Opinion – Pablo Acosta: The new legal framework for sustainable urban mobility and the financing of public transport

The dynamics of large cities impose daily challenges to population displacement. Deficiencies in the mobility system make it difficult for people to access their main destinations and contribute to the deepening of socioeconomic inequalities. In addition, transport directly impacts the worsening of climate change. In Brazil, the sector is the third main responsible for GHG emissions (Greenhouse Gases), contributing with 13% of CO2 emissions (2020). The heavy dependence on road transport and fossil fuels poses a serious risk to the emission reduction target established in the Paris Agreement.

Cars and motorcycles are the main sources of atmospheric emissions in urban areas, reaching almost 70% of emissions from the transport sector in megacities such as São Paulo. The most worrying thing is that this number continues to grow — in the last ten years, the Brazilian motorization rate has increased by more than 50%. The decarbonization of the transport sector therefore involves the need to promote the use of more sustainable modes – walking, cycling and public transport.

With the pandemic, the public transport system suffered a drastic drop in fare revenue, being one of the hardest hit sectors since the beginning of the crisis generated by Covid-19. The bill (PL) 3364/20 that proposed an emergency aid of R$ 4 billion for transport systems in cities over 200 thousand inhabitants was vetoed. Without this help from the Union, the impact caused by the pandemic jeopardized the financial sustainability of national public transport services, which were already experiencing difficulties. Between 2013 and 2019, there was a significant loss in bus transport demand — around 27% of paying passengers, which equates to a drop of 103.5 million passengers per month on average. This situation worsened in 2020, causing several operating companies to collapse.

Bus services are mostly financed by fare revenue, putting strong pressure on paying users, who bear practically all the costs of the services. Many contracts do not have economic-financial rebalancing mechanisms that allow the generation or aggregation of government subsidies. Service operators therefore assume most of these risks.

Faced with this situation, the Ministry of Regional Development is working on a new legal framework for urban mobility. The framework sets out measures to mitigate the economic and financial impact on the public transport sector; promote active transport and create a regulatory environment that provides legal support for municipalities to implement sustainable urban mobility policies. This initiative aims to promote new ways of financing public transport through the implementation of new business models that allow greater participation of the private sector and municipal, state and federal public subsidies or contributions.

The main focus of the framework is to improve public transport concession contracts in Brazil. They define the form of remuneration, the quality parameters and the requirements for fleet renewal and energy transition. This change requires the promotion of new formats of public concessions, allowing the entry of new operators. For this, it is necessary to review the ownership of garages and vehicles, which generates a competitive advantage for bidders who already own land in the city. Transferring ownership to the public sector and decoupling the provision of the bus fleet from service provision can contribute to solving these problems. This model has been adopted by Latin American cities such as Bogotá and Santiago to facilitate the transition to electric fleets. The main advantage is that the initial investment is borne by the fleet provider, usually companies or financial institutions, generating greater business bankability and reducing the system’s credit risk.

The diversification of revenue sources is another key point to avoid the collapse of public transport. The current remuneration model is insufficient for the cost of the operation and for investments in infrastructure and fleet renewal. The new legal framework discusses improving the business environment and regulatory framework to boost ancillary revenue and private investment, including through new concessions and public-private partnerships. Finally, forms of contribution and subsidies with resources from the public sector, including the Union, are being discussed.

The new legal framework is under discussion and should bring changes to the regulatory framework for the transport sector in Brazil, including the National Policy on Urban Mobility. The proposal will still be discussed with various government sectors, institutions and organized civil society. After this step, it will be forwarded for a vote in Congress. The main challenges of the new Framework will be to guarantee the prevalence of public agents, consolidate mobility as a service and enforce citizens’ mobility rights. The new milestone could be an opportunity to improve public transport in a sustainable way and with a focus on future generations.

This column was written in collaboration with World Bank colleagues Tais Fonseca, Transport Specialist, and Ana Guerrini, Senior Transport Economist.