Indian Railways Thread (Dec 2015)

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arshyam
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Re: Indian Railways Thread (Dec 2015)

Postby arshyam » 15 Dec 2015 20:35

So that's the official confirmation of what many like Suraj were saying here. Reading these terms, I think they are the best one can get, and with the moratorium, we are giving our economy time to catch up and generate the demand. The latter was my only misgiving with this project (I wanted the work to be started after 2020 when the economy had grown much more), and 15 years before repayment IMHO is even better. Now, the incentive for us is to try to build this as soon as possible, so we can build it at a lower cost (since delays increase cost, inflation, etc.) and get to make the most of the repayment moratorium.

The biggest stumbling block is land, and last I checked, the states of Guj and MH hadn't changed their land laws to reflect the changes the centre tried getting through. Need to see what's the latest on this. Secondly, the terminals. Mumbai has no space within the city, can any Mumbaikars weigh in with their thoughts on this? How about going over the existing tracks till say, Bandra/Kurla? Perhaps even build on top of the existing Bandra terminus might work? How about Ahmedabad?

The location of the terminals will play an important in making this project a success. It needs to be somewhere that's easily accessible for most of the patrons, and for Mumbai, it seems to me that somewhere near the Bandra - Kurla complex will be the best bet. Keeping the terminus far away will add to the travel time, reducing the utility of this service. The IR Shatabdi, in contrast, leaves from the heart of the city.

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Re: Indian Railways Thread (Dec 2015)

Postby Supratik » 15 Dec 2015 20:55

@Picklu

The Japanese are funding about 80000 crores. The rest is about 20000 crores over 6 yrs. That is about 3000 crores per year. In contrast line 3 of Mumbai metro is going to be more than 20000 crores.

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Re: Indian Railways Thread (Dec 2015)

Postby disha » 15 Dec 2015 21:19

arshyam wrote:The location of the terminals will play an important in making this project a success. It needs to be somewhere that's easily accessible for most of the patrons, and for Mumbai, it seems to me that somewhere near the Bandra - Kurla complex will be the best bet. Keeping the terminus far away will add to the travel time, reducing the utility of this service. The IR Shatabdi, in contrast, leaves from the heart of the city.


So can I say that we are moving out of costs into actually discussion of brass tacks. Basically the project cost structure is nailed and we cannot get anything better than this. The technology and the process is also proven (Shinkansen has taken some 5 Billion or roughly the entire Indian population travelled 5 times) with no major mishap (zero fatal mishap!!!). That is remarkable by any standard. Same cannot be said about Chinese.

In a nut shell we are getting a very good technology (and process) at an extremely favourable cost.

Question of ridership is not a question. The project on cost terms is already proven to be viable with as low as 50k riders per annum (I expect at least 100k riders in first year - jumping to 500k in a decade of operation). But let us stick with minimal numbers.

The issue now is questions on land acquisition. To be precise., that is not a problem at all. Take the case of Mumbai. Most of the commuters get down at Borivali or Meera Rd and *not* at Mumbai Central. The train is mostly empty at mumbai central. Mumbai in itself is well connected by suburban trains. So putting the HSR terminus at Borivali for example will be better while adding more suburban trains from Mumbai Central to Borivali or add special coaches for HSR pass holders only from say Mumbai Central to Borivali.

The rest of the route from Valsad to Ahmedabad is not an issue. Gujarat has an excellent track record on land acquisition and I think the HSR line will run along existing lines only.

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Re: Indian Railways Thread (Dec 2015)

Postby Arunkumar » 15 Dec 2015 21:36

The railway maintainence yard in khar-east has ample space and it services trains for Bandra Termius. So Bandra Terminus could be more approriate ONLY if a more approachable road is made for it and multistoryed slums (Antila inspiration ?? :mrgreen: ) around it are relocated.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 15 Dec 2015 21:49

Picklu wrote:However all IR budget comes from central fund and hence the servicing of this loan will compete with other yearly capital requirements , let's not kid ourselves stating this is a private loan. *

Not correct. It comes under a separate SPV, that's essentially an LLC for a govt entity or public/private partnership. GoI can contribute a capital share as an ownership stake, but so far it hasn't done so - the terms of the deal are a Japanese FDI into the manufacturing facilities here plus a soft loan managed by the SPV to conduct the construction and operation.
Picklu wrote:Does not matter if the entity is a separate JV or subsidiary of IR.

You are making too much of this. This isn't any different from the DMRC using its own revenues and income to repay the JICA loan. It doesn't come out of the central or state government's books. "Comes out of the Indian economy" is just rhetoric - the original investment "came out of the Japanese economy" too. Can we please stick to a data driven discussion instead of more politics here. We've only started to get this thread back on track. No need to derail it again.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 15 Dec 2015 22:01

arshyam wrote:So that's the official confirmation of what many like Suraj were saying here. Reading these terms, I think they are the best one can get, and with the moratorium, we are giving our economy time to catch up and generate the demand. The latter was my only misgiving with this project (I wanted the work to be started after 2020 when the economy had grown much more), and 15 years before repayment IMHO is even better. Now, the incentive for us is to try to build this as soon as possible, so we can build it at a lower cost (since delays increase cost, inflation, etc.) and get to make the most of the repayment moratorium.

Exactly what I have been saying. Building this sooner rather than later is the best way to go. The terms are too nice to do it differently.

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Re: Indian Railways Thread (Dec 2015)

Postby Ashokk » 15 Dec 2015 23:33

Nice explanation of TCAS – Indian Railway Train Control System.
http://slideplayer.com/slide/4151721/

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Re: Indian Railways Thread (Dec 2015)

Postby A_Gupta » 16 Dec 2015 03:58

Has this article been previously discussed here (from July)
http://www.thehindubusinessline.com/new ... 383744.ece

The proposed Ahmedabad-Mumbai bullet train can be financially viable in a decade, if launched in the next two years and operationalised by 2025-26, says a study by an IIM-Ahmedabad scholar, who is confident that internal returns itself will be good enough to recoup the investment within 10 years.

The study by research scholar TS Ramakrishnan, under the guidance of IIM-A Professor G Raghuram, is significant as globally only two or three high-speed train projects are financially viable, with most of these a drag on government finances.

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Re: Indian Railways Thread (Dec 2015)

Postby A_Gupta » 16 Dec 2015 19:23

The case for bullet trains: (swarajya magazine)
http://swarajyamag.com/ideas/the-case-f ... et-trains/

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Re: Indian Railways Thread (Dec 2015)

Postby Bade » 16 Dec 2015 21:35

Since there are studies being done for Delhi-Chennai and Delhi-Mumbai by the Chinese, the question arises why not go all the way to Delhi from A'bad for this first line with Japanese help ?

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 16 Dec 2015 21:55

So that Mumbai-Ahmedabad serves to validate the feasibility study. People are under-estimating distances here. Mum-Ahm is about as long as a typical high speed line - 300 to 500km. Mumbai-Delhi is longer than Beijing-Shanghai, which was the longest high speed line in the world until 3 years ago. Delhi-Chennai would match or exceed the length of the current longest line between Bejing-Guangzhou.

Considering the length of the lines, trying to build them at first attempt would be an 'all in' bet that there's neither political nor general consensus for, considering the negative response just to the Mum-Ahm line, that too with such extraordinarily good financial terms. The Chinese can simply pass an edict to get it done, in comparison.

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Re: Indian Railways Thread (Dec 2015)

Postby Prasad » 16 Dec 2015 22:06

Agreed. The other lines are too long, costs will be too high. One look at the numbers and people will cry.

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Re: Indian Railways Thread (Dec 2015)

Postby Prasad » 16 Dec 2015 22:06

Better would be to build sections in similar sections and then link them together.

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Re: Indian Railways Thread (Dec 2015)

Postby Bade » 16 Dec 2015 22:10

That is perhaps true for Chinese financing. Wonder if they will come close to what the Japanese offered. But if they do, India will have to go with them for the Delhi-Chennai line.

Will the Japanese offer be similar for an A'bad extension till Delhi. I think not, it may not be on such a sweet and favorable terms.

That means, the Chinese may not make a low offer on interest rates, as they would have calculated that in, going forward and can still be competitive.

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Re: Indian Railways Thread (Dec 2015)

Postby SSundar » 16 Dec 2015 22:10

Suraj wrote:So that Mumbai-Ahmedabad serves to validate the feasibility study. People are under-estimating distances here. Mum-Ahm is about as long as a typical high speed line - 300 to 500km. Mumbai-Delhi is longer than Beijing-Shanghai, which was the longest high speed line in the world . Delhi-Chennai would match or exceed the length of the current longest line between Bejing-Guangzhou.

Considering the length of the lines, trying to build them at first attempt would be an 'all in' bet that there's neither political nor general consensus for, considering the negative response just to the Mum-Ahm line, that too with such extraordinarily good financial terms. The Chinese can simply pass an edict to get it done, in comparison.


+1

Once Mumbai-Ahmadabad is at an advanced stage, we can expect the Japanese to already line up for Ahmadabad-Delhi via Rajasthan. If it connects the major tourist centers of Rajasthan to Delhi, that would be a huge boost for tourism. I would be surprised if V. Raje isn't already on this.

Mumbai-Pune is also a matter of when, not if.

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Re: Indian Railways Thread (Dec 2015)

Postby Prasad » 16 Dec 2015 22:15

Ahm - Udaipur - Jaipur - Delhi seems like a pretty straight line. Terrain ? heck one could even do jaipur - agra - delhi for that matter.
Last edited by Prasad on 16 Dec 2015 22:16, edited 1 time in total.

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Re: Indian Railways Thread (Dec 2015)

Postby SSundar » 16 Dec 2015 22:16

Bade wrote:That is perhaps true for Chinese financing. Wonder if they will come close to what the Japanese offered. But if they do, India will have to go with them for the Delhi-Chennai line.


The Chinese are more likely to try Mysore-Bengaluru-Chennai first. It is comparable with Mumbai-Ahmadabad in distance and poses a lower solvency risk for them.

Bade wrote:Will the Japanese offer be similar for an A'bad extension till Delhi. I think not, it may not be on such a sweet and favorable terms.

That means, the Chinese may not make a low offer on interest rates, as they would have calculated that in, going forward and can still be competitive.


This is why India needs to get every HSR technology-savvy country on board now and extract great deals out of each of them in the first round. Once in, they have incentive to keep investing more and more in India even under less flattering (for them) financial terms. This is how China took the entire western hemisphere for a ride for decades.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 16 Dec 2015 22:17

Prasad wrote:Agreed. The other lines are too long, costs will be too high. One look at the numbers and people will cry.

Yes, the risk cost of a substantially longer line will be higher. The stellar 0.1% terms for Mum-Ahm are partly a result of the Japanese themselves being more confident about its viability, or they're willing to take a loss leader bet to win further contracts. For Del-Mum as a first attempt you'd be looking at 4-5x capital outlay @ >1% cost. Better to build early, build several sections and connect them. Mumbai-Ahmedabad, Delhi-Jaipur, then connect Jaipur-Ahmedabad. Similarly maybe Delhi-Agra-Bhopal, Chennai-Bangalore, Bangalore-Hyderabad, then connect Bhopal-Nagpur-Hyderabad. You'd then end up with probably the longest high speed line in the world between Delhi-Chennai.

Mumbai-Ahmedabad is an attempt to prove viability of construction. The typical 5-10 years time overruns, litigation etc will not work in these cases. Longer line = more potential for time and cost overruns. Prove using a shorter line that the entire acquisition and construction process can be done smoothly, and longer lines will be more feasible. Think like a beancounter here: why should I give you money to build a longer line when you haven't yet proven you can build a shorter line on time and on budget ? The demand itself is quite another matter - as we get richer the ridership demand will be there to keep up. But building the routes efficiently ? Now that is unproven.

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Re: Indian Railways Thread (Dec 2015)

Postby Bade » 16 Dec 2015 22:17

Why not extend the southern end to Pune right now, the demand is there I am sure...except for the cost of tunneling through the ghats.

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Re: Indian Railways Thread (Dec 2015)

Postby SSundar » 16 Dec 2015 22:19

Prasad wrote:Ahm - Udaipur - Jaipur - Delhi seems like a pretty straight line. Terrain ? heck one could even do jaipur - agra - delhi for that matter.


Rajasthan Railway Map

Seems like terrain. There isn't a straight railway line between Udaipur and Jaipur today.

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Re: Indian Railways Thread (Dec 2015)

Postby Prasad » 16 Dec 2015 22:42

Bade wrote:Why not extend the southern end to Pune right now, the demand is there I am sure...except for the cost of tunneling through the ghats.

Tunnelling is a surefire risk for time overruns :( Examples like https://en.wikipedia.org/wiki/Hakk%C5%8Dda_Tunnel shows just how long it can take sometimes. Unlike metros, BT projects will stay in the limelight and will be pilloried at every instance possible.

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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 02:20

Suraj wrote: This isn't any different from the DMRC using its own revenues and income to repay the JICA loan.


Nothing to do with politics & not wanting to derail the thread either. So lets stick to the finance and economics part.

DMRC is a 50:50 JV between GOI and GNCTD. JICA loan is termed 'INTEREST BEARING LOANS FROM Government of India
against Japan International Cooperation Agency (JICA)' and DMRC is paying that but accumulating loss (275 crore in 2015 compared to 60 crore in 2014). Source
So in case of DMRC, who is bearing the risk here? How is this different from various electricity boards, MTNL and AI financially? Are we saying that the accumulated loss of DMRC can result in similar fate of Kingfisher Airlines? Really?

And, I have the exact same question/concern on this bullet train. Who is going to bear the risk?

Just to remind you, I have again given the below 3 options in my previous post.

Picklu wrote:
The money will come out of Indian economy in one form or another i.e.
a. Central budget support,
b. loss of revenue by govt via tax and other concessions given to the separate entity and/or
c. profit.
Other than the 3rd form, the first two are not economically beneficial for large section of Indian tax payers directly.
So, let's hope that the project achieves the profit calculations being projected here.


You are saying the option 3 i.e. profit will take care of loan principle + interest. I have no disagreement that in case the operation is in green even after 15 years, all is good, financially.

However, most of the HSRs are not just in red but deep red. Also the 98K is the initial estimate and we all know how the budget overshoots in such projects.

So, if the operation is not in green after say 15 years, how will the loss be taken care of? My understanding (and I am ready to be corrected here) are either option a or b of my original post based on the shareholding pattern of the SPV i.e.
a. eventually be taken over by GOI (like the bailing out of BSNL etc by GOI) directly using tax payers money in case the SPV is a subsidiary of IR
OR
b. be covered by various tax and other concessions (similar to mitsubishi chemicals by wb govt) by GOI indirectly letting go its tax revenue in case the SPV is a joint venture between a Japanese operator and IR.

In both these cases, we as tax payer are losing out for the benefit of a few (relatively speaking).

Again, if HSR is making profit after 15 years, absolutely no issues.

And this is not a derailment attempt. I would really like to know your thought on economic terms in case the operation is not making profit.

Just to make my point clear, I am not against this HSR, I think it is a forward planned project and should be taken up just like Kolkata Metro project was taken up in 80s even though it was not justified financially but the intangible benefits were immense for the city and its people.

Also I believe that we should not lose our focus on complete DFCC as that has immense financial benefit for the entire nation.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 03:05

Picklu wrote:So, if the operation is not in green after say 15 years, how will the loss be taken care of? My understanding (and I am ready to be corrected here) are either option a or b of my original post based on the shareholding pattern of the SPV i.e.
a. eventually be taken over by GOI (like the bailing out of BSNL etc by GOI) directly using tax payers money in case the SPV is a subsidiary of IR
OR
b. be covered by various tax and other concessions (similar to mitsubishi chemicals by wb govt) by GOI indirectly letting go its tax revenue in case the SPV is a joint venture between a Japanese operator and IR.

c. sold for paise to the rupee and privatized.

I believe c. is far more likely than either a) or b) simply because GoI has already started out by creating an SPV to separate the liabilities of this project from its own balance sheet and therefore I see little validity in the argument that GoI will either assume liabilities in future (case a) or simply bankroll the losses (case b). The terms of the loan are themselves significantly more beneficial than the DMRC JICA loans (4x larger loan amount with 50yr+15yr moratorium at 0.1% vs 30yr at ~1%), indicating the Japanese themselves are estimating very low risk.

I'm simply following the structure of the setup, rather than making assertions that they'll do things differently later. As case c shows, they don't have to do so. I really have no reason to believe someone who says "make no mistake, this is a sovereign guarantee even if it doesn't say so". That's really just the poster's assertion that things will later happen differently from how things have currently been structured for the project.

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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 06:13

Suraj wrote:
Picklu wrote:So, if the operation is not in green after say 15 years, how will the loss be taken care of? My understanding (and I am ready to be corrected here) are either option a or b of my original post based on the shareholding pattern of the SPV i.e.
a. eventually be taken over by GOI (like the bailing out of BSNL etc by GOI) directly using tax payers money in case the SPV is a subsidiary of IR
OR
b. be covered by various tax and other concessions (similar to mitsubishi chemicals by wb govt) by GOI indirectly letting go its tax revenue in case the SPV is a joint venture between a Japanese operator and IR.

c. sold for paise to the rupee and privatized.

I believe c. is far more likely than either a) or b) simply because GoI has already started out by creating an SPV to separate the liabilities of this project from its own balance sheet and therefore I see little validity in the argument that GoI will either assume liabilities in future (case a) or simply bankroll the losses (case b). The terms of the loan are themselves significantly more beneficial than the DMRC JICA loans (4x larger loan amount with 50yr+15yr moratorium at 0.1% vs 30yr at ~1%), indicating the Japanese themselves are estimating very low risk.

I'm simply following the structure of the setup, rather than making assertions that they'll do things differently later. As case c shows, they don't have to do so. I really have no reason to believe someone who says "make no mistake, this is a sovereign guarantee even if it doesn't say so". That's really just the poster's assertion that things will later happen differently from how things have currently been structured for the project.


Theoretically, option c as you mentioned is there but I do not see how practical that is. We do not have private rail operators in India and one of the best in the world is already a partner in this project. Still if it makes loss, finding a private buyer will be challenging to say the least.

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Re: Indian Railways Thread (Dec 2015)

Postby hanumadu » 17 Dec 2015 06:30

Some things that can make a difference between Metro and HSR.

1. Metro has higher construction costs
2. Lower per km fare on an average for the metro
3. Higher interest cost
4. Many more stations to maintain unless the stations themselves generate revenue and are cash positive.

The revenue short fall of DMRC is < 8%. If you take away interest and depreciation & amortization its profitable by a good margin. Even if you take away depreciation and amortization, DMRC is comfortably cash positive. Is depreciation really what it is or is it overstated to avoid tax? Gurus can shed more light on it. At the end 30 years, after paying off the loan, DMRC will be left with all the land for the tracks and the stations unless of course the land is not paid for by DMRC and was provided free by the govt. Imagine what its worth will be.

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Re: Indian Railways Thread (Dec 2015)

Postby hanumadu » 17 Dec 2015 06:35

Picklu wrote:Theoretically, option c as you mentioned is there but I do not see how practical that is. We do not have private rail operators in India and one of the best in the world is already a partner in this project. Still if it makes loss, finding a private buyer will be challenging to say the least.


When you are selling pennies to the dollar, there will be no loan to service. Even after that, if they fail to make a profit, then the project is ill conceived. We will not know it until then. Its worth a shot to find out on a test case basis.

As for your other point of HSR being in the red, not all lines are. Both the lines of Central Japanese Railways are profitable. The other lines are not because they service the less populated areas. I think this problem is something India will probably never face at least not the Mum-Ahd line.

Added Later: The loss of DMRC for 2014-15 is not 275 cr. They seem to have got an hefty tax refund and the net loss after tax is only 60 crore.
Last edited by hanumadu on 17 Dec 2015 06:48, edited 2 times in total.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 06:44

Picklu wrote:Theoretically, option c as you mentioned is there but I do not see how practical that is. We do not have private rail operators in India and one of the best in the world is already a partner in this project. Still if it makes loss, finding a private buyer will be challenging to say the least.

I'd like to point out that you are talking with a degree of certainity about a hypothetical economic situation that's at least 15-20 years out from begnining to occur, if some worst case comes to pass. And that worst case will take further time to happen too. Further, privatization is simply a financial transaction between the seller of distressed debt (the SPV) and the buyer. The actual party operating the system can continue to do so as a subcontractor; a separate entity with duplicate skills is not necessary.

The larger point here is, the financial terms of the loan itself bake in a very significant level of confidence in the project. 50yr term/15yr moratorium/0.1% rate loans of ~$10 billion are nowhere near common commodity. If you go by S&P/Moody/Fitch, we currently rank at their lowest end (BBB- ?) of investment grade. Those numbers themselves assert a level of confidence in the project. Of course both the attractiveness of our debt, and the kind of loan the Japanese offered here, belie such ratings.

If someone wants to assert worst cases, I'll also assert that they temper their assertion with the probability associated with it, because the loan term itself assigns such an assertion a very low probability. Such worst case assertions don't have the basis right now to be considered very seriously.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 06:55

hanumadu wrote:The revenue short fall of DMRC is < 8%. If you take away interest and depreciation & amortization its profitable by a good margin. Even if you take away depreciation and amortization, DMRC is comfortably cash positive.

Another thing about a Metro is that it is a rolling program. It's very difficult to estimate incremental revenue growth because no one can assert just what the network will evolve like. The system basically grows with the city, and each new addition provides feedback into the viability of newer expansions. It's common everywhere for a previously planned line to be realigned or modified to account for newer urban developments . A metro system will take around 20-30 years before it's mostly built out and revenue growth is easier to establish.

An HSR line on the other hand, is a point to point connection between two urban agglomerations. It stands to reason that the ability to conduct a feasibility study is simpler, and that any revenue and passenger forecast is also more straightforward to make. Despite all this, and the argument that DMRC is running losses, there are more than a dozen cities currently building or planning to build a metro system. All of them will face exactly the same problem with accurately forecasting revenue growth, but that has not stopped city after city from building them. It stands to reason that the margin of confidence in the success of an HSR line whose feasibility has been studied, is therefore as good or better than that of a metro project.

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Re: Indian Railways Thread (Dec 2015)

Postby A_Gupta » 17 Dec 2015 07:36

City transport programs may be worth subsidies from the city government because of the economic activity it enables, and other costs that it helps avoid (e.g., of maintaining roads). Not sure that an inter-city line has the same economics.

For reference, here is the NYC Metropolitan Transportation Authority 2015-2018 finance plan.
http://web.mta.info/mta/budget/pdf/MTA% ... 5-2018.pdf
Revenue includes tolls on bridges & tunnels, taxes, state & local subsidies and fares.
Services include the subway system, buses, and commuter rail.
https://en.wikipedia.org/wiki/Metropoli ... ew_York%29

The subway system began in 1904. The financing of the system is still a headache.

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Re: Indian Railways Thread (Dec 2015)

Postby Prasad » 17 Dec 2015 16:22

I think when it comes to purely money talk, people need to look at the bigger picture too. The government may be ready to eat a few crores in loss if the metro or HSR succeeds in reducing congestion on the roads and other slower railways. By splitting traffic, you're ensuring man hours lost in travel is lesser to a degree. Benefits to society, not to mention environmental and fuel costs savings are tremendous. All this comes back to the government bottom line anyway. So taking a look at the metro or hsr as a monolith corporation like say AI or bsnl doesn't cover the entire picture imo.

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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 17:49

Suraj/hanumadu/Prasad,

Repeating the below just to make my position clear. I am sure the intangibles would be worth it either way - financial success or failure.

Picklu wrote:
Just to make my point clear, I am not against this HSR, I think it is a forward planned project and should be taken up just like Kolkata Metro project was taken up in 80s even though it was not justified financially but the intangible benefits were immense for the city and its people.


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Re: Indian Railways Thread

Postby Picklu » 17 Dec 2015 18:19

disha wrote:Suraj'san - Vehemently Agree to your point. My point was to Hanumadu-Sir's point that bullet train will cannibalize air traffic. It will not (added later: It will not completely cannibalize air traffic. My estimate from the seat of pants is 20%). But I do agree with Hanumadu'jis point that the people who travel by bullet train will be in the same 'class' as the air traveler., so they will not mind paying extra for the time gained.

And now some calculations:

1. Average cost of the air travel (mumbai-ahmedabad) - Rs. 3500
2. Fare of bullet train at 75% of the Rs. 3500 -> Rs. 2625
3. Average number of travelers per day -> 50000 (0.125% of current travellers)

Daily Revenue - Rs. 2625 x 50000 = Rs. 13 crores (approx.)
Monthly Revenue - x30 = Rs. 390 crores (approx.)
Yearly Revenue - x12 = Rs. 4680 crores (approx.)

Assuming operating costs of 95% revenue (that is Railways spends Rs. 0.95 to earn Rs. 1/-)., profit will be Rs. 234 crores.*

Now I will do one more calculation on the loan.,

Assuming the total outstanding at Rs. 1 lakh crore (rounded off for 89k crore with 0.1% interest and adding some 7k crore of cost padding!)., payable over 50 years.,

1. Net cost to service the loan (Principal + Interest) = Rs. 2000 crore/year.

So with 50k ridership paying current prices of 75% of the air travel cost., we are able to pay off yearly the loan (principal + interest).

*Indian railways in this quarter achieved 98% operating cost. So operating costs at 95% is doable.


Economy Gurus (Suraj, Disha, hanumadu, Prasad, Supratik, vina, anyone else), sorry for my confusion about the numbers but how does 234 crore profit available per year to service 2000 crore per year debt burden even out? What am I missing here?

That too with 50k DAILY avg ridership?

Now, as per this,
At peak times, the line carries up to thirteen trains per hour in each direction with sixteen cars each (1,323-seat capacity and occasionally additional standing passengers) with a minimum headway of three minutes between trains.

If we run at peak capacity 24 hours a day and load 1500 passengers in each train, we get ~ 950k passengers per day *.

So with the same Rs. 2625 price calculation **, the revenue comes to ~250 crore per day.

Again, assuming 5% available for debt service makes it 4500 crore per year hence the project budget better not to overshoot beyond 225k crore (230%, not unheard off in Indian Infra projects) because then even the crush load will not be able to recover the debt burden even at 0.1% rate and 50 years term.

So, if my above calculation is correct, how does the project now sound economically?

* 950k, as in 9.5 lakh, i.e. 5% of Mumbai population. Per day.

** I am not considering the fact that there would be at least 1 stop in between and hence the avg price per passenger may be even less than this.
Last edited by Picklu on 17 Dec 2015 18:51, edited 4 times in total.

chetak
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Re: Indian Railways Thread (Dec 2015)

Postby chetak » 17 Dec 2015 18:42

R Sivadasan, former Railway Board financial commissioner seems to be making slightly different assumptions regarding the traffic, usage and already existing connectivity on this corridor.

Bullet train faces hurdles down the line


Bullet train faces hurdles down the line

The high-speed train line in a region already well-connected by rail, road and airways may have to struggle to stay viable

Sudheer Pal Singh | New Delhi
December 16, 2015

Last week, India signed a Rs 97,636-crore deal with Japan, paving the way for the largest-ever foreign investment in the country's railway sector that has been crying for reform and upgrade. The idea is to use Japanese funding - to the extent of 80 per cent of the project cost or Rs 70,000 crore - and technology to introduce its marquee Shinkansen bullet trains on the 508-kilometre Mumbai-Ahmedabad route.

INDIA’S HIGH-SPEED DREAM
The first bullet train, which will run from Mumbai to Ahmedabad, to cost Rs 98,000 crore
Japan to provide 80 per cent of the funding and tech transfer
Japan beat competition from China to clinch the India deal
Its strong safety record helped its case
High ridership will be key for the bullet train’s success
Poor ridership has led to huge losses for Taiwan’s bullet train


Once operational in 2023, the high-speed service will cut travel time between the cities to two hours from the current eight hours. Prime Minister Narendra Modi hailed the bilateral agreement, unveiled in the presence of his Japanese counterpart, Shinzo Abe, as "a historic decision" that will "launch a revolution in the Indian Railways" and become an "engine of economic transformation in India".

The celebrations apart, critical questions are being raised over the efficacy of the deal within days of its announcement. What is the guarantee the Indian venture will not meet the same fate as Taiwan which has been operating a high-speed train service based on Japan's Shinkansen bullet train system since 2007? Saddled with huge losses - owing to high depreciation and interest payments and low ridership - the Taiwanese high-speed rail operator has sought a bailout by the government to turn around its business. A recent news report said that the nation's government in July approved a plan to pump funds into the project via a $916 million share placement.

Bullet train faces hurdles down the line "I have my worries as, thanks to the faulty development model, the Indian high-speed rail project could turn out to be an expensive mistake," says R Sivadasan, former Railway Board financial commissioner.

Image

According to Sivadasan, who had spearheaded the government's initial attempts to introduce high-speed rail services way back in 2006, the government has worked out the model incorrectly. Rather than randomly choosing regional corridors (Mumbai-Ahmedabad, for example), the rail ministry must work on a Diamond Quadrilateral with the aim to spur economic development along the route, he says.

Sivadasan argues that the Mumbai-Ahmedabad route already has strong air connectivity, rail connectivity and a first class expressway. "Would not ridership become a problem then?" Sivadasan asks. Lower than expected ridership was a key reason for the Taiwan Shinkansen fiasco.

The Mumbai-Ahmedabad corridor would come in a region where a fully developed conventional speed rail corridor already exists and the Gujarat-Mumbai arm of the Dedicated Freight Corridor would come up soon. In what could further compound the problem, Indian Railways is already working on increasing the speed of the existing rail line between Delhi and Mumbai (of which the Mumbai-Ahmedabad corridor is a part) from the existing 130 km per hour to 180 km per hour. This means further increasing competition for the high speed corridor.

"The upper class passengers from the conventional speed corridor will migrate to the high-speed railway, while the freight traffic would move to the freight corridor. Ultimately, it is a mortal combat in which all the three will die," Sivadasan says. He backs up his argument in favour of a Diamond Quadrilateral of the high-speed railway rather than regional corridors by saying even railway expert E Sreedharan had suggested India should opt for a dedicated high-speed passenger corridor rather than a freight one.

Profitability issues
Other experts say it is difficult for a highly capital-intensive project of this nature to be financially and economically viable. "Even if we assume there is no interest cost attached to the project, there is no way one can recover Rs 98,000 crore worth of investments over the 50-year loan period. The ridership will be a function of prices. If the prices are kept too high, footfalls will come down; and if the prices are low, we may incur losses," says Deloitte Senior Director Amrit Pandurangi.

According to him, the capital cost of the project could turn out to be 15-20 per cent higher as components and services would be tied to a single country as against a purely competitive scenario. "However, on an overall basis, the long-term economic benefits may be a good enough reason for India to take up the high-speed project at the moment," he says.

The per-km cost of the Mumbai-Ahmedabad corridor works out to Rs 192 crore as against Rs 151 crore per km worked out by the Kerala High Speed Rail Corporation in the feasibility study for its own corridor currently being planned. The rail ministry, however, rejects the argument of high cost. "It'll cost far less to act now than it would to delay until further damage is done," the rail ministry said in a tweet today.

A political storm
There could be political opposition to the project as well. P Ravindra Babu, Lok Sabha member of the Telugu Desam Party, an ally of the Bharatiya Janata Party at the Centre, said on Tuesday: "There are 440 million people living below the poverty line in India which is very unfortunate. So it will be shameful if we conceive any project like the bullet train in this scenario."

Regardless of the opposition to the project, everyone agrees on the strong safety and reliability of the Shinkansen bullet trains. The Shinkansen technology has managed to maintain its zero fatality record in the past 50 years since its inception in 1964. The trains are particularly famous for their earthquake resistant feature that brings them to an immediate halt at the first sign of tremors.

India's decision to favour Shinkansen over Chinese technology came on the recommendations of a panel headed by NITI Aayog Vice-chairman Arvind Panagariya. He had favoured Japan for its sterling safety record with no fatalities and unquestioned punctuality with less than 30-second delay. Low-cost funding proposed by the Japan International Cooperation Agency at 0.1 per cent interest rate apart from a commitment for technology transfer and local manufacturing for a specified period were the other reasons.

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Re: Indian Railways Thread (Dec 2015)

Postby member_28911 » 17 Dec 2015 18:58

Does cost of Mumbai-Ahmedabad HSR include cost of Technology transfer and setting up of maintenance infrastructure?

Suraj
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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 21:12

chetak wrote:R Sivadasan, former Railway Board financial commissioner seems to be making slightly different assumptions regarding the traffic, usage and already existing connectivity on this corridor.

Bullet train faces hurdles down the line


Bullet train faces hurdles down the line

The high-speed train line in a region already well-connected by rail, road and airways may have to struggle to stay viable

The same applies to the Seoul-Busan route as well. The two cities are connected by SoKo's first expressway, was one of the top 10 busiest air routes, has a number of train services, but the KTX still grabbed >60% marketshare within 3 years. Similarly, Tokyo-Osaka is one of the top 10 air routes even today, and has more than a dozen bullet trains per hour in each direction at peak hour, and yet seats can be hard to come by during peak season.

Personally, I would question anyone's weak ridership estimates. My concern instead, is that time and cost overruns will weaken calculations, and even strong ridership will not fix the numbers because it took too long and cost much more than estimated for a variety of reasons, including the unwillingness to get it implemented quickly. In fact that's the case for the KTX and THSR, and even the Beijing-Shanghai line ended up costing $34 billion instead of the previously estimated $25-26 billion because of added land, labor and material costs.

Picklu
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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 21:21

@Suraj,

hv posted some back of the envelop calculations above, all numbers (& no politics :P ); would like your opinion as they help to fix the boundary conditions even though may not be accurate enough.

Because, if the above calculation is right, then we will need more than 4 lakh paying passengers, @75% of flight price, every day for 365 days a year, for 50 years, to service the debt.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 21:42

Where does your calculation account for inflation in ticket prices ? And the 15 year moratorium ? The debt load and repayment costs are fixed over 50 years, i.e. it's not an adjustable rate loan. But the ticket prices are not. They will grow with inflation, and at least a ~2% increase in ticket prices per year wouldn't be surprising.

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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 22:22

Suraj wrote:Where does your calculation account for inflation in ticket prices ? And the 15 year moratorium ? The debt load and repayment costs are fixed over 50 years, i.e. it's not an adjustable rate loan. But the ticket prices are not.


1. The 15 years moratorium is at the beginning to finish construction and reach steady state. Even if we assume the construction is finished in the first 5 years and it starts full steady state operation from 6th year itself, it gives us 10 additional years for payment.
So, instead of 4.27 lakh passenger every day, around 25% less i,e, ~3.15 lakh passenger daily which is still a large number.

2. HSR Ticket price inflation will follow the inflation figures in airlines ticket price inflation as that will reduce the ridership inadvertently otherwise. Now I could not find any such trend on the net but general inflation figures are usually less than 10% for most of the last decade. Extrapolating that, Rs 2625 will reach Rs 7150 at the end of 65 years So, it would still need more than 1.5 lakh passengers on daily basis for the next 60 years to service the debt.

Still more than 3 times compared to initial 50k per day. Assuming a paying customer capacity of 1250 (still higher side as not all the seates will be full, not everyone will go end to end paying the full amount) would need more than 60 trains each way per day for 365 days a year.

And that is assuming there is no cost escalation.

A big number and significantly different from the originally projected one in this dhaga, any which way you cut it.

However, I am really surprised that you did not comment anything about the discrepancy between 234 crore vs 2000 crore per year. Do I assume that the rest of my calculations, done in the same vein as Disha had done in his original analysis, correct? Because these additional fine tunings were not present in his calculations either.
Last edited by Picklu on 17 Dec 2015 22:30, edited 1 time in total.

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Re: Indian Railways Thread (Dec 2015)

Postby Suraj » 17 Dec 2015 22:26

Picklu wrote:However, I am really surprised that you did not comment anything about the discrepancy between 234 crore vs 2000 crore per year. Do I assume that the rest of my calculations, done in the same vein as Disha had done in his original analysis, correct?

Well it's upto you to pick holes in the calculations :) I just want to encourage a debate on topic. If you have an issue with disha's calculations, he can respond; I am not the judge of that.

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Re: Indian Railways Thread (Dec 2015)

Postby Picklu » 17 Dec 2015 22:39

Suraj wrote:
Picklu wrote:However, I am really surprised that you did not comment anything about the discrepancy between 234 crore vs 2000 crore per year. Do I assume that the rest of my calculations, done in the same vein as Disha had done in his original analysis, correct?

Well it's upto you to pick holes in the calculations :) I just want to encourage a debate on topic. If you have an issue with disha's calculations, he can respond; I am not the judge of that.


Not fair after stating the below when the original calculations were presented :((

Suraj wrote:
Glad to see someone delve into numbers rather than just post emotionally charged political noise here.


Does this calculation looks right in the ball park?

Picklu wrote:
Still more than 3 times compared to initial 50k per day. Assuming a paying customer capacity of 1250 (still higher side as not all the seates will be full, not everyone will go end to end paying the full amount) would need more than 60 trains each way per day for 365 days a year.

And that is assuming there is no cost escalation.

Last edited by Picklu on 17 Dec 2015 22:43, edited 1 time in total.


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