[sustran] [NewMobilityCafe] Metro Rails: where's the money?

[Eric Bruun]

Boy, I don't agree with this article at all.

 First of all, much of rapid transit investment has no depreciation. Most
tunnels that were built 100+ years ago are more valuable today than they were then. This is an example
of sustainable development, even if initially costly. 

Second, what is wrong with using real estate funds to pay back the rail investment? It is the rail investment
that added value to  the property in the first place. Why should there be a windfall to external developers?
Hong Kong's Metro and Japanese railways have always been real estate developers. In fact that is how most
of the original streetcar lines got started -- as means to open up real estate.

Eric Bruun


-----Original Message-----
>From: Lee Schipper <schipper at wri.org>
>Sent: Aug 8, 2006 5:45 AM
>To: eric.britton at ecoplan.org, GlobalSouth at yahoogroups.com, NewMobilityCafe at yahoogroups.com
>Cc: Sustran-discuss at jca.apc.org
>Subject: [sustran] Re: [NewMobilityCafe] Metro Rails: where's the money?
>
>Nice example of what can be done with OPM -- Other Peoples' Money!
>
>>>> eric.britton at ecoplan.org 08/08/06 12:53 AM >>>
>
>Metro Rails: where's the money? 
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>Bus Rapid Transit makes more
><http://www.financialexpress.com/fe_full_story.php?content_id=136535>
>financial
>sense as an urban transport system
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>
> <http://www.financialexpress.com/about/feedback.html> RAMESH
>RAMANATHAN
>
>
>Posted online: Tuesday, August 08, 2006 at 0000 hours IST
>
>http://www.financialexpress.com/fe_full_story.php?content_id=136535 
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> E Sreedharan, the driving force behind the Delhi Metro, is a living
>legend-a
>remarkable engineer. He delivered the Delhi Metro on time, within cost,
>and as a
>example of how public infrastructure ought to be built. In a country
>parched for
>projects that move from conception to delivery with no glitches, he is
>a shining
>example of how to do it right. 
>
>Unfortunately, Sreedharan is not a magician. No matter what he does, he
>can't
>make the Delhi Metro's financials work, because the numbers don't add
>up. 
>
>
> 
>
>Phase 1 cost Rs 10,000 crore for 64 km - a whopping Rs 150 crore/km.
>With 66%
>debt financing, interest cost at 8% works out to Rs 550 crore p.a. And
>principal
>repayment would be Rs 500-600 crore p.a., assuming a 10-15 year
>repayment
>period. 
>
>Where are the revenues coming from? Last year, the Metro had operating
>revenues
>(i.e. from passengers) of Rs 113 crore. Operating expenditures were Rs
>102
>crore, leaving barely Rs 10 crore as surplus before interest. And one
>other
>painful item: depreciation. When you build a Rs 10,000crore asset,
>depreciation
>can really start hurting. This was Rs 200 crore last year, but will
>balloon .
>Which means that the Metro is suffering massive losses, even before
>interest
>expenses, forget principal repayment. There is no way the Delhi Metro
>can
>generate surpluses. Ever. 
>
>The only solution to this fiscal problem is to find alternative sources
>of
><http://www.financialexpress.com/fe_full_story.php?content_id=136535>
>financing,
>which is what Delhi Metro has done. They are now developing real
>estate-a
>six-hectare property at Shastri Park, 93 acre at Khyber Pass, etc. Last
>year,
>one-time income from real estate came to Rs 300 crore, almost three
>times that
>which the Delhi Metro was originally set up for, mass transit. The
>reality:
>Metro Rail projects are financial white elephants. 
>
>Who is 
><http://www.financialexpress.com/fe_full_story.php?content_id=136535>
>lending to Metro projects? The biggest - and, possibly, only - lender
>so far has
>been the Japan Bank for International Cooperation (JBIC). They financed
>Delhi
>Metro over Rs 4,000 crore, and have completed due diligence on phase 2
>- debt of
>another Rs 4,000 crore. There is no public data available on JBIC's
>rationale
>for lending to Metro projects. 
>
>Strangely, just as the financial hole of Delhi Metro is increasing, the
>Metro
>bandwagon is moving across the country. Bangalore has just launched its
>Metro
>project, Mumbai followed suit a month later, Hyderabad and Chennai are
>busy
>preparing detailed project reports. If the numbers are so bad, why are
>cities
>interested in these projects? 
>
>Actually, it is not the city governments that get to decide (topic for
>another
>debate) but their state governments. There are a number of reasons.
>Urban
>testosterone for one; metros have become a status symbol. But there are
>many
>other factors at play, which make the Metro lobby a force to reckon
>with. A
>World Bank report on urban transport in India states that our urban
>transport
>approach is "supply-oriented, and traffic growth-biased. It conflicts
>with the
>principles outlined in the government urban transport policy statement
>in a
>number of ways. 
>
>In the short term, it neglects the mobility of low-income and poor
>travelers,
>especially the non-motorised one..(and) ..favors the most
>capital-intensive
>public transport modes (metros and other urban railways) which may not
>be
>warranted by either traffic density and passengers' ability to pay, or
>their
>budget capacity to pay subsidies in perpetuity." 
>
>
>Quick Take
>
>
>. Delhi Metro is suffering huge losses. And no way can it generate
>surpluses
>. The only solution is to look for alternative sources
>of financing
>. A Bus Rapid Transit system is possibly a more viable transport
>alternative
>
>What is preventing urban transport alternatives from emerging in India?
>One key
>reason, indeed the first reason, the World Bank report suggests is that
>these
>alternative proposals run counter to "the formidable urban rail lobby",
>among
>others. 
>
>But are there alternatives? Clearly, we need mass transport systems in
>our
>cities - private cars and two-wheelers are already choking the streets,
>and
>barely provide 20% of the total travel needs even today. One possible
>alternative is Bus-Rapid-Transit (BRT). Across the world, there is
>increasing
>support for BRTs. Remarkable scaled up solutions have emerged, none
>better than
>in Bogota and Curitiba in South America. 
>
>A report prepared by Seema Parekh ,et al for 'India Urban Space', a
>conference
>on challenges in urban India, states: "Bogota today boasts of a
>world-class Bus
>Rapid Transit system of dedicated bus lanes called TransMilenio; Latin
>America's
>largest network of bicycle ways called ciclo-rutas 150 miles long;
>world's
>longest pedestrian-only street spanning 10.2 miles, hundreds of miles
>of
>sidewalks many through the city's poorest neighborhoods; and the
>world's biggest
>Car-Free Day (dia sin carro), during which private vehicles are not
>allowed to
>enter the entire city of 135 square miles." 
>
>Importantly, from a financial standpoint, the infrastructure was built
>at a cost
>of about $5.3 million per km (Rs 20 crore, or one-sixth of Delhi
>Metro). As a
>result, "TransMilenio requires no operating subsidies and earns
>substantial
>profits for its operators." 
>
>BRT systems make more financial sense than Metros. Ahmedabad seems to
>think so -
>it is the first Indian city to go for BRT. Jaipur, Indore and others
>are also
>moving in this direction. An alternative is emerging. 
>
>Beyond finances, any urban transport system fundamentally defines the
>destiny of
>a city for decades, just by virtue of its impact. It is critical,
>therefore,
>that these decisions be integrated into an overall plan. 
>
>Swati Ramanathan of Janaagraha says: "Introducing any rapid transit
>system
>without developing a Master Plan with integrated transport as a
>component is
>like putting the cart before the horse." 
>
>Most public policy decisions are like icebergs. Urban transport choices
>are no
>different. For those who want to improve the quality of the public
>debate on
>this issue, the Achilles heel of Metro Rail systems is their finances.
>Sorry, Mr
>Sreedharan--I still think you are great engineer. 
>
>-The writer is founder of Janaagraha,which aims at reforms in urban
>governance 
>
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>================================================================
>SUSTRAN-DISCUSS is a forum devoted to discussion of people-centred, equitable and sustainable transport with a focus on developing countries (the 'Global South'). Because of the history of the list, the main focus is on urban transport policy in Asia.