Friday, February 01, 2008

High Speed Rail Corridor


LOW COST AIRLINES vs. HSR
Low Cost Airlines
Time saving
Competitive prices
“Open skies”
Higher investment
Rising fuel prices
Social costs
High Speed Rail
Existing railway network
Passenger capacity
Comfortable travel
Inter-modal integration: Golden Quadrilateral
Reliability
High speed rail offers stiff competition & can divert traffic from airlines!

PROJECT MANAGEMENT


TECHNOLOGICAL ALTERNATIVES
PARAMETERS
RAIL ON WHEEL
MAGLEV
Speed
300km/hr.
450km/hr.
Noise
Wheel-rail contact noisy
Quieter at low speed
Cost
High capital, will achieve break-even
Expensive, incapable of recovering capital costs
Energy Supply
Railway energy supply network
Local energy network
Existing track
Inter-operable
No
Length of Train
200 mts
128 mts
Aerodynamics
Compatible
Cross-winds limit the safety
At this juncture, infrastructure & commercial viability favor Rail-on-wheel

WORLD SCENARIO
Japan
Shinkansen 1964
Speed – 300 km/hr
Environmentally efficient
Good acceleration performance
More Comfortable
France
 TGV – 1981
Speed – 320 km/hr
Stress on Speed
Able to recover costs swiftly
India: Suggestion to partner with Japan to build the high-speed rail network.

FEASIBILITY ANALYSIS
TECHNICAL
New dedicated lines?
Integrated with existing supply & track n/w
Higher speed & carrying capacity
ECONOMIC
Rehabilitation?
Regional development & employment
High ridership route & money value of time
ENVIRONMENTAL
Noise and vibration control?
Fuel efficient mode of transport
Lower carbon emission
FINANCIAL
High investment?
Central & State government participation
Private capital, debt, FDI

ANALYTICAL FRAMEWORK OF COST MODEL
FC = IC + UC + UT + SC
        Infrastructure Costs (IC) -- capital costs of construction, operation & maintenance
        User Money Costs (UC) -- fares and tariffs paid by users to ride on a carrier
        User Travel Time Costs (UT) -- time spent traveling multiplied by the monetary value of time
        Social Costs (SC) -- additional net external costs to society due to emissions, accidents and noise
OPERATING COSTS
        Personnel
        Training
        Inspection
        Quality checks
        Spares / Consumable parts
        Electricity
        Repair
MAINTENANCE COSTS



PROJECT FINANCING
Budget sources
Deficit financing
Government loans/equity
Government grants
Direct Borrowing
Corporate borrowing
Revenue-backed borrowing
Project-specific borrowing
Private participation
Joint-Ventures
Concessions
Privatization of business units
Asset finance
Leasing
Availability contracts
Good projects will always attract funds!

BUDGET ALLOCATION
        100% FDI in rail infrastructure under automatic route. India-Japan special partnership initiative
        DIPP Guidelines: deduction of 100% profits for 10 yrs. for development of rail systems, under section 80I of ITA
        Revolving fund with a corpus of 1 Bn for speeding up projects under PPP
        IRMP’06 worth Rs. 24,000 crores spanning five years up to 2010
        Planning Commission to allow the Ministry of Railways to access extra budgetary resources to the extent of Rs 3000 crores

MECHANISM

BOT (Build, Operate, transfer)

PROJECT FUNDING
Delhi Metro
  • Loan (JBIC): 64%
  • Equal Equity Contributions by Central & State Govt: 28%
  • Property Development: 3%
  • Additional Funding through interest free Subordinate Loan: 5%
South Korea (Seoul & Busan)
Distance – 412 km
  •  Government: 45%
  • Korean High-Speed Rail Construction Authority: 29%
  • Foreign Loan: 24%
  • Private Funding: 2%
Composition depends on the economic conditions & the relative ease in operating funds.

TRAFFIC ANALYSIS
The corridor covers an area housing 180 million people
10 cities with population exceeding a million each: Delhi, Faridabad, Meerut, Jaipur, Ahmedabad, Vadodara, Surat, Nashik, Pune and Greater Mumbai.These states account for:
54% of the country’s gross industrial output
60% of total exports
43% of the existing rail network
52% of the total FDI inflows into the country
Pre-feasibility studies carried out on Delhi-Mumbai route indicate that competitively priced HSR would attract sufficient ridership.

PROPOSED ROUTE & SCHEDULE
Speed = 300 Km/hr.
Distance = 1330 Kms
Time taken = D / S = 4:26 hrs.
Stoppages = 20 min
Total journey = 4:46 hrs.

TARGET CUSTOMERS
·        Tourism
·        Business visits
·        Low cost airline passengers

PRICING HEURISTIC
Train
FARES
Airline
FARES

Punjab Mail
2894
1682
1208
Go Air
2470
2650
3300
3800
4200

Golden temple Ml
2726
1587
1140
Indigo
2474
3574
4074
5674


Paschim Express
2698
1570
1129
Spice jet
2674
3174
3474
4474
6874

Mumbai Rajdhani
3500
2005
1495
Air Deccan
2749
3449
4649



Aug Kr Raj Exp
3405
2005
1495
Jetlite
2850
4350
5325
6675


Rajdhani Exp
3275
1925
1425
Air India
3875





Amritsar Exp

1652
1178
Jet Airways
4005
4550
5450
7400
11190
11945
Mangala Ldweep

1651
1185
Indian Airlines
4205





Nzm Garib Rath


667
Kingfisher
4225
4776




Goa Smprk K Exp
2671
1555
1118







Bdts Smprk K Exp

1570
1129







Maximum
3500


Min:
Average
2926
 Max:3474



2470 
Offer a price just below the airlines to win back passengers!

FUTURE PRICING OPTIONS
Concession Pricing:
Currently Plan to operate at a 10% concession making the fare structure comparable to the low-cost airlines.
Price can be later be raised by between 30 and 40%, in line with the increased utility
Dynamic pricing:
Capacity Utilization
Market-friendly
Demand-supply situation
Peak vs. non-peak seasons
Premium Services

REVENUE STREAMS
Associated Transport Revenue
        Ridership
        Advertising Revenues
        Concessions, Discounts
Indirectly Influenced Revenue
        Property Development (RLDA)
        Catering (IRCTC)
        RailTel Corporation
Capitalize on revenue increasing activities & out-source non-core operations!

REVENUE ESTIMATE
No. of seats in a compartment S = 78
No. of coaches in the train C = 8
Total capacity T = S*C = 624
(Assume 90% occupancy)
No. of passengers traveling = 0.9*T = 561.6
No. of trips per day = 2
Annual Revenue = Av. price*Passengers*Trips*365
Rs. 1,199,730,355.2

PROMOTIONS
Promotion based on mobility related variables:
Increased comfort
Print articles comparing a airline trip to a HSR trip
Highlight potential to deliver an improved public transit experience 
Projecting environmental care:
Plant trees (Delhi Metro)
Special Construction methods & track design to control pollution

HSR as a community partner:
Mass Campaign on the lines of “Incredible India”, “India Shining
Advertise on popular mass media (radio, print etc.)
Get featured in Bollywood movies

 NPV (Net Present value)
        Distance D = 1330 kms
        Project cost per unit distance c = 50 crores / Km
        Total Project cost C = c * D = 665 Bn
        Let, Operating cost / yr. = 1 % of Project cost = 6.65 Bn
        L (Upfront Land Development Revenue in Yr. 0) = 7000 crores
        R1 (Revenue in yr. 1) = 1199730355.2
        …R30 (yr. 30) = 1199730355.2
        Let, the Risk-free rate r = 5%
 NPV = -646 Bn

TOWS Matrix (HSR Vis-à-vis Low-Cost Airlines)
                             Internal

External
Strengths (S)
 Comfortable
  Luggage freedom
Weakness (W)
 Time factor
 Unproven Concept in India
Dependency on other services for trip integration
Opportunities (O)
Partnerships with travel    & tourism industry
 Can win back middle-class travellers
SO
 Mass Promotion to enhance tourist appeal.
 Tie up with hotels
WO
 Tie up with local transport i.e. taxi services
 Discount or other features to encourage middle class
Threats (T)
 Costs may not be recovered
 Price Wars
ST
 Efficient ticket pricing.
 Differentiate (carve a niche) to prevent being caught in price wars
WT
 Promote using the innovativeness concept
 Stress on R&D & Quality to promote Reliability
 Adopt Best Practices

DATA SOURCE:
Facts about high speed rail around the world (Annual Conference on Railroad Industry)
The Hindu April 07, 2007

(Paper Presentation By: Tanima and Varsha)

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