Lessons from Sao Paulo's
            Metropolitan Busway Concessions Program
In an earlier paper (Policy Research
            Working Paper 1546), the authors described a pioneer
            initiative of Sao Paulo's municipal and state
            governments, to give the private sector a concession on
            building and operating a number of "trunk"
            busways.  At the time, the Sao Paulo Municipal Government
            had already awarded a number of busway corridors to private
            consortia, although the consortia had yet to get the
            financing needed to implement the investment plan.  On the
            other hand, the state had not yet awarded its first corridor
            and was still adjusting the bidding documents based on
            comments received from interested parties.  In this paper,
            the authors describe what happened since then and draw
            lessons for the future.  After a long, successful bidding
            process, this imaginative and pioneering program launched by
            the municipality failed to materialize because of problems
            in getting financing.  Possibly the market felt that the
            risks involved in building and operating system outweighed
            the benefits and that the Sao Paulo and Brazilian market was
            not yet prepared to accept such a challenge without better
            partial risk guarantees.  The state learned from the
            mistakes of the municipality and was successful in the
            concession of the Sao Mateus-Jabaquara corridor.  Among the
            lessons learned from this project:  1) Private bus operators
            in Brazil are generally traditional entrepreneurs.  They
            must be taught how to prepare financing plans or at least to
            get the best advice about putting together a project's
            financial engineering design.  In this case, all consortia
            turned to BNDES (Brazilian National Social Development Bank)
            for financing, probably because their loan interests rates
            were lower than those of commercial banks but also because
            the concession was with the government.  They did not
            consider other options such as the International Finance
            Corporation or other private-sector-related development
            institutions.  2) The Sao Paulo municipality should also
            have undertaken detailed economic evaluation of the
            projects, from the standpoint of the region as a whole,
            including the impact on other modes of transportation and on
            systems integration.  Such analysis is required by all
            bilateral and multilateral development institutions,
            including BNDES.  3) When private operators are paid for
            vehicle-kilometer supplied and when the state collects all
            revenues and then pays the operators, concession contracts
            or operating revenues cannot be easily used as guarantees.
            Before defining tariff mechanism, governments should think
            through the impacts they might have on financing, since the
            revenues collected are often the best guarantee that can be offered.