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Economically unviable: Metro Bus - a white elephant painted red!

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Economically unviable: Metro Bus - a white elephant painted red
By Ali Salman
Published: June 29, 2015

PHOTO: FILE


ISLAMABAD:
The recently-launched Rawalpindi-Islamabad Metro Bus Service has been hailed as a ‘development gift’ by the leadership of PML-N for the people of the twin cities.


As the intra-city public transport across the country remains in shambles, the launch of this new Metro bus service needs to be appreciated. However, the business model of the bus service under an otherwise business-savvy regime leaves much to be desired.

It is ironic that the political party that voted to privatise bleeding State-Owned Enterprises (SOEs) is creating new SOEs. PML-N was voted to privatise PIA and Railways – instead it has started running buses with state support.

When price is distorted, either by fixing floors or ceilings; functioning and competitive markets disappear. Such markets push genuine market participants out by both, an excess demand and supply glut.

The Rawalpindi-Islamabad (renamed as Pakistan) Metro Bus Project (PMBP) is a case of price ceiling, which has created an excess demand and put unnecessary burden on the new service. It is also diverting genuine customers from using it.

To gain first-hand experience, I undertook a complete round trip on a hot Friday afternoon.

In my interviews with fellow passengers, I was amazed to find ‘non-customers’- i.e. people travelling who would otherwise have never travelled on the same route by any means.

A market price is the only yardstick which allocates resources according to the valuation a customer places. In the absence of market price, it becomes impossible to judge customer valuation.

Result: on busy stops, there was an average waiting time period of half an hour just to get a ticket, which was defeating the very purpose of starting this Metro service.

The official numbers

The current ticket is flat Rs20, irrespective of the number of stops in a journey. If the government wishes to only recover the capital costs invested in the new service – Rs45 billion – it will take approximately 28 years at the going rate. However, there is no plan in place for it.

For each ticket, the federal and provincial government will pay Rs50 as subsidy which amounts to Rs2 billion every year. This also means that PMBP will be subsidised by non-users.

An important parameter of price is opportunity cost principle. Before PMBP was inaugurated, a passenger travelling from Pindi, Saddar to Islamabad, Secretariat would pay around Rs50 one way for an unsafe, uncomfortable and disjointed public transport.

The replacement with a reliable, respectable and faster bus service should have been accompanied with a slightly higher price. However, as politicians loath basic economics, they fixed a much lower price of Rs20, thus creating excess demand.

According to official numbers, the average operating cost for a bus trip comes out to be around Rs9,100. The average revenue for the same trip earned by the Authority is Rs2,600, recording a loss of Rs6,500 on every trip.

This route witnesses around 1,000 such trips every day. It means that the daily revenue is not sufficient to make up for the variable expenses. This is what we call ‘shut-down condition’.

At this rate, any going concern would prefer closing down operations instead of sustaining losses.

The Metro bus tariff also defies a common practice around the world – “pay as you go”, whereas the Metro service is built on flat pricing.

A passenger traveling from Centaurus Towers (the anti-commerce bias got the name changed to PIMS) to Secretariat should pay less than the customer travelling from Secretariat to Saddar. However, because we are all followers of cross-subsidy idea, we end up charging everyone the same.

In other words, short distance travellers pay for long-distance travellers. This incentivises passengers to travel longer for just maximising their joy ride and keeping real customers out of the bay.

In short, Metro bus service undertakes to solve one of the most pressing problems of our cities – absence of reliable and good quality public transport.

In that, it doles out welfare instead of following a fiscally responsible and economically viable approach. The federal and provincial governments thus have set a bad model of solving a real problem and have ended up creating one more white elephant, painted in red!

the writer is founder and executive director of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, June 29th, 2015.

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Economically unviable: Metro Bus - a white elephant painted red - The Express Tribune

Congrats PMLN! This is yet another "accomplishment" of your incompetent government! :pakistan:
 
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OrionHunter

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Why is it not cost effective?

As per published figures, the infrastructure costs in US$ per kilometer (all costs escalated to 2014) for BRT for various cities are:
  • India $3 million/km
  • Dalian, China $4.5m/km
  • Guangzhou, China $6.5m/km
  • Istanbul, Turkey $10m/km
  • Bogota, Columbia (new phase) $13.3m/km
  • Lima, Peru $10m/km
  • Los Angeles, USA $ 14.4m/km
Given lower labour costs in Pakistan and averaging the above figures, a fair estimate for infrastructure costs should have been approximately $5-7m/km at the most. But at $11m/km, (almost 4 times the cost compared to India!) of the Lahore Metrobus cost wise, it is substantially higher than the benchmark. Why that is so is the moot question.

Breaking even is therefore going to be a nightmare. The govt of Pakistan will need to keep subsidizing the operation to keep it affordable, with considerable loss to the exchequer.
 

HariPrasad

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As Hasan Nisar says, Pakistan do not have the understanding of its priority and how to spend scar resources. He was criticizing a proposed Metro Project. He said that with this amount was can build a lot more roads and many more people can travel. He is right.
 

TheFlyingPretzel

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Why is it not cost effective?

As per published figures, the infrastructure costs in US$ per kilometer (all costs escalated to 2014) for BRT for various cities are:
  • India $3 million/km
  • Dalian, China $4.5m/km
  • Guangzhou, China $6.5m/km
  • Istanbul, Turkey $10m/km
  • Bogota, Columbia (new phase) $13.3m/km
  • Lima, Peru $10m/km
  • Los Angeles, USA $ 14.4m/km
Given lower labour costs in Pakistan and averaging the above figures, a fair estimate for infrastructure costs should have been approximately $5-7m/km at the most. But at $11m/km, (almost 4 times the cost compared to India!) of the Lahore Metrobus cost wise, it is substantially higher than the benchmark. Why that is so is the moot question.

Breaking even is therefore going to be a nightmare. The govt of Pakistan will need to keep subsidizing the operation to keep it affordable, with considerable loss to the exchequer.
Because the Islamabad BRT has dedicated infrastructure which can be converted to accommodate rail-based rapid transit systems. Furthermore there can be no 'India' cost for building a BRT. It varies from city to city. By way of example hyderabad's brt almost entirely uses the existing road network of the city and as such was probably inexpensive to build.



Compare that with Rawalpindi where the BRTis entirely elevated through the length of muree road.

 
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umairkhan4

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Pmln have no idea what theyre doing since im from lahore i can tell how big of a fool they are making out of themselves and the local population while it is true they have brought a lot of changes they dont think before spending the money. there was a main road called ferozpur road in lahore the spent around 400 million rupees on repairs and it was great but less than a year later they started the construction for a bridge on the same road which happened to be for the metro buses which means that that 400 million went to waste because they had to uproot the road to install the pillars. just goes to show how incapable this government is.
 

Norwegian

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Why is it not cost effective?
Why that is so is the moot question.
Hint: PMLN and their hidden corruption in public assets:D :D :D

Breaking even is therefore going to be a nightmare. The govt of Pakistan will need to keep subsidizing the operation to keep it affordable, with considerable loss to the exchequer.
That's the whole idea. To loot our national treasury in order to buy more votes for the next election :D :D :D

Pmln have no idea what theyre doing since im from lahore i can tell how big of a fool they are making out of themselves and the local population while it is true they have brought a lot of changes they dont think before spending the money. there was a main road called ferozpur road in lahore the spent around 400 million rupees on repairs and it was great but less than a year later they started the construction for a bridge on the same road which happened to be for the metro buses which means that that 400 million went to waste because they had to uproot the road to install the pillars. just goes to show how incapable this government is.
400 million RS wasted is nothing compared to what's going to be wasted in the coming Pak-China economic corridor.
 

sathya

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Pmln have no idea what theyre doing since im from lahore i can tell how big of a fool they are making out of themselves and the local population while it is true they have brought a lot of changes they dont think before spending the money. there was a main road called ferozpur road in lahore the spent around 400 million rupees on repairs and it was great but less than a year later they started the construction for a bridge on the same road which happened to be for the metro buses which means that that 400 million went to waste because they had to uproot the road to install the pillars. just goes to show how incapable this government is.

It happens every where , when benefits outweigh risk, I guess they do it..

400 million RS wasted is nothing compared to what's going to be wasted in the coming Pak-China economic corridor.

Who is going to waste it ?
 

ni8mare

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from where you get $11m/km it is $20m /km .............a fukking white fat elephent

the capital costs invested in the new service – Rs45 billion
which is 450 m ...........450/22.5 = $20m /km

here we are making metro train as low as 28 m/km

Why is it not cost effective?

As per published figures, the infrastructure costs in US$ per kilometer (all costs escalated to 2014) for BRT for various cities are:
  • India $3 million/km
  • Dalian, China $4.5m/km
  • Guangzhou, China $6.5m/km
  • Istanbul, Turkey $10m/km
  • Bogota, Columbia (new phase) $13.3m/km
  • Lima, Peru $10m/km
  • Los Angeles, USA $ 14.4m/km
Given lower labour costs in Pakistan and averaging the above figures, a fair estimate for infrastructure costs should have been approximately $5-7m/km at the most. But at $11m/km, (almost 4 times the cost compared to India!) of the Lahore Metrobus cost wise, it is substantially higher than the benchmark. Why that is so is the moot question.

Breaking even is therefore going to be a nightmare. The govt of Pakistan will need to keep subsidizing the operation to keep it affordable, with considerable loss to the exchequer.
 

Muhammad Omar

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from where you get $11m/km it is $20m /km .............a fukking white fat elephent



which is 450 m ...........450/22.5 = $20m /km

here we are making metro train as low as 28 m/km
he's talking about Lahore Metro... and it's route is elevated which can be converted into Train track without and destruction....plus please do check the Dollar rates of India And Pakistan the budget of this project was in rupees not dollars


station which is quiet below from road level






 

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