INSTITUTE OF URBAN TRANSPORT (INDIA)

Session 6: Fare and Financial Viability

Training Workshop on City Bus Planning ,13 16 Oct 2014

Structure of Presentation

Fare Collection System

Financial Viability

Fare Collection System

Introduction
The financials of public transport provides important indicators to access the
sustainability of public transport.
Choice of fare structure is a very important part of bus planning.
It directly influences operators revenue.
In India fare structure is set at state government level, as prescribed under the
Motor Vehicles Act.
Types of Fare
Distance based Fares: Closer association between price and distance
travelled (Fixed price per kilometre).
Telescopic Fares: same as above except price per kilometre tapers with
distance
Stage Fares there are a series of distance-related fare-stages and payment
varies according to the number of stages travelled
Flat Fares: same fare charged per entry irrespective of distance travelled

Fare Collection Method

Type
of Advantages
Disadvantages
System*
Increased Dwell time of the
On
Board Low Cost of equipment
bus therefore higher travel
System
Low manpower cost as no additional
time.
staff is required at the stops
No additional Space required at Chances of revenue leakage
stops
Off
Board
System

Low Dwell time of the Bus thereby

improved overall travel time and
reliability

High Cost of equipment

therefore only optimal where
the number of passengers
boarding are higher than 75
per hour
Extra Manpower required at
stops for issue of tickets
Additional space required at
the stops to install the
equipments

Fare Collection Technologies

Type
Technologies
Conductor
Validated

Advantages

of

Disadvantages

Simple and easy to adopt

Low cost of equipment
No additional staff is required at the stops
No additional space required at stops
Multiple door entry possible

High cost of equipment

machines provide ample data and information to

the corporation, regarding the route number, bus
type, beginning stop, end stop, ticket number
Help in preventing leakage in the ticketing
systems.
Automatic and time saving

Ticket
vending
Machines

it supports multiple door boarding and thus

lower dwell times

increased
evasion

Electronic
Ticketing Machine

High labor costs involved

in visually validating all
tickets.
Chances
of
revenue
leakage

risk

of

fare

Fare Media
Type of Media#

Advantages

Cash and Paper

Disadvantages

Simple and easy to use

Media

Implication

on

service

times

depending on the fare collection

process

Chances of revenue leakage

Exact change handling may be

difficult and time consuming

Smart Cards or

Faster and more flexible fare

Magnetic Strips

collection systems

Facilitate

processing

of

differentiated fare structures

Low dwell time of the bus thereby

improved overall travel time and
reliability

Reduced service time

High Cost of card and equipment

Financial Viability

Introduction
Financial planning is vital for the long term viability of any business and the
same is true for public transport agencies.
Operational plans should be developed in such a way that the system is
as financially independent as possible and requires little or no subsidy
from the government.
This makes it much easier for the agency to take important decisions
with less influence from political parties.
Profits can be used to improve the transport system resulting in benefits
for the end user.
Components
1. Cost
Capital Cost of buses and support infrastructure
Operations and Maintenance Cost
2. Revenue from various sources

It is generally carried out to assess financial viability and operational

sustainability of the project.

Cost Components

CAPITAL COST
Cost of Buses
Cost of implementing ITS such as GPS, automatic fare
collection boxes and control centre
Cost of Development of Infrastructure such as depot, workshop
and bus stop
Interest on Capital borrowed for purchase of bus

Cost Components
OPERATING COST: Refer to the recurring expenses that occur while
running a bus service.;

O&M cost of bus operations

(with bus fleet)
Cost of Fuel
Cost of Staff
Cost of repairs/ spares
O& M cost of ITS
Communication Cost
Control Center
Manpower

O& M cost of Infrastructure

Bus Stations
Depots
Workshop
Terminal
Miscellaneous Costs
Interest on capital borrowed for
purchase of bus
Other Charges
Other O&M cost

Revenue
Fare box collection: It is based on estimated ridership and fares.
Revenue from sale of passes: It is based on monthly passes that
are issued to city bus users.
Advertisement revenue: It is mainly revenue generated from
advertisement. It can be advertisement in vehicle, advertisement on
bus body, advertisement at bus station, advertisement at bus depots.
Rent from Kiosks & entry fee: One of the resources of revenue is
the rent from kiosks.
Revenue from Property Development: It is the revenue from
additional property taxes and registration fee along the Bus corridor

Non Fare Revenue

Direct
Fare Box/Toll
Advertising
License Fees from station assets
Proximate Mode and Indirect modes
Transit Oriented Development (TOD) along PT corridors
Premium from Higher Floor Space Index (FSI) at PY infrastructure
Betterment Charges/ levy.
Additional Property tax
Carbon Credit

Steps involved in Financial Viability

1. Project Horizon: It comprising of Construction Period and Operation Period of the
Project.
2. Project Cost including financing cost: includes capital costs, Land acquisition, R&R,
Financing costs (i.e IDC) and asset replacement cost.
3. Phasing of Investment: It is to be done based on project implementation plan.
4. Determination of O&M Cost

Infrastructure: Bus stations, depot, control centre, signals.

Rolling stock: Buses

ITS: Bus PIS, tracking and monitoring through control centre, ticketing, accounting

5. Determination of Income/Revenue: It is assessed on the basis of ridership, fare

structure and concessions (if any)
6. Deciding Quantum of Debt: It is decided based on estimation of project cost, equity
available from stakeholders, Financial Operation Plan and balance sheet analysis.
7. Estimation of cash flow: The costs and revenue streams associated with the project
for Project Horizon period is estimated based on steps above. Based on this, the project
free cash flow ability to service the debt and return on the equity are estimated.

Steps involved in Financial Viability

8. Determining Outcome
Calculation of Financial IRR and NPV: Overall financial viability of the project
is measured through IRR and NPV.
i. Financial IRR: Financial IRR is calculated based on free cash flow stream.
Financial IRR indicates the return on investment.
ii.

Net Present Value (NPV): Discounted Cash Flow technique is used to

estimate the NPV. As per Govt. agencies point of view, Discount rate used
for above calculation should be social discount rate (i.e. 12% social cost of
capital or (G-sec) rate).

Calculation of Debt Service Coverage Ratio (DSCR)

i.

The Debt Service Coverage Ratio (DSCR) gives an indication of the

capacity to repay the debt incurred for the project from operating surpluses.

ii.

It is calculated as ratio of net cash flow to Principal and interest payment of

debt. This ratio should be above 1.15, although lenders may insist on much
higher DSCR for additional comfort.

iii.

Cash reserves and other separate provisions may have to be made to

ensure that the DSCR does not fall below the minimum.

Steps involved in Financial Viability

9. Interpretation of Outcome

The subproject is evaluated to be financially viable if

(1) FIRR is higher than WACC
(2) NPV is positive and
(3) DSCR is higher than 1.15.

Even if a project is not commercially viable but operating ratio is

higher than 1.0 then project is considered to be sustainable.

Thank You

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