Cities turn to metro lines, but cost is a dilemma

By Amit Roy Choudhury

Mass transit remains the best option for urban transport, but innovative financing structures are required for viability.

Image: Luke MaCC BY 2.0

Rapid urbanisation is one of the biggest challenges being faced by governments around the world, especially in the developing nations.

According to World Bank data, in 2017, more than half of the global population were living in cities and towns. In the last two decades, this growth has mainly been driven by cities in Asia and Africa. The influx of millions into the urban sprawls has presented a massive challenge to city planners.

Apart from housing, clean drinking water and electricity, the major area of concern is the provision of an efficient city-wide transportation system that is environmentally sustainable. The option of building more roads and allowing more vehicles to ply on them no longer exists. Public transportation is the way forward, especially in developing nations which already battle pollution.

In some cities, it makes sense to use a combination of options like bus, tram and rail services. For many, there has been a dramatic rise in interest in mass rapid transit (MRT) rail systems – they are fast, safe and less polluting.

Cost dilemma

But the dilemma is cost. Building out a mass transit rail transportation system is time-consuming as well as costly. And oftentimes, especially in less developed countries, once the system is up and running, the users may not have a paying capacity that would ensure a return on investment (RoI) to make the system economically viable.

One way to get around this problem is, according to Ke Fang, Manager, Investment Operations, AIIB (Asian Infrastructure Investment Bank), to not look at just the financial viability of such projects, but also their economic outcomes.

Fang notes that economic viability looks at whether a metro rail project brings about socio-economic benefits to the city, even if the project by itself may not pay for itself. Good transportation systems, by cutting down travel times and improving connectivity, helps in economic growth, improve land prices and provide jobs. Overall these benefits may prove to be enough to cover the actual financial loss in terms of RoI on the project.

A good example of the benefits of looking at economic viability and not just the financial viability of a project is Hong Kong’s MRT system. The Hong Kong MTR Corporation rail network covers around 221 km and the trains run with 99.9% accuracy. The fares are relatively lower than in similar urban rail networks in other parts of the world. Despite this, MTR Corporation is one of the few mass transit operators who make money. One of the reasons for this is that the Hong Kong government allows MTR Corporation to make money from the property-value increases that typically follow the construction of rail lines.

This approach takes the discussion away from financial viability to “cost efficiency”. Kirsti Slotsvik, Director General of the Norway Railway Directorate, notes that when you say "cost-efficient", what we are really looking into is that “the cost in its entirety is as low as possible, compared to the positive impact of the project”. Oslo and other cities are trying to cut the number of cars and instead increase the number of public transport options, especially trains. This ensures that transportation becomes “cost effective”, she says.

With this focus on costs, cities must not ignore the many other benefits that public transportation brings. According to Graham Currie, an advisor to leading MRT systems in Melbourne and Singapore, public transport authorities should report on metrics like the social and environmental benefits trains provide compared to cars. “Every train is a couple thousand cars on the roads,” he says, “but we don't report that. We should be reporting that.”

Need for localisation

One way to reduce the cost of metro railway projects is to develop and build them locally as much as possible, according to Pankaj Jain, Sourcing Director at Alstom. “It is not just localisation of the parts itself; it’s the localisation of design, manufacturing, and procurement, which helps in reducing the cost for metro projects,” says Jain, who is based in India.

He adds that such localisation helps in reducing the lead time as well. “The reduction of cost along with the reduction of lead time improves customer satisfaction.”

For instance, Alstom built India’s first fully locally sourced and designed metro system – including trains, signalling and electrification - in the southern city of Kochi. The first trains were delivered within one and a half years after they were ordered, Jain says – whereas this usually requires two and a half years.

Alstom’s next Indian metro system in the city of Lucknow took even less time – 15 months – and was also locally designed and manufactured. It is now the fastest completed metro project in India, where infrastructure projects are commonly plagued with overrun budgets and timelines. India is able to manufacture locally at low costs thanks to the huge volume of production: around 50 cities across the country are currently at some stage of planning, building or confirming metro projects. But not every country can take this approach, says Sandeep Joshi, Managing Director of India Signaling Operations at Alstom.
“India is definitely more cost-effective compared to the Western design centres.”
Instead, smaller but rapidly urbanising countries across Asia can use India as a regional hub for manufacturing and engineering, he says. For one, it provides a cheaper alternative. “India is definitely more cost-effective compared to the Western design centres,” Joshi says.

More agile procurement methods can also help cut costs, Jain adds. India, like many other countries, has strict requirements that all suppliers must have at least five years of experience.

Governments can cut metro construction times by allowing companies with significant experience to be quality guarantors, rather than relying on smaller suppliers to prove their experience. “Since metro or railway is a very safety oriented product, it's always a challenge in the minds of regulators on whether they should really give that authority to the metro builders”, Jain says.

With Alstom assuring quality, it would be possible to work with more innovative suppliers – who may not otherwise qualify – and shorten the time taken to find the right partners. “As we continue delivering better products, governments will be more open to passing the responsibility on well-established players like Alstom,” Jain adds.

Well-planned train systems will be a huge advantage for Asia’s rising cities. A combination of the correct metrics, procurement and industry policies, and effective planning can help them get it right.

Amit Roy Choudhury is a senior technology journalist who writes a weekly piece for GovInsider.

This article was produced in partnership with Alstom.