TRANSPORTATION ECONOMICS AND

FINANCE

A Case Study on

“ Delhi Metro Rail Corporation (DMRC)”

PRESENTED BY - PRATIK K. WALKE

ROLL NO – 11
BRANCH – MTECH 1ST YR.
( TRANSP. ENGG.)
 Table of Contents

1. About Delhi Metro

2. Need for Metro

3. SWOT Analysis

4. Organization structure, Project Financing and Work Breakdown Structure

5. Economic Evaluation and Risk Analysis

6. Contracting and Permissions

7. Project Planning and scheduling

8. Cost computation and Time Requirement

9. Break even analysis

10.Total Revenue generation of Project

11. Project Monitoring

 ABSTRACT
Being the capital city of India, it does not come as a shock that New Delhi is the most populated city
in India in term of people and vehicles.

The population of Delhi and vehicles on road areever increasing leading to problems like traffic, pollution and
high fuel consumption.

Considering all this ―THE DELHI METRO comes as a huge relief for the people of Delhi.

 There are no doubts about the social benefits of the Delhi metro. It will help in reducing traffic and
pollution in the capital and more important save a lot of time for the daily commuters.

As a part of this project, the Delhi Metro has been analyzed from the economic point of view.

Considerable effort has been put into understanding the economic viability of the Delhi Metro.

A lot of analysis is done taking into consideration past and present data, and justified future assumptions like
effect of common wealth games on ridership of Delhi metro, ridership in other modes of transportation in coming
years, ridership on full functioning of two phases of the metroproject, revenue generation from advertising and
property development, etc.

The various analysis are SWOT , Demand-supply analysis, Modeling of revenue functions,Break-even
point, Cost-volume profit analysis, effect of Delhi metro on other transport systems,effect of common wealth
games on Delhi metro.

This presentation concludes with justified results that the Delhi Metro is an economically feasible and time
saving venture of DMRC (Delhi Metro Rail Corporation). The success of the Delhi Metro has already triggered
similar ventures in other Indian cities like Mumbai and Bangalore.
 Objectives

1. To analyze the strength and weakness of the Delhi Metro from socio-economic perspective

2. To model the demand-supply curve and various revenue functions

3. To estimate the break-even for Delhi Metro

4. To understand the effect of Delhi Metro on other modes of transportation

5. To study the effects of common wealth games on revenues

Scope of the work

 This analysis will help the other metro proposals in pipe-line to streamline the process
of planning and assist the Delhi Metro to improvise its revenue generation & further expansion.

It also provides the assistance for Delhi government to plan for the other modes of transport like
Light Rail Transit System, Mono Rail and dedicated bus corridor.
 About Delhi Metro

The capital city of New Delhi lies within India‘s second largest metropolitan area simply called Delhi.

Recently Delhi has become the most populous city in India according to a survey with a population of approximately 14
million. Today, Delhi‘s extended population is approaching 22 million people, and has created crowded conditions with
extremely high demands on the public transportation element.

This led to the development of the Delhi Mass Rapid Transit System, or Delhi Metro as it is known. The success of this
transport network that began operations in December 2002 now sees it as not only the public transportation of choice, but the
model itself has become the standard for the development of other systems across India.

And yet the current metro system, known as Phase I, is itself set to grow with another three phases, scheduled for
completion in 2010, 2015 and 2020.

By the time Phase IV is operational, the Delhi Metro will have found its place ahead of the London system as the largest
public metro rail network in the world.

The construction of the first phase of DM was spread over 10 years during 1995-96 to 2004-05 while that of the second
phase, which started in 2005-2006 is expected to be completed by 2010-11.

 The total capital cost of DM at 2004 prices for Phase I and Phase II are estimated as Rs.64,060 and Rs. 80,260 million,
respectively.

Phases III and IV of DM will cover most of the remaining parts of Delhi and even extend its services to some areas such as
NOIDA and Gurgaon belonging to the neighboring states of Delhi and come under the National Capital Territory.
 Unique feature of Delhi Metro is its integration with other modes of public transport, enabling the commuters
to conveniently interchange from one mode to another.

 To increase ridership of Delhi Metro, feeder buses for metro stations are operating. In short, Delhi Metro is a
trendsetter for such systems in other cities of the country and in the South Asian region.

 Delhi Metro is a world-class metro. To ensure reliability and safety in train operations, it is equipped with the
most modern communication and train control system.

 It has state-of-art air-conditioned coaches.

 Ticketing and passenger control are through Automatic Fare Collection System, which is introduced in the
country for the first time.

 Travelling in Delhi Metro is a pleasure with trains available at a frequency of 5 minutes at off-peak hours
and 3 minutes at peak-hours.

 Entries and exits to metro stations are controlled by flap-doors operated by 'smart-cards' and contact less
tokens.

 For convenience of commuters, adequate number of escalators has been installed at the metro stations.

 The Metro will totally transform our social culture giving us a sense of discipline, cleanliness and enhance
multifold development of this cosmopolitan city.
 Need for Metro

Today, urban area experiences the drastic population growth. This population growth has two
components in it:

1) the normal population growth and

2) the movement of huge number of working people from other parts of the countries.

The increase in per capita income due to healthy economy and the growing population in urban areas lead to steep
increase in ridership on the road (two-wheelers, autos, cars and public transport buses), thus in turn lead to
tremendous traffic congestions on the urban road.

The growing demand for the transport in mega cities hasserious effects on urban ecosystems, especially due to the
increased atmospheric pollution.

An ecologically sustainable urban transport system could be obtained by an appropriate mix of alternative modes of
transport resulting in the use of environmentally friendly fuels and land usepatterns.

The introduction of CNG in certain vehicles and switching of some portion of thetransport demand to the metro rail
have resulted in a significant reduction of atmospheric pollution in Delhi.

The Delhi Metro provides multiple benefits: reduction in air pollution, time saving to passengers, reduction in
accidents, reduction in traffic congestion and fuel savings.There are incremental benefits and costs to a number of
economic agents: government, private Transporters, passengers, general public and unskilled labor.
 SWOT Analysis

Strengths
1. Cost-effective mode of transport for the general public of Delhi.
2. Reduce congestion on roads making movement easier.
3. Reduce atmospheric pollution to a great level making the environment healthy.
4. Ultra-modern technology and visually striking design, dynamic and modern, competitive
and World Class‘.
5. Reduce travel time:
6. One hundred per cent punctual operations.
7. Safer Mode of transport for Women.
8. The voluntary International Standardization Organization (ISO) 14,000 certification.

Weakness

1. Metro considerably more expensive than the bus.

2. Less ridership than estimated.
3. High development cost
4. Displaced many economic backward people.
5. Difficulties in acquiring land .
Opportunity
1. Revenue from property development and advertisements.

2.Potential to achieve higher ridership.

3. Tax rebate given to the DMRC because of the 2010 Commonwealth Games in Delhi.

4. The success of the Delhi Metro has encouraged other Indian cities to seriously attempt tointroduce Metro
systems.

5. The next Metro line in the city will be 10-15 per cent cheaper than the previous phasesbased on the learning
curve theory.

Threats
1. A struggle on the part of those being displaced, and protests, petitions, hunger strikes,negotiations and legal
action have all been initiated.

2. Security threat.

3. Risk of cost overruns and ridership shortfalls.

4. Increase in cost of the parts.

ORGANISATION STRUCTURE
 WORK BREAKDOWN STRUCTURE

METRO
EXTENTION

FOUNDATION TRAINING

STEEL
GROUNDING FLOORING INSTALLATION EXCAVATION
ERECTION
MAJOR CONTRATCTORS OF DELHI METRO
 PLANNING AND SCHEDULING
 With the public sector having image of stalling infrastructure projects for long due to lack of
funding DMRC settled the funding issue even before the commencement of the project.

 To avoid the political interference, DMRC sought autonomy on all major parts of the project
from GoI.

 The managing director of DMRC was only person to take decisions related to tenders.

 The financial decision making power also rested with MD of DMRC only.

 each employee was provided to follo, submit and update DPR provided on daily basis, in case
of deviations rectifications were implemented immediately.

 Every Monday meetings were held by respective heads to reviw targets, set new targets and
revise targets.

 Reverse clocks were implemented to make adhere to the schedule of the major projects.
 Even with the project starting 3 years late with the scheduled, the originally planned schedule was
followed to deliver.

 Phase -1 of the project was planned to deliver on December 2005, provided if started by 1995, but
the organization wasn’t in position till 1997 and finally GoI gave green flag in April 1998.

 To ensure disputes do not take place for halting the project DMR (Opearations and Maintenece),
2002 was enacted.

 International standards were followed to maintain and control cost and operations of the project.

 To ensure quality, independent and outside team was implemented who had no connection,
relation and communication with the ground team.

 To ensure best technology delivered, a five member consortium was formed called “ General
Consultants Group”, to absorb best technology from outside world.

 GCG was managed by PCI ( Pacific Consultants International) of Japan.

COST COMPUTATION AND TIME REQUIREMENT
 COST VOLUME PROFIT ANALYSIS OF DELHI METRO

Delhi metro as a commercial organization operates with the objective of maximizing the profit. So, it is required to
consider the above before proceeding with any financial evaluation of a project.

The financial capital cost of DM represents the time stream of investment made by it during its lifetime.

The investment expenditures made by the project in one of the years during its life time constitutes the purchase of
capital goods, cost of acquisition of land and material inputs for project construction.

The operation and maintenance (O&M) cost of the project constitutes the annual expenditure incurred on energy,
material inputs for maintenance and payments made to skilled and unskilled labour.

The financial benefits from the Metro are the traffic earnings and the revenues from real estate, consultancy and
external projects.

The analysis has been done on the basis of certain assumptions to calculate traffic earnings, total revenue and O&M
cost. Also, annual ridership has been estimated on the basis of RITES report and actual average ridership of Delhi
Metro during the years.

Fares have been estimated on the basis of the fare charged by the Delhi Metro.
 YEAR MINIMUM FARE (Rs.) MAXIMUM FARE (Rs.)

2002 4 14

2004 6 14

2005 6 22

2009 8 30

TABLE - FARE SENSTIVITY OF RIDERSHIP ON THE METRO

 So, the fare is calculated as the average of the minimum and maximum fare during the year.

Fare price is changed after every period of four years by 20%.

The period for the study is from 2008-2041.

Year Fare Year Fare Year Fare
2008 14.00 2019 27.36 2030 47.27
2009 19.00 2020 27.36 2031 47.27
2010 19.00 2021 32.83 2032 47.27
2011 19.00 2022 32.83 2033 56.72
2012 19.00 2023 32.83 2034 56.72
2013 22.80 2024 32.83 2035 56.72
2014 22.80 2025 39.39 2036 56.72
2015 22.80 2026 39.39 2037 68.06
2016 22.80 2027 39.39 2038 68.06
2017 27.36 2028 39.39 2039 68.06
2018 27.36 2029 47.27 2040 68.06
2041 81.67
TABLE - FARE CHARGED
 Annual ridership is estimated on the basis of RITES report and actual ridership during the years. In RITES
report the annual ridership almost 50% of the actual ridership. So, the estimated ridership is 50% of ridership in
RITES report.

TABLE - ANNUAL RIDERSHIP

Year Ridership Year Ridership Year Ridership

2008 65.65 2019 93.33 2030 128.18

2009 68.36 2020 96.05 2031 131.86

2010 71.19 2021 98.86 2032 135.71

2011 74.15 2022 101.76 2033 139.67

2012 76.31 2023 104.74 2034 143.75

2013 78.53 2024 107.79 2035 147.95

2014 80.83 2025 110.95 2036 152.26

2015 83.18 2026 114.18 2037 156.72

2016 85.61 2027 117.52 2038 161.29

2017 88.11 2028 120.95 2039 166

2018 90.68 2029 124.48 2040 170.85

2041 175.84
 OPERATION AND MAINTENANCE COST

Operation and maintenance cost (O&M) cost is the variable cost which changes or increases with the increase
in the units of the product.

In this study the units are the annual ridership. So, as the ridership increases the (O&M) cost also increases.
Now, as the ridership is increasing the O&M cost is increasing by 5 times of the annual ridership.

That is, O&M = 5N Where, N = annual ridership

Year O& M Year O& M Year O& M
2008 328.25 2020 480.25 2032 678.55
2009 341.80 2021 494.30 2033 698.35

2010 355.95 2022 508.80 2034 718.75

2011 370.75 2023 523.70 2035 739.75

2012 381.55 2024 538.95 2036 761.30

2013 392.65 2025 554.75 2037 783.60

2014 404.15 2026 570.90 2038 806.45
2015 415.90 2027 587.60 2039 830.00

2016 428.05 2028 604.75 2040 854.25

2017 440.55 2029 622.40 2041 879.20

2018 453.40 2030 640.90

2019 466.65 2031 659.30

TABLE - OPERATIONS & MAINTENANCE COST

 Total revenue is estimated as revenue from traffic earnings, real estate, external and consultancy projects.
Revenue from traffic earnings is the product of the annual ridership and fare charged during the particular
year.

That is, traffic earnings = Annual ridership x Fare

Assumptions:

 The revenue from rental income is only included in revenue from real estate. The growth rate of real
estate is 10% per annum.
 The growth rate of consultancy and external projects is 20% per annum.
 Total
Year Ridership Fare Traffic Real Estate External Revenue
2008 65.65 14.00 919.10 26.79 28.00 973.89
2009 68.36 19.00 1298.84 29.47 33.60 1361.91
2010 71.19 19.00 1352.61 32.42 40.32 1425.35
2011 74.15 19.00 1408.85 35.66 48.38 1492.89
2012 76.31 19.00 1449.89 39.22 58.06 1547.17
2013 78.53 22.80 1790.48 43.15 69.67 1903.30
2014 80.83 22.80 1842.92 47.46 83.61 1973.99
2015 83.18 22.80 1896.50 52.21 100.33 2049.04
2016 85.61 22.80 1951.91 57.43 120.39 2129.73
2017 88.11 27.36 2410.69 63.17 144.47 2618.33
2018 90.68 27.36 2481.00 69.49 173.37 2723.86
2019 93.33 27.36 2553.51 76.43 208.04 2837.99
2020 96.05 27.36 2627.93 84.08 249.65 2961.66
2021 98.86 32.83 3245.57 92.49 299.58 3637.64
2022 101.76 32.83 3340.78 101.73 359.50 3802.01
2023 104.74 32.83 3438.61 111.91 431.40 3981.92
2024 107.79 32.83 3538.75 123.10 517.68 4179.52
2025 110.95 39.39 4370.32 135.41 621.21 5126.94
2026 114.18 39.39 4497.55 148.95 745.45 5391.95
2027 117.52 39.39 4629.11 163.85 894.54 5687.50
2028 120.95 39.39 4764.22 180.23 1073.45 6017.90
2029 124.48 47.27 5884.17 198.25 1288.14 7370.57
2030 128.18 47.27 6059.07 218.08 1545.77 7822.92
2031 131.86 47.27 6233.02 239.89 1854.93 8327.83
2032
2034 135.71
143.75 47.27
56.72 6415.01
8153.50 263.87
319.29 2225.91
3205.31 8904.80
11678.10
2033
2035 139.67
147.95 56.72
56.72 7922.08
8391.72 290.26
351.22 2671.09
3846.38 10883.44
12589.32
2036 152.26 56.72 8636.19 386.34 4615.65 13638.18
2037 156.72 68.06 10666.36 424.97 5538.78 16630.12
2038 161.29 68.06 10977.40 467.47 6646.54 18091.40
2039 166 68.06 11297.96 514.22 7975.84 19788.02
2040 170.85 68.06 11628.05 565.64 9571.01 21764.70
2041 175.84 81.67 14360.85 622.20 11485.22 26468.27
TABLE - TOTAL REVENUE EARNED
 FIGURE - SOURCE WISE BREAK UP OF REVENUE OF DELHI METRO

2000
1800
1600
1400
1200
1000 Traffic Real
800
600 Estate
400
200 External
0
2010 2011 2012 2013 2014 2015 2016

Phases Capital investment (crores)

Phase I 6406 Phase I

8026 6406 Phase II
Phase II 8026

Total fixed cost 14432

FIGURE – PHASE WISE BREAK UP OF FIXED COST

Fixed cost is taken as the capital cost (land cost, construction cost, rolling stock, etc.)

TABLE - FIXED COST INCURRED

 BREAK EVEN ANALYSIS

 Now, each information regarding the calculation of break-even point is given and estimated.

 Break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or
gain, and one has “broken even”. Therefore has not made an economic profit or a loss.

 It helps to provide a dynamic view of the relationships between sales, costs and profits.

Total cost = Fixed cost + Variable cost

Fixed cost = Capital Cost (Land cost, construction cost, rolling stock, etc.)

Variable cost = Operation & Maintenance cost

Economic Profit: Total revenue – Total cost

Normal Profit: The yearly profit earned after the adjustment made towards the variable costs.

Though Delhi Metro makes the profit every year, it will break-even in the year 2028.
 By linearly extrapolating the data between 2027 and 2028, we find out that at the Break-even Point, total revenue
will be Rs.15204.97 crores.

Also, at the Break-even Point,

Total Revenue = Total Cost = Fixed Cost + O&M Cost 15204.97 = 14432

+ O&M
O&M Cost = 772.97

Also, according to our assumptions, O&M Cost = 5 * N

772.97 = 5 * N N = 154.59

So, Delhi Metro will have annual ridership of 154.59 crores when it reaches its Break-even Point.
 Demand and Supply Curves

In the above figures, point A, B & C indicates the fare rate/trip at 100% ridership for a particular year.

 Also these points are the equilibrium points for a particular year and are the minimum fare rate that the
Delhi Metro would like to charge.

 With reference to the demand-supply curve in 2006, an individual will be willing to pay on an average
Rs. 3/trip if the ridership is 100%.

 At the same time, one will be willing to pay Rs.6/trip if the ridership is 50% and Delhi Metro also will
charge the same so as to maximize the revenue per year.

 Why because, as the ridership per year comes down, advertising revenue and property development
revenue per passenger also will decrease.
 It implies that Delhi Metro acts like a Monopoly since there is no metro rail service provider and
it is managed by the government.

 Figure 2 shows the change in demand across the year.

 This can be explained by the increase in ridership (majorly due to re-distribution of ridership
between various transports).

 It was assumed that the change in demand is proportionate to the increase in ridership.

 On the other hand, change along the supply curve indicates that Delhi Metro follows the
incremental pricing strategy to overcome mainly the maintenance cost incurred.
TOTAL REVENUE GENERATION
MODELLING OF REVENUE FUNCTIONS
 Effect of Commonwealth Games on MRTS

In 2010, Delhi play hosted to the third largest multi-sporting eventin the world,
the Commonwealth Games.

 Tens of thousands of visitors descend upon the city. To prepare itself for this, the city
has plannedna major overhaul of its urban infrastructure as well as its sporting facilities.

Did the event lead to rampant and unchecked development, possibly unplanned?

Is the amount spent on such events worth it?

There are very good reasons for why developing nations are more adversely impacted by
such events.

They can be listed as:

1. High infrastructural development costs.

2. Under-utilization of facilities post event.
3. High opportunity cost of capital.
4. Unable to attract large numbers of spectators.
 The emphasis of the present Rapid Transport system was on the Metro.

 However more importantly, Phase II, aimed at extending the network much further in
the city, that was already under construction, and ready before 2010.

 This phase went upto requirement of massive investment, over Rs 8000 Crores. The
second phase is going to provide a vital transport link to East Delhi, with a dedicated
Games Village station.

 The second phase, originally planned to be ready by 2010-2011 had been operational
by 2009, due to the 2010 Games.

 The Total Revenue for the metro for the year 2007-2008 and the forecasted revenue
for the year 2010.
THANK YOU..!!