Concessions of Busways to the Private Sector: The São Paulo Metropolitan Region Experience

November 1995 A pioneer project in São Paulo, Brazil (and in the world) demonstrates that private companies are ready to go deeper into public transport than they have gone before. Private implementation and operation of trunk-line bus corridors in São Paulo illustrates a mechanism for financing capital investments in public transport that São Paulo's state and municipal governments would otherwise have been forced to postpone because of tight budgets. Roughly 16,000 buses serve the 16 million inhabitants of the São Paulo Metropolitan Region; 12,000 of them serve the São Paulo municipality itself, where 8.5 million people live. Congestion is heavy at peak travel times, and traffic signal timing logic favors the flow of automobiles. Bus operations are also hampered by obsolete ticket collection systems and by poor access for bus passengers, which lengthens boarding and alighting times. Average bus speed is about 13 kilometers per hour, headways vary greatly, and service is unreliable. But conditions are expected to improve soon as the private sector becomes involved in trunk-line bus corridors. Tender documents for ten bus corridors (one state and nine municipal) have recently been issued, defining rules for private concerns to bid for implementing and operating trunk-line services. All costs to implement each service, including improvements in street systems and facilities such as transfer terminals, are to be born by the winning firm. Ten bids have now been awarded and contracts signed. This pioneer project demonstrates that private companies are ready to go deeper into public transport than they have gone before. Where the investment in busway infrastructure is to be repaid in installments to the private company which is awarded the concession, the use of multilateral agency guarantees (such as the recently approved World Bank guarantees) will probably entice private entrepreneurs. Regulatory and controlling power remain in government hands. The government will control tariffs, preventing undue increases harmful to low-income users, and monitoring the level of service offered against the pre-agreed targets. Supervision must be very objective, however, and users must be actively involved to gauge the quality of service offered by concessionaires. São Paulo municipal authorities were more successful in attracting the private sector than the State, because they devoted a considerable effort to the design of remuneration formulas for the concessions. This paper --- a product of the Environment and Urban Development Division, Country Department I, Latin America and the Caribbean --- is part of a larger effort in the region to promote private sector participation in the investment and operation of transport facilities.