Cable car PPPs: financing sustainable transport solutions for Latin America

September 2023 | SPOTLIGHT | FINANCE & INVESTMENT

Financier Worldwide Magazine

September 2023 Issue

Developing accessible, efficient, safe and sustainable public transport networks is one of the most acute challenges in Latin American cities. In Latin America, the average commute from home to work takes more than an hour. Inhabitants of Bogota (83 minutes), Buenos Aires (76 minutes) and the Metropolitan Area of the Valley of Mexico (71 minutes) endure the longest average commute times in the region, according to the Economic Commission for Latin America and the Caribbean (ECLAC). At the same time, the ECLAC emphasises that despite the important urbanisation ongoing in Latin America, only 43 percent of the urban population had convenient access to public transportation in 2020. This figure is below the world average (51.6 percent) and far below the pattern of European and North American countries, where the rate reaches 90.6 percent.

Alongside traditional urban transit modes such as metros, streetcars or bus rapid transits (BRTs), cable cars have multiplied in the region. The symbol of peaceful, safe and sustainable mobility, cable propelled transports (CPTs) have become an attractive urban mobility option for municipal governments. How have they been financed, and why are they increasingly attractive? On the one hand, cable cars are usually cheaper than other transport modes, which makes them easier to finance for local governments. On the other hand, as CPTs are environmentally and socially sustainable, they are more likely to be attractive for multilateral fundings, or new financing tools. Finally, the private sector can also play a role in financing cable cars through public-private partnerships (PPPs).

Cable cars are usually cheaper to develop than other transport modes, both in terms of construction and operational costs. Regarding capital expenditure (capex), CPTs require less infrastructure and passing structures than other modes of transport, and most of the costs are due to the electromechanical systems and station building. In 2021, the World Bank estimated the cost of cable car construction in Medellin and Mexico City to be $19m per kilometre. In comparison, a 2020 analysis estimated the construction costs per kilometre of a BRT to be $15m, of light rail transit (LRT) to be $15-40m, and of a heavy rail system to be $40-350m. Cable cars also require less personnel to operate them compared to BRTs, LRTs or heavy rail systems, and consume little energy compared to other modes of transport of equivalent capacity. In addition to their low construction and operation costs, CPTs also have limited maintenance costs compared to motorised vehicles such as BRTs.

The financing of cable cars is made easier by their limited capex, operational expenditure (opex) and maintenance costs, but also by their sustainable nature, which makes them eligible for development bank loans.

As cable cars are a sustainable means of public transport, both environmentally and socially, they are more likely to be financially supported by multilateral organisations or to be attractive for new financing tools such as green bonds. From an environmental perspective, cable cars are sustainable because they run on electricity, therefore their direct emissions are nil. In the construction phase, emissions gains are also significant because cement is by far the largest generator of greenhouse gases in mass transit projects, and cable cars require little cement compared to other modes. With additional work on station construction materials, their use can be reduced to a minimum (only pylon foundations), thus further decreasing the project’s carbon footprint.

From a social perspective, CPTs usually have a positive impact, as most have been introduced to connect marginalised urban zones to the rest of the transport system. They can pass over natural hurdles such as rivers, mountains and urban highways, which often separate impoverished districts from the rest of the city. For example, Line 1 of Mexico City’s cable allows passengers to hop over the Naucalpan Ecatepec highway, improving the mobility of the areas located north of the city. Cable cars in Medellin, Colombia are also often cited as a successful transport policy for their impact on the integration of remote communities.

As decarbonising transport and reducing urban poverty are crucial goals for Latin American cities, supported by key multilateral organisations, including the Organisation for Economic Co-operation and Development (OECD), the World Bank and so on, CPTs are likely to attract financing. For example, Lima recently announced a metropolitan plan with a vision to 2040, which plans to develop 14 new cable car routes. The first, which should be implemented by 2025, is the Independencia to San Juan de Lurigancho line, which will link the areas located east and north of Lima to the BRT and metro, hence improving the connectivity of marginalised populations. This project is supported by a $100m loan from the World Bank, over a total cost of $123m, and is aligned with its sustainability goals. According to the project information document: “The construction of the cable cars will provide innovative, safe, secure, comfortable, reliable, 100% electric transport to the neighbouring hillside communities, improving access to mass transit services. Both LM1 (Metro Line 1) and the BRT systems have also incorporated climate co-benefits. GHG (Green-house gas) and local pollutant emissions reduction is a key benefit of this proposed project, and around 40 percent of the loan amount (preliminary estimation) is expected to result in climate co-benefits.”

Another example of access to sustainable financing tools for cable cars is the State of Mexico, which announced in 2022 the issuance of its first sustainable bond for $150m on the Mexican Stock Exchange (BMV). The resources obtained should fund sustainable transport modes, such as the Naucalpan cable car, which should run on solar energy.

Finally, financing CPTs is not only attractive for multilateral institutions looking to foster sustainable transports modes, but also for the private sector. As emphasised by the World Bank in Lima’s cable car project information document: “The metropole of Lima has implemented Urban transport operations under PPP schemes and is gearing the [CPT] project towards mobilizing the private sector to operate and maintain the cable cars under a quality-incentive concession. The proposed project will also provide an opportunity for the private sector to participate in the operations and maintenance of the project, the development of collateral business within the project (advertisement, access to WIFI, shops in areas of stations), as well as in equipping the system with the city’s integrated fare collection scheme.”

As private companies are increasingly left to adopt ambitious environmental, social and governance (ESG) goals, their project selection now considers the environmental and social impacts of transport projects, which make CPTs excellent candidates for their funding. The next step is for local governments to structure adequate models to cover the inherent risks of public transport projects and ensure their bankability. This generally includes implementing either a minimum revenue guarantee or a subsidy to the operations, a foreign exchange risk coverage since cable car systems are imported, and compensation for early termination due to force majeure or a unilateral decision by the public counterpart.

Perrine Chauliac is a business development manager at Egis Projects SA. She can be contacted on +52 1 55 7990 5153 or by email: perrine.chauliac-int@egis.fr.

Perrine Chauliac

Egis Projects SA