Brazil: Public-Private Partnership and the São Paulo Metro Line 4 Experience

Challenge

In recent years, São Paulo’s peripheral areas have attracted new residents, but they have struggled to generate stable employment growth—resulting in unequal wealth distribution and lack of access to job opportunities. Despite an existing 270 km rail network, the lack of integration between the Metro and the suburban trains has discouraged more rail trips in favor of buses and automobiles, thereby creating heavy congestion during peak hours, significantly increasing travel times, and contributing heavily to atmospheric pollution and fuel consumption. The urban poor faced high fares, an overly crowded commute at peak hours, and long and inconvenient journeys to and from work (2.5 hours/day) from the peripheries to the urban centers.

Solution

The Metro Line 4 Project was designed to address the need for new public transportation infrastructure, while protecting the city from cost escalation and operating subsidies. This was achieved with the innovative use of turnkey and concession contracts to the private sector. As a link between the suburban railway and the Metro network, the Line 4 catchment area is not limited to the neighborhoods directly served by its stations, but also attracts a significant number of users from the underserved periphery of the city.  Because of the good connection between Line 4 to the rest of the public transport network and employment centers in the central and western parts of the city, 20 percent of the trips on Line 4 begin in the outer districts of the eastern part of São Paulo, which are among the poorest areas. As a result, Line 4 is a tremendous advancement in the accessibility of jobs, health, and education centers for residents from the low-income communities on São Paulo’s periphery.

Results

According to Infrastructure 100: World Cities Edition, Line 4 is among the 100 most innovative infrastructure projects in the world. The projects were selected by specialists based on their scale, feasibility, complexity, innovation and impact on society. Through its focus on decreasing congestion and improving accessibility for the urban poor through the engagement of the private sector, this project has helped to support improvements in several key outcomes:

• The six stations began operations gradually between May 25, 2010 and September 15, 2011. Line 4 was moving over 650,000 passengers per day after one year in full operation with a strong growth trend.  Few metro lines in the world carry as many passengers per kilometer.
• In part because of Line 4, the share of Metro trips in the region increased from 16 percent in 2001 to 19.3 percent in 2011. This increase is a significant achievement considering the rapid growth in motorization during this period that is highly correlated to rising incomes.
• Line 4 greatly improved travel times, convenience, and reliability on very heavily traveled corridors.  A trip between Luz Station (center) and Vila Sonia (western periphery) used to be made only by car on congested corridors or by bus with multiple transfers; it now takes 30 percent less time, on average (between Luz Station and Butantã).
• The integration with municipal and inter-municipal bus lines was entirely achieved on all six stations of Phase 1.
• The project introduced an innovative structure with an operating concessionaire established by a consortium of private companies and a turnkey contract signed in 2003 for the construction of civil works

Bank Group Contribution

The Bank provided a loan of US$209 million in 2002.  Due to currency devaluation in the past decade, the Bank provided additional financing of US$95 million in 2008. Over US$15 million of this loan was for technical assistance for the management and oversight of the project, as well as financial and costs studies.

Partners

The Bank’s US$304 million loan was complemented by US$304 million from the Japan Bank for International Cooperation (JBIC) and US$922 million from the São Paulo State Government for the civil works. An estimated US$246 million investment was made by private sector investors (operating concessionaire) in the rolling stock and systems. In addition to jump-starting a public-private partnership for the construction of a new subway line under a turnkey contract and an operating concession (a major reform supported by the project), the project helped to create the enabling environment to attract private sector investment for future projects in urban transport.

Moving Forward

A Bank loan for US$130 million was approved in 2010 for Line 4 Phase 2, which will complete the 12.8 km line and add five stations for a total of eleven stations. This loan was matched by financing from the JBIC for an amount of US$130 million. The state and the private sector concessionaire are providing counterpart funds.

Beneficiaries

Line 4 benefits hundreds of thousands of users every day with significant reductions in travel times—30 percent, on average, for the most common origin-destination pair. As one user put it, Line 4 reduced his travel time by 40 minutes and he now leaves his car at home during the week. Not only did his commute become shorter, but it contributed to reduced traffic congestion in the city. There was also considerable public support for the expansion of Line 4 and the Metro system overall, even more so after the success Phase 1.