Drivers of Development in

Gerald Ollivier Transport Cluster Leader Transport Global Practice The World Bank Outline

I. Metro Development is Scaling Up in China

II. New Policy Environment, New Challenges

III. Innovations in Metro Financing

IV. Metro and Transit Oriented Development (TOD)

V. Conclusions Metro Development is Scaling Up in China

China metro in operations in figures (By the end of 2017) 34 Cities

165 Lines

5,033 KM

3,234 Stations

18.48 Billion Passenger Trips

Service Intensity: 0.81 Metro Development is Scaling Up in China

Physical Scale

Total Length Number of Stations 800

700

600

500

400

300

200

100

0 Towards Large Scale Network Structure

• Large-scale, networked structure, diversified systems, equipment based on own intellectual property and independent technology • Hierarchized integrated network: -large-capacity subway in the central areas of megacities and super cities -medium-capacity monorail, magnetic suspension, inner-city rapid rail transit and modern trams between central urban area and satellite towns.

Source: QuantUrb, CASA Metro Development is Scaling Up in China

Investment Scale

Investment of Metro Projects with Approved FSR 4.5 Investment (Trillion RMB) 4 About Rs. 40 lakh crores 3.5

3

2.5

2

1.5

1

0.5

0 2013 2014 2015 2016 2017 Metro Development is Scaling Up in China

Increased local financial burden due to metro project investments

7000 (100 Million RMB) 250.00%

6000 200.00% Urumqi, 192.29% Chengdu, 190.97% 5000 Qingdao, 171.55% General public budget revenue Guiyang, 158.95% 150.00% 4000 Investment of Metro Projects with FSR Approved Wuhan, 117.85% 3000 Proportion of Metro Investment to 100.00% Revenue

2000 Beijing, 64.10% 50.00%

1000 Shanghai, 31.93%

0 0.00% Urumqi Guiyang Qingdao Chengdu Wuhan Shanghai Beijing New Policy Environment, New Challenges New policies regulate metro development with raised requirements

Subway Project Forward peak- hour Short-term passenger service volume Government intensity > 0.7 >30,000 per funding > 40% (10,000 hour Urban resident passenger population > 3 trip/KM·Day) GDP > 300 million billion RMB Forward peak- Annual general Or Rs 3.1 lakh hour passenger public budget crores Urban Light Rail Project revenue > 30 Short-term volume > 10,000 billion RMB service intensity per hour Government > 0.7 (10,000 funding > 40% passenger Urban resident trip/KM·Day) population > 1.5 GDP > 150 million billion RMB Annual general public budget revenue > 15 billion RMB New Policy Environment, New Challenges New Rules Reinforce New Budget Law

MoF Directive No.50 MoF Directive No.87

• Prohibit local governments from • Prohibition of government purchase providing guarantees for UDIC debt. service contracts to pay for civil works and financial services.

Prohibitions

• Prohibit government from injecting • Prohibit government from packaging assets from government budgets into railways, highways, airports, UDICs or pledging future land sale communications, water, power and proceeds to bolster UDIC gas supply, and the infrastructure creditworthiness. construction projects into government purchased service contracts. Fares only partly support metro

FAREBOX RATIOS FOR METROS AROUND THE WORLD

More likely to be able to fund portions of original capex Subsidy for Non-fare revenues renewals and 15-20% in Asia, but enhancements requires retail designed well

Opex subsidy

Source: Community of Metros / Imperial College London Innovations in Metro Financing New Approach: From Urban Development Investment Company (UDIC) to PPP Public Private Partnership (PPP) Structure

Local Bond Market Government

Capital Subsidy Transport Department Operating Subsidy

Concession Agreement

Fare Box Revenues Financial Institutions/ Payment Metro Private Investors Company Bond/Loan/ Equity Other Operating EPC Revenues Contractor Operator Transport PPP Projects Have the Highest Share of Project Value.

PROJECT VALUE BY SECTOR (MOF PPP PROJECT DATABASE)

1%1%1% 2% 2% 2% Transport 3% Transport Municipal engineering 5% 28% Area Development Resettlement Project 5% Ecological development and environmental protection Others Tourism 6% Water resources management Education Culture 7% Health Elderly care Energy 10% Sports activities 27% Why PPP? Using Project Finance to Raise Funding for PPP Projects

What is Project Finance?

 Project Finance uses future project Using FUTURE revenues to finance upfront project Project Revenues costs.

 PPP is project finance where risk is allocated between the government and private developer. To Finance UPFRONT Project Costs Traditional Finance VS. Project Finance

 The key difference between Traditional (Corporate) vs Project Finance is who acts as the borrower. Traditional (Corporate) Finance Project Finance

Government Project Government Project

Traditionally the Financing In Project Finance, the Financing Government borrows Burden Project is the borrower Burden directly. . o Advantages: o Advantages: • Cost of financing (interest rate) is typically lower. • Vehicle to mobilize private financing. o Disadvantages: • Motivates project developer (equity) and banks to ensure project • Government has limited borrowing capacity, limiting infrastructure implementation. development. o Disadvantages: • Construction, operation & management risk is the governments. If • More complex than traditional financing, needs a lot of analysis the project fails, the government still must pay. and takes longer. • More expensive than traditional financing. • Often has contingent liabilities and requires close monitoring. Symptoms

Integrated Mobility

Integrated Land Use Integrated Land Use and Transport Planning for JOB Accessibility

a. , 2, and 3 and walking: 12% b. Scenario a plus bus: 28% • Population:6.4 million • GDP per capita: US$11k • Peak hour accessibility

Percent of jobs accessible within 45 c. Scenario b plus TOD: 39% d. Scenario c plus bicycle: 46% minutes by public transit

17 Source: The 3V Framework (World Bank) Integrated Land Use Planning Impact: Chongqing 2035 Scenarios

Supporting compact, walkable Reduction in Green field land • High population growth (+5.8 m urban population mixed-use development consumed by 195 km2 and +4.6 m jobs)

• Scenario analysis on compact/TOD growth versus large block growth

Prioritizing better jobs/housing balance

Reduced C02 by 2.6 MT Reduced Infra cost by 5.4 BUS$

Source: Calthorpe Analytics for The World Bank 18 Metro and Transit Oriented Development (TOD)

Virtuous Cycle of Transit- Virtuous Cycle of Land Oriented Development Value Capture

Capture Increase Build a property value Build a metro increases and metro metro system patronage system recover metro investment

Foster Accessibility Deploy densified Improve benefits Rail+Property developments accessibility capitalized into joint around stations property values development Station-Level planning for Communities

• Best addressed through city level guidelines tailored to the context.

• Also consider: • Resilience • Smart city components • Balanced use of energy uses • Role of bikes, new electric mobility and new transport solutions • Underground and elevated space management

20 Source: TOD COP Knowledge Product Overall TOD Planning Process

Source: TOD COP Knowledge Product Conclusions

 Sustainable metro development needs new forms of financing.

 PPP and Project Finance present a promising approach.

 Integrate TOD and LVC into metro development.

 World Bank Group is working with central and sub-national governments Partnering with NDRC to identify possible PPP projects for WBG support Shanghai – Infrastructure Financing Facility Urumqi – borrowing based on revenues Zhengzhou metro – PPP option being considered