Annex 4 Parking Measures by PPP

Operating Revenue and Risk

The two primary risks in provision of parking concern legislation and demand. For off-street spaces to be taken up, on-street parking in the adjacent area must be effectively controlled, both in terms of number of spaces and fee level. Without such control, demand forecasts for the off-street facility would be jeopardized. The true demand for paid parking is uncertain in many Indian cities due to the high level of evasion and illegal free parking now permitted. The demand for paid parking will need to be “proved” before a major construction program of off-street facilities is undertaken. This requires proper control of on-street parking, combined with revenue enforcement and a restriction on the use of exemptions.

MoUD Check-list Point: does the DPR for the parking measure provide adequate attention to enforcement of parking measures, either through existing human resources or imported for the project?

A concession holder has two prime concerns: to obtain a reasonable return on equity investment (the required rate of return reflecting the degree of perceived risk borne by the holder) and to be able to service loans. Attracting private participation depends on an environment that is conducive to achieving these requirements. Establishing a robust revenue estimate can be problematic as off-street demand in a particular area is not simple to estimate. Considering the expense of providing off-street structures, new development of off-street capacity may be curtailed unless there is a suitable strategy and proper investigations are made. A risk analysis of the revenue-flow would be a prerequisite for private sector investment. Also, policies for on- and off-street parking must be carefully coordinated.

Willingness to pay for parking is likely to be largely untested given the disregard by parkers of existing regulations in many Indian cities. A proposed strategy would typically rationalize on-street parking, thereby creating increased demand for paid off-street parking. Potential revenue is also more location-specific than is construction cost. A feasibility study for a given site would need to carefully consider this issue and until the on-street parking system had been successfully rationalized, revenue estimates would be subject to substantial risk.

MoUD Check-list Point: does the DPR for the off-street parking measure include a plan for rationalizing on-street parking with appropriate enforcement?

For a base case, operating revenue in the opening year could be calculated with an assumption for average annual occupancy of short-term spaces. For example, 1,250 hours is at the lower end of international experience in major cities. The calculation of revenue would involve a number of assumptions relating to space occupancy. For example, three-quarters of the spaces could be assumed to be available for short-term use and an acceptable and affordable tariff set. Depending on the space allocation, revenue from long-term use spaces could be based, for example, on one-third of these being let annually at a set fee and one-third monthly for an average of nine months a space per year, and one-third for weekday-only use for an average of eight months a year. Both long and short term tariffs could be increased by 2% annually over the concession period to reflect future inflation. Occupancy could be increased by 5% annually over the first five years, then held constant. However, such assumptions are dependent on local conditions and should be fully justified. Sensitivity should be applied to assess the risk of lower than expected demand or different tariffs. The relative proportion of long and short term spaces is also a consideration. Increasing the proportion of long-term spaces typically reduces the rate of return, but the tariffs can be attractive to customers. Significantly higher long-term fees usually become justified once the on-street capacity is fully rationalized.

When considering whether an off-street parking lot should be constructed above or below ground level, the difference in rates of return will almost entirely be accounted for by the treatment of the land acquisition cost of the former. Typically, both sites would produce a similar return when the full land cost is borne by the aboveground concession holder. If the land cost were borne by the Municipality, the return on the aboveground site would rise, which is an attractive proposition for the private sector. Thus, a concession for an aboveground site could be let by partially subsidizing the cost of land. An underground site concession may require another form of support.

MoUD Check-list Point: does the DPR for the off-street parking measure include a robust calculation of revenue and risks?

Next page Page top