

Singapore, Hong Kong), where private sector finance and organizations are used to delivery 

public transport) or are similar in character to HCMC in jurisdictional terms (eg London, 

which is a dominant city in a unitary state and has also used a mix of delivery mechanisms for 

public transport). 

The review indicates there to be a wide variety of possible institutional arrangements. Indeed, 

each city has characteristics with regard to the management and delivery of public transport 

that differentiates it from other cities. This reflects historic, constitutional, political, financial, 

social and other factors. In some cases the arrangements have changed little over time, while 

in others change has occurred more frequently. Nevertheless, key lessons that are evident are: 

� All cities except Kuala Lumpur and Bangkok have an apex organization (eg an 

Authority) that is responsible for managing all public transport. 

� Of the Authorities (or equivalent organization) in the 12 cities reviewed in detail, 6 are 

government departments (ie directly responsible to the minister for the department), 4 

are government authorities (with a board), and two are corporatized government 

agencies. Most organize transport across their entire metropolitan region. 

� All Authorities are responsible for the tactical (ie not long term) planning of urban 

public transport and ensuring the delivery of services. Some also undertake strategic 

planning. As far as can be established, the policy framework for public transport is 

determined by higher levels of government. The general dependence on subsidies 

requires Authorities to operate within the fiscal discipline of government finance 

agencies. 

� Only one Authority (New York) both manages public transport and provides all services 

using its own employees (through subsidiary companies). In contrast, Stockholm, 

Bogota and Melbourne engage private companies to provide all services (with the 

companies generally selected through competitive tendering, though there are 

negotiated contracts for some bus services in, for example, Melbourne). Other agencies, 

to varying extents, provide services using their own resources, or engage corporatized 

government operators and public and private companies to provide services (either with 

competitively tendered or negotiated contracts). That is, use is made of the full possible 

range of means for providing services. 

� Two Authorities (London and Singapore) are also responsible for roads as well as public 

transport – while not responsible for all roads, the Authority in New York is in charge 

of toll bridges and tunnels. 

� Six Authorities have boards to direct their activities (ie the four that are statutory 

authorities and the two corporatized government agencies). It appears that members of 

the boards are appointed by government in all cases. Boards range from entirely nongovernment 

directors in the case of London to government representatives in Bogota. 

Interest groups (labor and community) are represented on the board in New York and 

Athens. Authority executives are generally not members of their boards, though there 

are exceptions (eg Athens). 

38

� Authorities are responsible to local government in only three places (London, Bogota 

and New York) and the same, in effect, in the city-states of Singapore and Hong Kong. 

Local government is represented on the board in Athens. The remaining 6 Authorities 

are responsible to national or state governments. 

� Where services are provided by a number of agencies or companies, ticketing, marketing 

and branding is usually centralized within a division of the Authority or by a 

government owned corporation. 

� Only two cities have an Authority that can issue bonds (New York and, in the case of 

Hong Kong, the MTR, which is an arm of the Government that is now listed on the 

stock market). In these cases, the Authorities are able to issue bonds because they have 

their own sources of income that can support borrowing, eg property income and, for 

New York, hypothecated taxes. 

� Two Authorities are explicitly funded by a share of fare revenue (2% of fare revenue in 

Athens, and 4% in Bogota). The higher share in Bogota may reflect the role that the 

Authority has in developing a bus rapid transit system for the city as well as provision of 

established public transport services. 

� Railway infrastructure is always owned by government in one form or another. In Hong 

Kong the railway operators develop infrastructure and provide services within a 

framework set by government. New York is similar. In Singapore and other cities, a 

central agency plans, funds and builds the rail fixed infrastructure and contracts out 

operations through concessions. In Bangkok, the two MRT concessions were BTO 

form. 

� Hong Kong is the only city where rail companies come close to securing sufficient 

revenue to meet the entire capital and operating cost of trains. It also appears that 

railways in Tokyo are able to recover operating costs and a significant share of capital 

costs from fare revenue. The TransMilenio busway system in Bogota involves 

government finance of fixed infrastructure, with all other costs recovered from fares. 

Within the limits of available information, it appears that governments finance most if 

not all fixed infrastructure and rollingstock, and often subsidize operating costs, 

especially in wealthier countries. 

5.2 Guidance for HCMC’s MAUR 

Three cities in the Asian region reviewed in Table B.1 provide useful lessons good and bad for 

HCMC. These cities are Bangkok, Singapore and Hong Kong. 

From Bangkok both good and bad lessons can be learned. The bad lessons are that: 

� Having three agencies responsible for MRT (ie SRT, BMA and MRTA) leads to 

duplication in the MRT network and poor prioritization as each agency wants its lines 

developed at any cost. Refer Figure 5.1; and 

� Each line is developed separately with its own ticketing systems and fare structures with 

little hope of integration. 

The good lessons are that: 

� The private sector can be used to provide expertise and capital and develop into world 

class operating entities in a relatively short time (Allport 2004). 

39

� Thailand’s Mass Rapid Transit Authority (although one of three agencies responsible for 

MRT) is the closest to a reasonably well functioning Authority for MRT. In the past 

MRTA focused principally on engineering but it is recognized that operations, finance 

and their management are just as important. 

� MRTA as does the other two MRT agencies operates within the overall transport policy 

and planning advice of government. 

MRTA’s structure is also shown in Figure 5.1 and shows that its three key groups are: 

� Engineering; 

� Administration; and 

� Operations including concessioning and management. 

Hong Kong and Singapore provide similar but contrasting lessons (Refer Figure 5.2). Both 

developed their MRTs in the late 1970s to mid 1980s and initially created a special 

government MRT organization (department of government). In Hong Kong there was an 

existing government regional rail operator the Kowloon Canton Railway. They were both 

corporatized in the 1990s and have since been listed on the stock market. (In October 2007 

their shareholders agreed to a merger). These MRT operators are essentially private firms 

today but operate within the policy framework of government. Hong Kong has private bus 

operators also and an integrated smart card-based ticketing system. Ticketing is provided by a 

separate organization under the guidance of the Transport Department and ticketing is not 

provided as part of operational agreements. 

Singapore’s history is somewhat similar but differs in an important respect. In the 1995, the 

Singapore Government prepared its transport policy for integrated transport. This “White 

Paper” on transport laid out the basis for creation of the Land Transport Authority and 

corporatization of the Singapore Mass Transit organization to become SMRT Corp. (a 

government-owned corporation). LTA sets the policy framework, invests and the SMRT 

operates agreed services on a gross cost basis. 

In the late 1990s, the Singapore government decided to develop two multi modal (ie MRT and 

bus) operators. It merged SMRT and the government-owned TransIsland Bus Services to 

create one operator and allowed SBS Bus Services to develop into an MRT operator by 

awarding it the concession (after competitive tender) for the North East Light MRT project. 

SBS Transit provides these services on a gross cost basis. As a result Singapore has an 

integrated bus and MRT network and integrated fares and ticketing. The key lessons for 

HCMC are: 

� All MRT and bus service provision takes place within the government’s determined 

policy eg on fares; 

� Two MRT (and bus) operators exist – a Government owned corporation and a new 

private operator. The private operator was permitted to develop for benchmarking and 

strategic reasons; 

� MRT and bus services are provided on a gross cost basis and all fares collected from 

passengers are remitted to government; and 

� Ticketing is provided by a separate organization under LTA and ticketing is not 

provided as part of operational contracts. 

40


Source: MRTA, Thailand 

Figure 5.1: MRT Arrangements in Bangkok, Thailand 

41

Figure 5.2: Integrated Transport Arrangements in Hong Kong and Singapore 

Source: TD, Hong Kong 

Source: LTA, Singapore 

42

Figure 2.1 showed the current broad structure of the MAUR HCMC. Advice was sought by 

MAUR staff on some principles for revising the current organizational structure to better 

carry out its new responsibilities. The challenge in any re-structure is how to observe key 

functions and the creation of formal business-like relationships within the conventions of the 

current governmental norms. Consequently, a simplified suggestion on how important MRT 

functions may be structured in future is shown in Figure 5.3 1 . Key points are: 

� Policy advice to the PC determined by the MAUR board based on the advice of their 

technical departments (general transport policy framework jointly determined with 

TUPWS); 

� Management of MRT operations clearly separated from operational entities whether 

government-owned or not; 

� Ticketing operations done as single contract for the entire MRT network; and 

� All functions appropriately resourced. 


Figure 5.3: Possible Revised Structure for MAUR 

1 This suggested structure is consistent with Option 1 “Strengthened MAUR” discussed in Section 4. 

43

Appendix A: Trends in the Management & Provision of Public 

Transport 

The way in which public transport has been provided has changed over time. This is not 

immediately apparent from the comparison of current institutional arrangements presented in 

the previous section. 

A common development pattern for public transport has been, in the first instance, for it to 

be provided by the private sector with only a modest role for government. This included rail 

infrastructure, though it has been common over time for the infrastructure to be taken over 

by government when the private sector failed to achieve expected financial returns. Examples 

include development of the initial lines of the London Underground in the later 19 th and early 

20 th century, and street-car (ie tram) lines in the USA in the 1930s. 

Changing economic and social conditions in developed countries made bus services 

unprofitable by the late 1960s. Together with other changes such as a reaction against urban 

freeways, rises in fuel prices and a desire for improved public transport, the trend in developed 

countries in the 1970s was for governments to take full responsibility for urban public 

transport. This usually involved establishing a government agency that was responsible for 

ensuring the provision of integrated public transport for a city. Commonly, the agency also 

owned public transport assets and provided services. The now collapsed State-owned bus 

operators in HCMC and Hanoi may be seen as a product of this era. 

These changes enabled major improvements, in particular integration of routes, services, fares 

and ticketing across all modes of public transport. However, there were also disadvantages, in 

particular decreasing productivity that resulted in rising unit costs. To varying extents, quality 

of service and innovation also declined. 

Ground-breaking reforms by the government in the United Kingdom in the early to mid- 

1980s, the substantial, and sometimes radical, economic and regulatory policy reform that 

followed in New Zealand, microeconomic reform in Australia in the early 1990s, and related 

trends in South America and Europe have resulted in a new model for provision of public 

transport (eg see van de Velde 2001 1 ). While there is considerable variation in the models 

used, general features are: 

� government is responsible for ensuring the provision of an integrated public transport 

system; 

� the private sector deliver public transport services (and infrastructure projects selected 

by government) through contracts with the government that are awarded on the basis of 

competitive tendering; and 

� government meets the difference between the cost of providing services and revenue 

collected from passengers. 

This model has not been adopted everywhere, but it represents the current trend and is 

considered best practice (eg World Bank 2002). The trend is illustrated in Figure A.1. HCMC 

has the opportunity to move more directly to this model, which allows improved, integrated 

public transport to be delivered at lowest possible cost. 

1 The biannual International Conference on Competition and Ownership in Land Passenger Transport initiated 

in 1987 has followed the subject – see http://www.itls.usyd.edu.au/conferences/thredbo/thredbo_main.asp. 

44

H 

i 

s 

t 

o 

r 

i 

c 

Dispersed public transport service 

provision 

- Limited role by government for 

service planning & integration. 

- Services provided by the private 

sector, and sometimes infrastructure 

also. 

- Limited or no government subsidy. 

Alternative, 

direct route 

for change 

Objective: 

avoid poor 

service and 

high cost of 

centralized 

approach 


Figure A.1: Development Patterns for the 

Provision and Management of Public Transport 

Typical development 

approach in 

the past 

Objective: 

improve and 

integrate public 

transport 

45 

Centralized public transport operator 


- Integrated service planning and provision. 

- Services and infrastructure provided by the 

government agency. 

- Increasing costs & decreasing service 

quality. 


e.g. Europe, 

S. America, 


Objective: better services 

and reduced unit costs 

through effective use of the 


Public transport management government 


- Integrated fares, ticketing and services. 

- Services provided by private operators under contract to the 

government. 

- Government pays contractors for services using performance 

based contracts with appropriate incentives and penalties.

Appendix B: Review of Other Arrangements for Management & 

Provision of Public Transport 

A review was undertaken of institutional and delivery arrangements for public transport in 

other cities. Tables B.1 and B.2 summarize institutional and delivery arrangements for public 

transport in other cities that either have some similar arrangements to key Asian cities eg 

Singapore, Hong Kong), where private sector finance and organizations are used to delivery 

public transport) or are similar in character to HCMC in jurisdictional terms (eg London, 

which is a dominant city in a unitary state and has also used a mix of delivery mechanisms for 

public transport). Table B.3 provides additional information. 

46

Table B.1: Examples of institutional arrangements for public transport in selected Asian and Australian cities 

Feature Kuala Lumpur, 

Malaysia 

General introduction 

Region covered 

Similar operating environment. 

Malaysian 

MoF bought back two 

existing MRT operators 

in 2001. Government 

developing an 

integrated ticketing 

multi-modal ticketing 

& payment system in 

Klang Valley centered 

on KL. 

Area (sq. km) 243 (excludes Klang 

Valley) 

Singapore Hong Kong, China Tokyo, Japan Melbourne, 

Australia 

Strong unitary government 

with clear 

policy framework. 

Multi-modal operators 

being encouraged 

with area franchises 

and integrated ticketing 

system implemented 

in 2002. 

Strong unitary government 

with clear 

policy framework. 

Two rail and several 

bus operators being 

promoted. integrated 

ticketing system implemented 

in 1997. 

Integrated public 

transport under direction 

of the Ministry of 

Land, Infrastructure, 

and Transport (MLIT) 

with highly marketbased 

incentives. Individual 

operators are 

responsible for marketing, 

fares and ticketing 

with MLIT’s 

permission. Integrated 

ticketing system implemented 

in 2000. 

648 1,098 2,200 (Tokyo 

metropolitan city). 

7,850 (Suburban) 

48 

State government 

management of public 

transport system in 

Melbourne, by agency 

(DOI) which is also 

responsible for the 

road system. Train, 

LRT & bus services 

provided by private 

operators within an 

integrated framework. 

Informal coordination 

with local government. 

Brisbane, 

Australia 


management of public 

transport system. 

Train, bus & ferry 

services provided by 

corporatized state 

government agencies, 

a major local government 

& private bus 

operators within an 

integrated framework. 

Informal coordination 

with other local governments. 

8,800 2,800 870 

Bangkok, Thailand 

Similar operating environment. 

Regional 

train and bus services 

by State Enterprises ie 

State Railways of 

Thailand and Bangkok 

Mass Transport Authority 

respectively. 

Two MRT lines provided 

by different 

combinations of private 

finance and are 

operated by private 

firms. A third line to 

new Airport under 

development. Three 

agencies currently 

have MRT responsibilities. 

Population (m) 1.4 4.2 7 12.1 (Tokyo m. city) 3 2.6 (regional) 11 (regional) 

Public transport system features 

Length of fixed track line 

Rail 56 km (Star LRT & 

Putra MRT) & 58 km 

Express Rail Link to KL 

International Airport. 

150km electrified 

suburban rail system 

(KTM). 9 km monorail. 

128 km including 19 

km of LRT 

MTRC (119 kms incl. 

35 km Airport 

Express) and KCRC 

(34 km East Rail, 36 

km Tsuen Mun LRT 

and 31 km West Rail) 

Suburban (1,431 km 

for JR-East, and 1,650 

km for private 

railways including 

subway); 13,827 km 

bus 

336km rail 

245 km tram (double 

track) 

300km metropolitan 

part of South East 

Queensland 

44 km MRT 

27Km Airport MRT 

(construction) 

Over 150km more 

planned 

Busway None None None None None 18.4 km First line under construction 

by local government, 

the BMA


Malaysia 

Rollingstock 


Australia 

No. trains/LRV NA NA NA NA 158 train sets, 480 

trams 

49 

Brisbane, 

Australia 


100 train sets 55 MRT 3 car train 

sets approx; further 9 

Airport Line train sets 

being procured 

No. buses 2,000 3,700 19,000 NA 1,500 1,000 10,000 

Other 

Passenger 

boardings/weekday 

(m, 

circa 2004)) 


Involvement 

Approx 0.26m per day 

on STAR and PUTRA, 

0.045m on monorail 

and 0.07m on KTM 

Private STAR and 

PUTRA rail 

concessions taken 

back into a public 

asset corporation & 

merged after financial 

failure. Airport 

Express & monorail 

operated separately. 

KTM operates nationwide. 

Two major 

nation-wide bus 

companies. 

2.5m on MRT and bus 3.2m on MRT Tokyo city 27m 

Suburban 43m 

Government funding 

of MRT infrastructure 

& rollingstock. Two 2 

multimodal 

operators created. 

SBS Transit operate 

North East Line 

(20km) and bus 

services & SMRT the 

remainder (now 

incorporating Trans 

Island Bus Services) 

Five private sector 

companies bus 

services. Former govtowned 

MTRC now 

listed on stock 

exchange. MTRC has 

issued bonds for 

railway development. 

Regional railway 

(KCRC) is government 

owned. 

Suburban: 

JR-East has the 

largest share (34%). 

21 private sector 

companies. 

Tokyo metropolitan 

city owns Tokyo 

metropolitan subway 

and bus. 

0.37m (rail), 0.37m 

(tram) & 0.26m (bus) 

Train: franchised to 2 

operators in 1999 but 

re-franchised to 1 

operator in 2004 

Tram: franchised to 2 

operators in 1999 Refranchised 

to 1 

operator in 2004. 

Buses: several private 

operators 

0.13m (rail), 0.2m 

(bus & water) 

15 private bus 

operators server outer 

suburbs. All other 


services provided by 

corporatized state 

government agencies 

0.60m on MRT; 7.0m 

on bus and other public 

modes 

35 private bus companies 

under contract 

to BMTA State Enterprise 

urban bus operator 

plus some 1,500 

owners of small vehicles 

involved in urban 

transport; 2 MRT 

concessionaires: 

Bangkok Transit System 

Corp for Bangkok 

Metropolitan Administration’s 

elevated 

24km BTO Skytrain 

project (1999 opening) 

& Bangkok Metro 

Corp Ltd for MRTA’s 

BTO Blue Line Subway 

Operations and E&M 

concession (2004 

opening)


Malaysia 

Features of the MTA (or equivalent) 

Name No formal MTA at 

present. National 

government through 

PM department has 

dominated. All 

concessions under 

MOT. Concessions and 

SPNB regulated by 

MOT. Proposal for a 

KL Urban Transport 

Authority under 

Authority under PM 

Dep’t (Allport 2004) 

Organizational 

form 


Australia 

Land Transport 

Authority (LTA) 

Statutory authority 

under the Ministry of 

Transport. LTA 

responsible for all 

modes of transport 

(incl roads). LTA has 

the structure of a govt 

department. 

Board None 7 members drawn 

from govt and private 

sector. 

Local government 

involvement 

KL City Government 

represented on KL 

transport committee 

in absence of an 

integrated authority 

None – some 

consultation with 

District Councils 

Transport Department 

(TD). Reports to 

Transport Advisory 

Committee (CTA) & 

Transport Policy 

Coordination 

Committee. Railway 

Corporations 

regulated by TD’s 

Transport Branch. 

Government 

department. 

No formal authority. 

Ministry of Land, 

Infrastructure, and 

Transport (MLIT) 

supervises public 

transport system. 

MLIT has a Railway 

Bureau and a Road 

Transport Bureau. 

Also, under MLTI are 

local bureaus such as 

Kanto Regional 

Development Bureau 

for the larger 

suburban area. 

50 

Department of 

Infrastructure’s 

Director of Public 

Transport is the State 

of Victoria’s 

Administrator of Public 

Transport 

Government 

department – 

establishes 

arrangements with 

infrastructure & 

service providers 

through contracts. 

Brisbane, 

Australia 

TransLink (a division 

of Queensland 

Transport or QT) 

Government 

department – 

establishes 

arrangements with 

infrastructure & 

service providers 

through contracts. 

None None None Translink is a part of a 

government 

department and has 

no board 

None None except Tokyo 

metropolitan subway 

and bus subsidized by 

Tokyo metropolitan 

city. 

None – some 

consultation with 

District Councils 

State Government & 

Brisbane City Council 

(BCC), agree to 

cooperate through 

Capital City Transit 

Group (CCTG) 


No formal MTA. 2 

MRT agencies (ie SRT 

and MRTA) under 

supervision of Ministry 

of Transport and one 

Bangkok Metropolitan 

Administration for 

under Minister of Interior. 

Largely independent 

agendas but 

share common MRT 

Master Plan prepared 

by MOT’s Office of 

Transport & Traffic 

Policy & Planning 

(OTP). 

BMA is a local government 

& SRT and 

BMTA are State-Enterprises. 

BMTA and SRT have 

boards. 

Local government (ie 

Bangkok) involvement 

in Skytrain only. No 

coordination with 

other local governments 

in region.


Malaysia 

Institutional responsibilities 

Policy & strategy There is a holistic 

strategy for national 

development & an 

urban transport 

strategy. Not fully 

effective (Allport 

2004) 


provision and 

financing 

All new MRT lines 

were built & funded 

by private sector. KTM 

is national railway 

operator. 


Australia 

Comprehensive multimodal 

strategy 

established in 1996 

and regularly updated. 

Strong integration 

with land use and 

other sectors (eg Info 

Communications 

Technology) 

All MRT lines funded 

by Government. 

Comprehensive multimodal 

strategy & 

modal strategies 

regularly updated. 

KCRC & MRTC develop, 

operate & 

maintain MRT infrastructure. 

Until recently 

a property 

based MRT financing 

avoided the need for 

public subsidy of development 

of MRT. 

MTRC can issue bonds 

in own right since has 

revenues from property 

& railway operations. 

Strong market-based 

operations by 

individual operators 

are encouraged by 

MLIT. Strategic 

decisions are made by 

individual operators 

with MLIT’s approval. 

Individual operators 

are expected to earn 

fare revenues to cover 

not only direct operating 

costs but also 

indirect costs including 


costs. JR was owned 

by MLIT, but was 

privatized in 1987. 

Since then it has received 

no subsidy 

from MLIT. 

51 


transport department 

establishes transport 

policy and an 

implementing strategy 

within broader urban 

strategy. 

Financed by state 

government grants 

and implemented by 


using private contractors. 

Investment 

decisions subject to 

normal budget 

process with priorities 

determined by policy 

priorities. 

Brisbane, 

Australia 


transport department 

establishes transport 

policy and an 

implementing strategy 

within broader urban 

strategy. 

Financed by state 

government grants 

and implemented by 


using private contractors. 

Investment 

decisions subject to 

normal budget 

process with priorities 

determined by policy 

priorities. 


MOT’s OTP 

Financed by national 

budget and loans from 

IFIs. Usually implemented 

by government 

agencies using 

private contractors. 

Investment decisions 

subject to normal 

budget process with 

priorities determined 

by policy priorities. 

Private finance in 2 

MRT concessions.


Malaysia 

Operation and services 

Provision Individual operators 

for rail & bus – see 

above. Current focus 

is to restructure based 

on: (1) A new Urban 

Transport Authority to 

be established under 

PM (2) an assetowning 

Company 

SPNB (PUTRA, STAR, 

Intrakota, Park May) 

who would contract 

OpCo to operate all 

services (Allport 

2004). 

Ticketing and 

marketing 

KL’s common payment 

system (tolls, parking 

as well as public 

transport fares) 

system was 

implemented in 2003. 

using a cashless card 

(Touch’n’Go). System 

for public transport 

was developed by the 

7 major public 

transport operators 

who formed a joint 

ticketing company 

known as Uniticket. 


Australia 

2 multi-modal 

operators under 

concession to govt. 

Concessions usually 

start at 10 years and 

can be extended to 30 

years. Standards for 

services set by an 

independent Public 

Transport Council 

established in 1987. 

15 Council members 

are drawn from 

distinguished 

community leaders. 

Ez-Link, an integrated 

fare system using 

smart cards, was 

implemented in 2002 - 

Ez-Link is a company 

and a subsidiary of 

the LTA. Individual 

operators established 

a jointly owned 

company to integrate 

marketing, 

information provision 

& physical integration. 

See above. The 

merger of KCRC and 

MTRC is planned to 

integrate their 

networks & services 

and lead to better 

future provision. 

Creative Star supplied 

& operated integrated 

ticketing system since 

1997. Government 

owned. 

In principle, individual 

operators are 

responsible for 

provision of services, 

as well as 

maintenance of assets 

and infrastructure. 

MLIT supervises and 

provides guidelines 

where necessary. In 

some cases, local 

authorities provide 

supports or directly 

intervene, to maintain 

specific services. 

Integrated ticketing 

system implemented. 

In 2000, a prepaid 

“Passnet Card”, which 

is valid for 22 private 

railway and subway 

companies in Tokyo, 

was introduced. In 

2001, an IC “Suica” 

card was introduced 

by JR-East. In 2006, a 

new integrated IC 

card will be 

introduced. Good 

voluntary coordination 

among individual 

operators exists. 

52 

Government provides 

services through 

contracting. 

Operational planning 

is the responsibility of 

franchisees within the 

terms of franchises 

that specify a 

minimum service 

standard & an 

Operational 

Performance Regime 

(OPR). Rail operators 

financially rewarded 

or penalized according 

to OPR performance 

against an agreed 

benchmark. 

Integrated ticketing 

system implemented 

for several years. New 


system recently 

contracted. Networkwide 

services provider 

(passenger 

information & 

marketing) is provided 

by Metlink Victoria Pty 

Ltd which is owned by 

the operators & the 

Bus Association of 

Victoria 

Brisbane, 

Australia 

TransLink developed 

new contractual 

arrangements 

between the state 

government and bus 

operators. Queensland 

Transport’s Rail, Ports 

& Freight Division 

oversee urban and 

state-wide rail 

services & pay 

subsidy. 

TransLink is 

implementing & 

managing the new 


system. It also 

provides centralized 

marketing & provision 

of information to the 

public. 


BMTA operates bus 

services & subcontracts 

least 

profitable bus services 

to private sector. 

MRTA concessisoned 

operations and 

maintenance and E&M 

investment incl. trains 

and depot to BMCL, a 

private consortium. 

BMA arranged BTO 

concession for all 

investment to BTSC in 

early 1990s – new 

BMA lines to be for 

operations and some 

E&M investment only. 

Currently separate 

MRT concessions with 

own ticketing systems 

and fare structures. 

Desire to develop 


and fares but w/o 

concession contract 

revision this will not 

be possible. Ditto for 

bus.


Malaysia 

Financing Fare revenue plus 

specific payments (eg 

PUTRA/STAR) or 

general budget 

support from national 

government. 


Australia 

Government requires 

MRT projects to fund 

incremental operating 

costs and asset 

replacement costs 

from incremental 

farebox and ancillary 

revenues 

Until recently no 

public subsidy was 

required in rail 

operations. Change in 

the property market & 

two poorly performing 

projects have led to 

government finance 

becoming necessary 

(Allport 2004) 

Basically individual 

operators are 

expected to earn fare 

revenues to cover not 

only direct operating 

costs but also indirect 

costs. 

53 

Revenues only cover a 

proportion of costs 

(the remainder of 

income coming from 

fixed payments set at 

the bid stage plus 

incentive payments). 

Franchisees required 

to maintain condition 

of infrastructure. 

Brisbane, 

Australia 

TransLink collects all 

revenue for operators. 

Pays operators on 

basis of the services 

they provide (on a 

per-km basis or on the 

basis of purchasing a 

basket of services for 

a set fee). 


MRT concessionaires 

retain all revenues. 

BMTA deficit financed 

by government. 

Sources: ADB (2006a) with original sources cited as follows Kuala Lumpur (consultant ie ADB 2006a); Singapore (consultant and Allport 2004); Hong Kong 

(consultant); Tokyo (Ms. Rika Yuasa, Researcher, Japan Bank for International Cooperation); Melbourne (consultant); Brisbane (consultant); and Adelaide 

(consultant). Information for Bangkok from PPIAF study team.

Table B.2: Examples of institutional arrangements for public transport in selected cities in the UK, Europe & Americas 

Feature London, UK Stockholm, Sweden Athens, Greece New York, USA Bogota, Colombia 

General 

introduction 

Region covered 

Powerful, metropolitan 

transport agency responsible to 

the city’s Mayor. Responsible 

for most public transport in 

London (& for roads also). 

Agency of the Greater London 

Authority. Not responsible for 

trains using national rail 

network. Little direct 

involvement by the national 

government. 

Each county is required to have 

a Passenger Transport Authority 

– no involvement of the 

national government. PTA’s 

provide centralized services and 

tender / outsource all 

operations & services but 

develop & fund major 

infrastructure. 

Public company responsible for 

planning, coordination, 

monitoring and provision of 

public transport in Athens 

metropolitan region. Uses 

subsidiary, government-owned 

companies to provide services. 

54 

Comprehensive Metropolitan 

Transit Authority for the City of 

New York that carries out 

planning, operations (through 

subsidiaries) for all public 

transport and tolled bridges and 

tunnels and also raises finance 

for infrastructure and manages 

& implements a major capital 

works program. 

Area (sq. km) 1,580 6,500 1,470 322 1,590 

Population (m) 7.4 2.0 3.7 8.0 7.8 

Public transport system features 

Length of fixed track line 

Rail 408km underground (the 

“Tube”, with 275 stations); 

57km LRT (788km national rail) 

na Metro line 1 (23 stations), 2 nd 

and 3 rd line open. 

494 (New York City Transit – 

NYCT)) 

TransMilenio established by 

city’s Mayor to develop and 

operate a busway system for 

the city. Provides fixed 

infrastructure, & arranges for 

the provision of services by 

private companies through 

contracts. 

One minor line only 

Busway None None None 53 (NYCT) 84km (with 116 stations, by 

end-2006). 388km total length 

planned. 

Rollingstock 

No. trains/LRV 3,980 Not known Not known 6,195 (NYCT) Minor 

No. buses 6,200 Not known 1,800 diesel and gas; 400 

trolley bus 

Other 

Passenger 

boardings/weekday 

(m) 

5m (bus), 3m (Tube), 1.4m 

(rail), 0.2m (LRT) 

0.78m (u/g), 0.18m commuter 

rail, 0.68m (tram) & 0.7m (bus) 

1.6m (bus), 0.4m (metro line 1) For NYCT, 5.7m (rail) and 3.0m 

(bus) 

4,457 (NYCT) 1,186 buses for 2006 system, 

including 381 feeder buses. 

1.4m on 2006 busway system



Involvement 

26 companies (mostly private) 

provide bus services, and one 

operates some LRT services. 

Private companies operate 

national rail services and 

maintain Tube infrastructure. 

Features of the MTA (or equivalent) 

Private sector operated rail (3 

operators), tram & bus services 

(3 operators). 

Name Transport for London (TfL) Passenger Transport Authority 

(PTA) – for Stockholm & 21 

other counties required by law. 

In Stockholm the PTA is called 

“SL”- AB Storstockholms 

Lokaltrafik. 

Organizational 

form 

Statutory body established 

under Greater London Authority 

Act. 

Board 12 member Board chaired by 

Mayor of London. Members are 

not executives of TfL, and have 

academic, technical and 

community-based backgrounds. 

Local government 

involvement 

Negligible involvement Secondary involvement Government built fixed 

infrastructure. Private sector 

purchase buses and provide 

services. Private company 

contracted to provide and 

operate fare collection system. 

OASA (Athens Urban 

Transportation Organization) 

Statutory authority Public company, owned by the 

national government. Financed 

with 2% of public transport fare 

revenue 

Representatives of local & 

county councils & other 

respected persons 

Entity of the city government. Direct involvement of local & 

county councils 

11 member board, appointed 

for five years: 7 members 

represent the government, 2 

employees, one from the 

Economic and Social Committee 

(OKE - a government advisory 

board), and one from the Union 

of Prefectural Administration of 

Greece (ENAE). 

55 

Metropolitan Transit Authority 

(incorporates New York City 

Transit) 

A public-benefit corporation 

chartered by New York State in 

1965. 

17-person Board. Members are 

nominated by the Governor, 

with some recommended by 

New York City's mayor & the 

county executives of Nassau, 

Suffolk, Westchester, Dutchess, 

Orange, Rockland, and Putnam 

counties. The Board also has six 

rotating non-voting seats held 

by representatives of organized 

labor and the Permanent 

Citizens Advisory Committee 

(PCAC), 

TransMilenio 

Public company, owned by city 

government agencies. Financed 

with 4% of public transport fare 

revenue. 70 staff. 

City government 

representatives, selected by the 

Mayor. National government 

representation due to onlending 

of World Bank funds to 

TransMilenio. 

One member of the Board See above Leadership from city Mayor and 

ownership by city agencies.


Institutional responsibilities 

Policy & strategy Responsible to Mayor for 

London and London Assembly, 

within framework of Greater 

London Authority Act. 

Operational activities 

undertaken separate companies 

owned by TfL. 


Provision Private companies maintain the 

Tube under contract to TfL 

company. Service providers 

maintain other infrastructure as 

part of service contract with 

TfL. 

Financing TfL finances infrastructure, 

mostly directly, but some 

instances of financing through 

PPPs. Funding is provided from 

local and national government 

sources. 

Operation and services 

Provision TfL operates Tube services, 

some LRT, and a few bus 

services. All other services are 

provided by private companies 

under contract to TfL, or private 

companies for other rail 

services. 

Other agencies within county 

and local governments 

SL provides financing & 

development of the total system 

Local public transport is 

financed both by the county & 

the local governments within 

the county - ie not by the state. 

SL decides about structure, 

standards, fares & service 

levels. SL contracts out all 

operational & station services & 

outsourced the operating 

subsidiaries from the SL group. 

Tendering was made districtwise. 

Bus operators supply their 

own buses Train operators rent 

the rollingstock from SL. 

Joint Ministerial Decisions of 

Ministers of Economy and 

Transport. 

56 

Responsible to State of New 

York Governor for multi-modal 

planning, design & construction 

& maintenance of 

infrastructure. 

By associated public companies. MTA’s Capital Construction 

Company formed in July 2003 

responsible for funding, design 

& construction. Other operating 

entities of MTA provide 

rollingstock & operations. 

Government Capital projects are funded from 

a combination of bond sales 

and federal, state, and local 

allocations. MTA has large 

property holdings & revenues 

from property. 

Services provided by public 

companies: ETHEL SA (internal 

combustion engined buses – 

owned by OASA); ILPAP SA 

(trolley buses – owned by OASA 

and municipal government); 

ISAP SA (local electric railway – 

owned by OASA); ATTIKO 

METRO SA (metro – owned by 

the national government); 

TRAM SA (trams – owned by 

ATTIKO SA); and 

PROASTIAKOS SA (suburban 

railways – owned by the 

national government). 

Operating wholly owned entities 

of MTA include; New York City 

Transit; MTA Metro-North 

Railroad; MTA Long Island Rail 

Road; MTA Bridges and 

Tunnels; & MTA Long Island 

Bus. Currently being 

reorganized. 

Operates within policy 

framework established by city 

authorities. 

TransMilenio plans and arranges 

for delivery and maintenance of 

fixed infrastructure. City 

government agency arranges 

construction. Buses provided by 

service contractors. 

15% tax on petrol sales in 

Bogotá, supplemented with 

national government grants, is 

used to finance TransMilenio 

fixed infrastructure. 

Seven private companies 

currently provide buses and 

services through contracts to 

TransMilenio selected through 

competitive tendering. 

TransMilenio plans services and 

operates a central busway 

management system.


Ticketing and 

marketing 

Some tickets usable only within 

a single mode, but shifting 

towards integrated ticketing for 

all modes and services. A 

private company (Transys) has 

been contracted to develop and 

implement the new ticketing 

system. 

Financing Fare revenue less than public 

transport operating costs. 

Subsidy needed for some 

operating costs and all capital 

costs. Finance from local and 

national government. 

SL provides all marketing, 

branding & ticketing 

Fare revenue less than public 


Subsidy needed. Finance from 

county & local government. 

Maintenance of vehicles by 

operators. 

Operated by OASA. Provided by MTA. Private company contracted 

through competitive tendering 

to provide and manage ticketing 

and fare collection. A separate 

company manages the fare 

revenue. 

Fare revenue less than public 


Subsidy needed for some 

operating costs and all capital 

cost. Financed by government. 

57 

Funded by fares & other 

funding as above. 

Cost of bus services, ticketing 

and TransMilenio covered from 

fares. 

Source: ADB (2006a) with original sources cited as follows: principal Sources: London (http://www.tfl.gov.uk/tfl/, Stockholm (Nordstrand 2004)); New York 

(www.mta.nyc.ny.us); Athens (http://www.oasa.gr/uk/index_gr.asp, Taxiltaris and Spandou 2005); Bogota 

(http://www.transmilenio.gov.co/transmilenio/home.htm and consultants ie ADB 2006a)

Table B.3: Authority ie MTA functions in other cities 

Source: Wallis and Lupton (1999) 

58

Appendix C: Scoping of the Possible Content of an Integrated 

Public Transport Law 

An important complementary measure to a preferred institutional arrangement to achieve 

integrated transport or public transport only would be a new law 13 to mandate that all agencies 

are responsible for achievement of an integrated transport or public transport system. 

In this Appendix we have identified the possible outline content of a new law to achieve 

integrated public transport. This is not to say achievement of integrated transport is not 

desirable however. 

Such a law should be applied in all cities throughout Vietnam. But for the purposes of this 

Appendix the law has been assumed to apply to HCMC only. 

Key concepts related to achievement of an integrated public transport system would be: 

A) Key questions 

Why is government involved in MRT and public transport at all? 

Answer: MRT particularly involves a large investment with mainly non monetary benefits to 

users and urban traffic and environment – it would not be provided if not for government 

involvement. 

Why does government need to regulate MRT and public transport? 

Answer: Government involvement is needed to provide financial support for investment and 

future operations, facilitate safe and convenient travel and ensure that public transport 

maximizes external benefits. 

There is an identified need for a new legal instrument specifically to ensure 

development of an integrated HCMC public transport (including MRT system) for the 

public interest. 

B) Key MRT Stakeholders & Objectives 

Users 

Stakeholder Objectives 

59 

� Demand responsive services that are 

convenient and affordable and 

maximize external benefits 

� Services that are punctual (refer to 

standard) 

� MRT services that are integrated with 

bus and other modes 

� Comfortable, clean and safe vehicles 

(refer to possible standard…) 

� Integrated and affordable fares 

� Access for persons with disabilities 

13 This is a development of the concept recommended by MVA in 2006 for BRT in which they recommended 

the need for a “White Paper” ie a high level policy on public transport.

Stakeholder Objectives 

Government/ community/ tax payers 

Public Transport Authority 

Public transport operators/ 

concessionaires 

60 

according to community expectations 

� Improved mobility 

� Changing needs accommodated 

� Value for Money (VfM) 

� External benefits (eg environment, 

economic) maximized 

� Appropriate infrastructure, systems 

and facilities provided to consistent 

standard to permit essential long term 

needs for integration of lines and use 

of common assets (eg depots) to 

ensure value for money for the 

community 

� Facilitate investment and operations 

to minimize life-cycle cost & 

maximize VfM by appropriate risk 

transfer – ie don’t transfer demand 

risk to a concessionaire where it 

cannot be controlled 

� Ensure systems are inter-operable and 

open where beneficial 

� Ensure safety and security of users etc 

� Concessionaires to be responsive to 

government policy 

� Fair financial return in stable, 

predictable operating framework 

C) Specific Issues to Address in a New Law 

(i) Objectives 

A new law possibly entitled “HCMC Public Transport Integration Act” would aim to: 

Permit development of an integrated public transport system for the benefit of the 

public in HCMC 

Public Transport should refer to both rail MRT, Bus Rapid Transit (BRT), other public bus 

services and water transport services. 

‘Integration’ means as a minimum: 

� Physical integration of MRT lines and stations. 

� Integrated fares meaning a common fare structure comprising a single flagfall plus a 

common distance-based charge for all MRT will apply – ie a person transferring from

one MRT line to another will not have to pay a second flagfall when entering the new 

MRT line. 

� Integrated ticketing system whereby a single ticket can be used on all MRT lines and 

ultimately all modes of public transport. 

� Integrated planning and concessioning of MRT lines to operate as a network of services 

for the convenience of the public irrespective of which agency is the “owner “of a 

particular MRT project. 

(ii) Role of Administrator of the Law 

The law should be promulgated by the relevant person in the PC who would be the 

Administrator of the law. The law should give the Administrator the power to set standards 

and regulations to achieve the purposes of the law including: 

� To achieve greater standardization and integration of feasibility studies; and 

� Specifically recognize, and be consistent with, current and proposed laws on PPP. 

(iii) HCMC Integrated Public Transport Authority 

An integrated HCMC Integrated Public Transport Authority will be established. 

(iii) Role and Composition of HCMC Integrated Public Transport Authority 

The Administrator will prepare the structure and duties of the new HCMC Integrated Public 

Transport Authority. 

Secretary to the Committee could be the XXXXX. The Authority should meet frequently and 

not less than every three months. Agencies ie “project owners” should report on 

concessionaire and/or operator performance to the Secretary of the Committee on a monthly 

basis. 

The Secretary should be charged with the responsibility of informing the Authority of any 

significant breech of concession terms. 

(iv) Relationship to Existing Legislation and Administrative Procedures 

Where existing laws and administrative procedures conflict they shall be superseded by the 

new Act. 

(v) Single MRT Infrastructure and Services Plan 

The Authority would prepare and update (on 5 year basis) the integrated long term public 

transport infrastructure and services plan that presents an integrated view of the entire public 

transport network. 

An important focus of the Masterplan would be to examine how public transport would 

operate as a network, with integrated services (coordinated with rail and bus) linking the 

individual sub-regions of HCMC The public transport infrastructure and services plan shall 

define service desired standards for connecting the principal origins and destinations within 

HCMC (eg 90% of households to 90% of jobs, educational opportunities etc) in terms of 

proximity to stations, waiting times, and overall travel times, associated priorities and 

budgetary needs. 

This public transport infrastructure and services plan would be used to inform planning, 

financing and budgeting by other agencies. 

61

(vi) Integrated Ticketing 

Integrated ticketing should be provided by or for all public transport systems. 

(vii) Integrated Fares 

Integrated fares should be provided for MRT, bus and water transport services. Fares should 

be set taking into account the quality of service provided, affordability to passengers and the 

cost-recovery of the MRT system, as well to maximize usage of MRT. 

(viii) Common Marketing and Branding 

Even though MRT and other public transport services are to be operated by various different 

companies or agencies, a common approach to marketing, branding and provision of 

information on public transport is needed. 

(ix) Inter-operable and open systems 

The ability for trains on one MRT line to operate on another is desirable to permit 

establishment of common depots and workshops to serve more than one MRT line. 

Ultimately, inter-operable revenue services should be able to be operated from one MRT line 

to any other, where it is beneficial to do so. 

(x) Common Approach to Concessions 

The gross cost concession model shall be applied to all future MRT lines recognizing that the 

different cost-recovery characteristics of individual MRT lines, the need for an MRT system 

that is integrated from the perspective of users and under the policy control of government, 

and allocation of risks associated with MRT lines to the concessionaire and the Government 

according to the party best able to manage them. 

These concessions will specifically prohibit “exclusivity” and “first right of refusal” for 

extension of concession contracts. 

(xi) Rail MRT Safety 

A common approach to rail and MRT rail safety throughout Vietnam is needed. VRNA have 

this responsibility but in view of the specialist nature of MRT safety, and the lack of specific 

experience on this subject in Vietnam, the Decree should foreshadow a national MRT and rail 

safety and workplace health regulator to be established in a defined time frame 

62

References and Bibliography 

Asian Development Bank and the Government of Thailand (2006a) “Integrating Mass Rapid 

Transit in Bangkok: Options Report”, TA 4676-THA: Small Scale Technical Assistance for 

Infrastructure Investment Advisory Assistance, Thailand. February. 

Asian Development Bank and the Government of Thailand (2006b) “Integrating Mass Rapid 

Transit in Bangkok: Summary of Resource Papers”, TA 4676-THA: Small Scale Technical 

Assistance for Infrastructure Investment Advisory Assistance, Thailand. July. 

Asian Development Bank and the Government of Thailand (2007) “Integrating Mass Rapid 

Transit in Bangkok: Phase II, Final Report”, TA 4904 -THA: Technical Assistance for 

Infrastructure Investment Advisory Assistance (Phase II), Thailand. July. 

Asian Development Bank (2007), “HCMC Metro Rail System Project, Strategic Financial 

Model Update”, TA RSC-C61011 (VIE). March. 

Allport R (2004) “A Tale of Three Cities: Urban Rail Concessions in Bangkok, Kuala Lumpur 

and Manila.”, prepared by Halcrow Group Ltd for World Bank as part of ADB-JBIC-World 

Bank East Asia and Pacific Infrastructure Flagship Study. 

Astris Finance and Systra (2005), “Hanoi LRT Pilot Line Feasibility Study, Executive 

Summary”, Ocober. 

Booth, C. and Richardson, T. (2001) “Placing the public in integrated transport planning”, 

Transport Policy, 8(2) 141-149. 

Chiplunkar, A (2006), “Presentation on Public Private Partnerships (PPPs) Framework for 

Infrastructure Development in Vietnam”. Dr Chiplunkar served as ADB Staff Consultant on 

PPP in GMS. 

Finlayson, R (2007), “Viet Nam Case Studies on Private Sector Development and Operations 

A Case Study from the 2007 Special Evaluation Study on Private Sector Development and 

Operations: Harnessing Synergies with the Public Sector”, Prepared for ADB Operations 

Evaluation Department. June. 

Fouracre P R, Allport R J, Thomson J M (1990) “The Performance and Impact of Rail Mass 

Transit in Developing Countries”, Transport and Road Research Laboratory, Research Report 

278, UK. 

HCMC PC 2007. Web site: . Accessed October 24. 

Japan Bank for International Cooperation, Japan (2006) “Terms of Reference for Special 

Assistance for Project Formation (SAPROF) for Japanese Line, HCMC.” 

Japan International Cooperation Agency (2004) “Study on Urban Transport Master Plan and 

Feasibility Study in Ho Chi Minh Metropolitan Area (Houtrans)” undertaken for the Ministry 

of Transport and the Ho Chi Minh City People's Committee with support from the Japan 

International Cooperation Agency. Prepared by ALMEC Consultants, Japan. 

Japan International Cooperation Agency (2006) “Integrated Urban and UMRT Line 1 

Development Strategy in HCMC – draft Final Report.” Prepared by ALMEC Consultants, 

Japan. 

Larwin, T. F. (2005) “Transit Planning for the 21st Century”, ITE Journal, 75(8) 24-28 

MVA Asia (2006), “Task 3 Report, Institutional Recommendations for Involvement of the 

Private Sector Involvement”, Technical Assistance for Consolidation and Development of a 

Bus System in Ho Chi Minh City, Viet Nam” for World Bank with PPIAF funding, April. 

63

Parsons Brinckerhoff International and Japan Railway Technical Services (2006) “Special 

Assistance for Project Formation for Ho Chi Minh City Urban Transportation Improvements 

Project Urban Mass Rapid Transit (UMRT) Line 1, Eastern Section”, September. 

Policy Appraisal Services Pty Ltd and Economic and Policy Services (2001) “Bangkok Mass 

Transit (Skytrain) Externalities Study”, prepared for the International Finance Corporation 

(June). 

Preston, J. (2005) “Contracting out public transport planning: options and prospects”, 9th 

International Conference on Competition and Ownership in Land Passenger Transport, 

Lisbon, Portugal, 5-9 September. 

Transparency International (2006), “National Integrity Systems: Country Study Report, Viet 

Nam”. 

Transport East West Expert Team GmbH (2003), “Feasibility Study: MEtropolitan RAil 

System (METRAS)”, Ho Chi Minh City. 

Transport East West Expert Team GmbH (2005a), “Addendum to the Feasibility Study: 

MEtropolitan RAil System (METRAS)”, Ho Chi Minh City, September. Prepared by MVA 

Asia. 

Transport East West Expert Team GmbH (2005b), “METRAS, Metropolitan Rail System 

HCMC, Financing Report”, Berlin, November. 

van de Velde, D. M. (1999) “Organisational forms and entrepreneurship in public transport: 

classifying organisational forms”, Transport Policy, 6(3) 147-157. 

Wallis, I. P. and Hensher, D. A. (2005) “Competitive tendering for urban bus services - cost 

impacts: international experience and issues”, 9th International Conference on Competition 

and Ownership in Land Passenger Transport, Lisbon, Portugal, 5-9 September. 

Wallis, I. and Lupton, D. (1999) “Metropolitan Public Transport Policy and Planning: 

Institutional Development in a Multi-Operator Environment”, 6th International Conference 

on Competition and Ownership in Land Passenger Transport, Cape Town, September 

World Bank (2002) “Cities on the Move: A World Bank Urban Transport Strategy Review”, 

Washington DC. 

World Bank (2005), “Vietnam Transport (Draft)” 

World Bank (2006), “Infrastructure Strategy Cross Sectoral Issues”, Vietnam. 

World Bank (2007),” Project Information Document, Vietnam- HIFU Development Project” 

Appraisal Stage Report no. AB3058. 

64



Appendix D: Fares and Ticketing Working Paper 

25






PPIAF Study - 

Working Paper 

Fares & Ticketing 

June 3, 2008


Summary & Recommendations............................................................................................................. i 

1. Background and Purpose............................................................................................................1 

2. Fares Policy Issues & Implications for Fare Structure ........................................................... 3 

2.1 Policy Issues ....................................................................................................................... 3 

2.2 Implications for Fare Price Structure and Form of Fare System ............................... 4 

3. Patronage and Revenue Impacts of Fare Price Changes........................................................ 7 

3.1 Relevant Experience on Fare Price Elasticities............................................................. 7 

3.2 Fare Price Elasticities Using Results of Demand Modeling......................................10 

3.2.1. 2005 Study...........................................................................................................10 

3.2.1. 2007/ 2008 Study...............................................................................................11 

3.3 Conclusion on MRT Fare Price Elasticity in HCMC at 2015...................................11 

4. Achieving Uniform Fares and Integrated Ticketing .............................................................13 

4.1 Introduction .....................................................................................................................13 

4.2 Separating Ticketing from Other Aspects of MRT Operations...............................13 

4.3 Addressing the Challenges of Implementation...........................................................15 

4.3.1. Importance of Fare Pricing Policy...................................................................18 

4.3.2. Specification of Ticketing System Components............................................18 

4.3.3. Procurement Options for Ticketing System ..................................................21 

4.3.4. Integrated Ticketing Administration...............................................................25 

Appendix A: Affordability Analysis & Tourist Use.........................................................................27 

A.1 Introduction.........................................................................................................................27 

A.2 Alternative Affordability Analysis ...................................................................................28 

A.3 Tourist Use ..........................................................................................................................30 

Appendix B: Most Likely Technical Option.....................................................................................31 

B.1 Likely Technical Components...........................................................................................31 

B.2 System Scalability Requirements.......................................................................................32 

References and Bibliography...............................................................................................................33

Abbreviations 



DAF Development Assistance Fund 

FDI Foreign Direct Investment 


PC 







HCMC PC 











PRG Partial Risk Guarantee 





HCMC PC

Summary & Recommendations 

An objective for rail mass rapid transit (MRT) in HCMC is that it be convenient to use and 

free of artificial barriers that could be imposed if MRT lines and their method of operations 

were to be done on a “standalone” basis. 

Fare policy and an associated ticketing system are essential to the success of MRT and the 

broader public transport system. Fare policy is vital because: 

� financially, it affects the number of people who will use MRT, which in turn influences 

fare revenue, MRT operating costs and, ultimately, the viability of MRT lines; 

� socially, the absolute level affects the affordability of public transport to people, while 


community; 

� technically, it influences the form of operating concessions, and the design of the MRT 

system in general and the ticket system in particular; and 

� for the remainder of transport system, the level and structure of MRT fares affects the 

use made of other public transport and the amount of private travel, with consequences 

for the transport system and community as a whole. 



� an integrated ticket and fare system for MRT and, ultimately, the bus system also; and 

� uniform fares for modes of similar quality. 

It will be exceptionally difficult, perhaps impracticable, to implement an integrated ticketing 

system with each public transport operator supplying their own equipment. Accordingly, there 

is a universal movement towards integrated ticketing and fare systems that are managed 

centrally rather than by individual service providers. It is recommended that such an approach 

is essential for HCMC. 

Moving towards implementation of such a system requires an appropriate framework in which 

all necessary studies and activities can be undertaken. This framework is discussed below and 

is presented in more detail in Table 4.3. 

While it is not essential that the fare structure and level be confirmed before commencing the 

process of planning an integrated ticketing system, an early decision will provide clarity and 

direction to future work. In any event, establishing the fare structure and level is essential to 

the development of future MRT lines in HCMC, and is thus a matter than needs urgent 

attention. Accordingly, it is recommended that work commence as soon as possible to 

examine a range of fare structures and levels, and identify the option that best balances MRT 

financial viability and social obligations. 

Experience elsewhere suggests that a practical way forward to implementation of an integrated 

ticket system is to commence with a high level working group that should: 

� recommend a preferred fare structure and level; 

� prepare a functional specification for the ticketing system, identify a preferred 

technology, and estimate likely capital and ongoing operating and maintenance costs; 

i

� recommend arrangements for an integrated procurement contract that covers both 

implementation and ongoing operation and maintenance of the ticket system, and which 

also considers possible private sector financing of capital costs; 

� recommend institutional arrangements for the management of fares and ticketing for 

MRT in HCMC following implementation of a new integrated ticket system; and 

� present a program for implementation of the recommendations that describes activities, 

costs, schedules and agency responsibilities for government consideration and approval. 

It is recommended that this working group should comprise representatives of the PC’s 

Management Authority for Urban Rail (MAUR), Transport and Urban Public Works Services 

(TUPWS), Department of Planning and Investment (DPI) and Department of Finance or 

could be an embryonic form of the Integrated Public Transport Authority. 

Representatives of organizations and the community who will be affected by the proposals 

should be invited to participate, either as members of a steering committee or an advisory 

panel. A period of about 12 months will be required for the working group to undertake the 

above tasks to the necessary level of detail. 

Following a positive decision on the working group’s report, it is recommended that the 

government organization that is to be responsible for managing the ticket and fare system 

should be established (at least in the form of a “project office”), and required to prepare: 

� bidding documents; 

� plans to implement the procurement process, including tender assessment, award and 

management procedures; and 

� plans for operation of integrated ticketing across the entire MRT system, including 

current lines, bus and other modes. 

This work is likely to take a further six to twelve months, and will permit the government to 

proceed to formalization of institutional arrangements, implementation of the ticketing system 

and its ongoing operation. Based on experience in other cities, it is expected that it will then 

take about three to four years to tender, contract, deliver, install and commission the ticketing 

system, including establishing arrangements for delivery, sale and use of new smartcard-type 

tickets and management of fare revenue. 

Finally, responsibility for developing a suitable integrated ticketing and fare policy to support 

an integrated MRT and public transport system for HCMC rests with the Management 

Authority for Urban Rail (MAUR) in the first instance. The thinking needed to develop an 

appropriate ticketing system and fare policy cannot be outsourced to others. 

ii

1. Background and Purpose 



Master Plan (as approved in January 2007). Hitherto, two lines (MRT2 and MRT3) were 

proposed for Asian Development Bank (ADB) funding with another line (MRT1) to be 

financed by the Government of Japan. The Government of China, is a developing a proposal 

for an MRT line, there are other proposals including one from China for MRT, Malaysian 

interests to develop a monorail, and for a French consortium to develop a tram route. 




� An optimized MRT Master Plan which integrates the currently proposed MRT lines into 



� A feasibility assessment and preliminary engineering design for the two project lines. 



� A plan to support project implementation, including institutional and staffing 


program. 

In parallel, ADB is mobilizing a grant from the Public Private Infrastructure Advisory Facility 

(PPIAF 1 ) to optimize private sector participation in MRT 2 and 3, and to assist the HCMC PC 


arrangements for MRT in the context of wider urban transport. The scope of the PPIAF 

technical assistance (TA) therefore covers developing (i) a framework for considering private 

sector participation in implementation and operation of the Project; (ii) a value-for-money 


participation, (iii) a detailed financial model reflecting the preferred approach and measuring 


participants; and (iv) a stakeholder feedback and a description of necessary institutional and 

contractual arrangements given the preferred implementation approach. 


prepared by consultants undertaking the PPTA. The results of its work will be presented in 



While the MRT system will be developed by the PC, the GVN will also be involved through 

various approval processes and possibly financing also. It is therefore necessary to establish in 

detail the roles for various agencies of these governments for project approval and 

implementation, and the manner in which integrated MRT development, including fares and 

ticketing, in HCMC will be managed. 

1 The Public-Private Infrastructure Advisory Facility (PPIAF) is a multi-donor technical assistance facility aimed 

at helping developing countries improve the quality of their infrastructure through private sector involvement. 

For more information on the facility see the website: . 

1

This Working Paper presents a discussion of the policy issues regarding fares and 

ticketing systems and recommends an approach to secure both integrated fares and an 

integrated ticketing system primarily for MRT, but also for other public transport, as 

MRT will rely on an integrated public transport system to maximize its performance. 

2

2. Fares Policy Issues & Implications for Fare Structure 

2.1 Policy Issues 

This section summarizes the key issues related to why both uniform fares and integrated 

ticketing are needed in Greater HCMC. The principal focus of this paper is on fares and 

ticketing for MRT. But a common approach to developing fares and ticketing policy needs to 

be taken for MRT and the wider public transport system which in future, even with extensive 

MRT, will rely on bus transport. 

The benefit of an MRT network is that it substantially increases the range of locations 

between which people can travel, though this also requires people to more frequently 

interchange between lines, and to access the MRT network using bus services (and other 

modes). Integration of ticketing systems enables people to use a single ticket on different 

MRT lines, and potentially on bus services, independent of the fare structure for the various 

lines. 

However, from a passenger’s perspective, if there is a need to pay a second flagfall (also 

known as the boarding charge) when transferring between trains of different operators would 

likely be that it is unfair and is counter to the implicit objective of providing a convenient 

transfer between various lines of an MRT system. Achieving integrated fares, that is with no 

flagfall for second or subsequent boardings in the course of a single trip, ensures that public 

transport users are not affected adversely in a financial sense by the possible adoption of 

different fares policies on different MRT lines. A similar line of discussion applies to transfers 

between MRT and bus. 

Achieving integrated fares requires additional policy decisions and intervention by the 

Government. If the fare system is integrated, people would not be charged a second or 

subsequent flagfall for a single trip that involved use of several lines. 

There is a second aspect to fare integration. It is that fare rates could vary between MRT lines 

and bus services. Policy analysis could note that the different fares reflect the different cost 1 of 

providing services on various lines but could still seek to establish a simpler fare structure that 

is easier for the community to understand, for example a standard flagfall and distance charge 

for all MRT, and possibly bus, lines (ie uniform fares). This is generally the practice for MRT 

and bus systems in most cities. 

Finally, in considering fare policy, it is necessary to also recognize that if fares are set too low, 

substantial subsidies are needed, which must be funded from other taxes on the community. 

Low fares also encourage additional demand, which raises the cost of providing services and 

further increases the need for subsidies. Complex fare structures and arrangements discourage 

use of MRT. Fares policy needs to balance the need for cost-recovery, simplicity of 

understanding, and other Government policies such as with regard to the environment 

and social equity. 

1 The cost of providing services on a subway system such as the proposed Line 2 would be higher than for an 

MRT line where much of it is above-ground or at-grade such as Line 1 because of, for example, additional airconditioning 

and emergency requirements. 

3



� the integration of the ticketing and fare systems of MRT and, ultimately, the bus 

system; and 

� the adoption of uniform fares for modes of similar quality. 

Fare policy is a matter that needs to be addressed at the outset, because it affects 

passenger demand, design of stations and interchanges, the financial viability of 

public transport, and the form and content of operating concessions. 

Table 2.1 shows that achievement of uniform fares and integrated ticketing is best suited to a 

Gross Cost form of operating contract (as recommended by the PPIAF Working Paper on 

private sector participation options) and that both need an MRT or Public Transport 

Authority with ability to manage more complex concession agreements with more intricate 

financial arrangements. 

Fare (1) 

Table 2.1: Requirements for Uniform and Integrated fares 

Ticket Concession MRT Authority 

Uniform & integrated Must be integrated All concessions on same basis. Need 

revenue settlement system, perhaps with 

fares collected by third party. Gross 

cost (2) form of concession is better. 

4 

Needs an Authority with 

ability to manage more 

complex concession 

agreements with more 

intricate financial 

arrangements 

(1)Uniform fare = same Fare VND/km on all lines; Integrated fare = no second or subsequent flagfall 

Link to cost recovery: (i) how will loss of second flagfall with integrated fares be recovered?; and (ii) 

how will concessionaires be compensated for different level of cost recovery for each line with 

uniform and integrated fares? 

(2) Gross cost concession – all fare revenue is paid to the government with bids made for the amount 

the government should pay for provision of the tasks set out in the concession. Can involve some 

transfer of patronage risk to the concessionaire. 


The addition of uniform fares (ie with the same fare per kilometer traveled in addition to only 

a single common flagfall) is very complex because it requires net financial transfers between 

operators, if there is more than one. However, integrated and uniform fares are the usual 

situation for urban public transport systems because they provide a standard fare structure 

that is easily understood by travelers and judged by them to be “fair”. 

To users, the entire public transport system (ie MRT, bus etc) should be presented as an 

integrated system with no fare-related impediments to making best use of the network. Hence, 

it is recommended that Government policy on fares should aim for this situation. 

Implementing the approach requires a substantial role for the Government. 

2.2 Implications for Fare Price Structure and Form of Fare System 

Fare prices influence demand and any proposal to develop a new uniform fares and integrated 

ticketing system for HCMC can be expected to affect demand and associated revenue in 

complex ways. A change in fares, keeping all other factors the same, will have an immediate 

effect on patronage and revenue, which can be expected to prevail in the short term. Many 

other factors affect patronage and revenue such as modal quality, trip purpose, availability of 

other modes and the income status of passengers. Also relevant as indicated above is the fare 

structure such as whether fares are flat, distance-based or zonal.

Distance based fare systems are typically preferred by public operators as they are more likely 

to balance demand across the system and to yield the highest patronage-related revenue. 

Economists prefer distance based fares for similar reasons. On the other hand graduated or 

zonal fares may be preferred for simplicity. Flat fares are also easier to implement and need 

only relatively simple, and therefore not so expensive, ticketing systems. 

In HCMC at present the current bus operators make use of flat fares structures with the fares 

and fare product types shown in Table 2.2. 

Table 2.2: Bus Fares 

Source: MVA (2008); A “set” is a book of 30 tickets. 

For the purposes of this paper, some typical fare structures that could be applied are 

illustrated in Figure 2.1: 

� Proposed MRT system – two different boarding charges plus different distance-based 

fare structures; 

� Proposed MRT system – common different distance-based fare structures plus common 

boarding charges; 

� Flat fare for all public transport ie including bus and MRT or just MRT alone; 

� Zonal systems for all public transport or just MRT alone. 

The diagram shows that a detailed zonal system could be structured in a variety of ways: 

� Flat fare – a single zone fare system; 

� Simple zonal fare system with few zones; 

� More complex zonal fare system to an extent that if there are a large number of zones it 

approximates a distance-based fare system; and 

� Other zonal structures eg with widely spaced zones in outer suburban areas if low 

income groups are heavily represented. Zonal fare structures need not necessarily be 

circles but could consist of arcs across the region or a “patchwork quilt” approach based 

on neighborhoods. 

5

Distance Fares 

Varying by Line 

Standardized 

Distance Fare 


Figure 2.1: Example of Possible Fare Structure Options 

Flat 

Fare 

Simple Zonal 

Fare 

6 

Arcs radiating 

from CBD 

Zonal Fare 

Patchwork 

Quilt based on 

neighborhoods 

Zonal Fare 

with Social 

Objective

3. Patronage and Revenue Impacts of Fare Price Changes 

A change in fares, keeping all other factors the same, will have an immediate effect on 

patronage and revenue, which can be expected to prevail in the short term. Many other factors 

affect patronage and therefore revenue and they include: 

� fare structure – whether flat fare or distance-based or zonal fares; 

� purpose of trips and their importance ie essential trips such as for work or education 

versus those that are more discretionary in nature such as shopping or personal 

business; 

� effects of service frequency, quality of service and vehicles, waiting times, and ease of 

access to stations and movement within stations; 

� influence of marketing and range of ticket products and concession tickets 1 for school 

children, monks etc; 

� availability, and the costs in time and money, of alternative modes of transportation 

such as private modes (car, motorcycle), bus etc. These effects take into account 

congestion encountered by buses and cars and so on. 

� household incomes – average income and distribution of incomes; 

� economic situation – price of goods and employment situation; and 

� urban development patterns including the extent of substitutability of key destinations 

such as shopping and business centers, and regional travel patterns. 

The interaction of these other factors is complex and generally become more important in the 

medium to long term when the economy, urban development and incomes and car ownership 

can all vary considerably. The current Working Paper focuses briefly on the implications of 

MRT fare price level and fare structure on MRT patronage and revenue, and only gives 

preliminary consideration to the many other factors which may also come into play. 

3.1 Relevant Experience on Fare Price Elasticities 

The approach to estimating the effect of fare level on patronage and associated revenue is to 

review previous experience for similar situations. The way this is most appropriately done is to 

use the concept of elasticity. Elasticity is the impact of a change in an independent (or 

stimulus) variable on a dependent (or response) variable, both measured in percentage changes 

(Hague 1999). If a 1% increase in the MRT fares results in a decrease in MRT passenger trips 

by 0.3%, the fare elasticity of the demand for MRT travel is -0.3 (=-0.3/1). 

Elasticities are defined using the ‘ceteris paribus’ condition: they are valid under the 

assumption that all other things (eg other independent variables) do not change. An elasticity 

can be positive or negative. If an elasticity (in absolute values) exceeds 1, the dependent 

variable is called “elastic” (eg elastic demand) with respect to the independent variable, ie 

demand is highly variable with fares. If the elasticity value (in absolute terms) is low, the 

dependent variable is described as being “inelastic”, ie demand is not substantially affected by 

fares. 

1 Concession tickets are those that may be offered at lower than normal prices for special groups such as school 

children, religious persons, the elderly or those with disabilities. 

7

For MRT and other public transport, as for most other goods and services, an increase in 

prices leads to a reduction in demand. The normal range of MRT and public transport fare 

price elasticities would be between 0 and -1.0. An elasticity of zero would mean that demand is 

inelastic and would not vary with price. While this condition may apply for small increases in 

price for wealthy people higher and higher prices would be expected to reduce demand 

eventually. 

An elasticity of -1.0 means that an increase in price reduces demand by the same amount. For 

example, an increase in price of 10% would lead to a reduction in demand of 10% thus 

meaning that revenue would stay the same. This condition can be attained by a commercial 

MRT or public transport operator that is free to raise prices to maximize their income, as 

would be commonly experienced in sectors where the price is unregulated or only lightly 

regulated (airport limousine services, airline travel, tourist coach services). 

How can we measure fare price elasticity of MRT passenger demand? Transit Cooperative 

Research Program (1999) identifies the following general methods: 

� time series analysis – using historical data on fares and passenger demand using 

regression analysis to isolate the effects of other factors (eg fuel price changes, MRT 

service level changes); 

� “before and after” analysis of demand for a particular fare change; 

� use of a demand function, often on the basis of stated preference surveys or use of a 

revealed choices as simulated by available transport models; and 

� review of industry experience for similar cities with similar MRT systems. 

For this PPIAF study we use the third and fourth approaches. The third approach makes use 

of Systra MVA’s transport model which is used to simulate the effect of a variety of fares on 

passenger demand and revenue. The fourth approach makes use of available published or 

unpublished data on MRT fare elasticities from other cities in the region. 

There appears to be no MRT fare price elasticity information available for similar cities to 

HCMC at somewhat similar stages of development (eg Singapore and Hong Kong 1 in the 

1970s and 1980s; and Manila, Philippines and Kuala Lumpur, Malaysia, in the 1980s). 

Current information from Hong Kong’s urban and suburban railway operator KCRC 

indicates their systems’ fare price elasticity of demand is about -0.3 (Personal Communication 

2006d). Experience from Manila’s MRT3 (Metrostar) indicates that the fare price elasticity of 

demand is around -0.7 (Personal Communication 2007). In Bangkok, Thailand as the only two 

MRT systems BTS and BMCL’s Blue Line subway did not adjust their full (undiscounted) 

fares until mid 2007 since their opening in December 1999 and mid 2004 respectively, there is 

no available information for Bangkok on demand response to MRT fare price changes 2 . There 

is a longer history with bus fares although until recently there have been relatively few fare 

price changes. Given the quality differences between existing bus services and MRT in 

Bangkok any information on bus fare price elasticity for Bangkok buses is not considered 

applicable to MRT. 

1 Singapore and Hong Kong’s first MRT systems opened around 1980 and 1988 respectively. 

2 It is possible that if BTS and BMCL had closely monitored the effects of various discount fares on demand and 

were able to separate it from the wider effects of underlying growth some information on demand response to 

fare price could be gained by them. 

8

There is more extensive information reported on MRT and suburban rail fare price elasticities 

of demand for western cities. For the purposes of this section, this is satisfactory, as the aim is 

not to precisely define likely MRT fare price elasticities of MRT demand for HCMC but 

merely to suggest their likely size. 

Balcombe et al (2004) found in their review of various studies found that: 

� MRT fare price elasticities in the short run 1 had a mean elasticity of -0.31 with a range of 

-0.15 to -0.55. 

� Suburban rail in UK had a mean fare price elasticity of -0.50 with a range of -0.09 to - 

1.02. 

� MRT fare price elasticities in the long run had a mean elasticity of -0.57 with a range of - 

0.40 to -0.69. 

� Short run MRT fare price elasticities for the peak period had a mean of -0.25 which was 

shown to be higher than the off-peak period when the mean was found to be -0.42. 

� Short run suburban rail fare price elasticities for the peak period has a mean of -0.34 

which was shown to be higher than the off-peak period when the mean was found to be 

-0.79. 

Wardman and Shires (2003), found that in the UK, MRT fare price elasticities for commuter 

tickets (no concession tickets at discounted prices) the underground MRT fare price elasticity 

of demand in the short run was -0.33 and in the long run was -0.44. 

It would be expected that MRT fare price elasticity will increase, ie become more elastic, as 

follows: 

� With the passage of time as incomes and associated access to private modes increase. 

Balcombe et al (2004) found that long run elasticities are higher (ie more elastic) than 

short run elasticities; 

� In response to how essential the trips are – for more important trips such as work/ 

education, the MRT price elasticity would be expected to be lower than for less essential 

trips or those where a variety of destinations can satisfy the same desire for travel eg 

shopping could take place at a variety of centers. As more less essential travel occurs 

within off-peak periods it is not surprising that off-peak elasticities were found by 

Balcombe et al (2004) to be higher (ie more elastic) than in the peak period; 

� As incomes decrease – lower income groups would be expected to be inclined to 

manage their overall expenditure to match available budgets. For very poor people that 

occasionally use MRT for essential trips a fare increase would be expected to lead to a 

direct reduction in expenditure on other items or conversely on MRT travel itself as 

total household expenditure is held to the available budget; and 

� As land use and travel patterns change. 

1 Balcombe defined “short term” one or two years with the long run as being 12 to 15 years, and possibly 

longer eg 20 years. In a very dynamic growing city such as HCMC with relatively low car ownership (94% of 

households are estimated by SYSTRA MVA (2008) to not have had access to a car in 2007 although 91% had 

access to one or more motorcycles) the “short run” may be considered to be a period of a few months, with the 

long run being a period of three to five years or longer. 

9

MRT fare price elasticities can also be expected to decrease with distance as the impact of the 

flagfall becomes more muted. Similarly, MRT (and bus fare) price elasticities can be expected 

to decrease with the adoption of integrated fares which imply the payment of only one flagfall 

irrespective of how many modes are used. 

Fare price elasticities would be also expected to be lower where there are available ticket 

products at “deep” discounts as exist for “set” tickets 1 and monthly tickets for bus today in 

HCMC and which would likely be adopted for MRT also. For example, as shown in Table 2.2, 

the use of a set ticket on a single trip basis is at a discount of over 20% compared to the full 

price single ticket. 

3.2 Fare Price Elasticities Using Results of Demand Modeling 

3.2.1. 2005 Study 

For TEWET (2003 and 2005), MVA prepared demand forecasts and also examined the 

impact of different fares levels on demand and associated revenue. For the current PPTA 

study, SYSTRA MVA et al (2008) updated the earlier demand model and have prepared 

revised estimates of patronage and revenue for various assumptions including different fare 

price levels. 

ADB (2007a) found in its review of the work of TEWET (2003 and 2005) that for an MRT 

opening year of 2010: 

� “Forecast demand is extraordinarily sensitive to fare level – the implied demand with 

respect to fare price elasticity (defined below) at 2010 is -1.1 which is higher than might 

be expected. In HCMC an elasticity of perhaps around -0.7 to -0.8 would have been 

expected at these relatively low fare price levels. Further discussion on elasticities is 

made below. 

� This is also surprising given that bus fares in 2005 prices …are… VND2,860 which 

from years 2010 to 2017 …. are higher or almost the same as METRAS fares. And, as 

discussed above, this level of bus fare is broadly consistent with the current bus fare in 

terms of affordability to passengers and therefore their behavior. 

While on the one hand demand here appears overly sensitive to price, as transport models do 

not model many of the degrees of freedom actually available to travelers (changes of 

budgeting and associated consumption patterns) and often model others poorly (changes in 

origins, destinations, trips with multiple legs, social constraints where travel is captive to 

certain modes due to the nature of the trip, or even the decision to travel at all) the elasticity 

estimated from a transport model would usually be expected to understate the actual 

elasticity”. 

The analysis reported in Appendix A presents an alternative approach to examining the 

sensitivity of demand with respect to fare price by examining likely affordability. This analysis 

reported by ADB (2007a) required many assumptions but indicated that the demand with 

respect to fare price elasticity implied by the results of TEWET (2003 and 2005) were overly 

high. This conclusion appears to have been confirmed by the results of the 2007 demand 

forecasting of SYSTRA MVA et al (2008) as shown below. 

1 A “set” is a book of 30 tickets. 

10

3.2.1. 2007/ 2008 Study 

Non Integrated Fares 

A review of the results of SYSTRA MVA et al (2008) show that for Lines 2 and 3 for non 

integrated fares 1 that: 

� For an opening year of 2015, forecast demand with respect to fare price level exhibits 

a fare price elasticity of around -0.9 rising from a fare of VND4,000 (in 2007 prices) to 

-1.0 at the revenue maximizing fare of around VND4,500 (in 2007 prices). 

� For an opening year of 2025, forecast demand with respect to fare price level exhibits 

a fare price elasticity of around -0.6 rising from a fare of VND4,000 (in 2007 prices) to 

-1.0 at the revenue maximizing fare of around VND6,500 (in 2007 prices). 

Average household incomes at 2025 would be approximately 2.26 times greater than at 2015 

(based on assumed average GDP growth of 8.5% pa). The modeling results show that as 

incomes rise, demand is expected to show less sensitivity to fare price and this effect is 

reflected in lower derived elasticities as shown by comparing the 2007 modeling results to 

2003 and 2005, and the forecasts at 2025 compared to 2015. 

Integrated Fares 

SYSTRA MVA et al (2008) showed that the forecast demand and the revenue with an 

integrated fare 2 are also both higher than with non integrated fares. For Lines 2, SYSTRA 

MVA et all forecast that demand and revenue increased by 24%. For Line 3, demand and 

revenue were both forecast to increase by 10.2%. 

3.3 Conclusion on MRT Fare Price Elasticity in HCMC at 2015 

Elasticity of demand with respect to fare price is clearly a complex matter. Elasticities depend 

on the price level too. By definition, the elasticity at the revenue maximizing fare is -1.0. 

Normally, in a developing city an average short run elasticity of around -0.7 to -0.8 would be 

expected. A similar result in HCMC is also expected on average. 

Elasticities would vary by income level. Lower income groups would be expected to exhibit 

higher sensitivity with respect to fare price and have a higher elasticity. The long term MRT 

fare price elasticity in HCMC would also be expected to be higher. Refer Table 3.1. 

Over a much longer period such as 2015 to 2025, and as incomes grow, the demand with 

respect to a (reasonable) fare price level would be expected to become less sensitive with both 

short and long run elasticities reducing on average. 

1 The user has to pay VND4,000 per boarding. 

2 That is, only an initial boarding charge when entering the first MRT line but no subsequent boarding charge for 

transfers to a second or other line. 

11

Table 3.1: Estimated short term MRT fare elasticity of demand in HCMC at 2015 

Income Range Distribution Frequency 

of Use (1) 

Lowest quartile 25% Non-Regular/ 

Occasional user 

Second lowest 

quartile 

Second highest 

quartile 

12 

Sensitivity to price Likely short term 

MRT fare price 

elasticity 

Price sensitive Greater than -1.0 

25% Occasional user Somewhat price sensitive Around -0.7 to -1.0 

25% Regular user Not very price sensitive -0.4 to -0.7 

Highest quartile 25% Regular user Not price sensitive Less than -0.40 

Total 100% Around -0.7 to -0.8 

on average 

(1) For definitions of non-regular user (once a month), occasional user (once a week) and regular 

user (almost every day) 

Source: Consultant

4. Achieving Uniform Fares and Integrated Ticketing 


In this section the question of how to decide what is the appropriate system of uniform fares 

and the supporting integrated ticketing system for Greater HCMC is addressed. 

In this section three distinct concepts are discussed: 

� Integrated ticketing – involving a common ticketing system making use of an 

appropriate technology that permit convenient travel on the entire public transport 

system and convenient “back office” revenue clearing and handling. 

� Integrated fares – public transport ticket prices implicitly involve a two-part fare 

structure, consisting of a “flagfall” (an initial amount related to boarding a vehicle) and a 

distance-related part 1 . Integrated fares requires that only a single flagfall be paid, ie a 

passenger who needs to transfer between public transport vehicles to undertake their 

journey should not be penalized because the public transport system does not allow 

them to make the trip on a single vehicle. 

� Uniform fares - Uniform fares requires some standardization of the distance-related 

portion of fares 2 . 

By necessity, integrated and uniform fares requires standard definitions of discounted (or 

concession) fares, and require an integrated ticketing system to permit the fares to be 

implemented. 

The SAPROF Study for Line 1 (PB Asia et al 2006) and the TEWET (2003 and 2005) studies 

only considered ticketing in the context of their proposed individual MRT lines and not the 

needs of the future MRT network. The focus in the PPIAF fares and ticketing work is the 

policy needs for the future MRT network such as having a convenient and integrated 

ticketing system where one ticket can be used on different lines in the future MRT 

network (and desirably on other public transport). 

The discussion on this section is on ticketing for MRT as providing ticketing for various MRT 

lines with possible different operators is very complex. The capacity for the chosen method of 

ticketing to be provided for the bus system at the same or a later time is implied. 

4.2 Separating Ticketing from Other Aspects of MRT Operations 

The Working Paper on private sector participation of this PPIAF recommended a gross cost 

form of operating concession (or contract) with some investment in the form of key operating 

assets such as trains and control system. 

1 In this way, the fare for a 10 km journey on a single vehicle is less than double the fare for a 5 km journey. 

However, the cost of a 10 km trip that involves say 5 km on one vehicle and a transfer to a 5 km trip on another 

vehicle will cost double a single 5 km trip for the distance-related component. 

2 Some consideration can be given to different distance-related fares to reflect cost and quality attributes of 

public transport models, eg MRT, and non air-conditioned and air-conditioned bus services. 

13

From a ticketing perspective a gross cost concession environment provides: 

� greater control of ticketing policy by government, enabling the simpler implementation 

of social objectives, such as common fares; and 

� a significantly simpler fare revenue management arrangement. 

There are two basic system options for implementing integrated ticketing within the gross cost 

concession environment: 

� integrating multiple and possible disparate systems by the use of a interoperability 

standard; or 

� the implementation of a single system across all MRT concessions. 

The issues arising from these two options are summarized in Table 4.1. Based on the 

assessment in Table 4.1, the procurement of a single system is the preferred option for 

HCMC. The alternative of integrating multiple and possible disparate systems by the use of a 

interoperability standard is exceptionally risky. Other benefits of procuring a single system will 

include the minimization of multiple procurement transactions costs and the likely costefficiencies 

due to single-systems economies of scale. 

Table 4.1: Assessment of System Options 

Issues Multiple Systems 

Integrated by 

Interoperability 

Standard 

Coordination and regulatory effort to 

achieve common ticketing 

High minimal 

Risk of vendor lock-in Medium High 

Standardization of equipment, system 

and operational performance 

requirements 

Government ability to direct ticketing 

contractor(s) 

Government ability to coordinate and 

implement future enhancements 

Government ability to deal with system 

performance issues 

Ability to provide common ‘look and feel’ 

to customers 


14 

Single System 

Implemented across all 

MRT concessions 

difficult – multiple contracts simple – single 

specification 

minimal – no direct 

relationship 

high – direct contractual 

relationship 

minimal - complex high - simple 

minimal – no direct 

relationship 

difficult – differing 

equipment types and 

operating regimes 

high– direct contractual 

relationship 

simple – common 

equipment 

International experience confirms this approach. There is a universal movement towards 

ticketing and fare systems that are integrated across the public transport network of cities, in 

recognition of the impracticality of coordinating numerous independent systems and to 

provide good public transport services to the community. It is therefore considered essential 

that the ticketing system for MRT, and potentially other public transport, in HCMC should be 

designed and managed by a separate agency rather than by individual service providers. The 

remainder of this working paper is based on such an arrangement.

4.3 Addressing the Challenges of Implementation 

It is common for there to be an assumption that integrated ticketing issues can be dealt with 

by adopting a particular technology (eg smart cards) and method of procurement (eg turnkey 

supply, operate and maintain contract). But this assumption is incorrect. 

Implementing an integrated ticketing (and uniform fares) is challenging with strong interlinkages 

to transport policy (eg on fares and level of integration of transport services desired), 

MRT concessioning and with major financial implications for government. 

For example fares policy and the implications of standardization of “business rules 1 ” for 

ticketing across all operators involves extensive technical analysis of the revenue implications 

and consultation with all parties and public transport users. A wide variety of fare systems and 

associated methods of validation and revenue protection would need to be considered. The 

policy issues and challenges for a public transport system where there are existing separate 

MRT operators with different fares (and concession agreements) include: 

� what are the objectives of an integrated ticketing system with uniform fares – passenger 

convenience or some other financial measure; 

� should bus and other modes be integrated into the new integrated fare system for MRT 

– if so, when and how? Desirably, the answer should be ‘yes’ and as soon as practicable. 

� what fare structure is to be adopted, eg: 

o zonal fares – should they be used, how many zones should be used, and how will 

they operate? 

o flat fares – should they be used, what level should be used, should they be 

completely flat, even for very long journeys? 

o distance-based fares – what flagfall, what distance charge, how will the distance 

based component be measured and monitored, should bus and MRT fares be the 

same? 

� should ticket products and prices be standardized across all operators/ modes; 

� what concession or special fares and tickets should be created; 

� how will ticket validation be handled – closed systems are less vulnerable to revenue 

leakage; 

� how should trade-offs be made between those who will benefit and lose from changes; 

� should implementation of a new integrated ticketing system be staged; 

� what technology or technologies would be appropriate; 

� what is the capital and operating and maintenance cost of the ticketing system; and 

� what are the financial implications of any chosen fare system? – pricing of average fares 

below average system cost recovery implies external financial support would be 

required. 

HCMC is in the fortunate position that at present there are presently no MRT operators and 

there is a bus system which has common fares. Consequently, the issues for fares and ticketing 

1 These rules would include those for fare structure and ticket products and prices. 

15

are potentially simpler but require appropriate decisions in advance of embarking on 


The general array of policy elements and implications to be faced when considering any 

integrated approach to fares and ticketing is set out in Table 4.2. 

Table 4.2: Key Policy Issues for Integrated Ticketing 

Policy Element Example Implications 

Aims & objectives Revenue versus simplicity Influences decision on zones 

and number versus sections or 

distance-fares 

Availability of other revenue 

sources 

Public Service Obligations 

(PSOs) payments for 

concessions or lower price 

levels 

Passenger types & concessions Full fare, child, student, senior, 

monk etc 

16 

Influences passenger types and 

ticket types 

Influences ticket types and 

pricing 

Pricing method Flat fares, sections, zones Influences ticket types and 

prices 

Base fare level Single adult fare Influences the discount scheme 

Ticket types & discounts Return, daily, weekly Creates travel conditions 

Conditions of travel Times, dates, service area e Creates a need for validation 

Revenue protection Visual checking or electronic 

validation 

Ticketing technology Paper ticket issuers, magnetic 

cards, smart cards 

Source: Based on table of SEQ Integrated Ticketing Project Team (1999:10) 

Influences the technology 

choice 

Impacts on ease of use of 

system and costs 

Moving purposefully towards implementation of integrated ticketing and fare system requires 

well thought out and comprehensive action by a body with appropriate authority and with 

supporting budgets. Studies to progress the subject need to be undertaken within a clear 

framework and with explicit objectives that enable key decisions to be made in a step-wise 

fashion towards the ultimate goal of implementation. Experience in other cities suggests that 

this body is best initiated as an inter-agency project working group, and could be formalized 

into a separate agency or division of an agency when procurement begins. It is preferable that 

the working group have appropriate institutional and consumer representation to ensure all 

key stakeholders are involved in the process. 

Table 4.3 sets out a series of sequential steps that can permit the efficient and effective 

implementation of integrated ticketing and fares. Each step involves complex challenges and 

difficult decisions. Ticket technology and the method of procurement while costly and very 

important should be addressed after the other policy matters are decided. Based on experience 

in other places, the entire process of planning and initiate procurement of an integrated 

ticketing system is likely to take at least two years. Depending on the scope and complexity of 

the system an additional three or four years would be needed for implementation.

Table 4.3: Steps to Implement Integrated Ticketing and Fares 

Step Description Duration 

1. Set up inter-agency 

working group 

Working Group charged to develop and deliver best option for uniform fares 

and ticketing on a “project” basis 

2.Develop fares policy Fares zone or distance based? Revenue implications, business rules, modes 

to be included, implications for concession arrangements and revenue 

handling 

3. Ticketing technology 

specification 

4. Confirm how 

ticketing system will 

be packaged and 

form of outsourcing 

5. Confirm likely costrecovery 

of each 

MRT line (and bus 

etc) 

6. Confirm concession 

form 

7. Decide on 

appropriate 

organization for 

ongoing fares & 

ticketing 

management 

8. Confirm willingness 

of government to 

ongoing financial 

support 

Develop functional specification to deliver desired fares and ticketing 

system 

Three options identified: 

(1) Traditional supply tender with separate O&M 

(2) Turnkey supply and O&M contract funded by government on on-going 

basis 

(3) Turnkey supply and O&M concession funded by % of revenues collected 

This work identifies which lines can generate revenues which exceed 

operating cost 

Confirm MRT (and bus) preferred operating concession arrangements, 

method of revenue management and implications for ongoing government 

financial support 

Option 1: Government management (30 people) – policy setting, 

administration & management of outsourced ticketing contract on supply/ 

operate/ maintain including clearing house & handling of legal/ banking 

aspects 

Option 2: Government oversight (< 10 people) – policy setting, auditing, 

with outsourced administration done separately to outsourced ticketing 

contract on supply/ operate/ maintain including clearing house & handling 

of legal/ banking aspects 

Examine likely packaging of MRT lines to minimize direct revenue support 

from government & identify MoF operating financial support needed 

17 

- 

12 months 

concurrent 

concurrent 

concurrent 

concurrent 

Concurrent 

Concurrent 

9. Prepare roll-out plan Details of phased roll-out 3 months 

10. Prepare tender 

documents for 

ticketing system & 

separate 

administration 

contract (as 

necessary) 

Prepare tender documents 9 months 

11. Tender assessment Bidding & award 9 months 

12. Implementation Delivery, installation and testing of equipment, tickets and support systems 2 to 3 years 

(depends on 

complexity 

of preferred 

system) 

13. Convert “project” to 

long term 

institutional form 


Set up organization, arrange agreements with banks etc Concurrent 

It is not desirable for Government (ie MOT and MOF) to outsource the thinking needed to 

address the various inter-related policy issues. Four major issues are discussed in following 

subsections to illustrate why government needs to remain in firm control of the 

implementation process.

4.3.1. Importance of Fare Pricing Policy 

Fare policy is vital because: 

� financially, it affects the number of people who will use MRT and bus/ other , which in 

turn affects revenue collected from passengers, MRT operating costs and, ultimately, the 

viability of future proposed MRT lines and bus services etc; 

� socially, the absolute level can affect the affordability of public transport to people and 


community; 

� technically, it influences the form of operating concessions, and the design of the MRT 

system in general and the ticket system in particular (though it will generally be desired 

that the ticketing system be able to accommodate a range of possible fare structures and 

levels to allow for policy changes in the future); and 

� for the remainder of transport system, the level and structure of MRT fares affects the 

quantity of use made of other public transport and of private travel, with consequences 

for the transport system as a whole. 

The potential effect of the level and structure of fares on public transport patronage and costs 

can be substantial. While it is not essential that the fare structure and level be confirmed 

before commencing the process of planning an integrated ticketing system, an early decision 

will provide clarity and direction. In any event, establishing the fare structure and level is 

essential to the development of future MRT lines in HCMC, and is thus a matter than needs 

urgent attention. Accordingly, it is recommended that work commence as soon as possible to 

examine a range of fare structures and levels, and identify the option that best balances MRT 

financial viability and social obligations. Similar analysis for the bus and wider public transport 

system would also be needed. 

Clearly, fare pricing has significant financial implications and is a major transport policy and 

national finance issue. Any decision of fare price and form of fare system (eg zones, distancebased 

etc) should only be taken after careful study, analysis, technical discussion and 

consultation with stakeholders. A general approach to fare restructuring, as adopted in the by 

the Chicago Transit Authority (CTA) in the USA, is described in Box 4.1. The criteria used by 

the CTA to evaluate various fare options are presented in Table 4.4. 

4.3.2. Specification of Ticketing System Components 

The total capital cost of a smart card ticketing system for all public transport in HCMC could 

be in the order of US$80 million and around the same amount in present value terms for 

operation and maintenance over ten years. Given the complexity and high cost of operations 

and maintenance (O&M) of ticketing equipment, it is increasingly common for supply and 

O&M of ticketing equipment to be integrated in a single contract. 

18

Box 4.1: Fare restructuring study - example of Chicago Transit Authority 

Chicago Transit Authority (CTA) has performed two major fare structure studies in the recent years. The first, in 

1987, evaluated the following types of fare strategies: 

� Distance-based pricing, 

� Peak/off-peak differential, 

� Bus/rail differential, and 

� Maximum prepayment. 

The steps included in this study, which laid the groundwork for the subsequent study, were as follows: 

� Identify Fare Policy Goals — Goals were identified and "strategic trade-offs" between specific goals were 

established through discussions with staff from various departments and selected Board members. 

� Develop Evaluation Framework — Ten criteria were identified, and evaluation guidelines were defined for 

each criterion. Where possible, specific quantitative guidelines were provided. The criteria and guidelines are 

summarized in Table 4.4, along with the relative weights assigned each criterion; the criteria weights were 

based on interviews with CTA Board members. As shown in Table 4.4 ridership, revenue, and costs were 

considered the most important, while the provision of management information was ranked lowest. 

� Define and Analyze CTA's Markets — Considerable effort was devoted to defining and analyzing the 

potential markets for CTA service. Elasticities were based on the results of a series of "stated preference" 

surveys of riders and non-riders and were used to predict the effect of different fare options on ridership. 

� Develop and Estimate Costs for Fare Options — Six different options were developed and evaluated in 

isolation—in order to understand the implications of each—even though it was acknowledged that actual fare 

structures might include a combination of strategies. The options included peak/off-peak differentials, distancebased 

pricing (zonal for rail only or system-wide, and rail point to point), modal differentials, and maximization 

of prepayment. Potential costs (capital and operating) were calculated for each option. The distance-based 

options were found to cost the most, largely because a new fare technology probably would be needed to 

implement such a strategy effectively. 

� Evaluate Options — Each options was evaluated on a comparative basis with regard to each of the weighted 

criteria. 

Table 4.4: Fare Options Evaluation Criteria of Chicago Transit Authority 

Evaluation Criteria Weight Criterion Definition/ Evaluation Guidelines 

Maximize revenue while minimizing 

ridership loss 

Maximize ridership while 

maintaining sting net revenue 

80 Ability to raise additional revenue compared to base case 

80 Ability to increase ridership w/o losing revenue, compared to 

base case 

Ease of implementation 20 Phasing necessary to achieve reasonable transition, reflected 

in costs and timing, evaluated using discounting 

Reasonableness (public 

acceptability) 

10 Assessment based on experience from market research and 

public meetings 

Revenue protection 25 Evaluated in qualitative terms, based on scope and likelihood 

of improvements in revenue protection 

Cost 80 Includes capital costs of fare equipment and station 

modifications, and revenue collection costs 

Reversibility (risk) 20 Ease with which an option can be implemented or 

abandoned; includes institutional, public relations, other 

factors 

Maximize rides by disadvantaged 20 Equity of fares, especially of the transportation disadvantaged 

Simplicity 10 Assess simplicity, ease of understanding and convenience of 

use of each option 

Management information 5 Assess extent of improvement in each of three areas: 

financial accounting/ revenue control; operational control; 

marketing/ planning 

Source: Table 31, TCRP (1999) 

19

The ticketing system comprises two inter-related physical components: tickets (sometimes 

called “fare media”), and ticket validation equipment 1 . Ticketing system components for 

various types of fare collection system using a variety of fare media (eg paper tickets, magnetic 

stripe cards, smart card etc) are shown in Table 4.5 and likely applicability to various modes 

including bus and MRT (ie rail and LRT) as occurs in the USA. The most likely and 

appropriate fare collection system for HCMC would be “closed” barrier systems for MRT (as 

in Hong Kong, Singapore, Bangkok etc) and conductor-validated systems for bus. 

Table 4.5: Ticketing System Components 

Fare Fare Media Fare Equipment 

Collection 

System 

(1) 

Mode 

Bus LRT Rapid 

rail 

Commu 

-ter rail 

Pay on Cash/token Fare box X 

entry Paper ticket TVM, validator X X 

Magnetic ticket Validator, TVM X 

Smart card Validator X 

Credit/debit card* TVM, ATM X X 

Barrier Cash/token Turnstile/ gate X X 

Paper ticket TVM, validator X 

Magnetic ticket Validator, TVM X X X (3) 

Smart card Validator X X 

Credit/debit card* TVM, ATM X X 

Proof-of- Cash/token - 

payment 

(barrier 

free) 

Paper ticket 

Magnetic ticket 

TVM, TOM, validator (handheld) 

- 

X X X 

Smart card - 

Credit/ debit card* TVM, ATM X X X 

Conductor- Cash/token - 

validated Paper ticket TVM, TOM, validator (handheld) X (2) 

X X X 

Magnetic ticket Validator (handheld) X (2) 

Smart card Validator (handheld) X (2) 

Credit/debit card* TVM, ATM X X X 

(1) AVM = Automatic Vending Machine; ATM = Automatic Teller Machine; TOM = Ticket 

Office Machine 

(2) Purchase of ticket media needed also 

(3) Metra Electric is the only current barrier commuter rail system in USA 

Source: Adapted from Table 41, TCRP (1999) 

The most appropriate fare collection system and fare media for HCMC needs detailed study. 

Smart cards are now an established technology in public transport systems, but there a variety 

of systems with different costs. The more functions a smart card is intended to have the more 

complex and expensive the entire system becomes. 

In 1997 Hong Kong became a model for how smart cards could be introduced into city-wide 

public transport systems with the smart card extended to pay for other forms of transport, and 

minor purchases at convenience stores and so on. The overall, integrated system is called 

Octopus and was introduced by Creative Star, a joint venture company formed by the Mass 

1 This is complemented by management systems for maintaining the equipment, managing the supply and 

distribution of tickets, managing revenue (including distribution of revenue to appropriate parties), and collecting 

and using statistics on patronage. 

20

Transit Railway (MTR) and five other 

transport operators. This fully integrated 

ticketing system now allows passengers to 

travel more conveniently on all modes of 

public transport (ie trams, light rail, bus and 

ferry) and minimizes the need to carry cash or 

to purchase tickets. The multi-modal cards 

can now be used at retail and fast food stores. 

Most pay phones also accept the card. The 

system was fully operational by end 1999. 

Other cities in the world including Singapore 

(refer Box 4.2), Sydney, Brisbane, Melbourne, 

London and Kuala Lumpur have since 

followed, or are following, the model adopted 

by Hong Kong. 

21 

Box 4.2: Scope of Singapore’s ez-Link 

Originally known as the EIFS (Enhanced Integrated 

Fare System), Singapore’s ez-Link is an integrated 

smart card ticketing project that was awarded to ERG 

of Australia in April 1999 for full implementation by 

end 2002. 

Maintenance was separately contracted and 

exceeded the capital cost. The full upfront, capital 

cost was S$134.6M (ie about US $80M) and included 

22,000 readers, 3,800 on-bus tag on and tag off 

ticketing systems, and five million smart cards (more 

than one per capita). It also included the installation 

of GPS systems on 3,800 buses. An ez-Link company 

was also established as a subsidiary of the Land 

Transport Authority. 

Source: Sayeg and Charles (2004) 

Although smart cards are becoming widespread in public transport schemes around the world, 

“conventional” smart cards are considered to be expensive by some operators as not all trips 

made by “regular users” not all regular users will travel on period passes and several ticket 

options are not best served by smart cards. A new low cost smart card is now available on the 

market although is not yet widespread. Box 4.3 discusses some key features of smart cards and 

new limited use smart tickets. 

The advantages and disadvantages of each ticketing technology need to be fully considered 

and in due course a functional specification developed to procure the most appropriate costeffective 

system for HCMC’s needs. 

Appendix B provides an overview of what might be the most likely technical option which 

would the use of some kind of smart card for more detailed consideration at a later stage. 

4.3.3. Procurement Options for Ticketing System 

Three procurement issues need to be considered: (i) the supply of equipment and its ongoing 

operation and maintenance; (ii) whether government or private sector capital should be used 

to purchase the equipment in the first instance; and (iii) how payment should be made to the 

contractor who supplies and undertakes O&M for the ticketing system. With regard to the last 

item, the case is made in a separate working paper on the desirability that the cost of ticketing 

be recovered from passenger fare revenue. 

Under the recommended Gross Cost form of MRT operating concession, fare revenue would 

accrue to the government, which could then pay the government ticket system contractor 

using these funds.

Box 4.3: Smart Cards and New Limited Use Smart Tickets 

The smart card is technically an integrated circuit card and has a built in logic. All types of smart cards can store 

large amounts of data. An advantage of smart cards over magnetic stripe cards is they offer a greater measure of 

security and can be used as an instrument for controlling access as well as to stored value to be used to purchase a 

variety of services. Smart cards can store different amounts in their memory for different clients or agencies. 

Contactless smart cards offer the advantage of not having to be read or swiped by a ticket reader. Instead these 

cards only have to be placed close to the reader resulting in less wear and tear on equipment and greater 

convenience for passengers and people with disabilities who may find presenting and inserting conventional tickets 

or smart cards difficult. Smart cards remain expensive at (depending on the application) and volume from at least 

US$2 each up to several dollars each. Smart cards have also a growing application in very secure credit cards, 

payment, and secure ID (national ID cards; ID cards for libraries, universities, driving licenses etc). The more uses 

and functions on a card the more expensive they become. 

What are Limited Use Smart Tickets? They are low cost (around a fifth to a less of conventional smart cards) and 

offer a viable smart ticketing solution for low-cost or “limited-use” ticket types which characterize a substantial 

proportion of journeys carried-out on worldwide rail, bus and metro networks such as single or return journeys. For 

example, on BTS and the Blue Line Subway around 50% of users are represented by single trip tickets/ tokens. 

Limited Use Smart Tickets are similar to contactless smart cards and have a IC attached to an antenna using Radio 

Frequency Identification (RFID) technology that is embedded in the card however they: 

� Are paper instead of plastic; 

� Have a smaller memory, no processing; 

� Have a lower cost; 

� Are used for a period (typically 1 day to a month) and then disposed of. 

Limited Use Smart Tickets are being used in Europe (Capri – 4 million cards; Porto – 3 million cards; Lisbon – 12 

million cards; Firenze – 1 million cards; Netherlands – 15 million cards; Oslo – 10 million cards). Several major cities 

including Santiago, Sydney, Melbourne, and several US cities are planning to use Limited Use Smart Tickets. 

Based on European experience the current media cost per ticket (depends on volume) is around US$0.30. Below 

US$0.15 per ticket Limited Use Smart Tickets become commercially viable. Limited Use Smart Tickets can work side 

by side in the same equipment used by conventional smart cards with any ISO14443 standard reader infrastructure: 

� No hardware modification should be needed; and 

� Minor software changes may be required to: allow the reader to recognize the chip “signature”; ensure that 

correct read/write data protocol is followed; software changes are minimal. 

Source: TCRP (1999); Sayeg and Charles (2004b); Crotch-Harvey (2005) 

Three options to procure the ticketing system have been identified in Step 4 in Table 4.3 

(showing the proposed integrated ticketing implementation steps): 

� traditional supply tender with separate O&M, with government financing capital in the 

first instance; 

� single turnkey supply and O&M contract with government financing capital in the first 

instance; and 

� single turnkey supply and O&M concession, with the concessionaire providing the 

system using their own capital in the first instance, and being reimbursed over time, 

possibly through their retention of a share of fare revenue. 

Ticketing systems, especially those using smart cards, are extremely complex and despite 

various international standards much hardware and software is somewhat proprietary so it is it 

not possible to separate the supply of equipment from its operation and maintenance. In 

addition, combining both into a single contract ensures the whole of life cycle cost and 

benefits are fully considered by the supplier/contractor consortium. Most cities implementing 

smart card ticketing systems are therefore adopting the approach of direct government 

funding of a single contract for supply, testing and implementation and operation and 

maintenance. Accordingly, the first option listed above is not recommended. 

22

Under the second approach described 

above, the government would engage a 

consortium to provide and operate the 

ticketing system. It would pay for the 

capital cost of supplying, installing and 

commissioning of the ticketing system on 

completion and would pay for O&M on a 

periodic basis. Most associated services 

including operating the clearing house for 

revenue management and settlement 

would for convenience purposes would 

also be operated by the consortium. 

Finally, it is possible to also adopt a similar 

integrated supply and operate approach 

but to implement it though a Public- 

23 

Box 4.4: Bogota’s TransMilenio Ticket 

Concession 

TransMilenio (a bus rapid transit system) uses pre-paid 

contact-less smartcard technology as part of a ticketing 

system that applies to its system only. A private 

company was contracted through competitive tendering 

to provide and manage ticketing and fare collection on 

behalf of the management authority for the TransMilenio 

system. The private concessionaire financed the 

ticketing system and is paid a share of the fare revenue 

that it collects. The concessionaire pays the revenue it 

collects into a trust fund, from whence it is distributed to 

various companies involved in providing and operating 

the TransMilenio system, including the management 

authority, in agreed shares. 


Private Partnership (PPP) concession. In this case, private finance would be used to 

implement the system, with the concessionaire receiving payment either according to an 

agreed schedule or by retaining a share of revenue they collect. The latter arrangement has 

been adopted in Bogota (see Box 4.4). The merit of using private sector capital in this way can 

be assessed using a value-for-money analysis that takes account of risk transfer to the private 

sector (see the Concession Model Working Paper for a more detailed discussion of this issue). 

Particular care is required in the case of payment being recovered as a share of fare revenue to 

ensure that a transparent and cost-effective arrangement is achieved. The advantages and 

disadvantages of the second and third options need to be studied further by Government to 

establish the preferred approach. 

Ticketing System Requirements 

The ticketing system to be procured will comprise all devices and systems required to 

implement the common ticketing system in HCMC A generic model of a smartcard-based fare 

collection system using a typical tier typology is illustrated in Figure 4.1. 

Figure 4.1: Generic Smartcard-based Fare Collection System 

Source: TCRP 115 (2006)

The specification for the common ticketing system will include the following devices and 

systems as a minimum: 

� smartcards – including transit application definition as well as card format compliance 

to an adopted interoperability standard; 

� smartcard readers; 

� fare gates; 

� ticket office machines – for smartcard distribution and reload; 

� smartcard reload machines; 

� handheld smartcard readers – for revenue protection officers; 

� data system servers as required – often necessary at stations; 

� station-level control systems; 

� operator head-office accessibility – often requiring integration into other operator 

systems; 

� a central system – principally for transaction processing, configuration data management 

(such as fare tables and card hotlists) and system and device monitoring; 

� appropriate redundancy for both security and disaster recovery considerations; and 

� requisite communications infrastructure for network connectivity. 

Operations Requirements 

The common ticketing system will also require the following on-going operational services as 

a minimum: card management; maintenance management; operator technical support; asset 

management; training; marketing; system management and monitoring; configuration 

management; financial reconciliation and settlement; and reporting. 

Clearinghouse Ownership and Governance 

In the preferred gross cost concession environment envisaged, with all fare revenues being 

remitted to the government, the importance of transaction clearing is significantly reduced. 

However, as discussed above clearing activities will be a consideration both initially for the 

current concessions (between themselves, as well as with the new common ticketing system) 

as well as ultimately with non-transit partners. 

Given the uncertainties surrounding these future partners it is only possible at this stage to 

define some of the governing principles which will guide any future considerations of 

clearinghouse ownership and governance: 

� government should retain adequate control (by way of ownership or regulation) to 

enable it to continue to implement its transit fare policies; 

� governance should generally be established based upon equity investment, tempered by 

the government’s need to facilitate social objectives within its transit systems. This may 

also require an appropriate regulatory framework; and 

� existing banking regulations regarding the use of ‘open e-purse’ schemes will need to be 

accommodated. 

24

In terms of transit purposes, as discussed above two clearinghouse arrangements will require 

consideration: 

� a clearinghouse for use between the two existing concessions to enable interoperability; 

and 

� a possible common ticketing system clearinghouse to interface with the two existing 

concessions until these are modified to a gross cost contract arrangement. 

In the case of the clearinghouse for the two existing concessions, it is envisaged that the most 

appropriate form of ownership would involve the two parties only. However, it is likely that 

the clearinghouse’s governance will need regulatory involvement of government to ensure its 

strategic fit with the proposed new common ticketing system. This regulatory involvement 

would cover issues of ‘compatibility’ as well as the more fundamental compulsion to interact 

with the new system. 

As the clearinghouse for the new common ticketing system will deal principally with the 

remittance of fare revenues to government, it is consider logical that it be owned and 

governed by government (through an appropriate agency). As discussed above, the 

clearinghouse ownership and governance framework is likely to require a more sophisticated 

approach if non-transit expansion of the system is to be realized in the future. 

4.3.4. Integrated Ticketing Administration 

Step 7 of Table 4.3 discusses two generic options for the organization that would be charged 

to administer and manage the integrated ticketing system. A wide variety of models are 

possible, but usually the organization is embedded within an established government 

organization eg MAUR, HIFU or the Department of Finance at PC level. In HCMC, it may 

need to be established as some form of government-owned entity in order for it to deal 

directly with the private sector including financial institutions. Two basic options are: 

� Option 1: Government management (30 people) for policy setting, administration & 

management of outsourced ticketing contract for the supply, O&M, clearing house and 

handling of legal and banking aspects; and 

� Option 2: Government oversight (less than 10 people) for policy setting and auditing, 

with separately outsourced administration that supervises the outsourced ticketing 

contract for the supply, O&M, clearing house and handling of legal and banking aspects. 

Based on interviews with the heads of three systems for which integrated ticketing systems 

have either recently been implemented (Singapore) or are being implemented (Sydney and 

Brisbane, Australia) the two identified options encompass the principal possibilities (see Table 

4.6 for lessons learned from these interviews). Either option is workable but a final decision 

needs to be made taking into account the form of ticketing procurement chosen. 

25

Table 4.6: Lessons on Integrated Ticketing Administration 

City Lessons on oversight 

Singapore (ez-Link) – Integrated smart card ticketing 

project (1999-2002). ez-Link company was established as a 

subsidiary of the Land Transport Authority. 

Brisbane, Australia – Integrated smart card ticketing 

system required the integration of ticket products & 

systems for train, ferry and over 20 bus operators. 

Overseen & managed by newly established TransLink (a 

government agency). Operations and Maintenance 

separately contracted over 10 years & likely to > capital 

cost of A$100M (ie about US$77M). Roll-out commenced in 

July 2005. 

Sydney, Australia – Integrated smart card ticketing 

project. Currently trialling. Targeting an organization of 30 

people after ticketing system is procured. Ticketing 

contractor will control/ manage/ maintain ticketing 

equipment performance; autoload facility; clearing house, 

put money in Bank Accounts (accounts all in government 

name). NSW Transport Administration Corporation, the 

ticketing authority, not required to make a profit ie must 

extract what money it needs from operators/ stakeholders 

who will hold it closely accountable. 

Source: Personal Communication 2006a, b and c 

� Few staff in LTA/ ez-Link to oversee; can always increase if 

needed. Difficult to reduce. 

� Policy of outsourcing adopted as most skills of non-recurrent 

nature. 

� Routine financial auditing annually. Integrity auditing 3 yearly. 

� TransLink in implementation phase with 15 staff. Will reduce 

later & outsource. May end up with 5 staff in contract 

management functions. 

� Some additional call centre staff needed will sit alongside 

public transport call center staff on usual toll free no. 

TransLink want to maintain customer interface. 

� Due to need for clear separation of goverment & business 

interests staff to oversee will be largish to: monitor contract ie 

Key Performance Indicators. Will have a bias to more 

financial/ accounting staff. 

� Could outsource almost all functions. 

� Govt. operates the ticketing call centre as an extension of 

public transport information centre – an additional 12 people; 

important that govt. maintains relationship with customers. 

� Due to long implementation period (4 years) for ‘big bang’ 

approach there is operator fatigue. A staged approach has 

merit. 

26

Appendix A: Affordability Analysis & Tourist Use 

This Appendix reproduces with only minor editing an affordability analysis reported by ADB 

(2007a) which interpreted available information on household incomes in HCMC reported by 

TEWET (2005). 

A.1 Introduction 

Information in Table A.1 provides a preliminary assessment of affordability. It shows that at 

2010 the main modeled fare of VND4,000 (2005 prices) proposed for MRT in HCMC is less 

affordable than MRT fares in Bangkok, Kuala Lumpur and Manila by a third, quarter and 90% 

respectively shortly after their MRT systems opened. For the revenue-maximizing fare of 

VND 2,000 (2005 prices) the affordability in HCMC would be slightly better than for the 

other cities. 

Table A.2 presents similar data from MVA Asia (2005) which shows also in 2005, HCMC 

MRT the main modeled fare of VND4,000 (2005 prices) relative to GDP would be much 

more expensive than Bangkok, Hong Kong and Singapore. However, for the forecast GDP 

for HCMC (and implied associated income growth assumptions) by 2010 the fares would 

relatively the same as Bangkok although still relatively much more expensive than those for 

Hong Kong and Singapore. By 2020, however, relative MRT fares for HCMC would be 

cheaper than Bangkok today although still 50% relatively more expensive than Hong Kong 

and Singapore. That is, with economic growth and associated income growth, MRT fares in 

HCMC are expected to become relatively more affordable. 

GNI or GDP 

(US$) per capita 

Total est. linked 

person trips in City 

area defined 

above 

% by public 

modes 2001 

Fares in $US for 

average full fare 8 

km trip in 2001 or 

proposed for 

HCMC 2010 

Affordability of 

MRT fares today 

No of MRT 

passenger/day 

and % MRT of 

total approx one 

year after 

opening) 

Table A.1: Summary of MRT Fares and Demand in Other Cities 

Bangkok Kuala 

Lumpur 

4,800 

(2000 est) 

9,600 

(2000 est) 

Metro 

Manila 

2,800 

(2000 est) 

27 

Hong Kong Singapore HCMC 

25,330 

(2001) 

21,500 

(2001) 

2,000 

(2005) 

12,800,000 3,250,000 19,199,600 13,400,000 8,400,000 16,300,000 

45% 

(2005) 

US$0.6 US$1.40 

(Putra) 

20% 70% 80% 70% < 5% 

(2005) 

US$0.26 US$ 0.70 US$0.70 US$0.25 

1.0% 1.2% 0.8% 0.2% 0.3% 1.5% (main 

modeled 

scenario) or 

0.75% for 

revenuemaximizing 

fare) 

216,000 on 

BTS MRT in 

April 2001 

1.7% 

192,000 

passenger/day 

on Star 

(60,000) and 

Putra MRT 

(132,000) 

together at 

end 2000 

5.9% 

210,000 

Metrostar at 

April 2001 

500,000 LRT1 

1.1% 

(excluding 

LRT1) 

14% MRT 

3.7% heavy 

rail 

1.7% LRT 

(1992) 

14% MRT 

(1998) 

Forecast of 

128,000 

passenger per 

day for fare 

shown in 2010

No of MRT 

passenger and % 

MRT (of total in 

2005) 

Bangkok Kuala 

Lumpur 

580,000 

passenger/day 

on BTS and 

Blue Line 

Subway MRT 

in 2005 

4.5% 

260,000 for 

total system 

Metro 

Manila 

400,000 

Metrostar 

550,000 LRT1 

2.1% 

(excluding 

LRT1) 

28 

Hong Kong Singapore HCMC 

na na na 

Source Consultant. Notes: 

1. GNI or GDP 2020 is available. For HCMC 2020 GDP per capita from MVA 2005 and stated in 2005 prices. 

2. Linked person trips per day on mechanized modes and unmechanized modes. A linked trip is a journey from A to B 

including all modes used along the way. Data for Bangkok Metropolitan Region shows that in 2005 it is estimated there are 

19.7 million linked trips including 15% walking etc with a population of 10 million from Len Johnstone, Transport Modeler. 

For HCMC data for 2001 from Houtrans (JICA 2003) shows that HCMC region population was 8.6 million in 2001 and linked 

person trips were 23 million including 17% walking etc. Hence, Bangkok Metro Region person trip rate is 2.0 per capita per 

day and for HCMC region, 3.0 per capita per day. For other cities linked trips are estimated as 2.5 trips per capita per day 

except Metro Manila where 2 trips per capita per day used. 

4. The % of total linked trips by public modes including bus, MRT, taxi etc in 2001 or as stated. For HCMC, data from MVA 

Asia (2005) and Houtrans (JICA 2004). Other data sourced from Appendices of PAS/ EPS 2001. 

5. Fares in $US for average full fare 8 km trip in 2001 or proposed for HCMC 2010 for the main modeled fare of VND4,000 

in 2005 prices and VND2,000 (revenue-maximizing fare) also in 2005 prices . 2001 is approximately date of opening of 

several of the MRT systems. Source of 2001 data is PAS/EPS 2001. 

6. Affordability of MRT fares circa 2005 ie Average fare/ GDP/12 per capita *100 

7. No and % MRT after approx one year of operation – using latest available patronage figures for MRT demand divided by 

total linked trips. For Manila, LRT Line 1 ignored as opened in 1984 and not a “recent” MRT. Source: Appendixes of PAS/ 

EPS 2001 and J Leather ADB 2006 for Manila figures. For Singapore and Hong Kong with well developed MRT networks that 

commenced in the 1980s, only mode split shown. 

8. Latest number and % of MRT – Figures for MRT demand divided by total linked trips stated for earlier year. Source: 

Appendixes of PAS/ EPS 2001 and J Leather ADB 2006 for Manila figures. 

Table A.2: Public Transport Price Comparison with Other Asian Cities (for an average 6 

km commuter trip, in US$ 2005 Prices) 

City HCMC Bangkok Hong Kong Singapore 

2005 2010 2020 2005 2005 2005 

Bus (regular) $0.11 $0.18 $0.18 $0.13 N/A $0.45 

Bus (air-con) $0.11 $0.18 $0.18 $0.30 $0.75 $0.60 

MRT (VND4,000 for HCMC) $0.25 $0.25 $0.25 $0.50 $0.80 $0.55 

GDP / Capita 

Affordability of MRT fares 

$2,000 $3,100 $5,600 $6,200 $24,000 $22,000 

(Average fare/ GDP/12 per 

capita *100) 

1.04% 0.67% 0.37% 0.67% 0.26% 0.21% 

Source: MVA Asia (2005), Table 5.2 and others. Data on GDP differs slightly from shown in Table A.1 due to different 

sources and years. 

A.2 Alternative Affordability Analysis 

An alternative way of examining affordability is to examine the distribution of household 

incomes by income 1 group. These data are unavailable to the team. JICA (2004) provide 

survey data of public transport users in 2002 or 2003 for a variety of public transport modes 

as shown in Table A.3. The average distribution of incomes for all public transport users is 

likely a more useful starting point than average HCMC household incomes which would likely 

be lower on average. 

1 Income data are difficult to collect and often understated. Instead many researchers identify household 

expenditure which is less problematic.

Based on Table A.4, the potential household trip frequency for MRT at 2010 at the main fare 

modeled by MVA Asia (2005) (ie VND4,000 in 2005 prices or VND3,500 in 2003 prices) was 

estimated as shown in Table A.4 This table shows that at 2010 20% of households who are 

potential public transport users would not be able to afford to purchase more than four MRT 

fares per week in total per household equivalent to 2 round-trips. In contrast, 80% of 

households would be able to purchase more than MRT 12 fares per week or 6 round-trips ie 

to travel every day. This table also shows in broad terms that perhaps most households may 

not be all that sensitive to modest fare increases above the chosen fare. For example, at an 

assumed fare 20% higher than the chosen fare almost 80% of households could still purchase 

almost at least 8 MRT fares per week or 4 round-trips per week ie to travel almost every day. 

This also implies that affordability may be better than implied by the revenue maximizing 

demand forecasts and fare price level assumed by MVA Asia (2003 and 2005). 

Table A.3: Houtrans Public Transport Users Interview Summary 2002-03 

Attribute Bus Taxi Cyclo Xe om Total 

No. of Samples� 1,189 374 78 367 2,008 

Sex (%) Male 52.6 44.8 30.8 27.8 45.8 

Female 47.4 55.2 69.2 72.2 54.2 

Age (%) ≤15 0.8 - - 0.8 0.6 

16-25 33.9 22.1 26.2 25.6 30.0 

26-35 27.5 46.4 23.0 34.0 32.0 

36-45 18.5 21.5 37.7 28.4 21.5 

46-55 10.7 7.0 9.8 7.5 9.4 

56-65 5.8 2.2 3.3 2.5 4.5 

>66 2.8 0.8 - 1.1 2.1 

Average Age 33.3 32.3 34.1 32.8 33.1 

Household Income 10.0 0.9 1.7 1.6 2.9 1.5 

Average Household Income (000/month) 1,412 2,368 1,607 2,035 1,742 

Vehicle Ownership Car 0.3 1.1 1.3 - 0.4 

(Individual) 

Motorbike 46.5 84.6 29.9 51.4 53.6 

Bicycle 21.6 4.5 22.1 23.1 18.8 

None 31.7 9.8 46.8 25.4 27.2 

Frequency of use of Daily 23.5 10.4 12.8 17.7 19.7 

public transport At least once a week 16.5 11.2 20.5 21.7 16.6 

Unusual 60.0 78.4 66.7 60.6 63.6 

Source: Houtrans (JICA 2004) 

29

Table A.4: Potential Trip Frequency for MRT at 2010 

Year 2003 2010 Est MRT Trips Per 

H’Hold per month 

GDP / Capita $1,400 $3,100 

H’Hold Income (VND million/month) 2003 prices 

30 

Est MRT Trips per 

week 

10.0 1.5% 2% >107 >36 

Average H’Hold Income ‘000 

VND/month 2003 prices 

Total 100.0% 100.0% 

1,742 3,830 

Source: Consultant. Notes: 

GDP per capita from Table A.2; 2003 household Income % for public transport users from Table A.3. Estimated household 

income % for public transport users by Consultant; Est MRT Trips per month per household: 15% of representative h’hold 

income divided by VND 3,500 (2010 fare of VND4,000 in 2005 prices deflated to 2003 prices) divided by assuming MRT can 

only represent one third of all h’hold transport expenditure. In Thailand 1998, according to the National Statistics Office, on 

average households spent Baht 2,677 from an average income of Baht 19,820 on transport and communication or 13.5% 

hence 15% was chosen as a reasonable approximation for HCMC. 

A.3 Tourist Use 

There appears to be little specific consideration of the potential for tourist use of MRT in 

HCMC in the forecasts by TEWET (2005) or Systra MVA et al (2008). 

Evidence from Bangkok for Bangkok Transit System (BTS) is that tourist use is apparently 

low. According to data on BTS’ ticket sales for February 2005, one day tourist passes 

represented 1.6% of all ticket sales. For Bangkok’s Blue Line Subway sales of tourist tickets in 

October 2005 represented 0.04% of all ticket sales. 

What these data do not reveal is how many foreigners (or Thai residents from outside 

Bangkok who are visiting in Bangkok for tourism or social reasons) have purchased ordinary 

tickets. Surveys of BTS users in early 2001 about six months after its opening showed that 

foreigners accounted for 3.4% of Bangkok Transit System passengers (with about half being 

tourists and the other half being business people). It is likely that the proportion of foreigners 

using BTS is similar today. 

It concluded that for HCMC that there is the potential for the MRT to carry a similar 

proportion of tourists assuming the government attempts to facilitate foreign inbound tourism 

through both promotion and simplifying visa/immigration requirements and develops a 

reputation as a reliable place to invest. Overall, assuming current policies, a target of 1% of 

tourists in addition to demand generated by HCMC residents may be plausible in the early 

years of the system operation which may increase over time to say, 2% by 2020. 

Tourists would also likely to be less sensitive to absolute fare price levels than HCMC 

residents.

Appendix B: Most Likely Technical Option 

B.1 Likely Technical Components 

Based on the conclusion that a single ticketing system is needed the available technical option 

is shown in Figure B.1 which illustrates a single system comprising: 

� a single card (ie. single issuer); 

� a single central system; 

� a single clearinghouse. It should be noted that in a gross cost concession environment 

revenue apportionment is not typically required, however the clearinghouse would be 

necessary for any extension of the system to non-gross cost operators or particularly 

expansion into non-transit applications of the card; 

� compatible field equipment (gates and ticket office devices) deployed into all 

concessions; 

� the implementation of an open interoperability standard at a minimum of the 

card/reader and central system/clearinghouse interfaces. The strategic implementation 

of an open standard will limit the impacts of any possible vendor lock-in; 

� in-principle expansion of the MRT system onto the city’s bus systems (when and how 

this can be achieved is not however within this TA’s scope. The complexity involved in 

the implementation of advanced technologies onto bus fleets should not be underestimated); 

and 

� the existing bus operators integrated into the new system if possible (or replaced if this 

is not feasible). 

While Figure B.1 represents the ‘end state’ of the common ticketing system. 

31

Smartcard 

Reader/Device 

Operator System 

Central System 


Figure B.1: Common Ticketing - Preferred Technical Option 

Line 1 Line 2 Lines 3 etc 

Bus BRT Other 

B.2 System Scalability Requirements 

Open Standard Card/Reader 

Interface 

Open Standard Clearinghouse 

Interface 

Central 

Clearinghouse 

Phase II 

The system procured will need to allow for growth both in level of activity as well as the 

number of participants. 

The system will need to be capable of processing at least an order of magnitude increase in 

transactions without significant impact on system performance. This will place significant 

importance on the card-reader interaction (a maximum of 200 msec is suggested) as well as 

the fundamental design of the transaction processing database. A set of appropriate 

performance levels throughout the system should be specified which can be clearly 

demonstrated during system testing. 

The system operating schema should also be sympathetic to the possible extension of the 

MRT system to other modes. Bus always poses significant challenges to any fare collection 

system, and particularly a bus system as vast as that currently operating in and around HCMC. 

The design of the initially MRT fare collection system should be undertaken contemplating 

the expansion of the system into other modes. Thus, operating fundamentals will need to be 

carefully considered, such as: 

� operating logistics – eg tag-on only validation vs tag-on/tag-off; 

� degree of automation – eg ongoing use of bus conductors; and 

� environmental issues – eg bus fleet condition in terms of electrical noise, power 

reliability, structural integrity, etc. 

The ultimate expansion of the system into non-transit applications will also be a necessary 

design consideration. In this respect it will be important for the design of the system to 

consider fundamental card transaction security as well as clearinghouse performance. 

32 

Non- 

Transit 

Application 

s








Asian Development Bank (2007a), “HCMC Metro Rail System Project, Strategic Financial 





Bangkok Metro Company Ltd (2005) “Monthly Monitoring Report to MRTA.” 

Bangkok Transit System Corp (2001) “Various Data”. 

Crotch-Harvey, T (2005) “Potential for Low Cost Smart Tickets”, presentation at Smart Urban 

Transport 2005 Conference, Brisbane, September. 

Franzmann, L (2005) “Presentation on TransLink” Presentation at Smart Urban Transport 

Conference, Brisbane, Australia 2005 

Hague Consulting Group (1999), “TRACE Costs of private road travel and their effects on 

demand, including short and long term elasticities” Contract No: RO-97-SC.2035 Prepared 

for the European Commission Directorate-General for Transport, April. 

Kinnear, R (2005) “Integration within a Franchised Public Transport System.” Presentation at 

Smart Urban Transport Conference, Brisbane, Australia 2005 

Balcombe, R (editor) (2004), “The Demand for Public Transport, A Practical Guide”, UK. TRL 

Report, TRL 593 

Mass Rapid Transit Authority (1996 to 2001) Various Documents. 

MVA Consultants et al (1996) “Urban Transport Database and Model Development Project 

(UTDM)”, with Comsis and Asian Engineering Consultants Corp Ltd, for OCMLT, 

completed March. 




Personal Communication (2006a) “Information supplied by Silvester Prakasam, Head of Fares 

Division/ Ezy-Link, Singapore Land Transport Authority”. May. 

Personal Communication (2006b) “Information supplied by Robin Barlow, TransLink, 

Queensland, Brisbane, Australia”, May. 

Personal Communication (2006c) “Information supplied by John Stott, Director General, 

NSW Transport Administration Corporation, Sydney, Australia”, May. 

Personal Communication (2006d) “Information supplied by Dr LK Siu, New Projects and 

Planning, KCRC, Hong Kong”. May. 

33

Personal Communication (2007) “Information supplied by Jamie Leather, Asian Development 

Bank”. January. 



(June) 

Prakasam, S (2005) “Presentation on Singapore Ezy-Link”, presentation at Smart Urban 

Transport 2005 Conference, Brisbane, September. 

SEQ Integrated Ticketing Project Team (1999), “Towards an Integrated Ticketing and Pricing 

System.” Working Paper prepared for Queensland Transport, 23 November. 

Systra MVA Thailand Ltd (2008), “Ho Chi Minh City Metro Rail System Study HCMC Master 

Plan Ridership and Revenue Forecast Study”, Final Report. January. 





Asia. 



Transit Cooperative Research Program (1999), “Report 10: Fare Policies, Structures, and 

Technologies.” Transport Research Board. USA. 

Wardman J and Shires M (2003), “Review of Fares Elasticities in Great Britain”, Working 

Paper 573, Institute of Transport Studies, Leeds, UK, December. 



34










Asian Development Bank and the Government of Thailand (2007) “Integrating Mass Rapid 



Asian Development Bank (2007), “HCMC Metro Rail System Project, Strategic Financial 


Allport R (2004) “A Tale of Three Cities: Urban Rail Concessions in Bangkok, Kuala Lumpur 

and Manila.”, prepared by Halcrow Group Ltd for World Bank as part of ADB-JBIC-World 

Bank East Asia and Pacific Infrastructure Flagship Study. 

Astris Finance and Systra (2005), “Hanoi LRT Pilot Line Feasibility Study, Executive 

Summary”, Ocober. 

Booth, C. and Richardson, T. (2001) “Placing the public in integrated transport planning”, 

Transport Policy, 8(2) 141-149. 

British Department for Transport (2004), “Procedures for Dealing with Optimism Bias in 

Transport.” Guidance Note. 

Coulthart A, Nguyen Q and Sharpe H (2006), “Urban Development Strategy: Meeting the 

challenges of rapid urbanization and the transition to a market oriented economy,” Viet Nam. 

Prepared by World Bank. 

Chiplunkar, A (2006), “Presentation on Public Private Partnerships (PPPs) Framework for 

Infrastructure Development in Vietnam”. Dr Chiplunkar served as ADB Staff Consultant on 

PPP in GMS. 

Finlayson, R (2007), “Viet Nam Case Studies on Private Sector Development and Operations 

A Case Study from the 2007 Special Evaluation Study on Private Sector Development and 

Operations: Harnessing Synergies with the Public Sector”, Prepared for ADB Operations 

Evaluation Department. June. 

Flyvbjerg, B., Skramris Holm, M., and Buhl, S. L. (2005) “How (In)accurate Are Demand 

Forecasts in Public Works Projects?” Journal of the American Planning Association, 71(2), 

131-146. 

Flyvbjerg, B., Skramris Holm, M., and Mette-Buhl, S. (2004) “What Causes Cost Overrun in 

Transport Infrastructure Projects?” Transport Reviews, 24(1), 3-18. 

Flyvbjerg, B., Bruzelius, N. and Rothengatter, W. (2003a) “Megaprojects and Risk: An 

Anatomy of Ambition”, Cambridge University Press, Cambridge, England. 

Flyvbjerg, B., Skramris Holm, M. K. and Mette-Buhl, S. (2003b) "How common and how 

large are cost overruns in transport infrastructure projects?", Transport Reviews, 23(1), 

January, 71-88 

26



Flyvbjerg, B., Skramris Holm, M., and Buhl, S. L. (2002) “Underestimating Costs in Public 

Works Projects - Error or Lie?” Journal of the American Planning Association, 63(3), 279-295. 

Fouracre P R, Allport R J, Thomson J M (1990) “The Performance and Impact of Rail Mass 

Transit in Developing Countries”, Transport and Road Research Laboratory, Research Report 

278, UK. 

HCMC PC 2007. Web site: . Accessed October 24. 

Japan Bank for International Cooperation, Japan (2006) “Terms of Reference for Special 

Assistance for Project Formation (SAPROF) for Japanese Line, HCMC.” 

Japan International Cooperation Agency (2004) “Study on Urban Transport Master Plan and 

Feasibility Study in Ho Chi Minh Metropolitan Area (Houtrans)” undertaken for the Ministry 

of Transport and the Ho Chi Minh City People's Committee with support from the Japan 

International Cooperation Agency. Prepared by ALMEC Consultants, Japan. 

Japan International Cooperation Agency (2006) “Integrated Urban and UMRT Line 1 

Development Strategy in HCMC – draft Final Report.” Prepared by ALMEC Consultants, 

Japan. 

Larwin, T. F. (2005) “Transit Planning for the 21st Century”, ITE Journal, 75(8) 24-28 

MVA Asia (2006), “Task 3 Report, Institutional Recommendations for Involvement of the 

Private Sector Involvement”, Technical Assistance for Consolidation and Development of a 

Bus System in Ho Chi Minh City, Viet Nam” for World Bank with PPIAF funding, April. 






(June). 

Preston, J. (2005) “Contracting out public transport planning: options and prospects”, 9th 

International Conference on Competition and Ownership in Land Passenger Transport, 

Lisbon, Portugal, 5-9 September. 

Transparency International (2006), “National Integrity Systems: Country Study Report, Viet 

Nam”. 





Asia. 



van de Velde, D. M. (1999) “Organisational forms and entrepreneurship in public transport: 

classifying organisational forms”, Transport Policy, 6(3) 147-157. 

Wallis, I. P. and Hensher, D. A. (2005) “Competitive tendering for urban bus services - cost 

impacts: international experience and issues”, 9th International Conference on Competition 

and Ownership in Land Passenger Transport, Lisbon, Portugal, 5-9 September. 

27



Wallis, I. and Lupton, D. (1999) “Metropolitan Public Transport Policy and Planning: 

Institutional Development in a Multi-Operator Environment”, 6th International Conference 

on Competition and Ownership in Land Passenger Transport, Cape Town, September 



World Bank (2005), “Vietnam Transport (Draft)” 

World Bank (2006), “Infrastructure Strategy Cross Sectoral Issues”, Vietnam. 

World Bank (2007),” Project Information Document, Vietnam- HIFU Development Project” 

Appraisal Stage Report no. AB3058. 

28

TA4862-VIE Ho Chi Minh City Metro Rail System - ppiaf

Create successful ePaper yourself

Delete template?

Save as template?