Namma Metro needs to develop property

Namma Metro needs to develop property

If Namma Metro apes the Hong Kong model of 'Rail plus Property', it can reduce fare and decongest roads.

It comes as no surprise that Namma Metro plans to increase fares by end of this year or after completion of Phase I. And the news to impose a betterment levy for people living within one kilometre of Namma Metro stations must be a shock to residents.

An unknown Bangalore Metro Rail Corporation Limited (BMRCL) official made a case for upward rise in metro fares by a minimum of 50% as they are currently on a par with the Bangalore Metropolitan Transport Corporation (BMTC). Lacking funds for investments, the state government recently proposed seven mantras like betterment levy, cess on approval of new layouts etc to mobilise resources for transport infrastructure projects.

That the current metro fare structure is unviable is widely known to many in the state government and the BMRCL. Moreover, the initial demand projection that Namma Metro will service a million passengers everyday has become a pipe dream. After the initial hurrah, Namma Metro ridership currently stands at 1.75 lakh passengers with a revenue collection of about Rs 35 lakh per day and an average ticket price of Rs 25 per commuter.

After completion of Phase II, a generous estimate can put ridership at five lakh commuters per day and even assuming a 50% ticket price hike, annualised revenue will be about Rs 675 crore. Namma Metro like every other metro system in the world will struggle to breakeven and plead for grants and subsidies from state government.
 
Instead, the BMRCL must look at the business model of Hong Kong subway and bus system where a listed company – Metro Transit Railway Corporation (MTR) – operates the subway and bus network system. It indeed provides world-class service without breaking the bank or demanding subsidies. The MTR is unique in raking in HKD 8.6 billion profit on revenue of HKD 41.2 billion. Five million commuters use it every day while fares are dirt cheap starting at HKD 4.5 to an average of HKD 20 for a single journey based on the distance.

It boasts of a 99% on time arrival and has an excellent feeder bus system to support the rail network. The MTR’s impressive fare recovery ratio (percentage of operational cost covered by passenger fares) of 185% is the highest in the world and unmatched by any other subway system. The MTR expertise is much in demand across the globe. It operates two lines in London Tube and the entire Melbourne and Stockholm subway systems. Despite its remarkable fare recovery ratio, MTR’s outsized profits are not from the rail and bus network but from property development.

Hong Kong MTR functions on a business model essentially known as “Rail plus Property”. It owns two of the tallest skyscrapers in the city and about 50 other properties – offices, malls and residences – next to every transit station. The profits from these real estate ventures help keep fares low and provide funds for timely maintenance and capital expansion.

Symbol of efficiency

With the power to hire and fire workers at will, MTR is a symbol of efficiency providing world class service to customers. Herein is the lesson for Namma Metro as it embarks on expansion of Outer Ring Road (ORR) Line and seriously considers introducing a line to the Kempegowda International Airport.

As it plans for Phase II, the state government and BMRCL must seriously consider implementing Hong Kong MTR’s “Rail plus Property” model. The ORR stretch will cover about 16 km while a line to the airport from Cubbon Park will be close to 30 km. Fortunately, along these two lines are numerous IT/BT offices and hence, the demand for office space will continue to be high.

The BMRCL will be wise to get extra land allocated for construction of office buildings along these two stretches that will yield an annual rental value of Rs 1,000 crore. If a building already exists, using the “eminent domain” principle, it should sign a joint development agreement with existing owners to increase the capacity and add floors/facilities. 

By implementing the Hong Kong MTR model, the BMRCL can keep Namma Metro fares low and affordable, avoid subsidies and more importantly, introduce feeder bus system on its own. Already BMTC’s Volvo buses are unaffordable to most bus users and Namma Metro should not go the Volvo way. Also, after the recent bus strike, many citizens want a competing service to BMTC. The BMRCL will find the much-needed public support to start feeder bus services and at a later date, introduce additional services to compete with the BMTC.

Bengaluru’s public transport system needs out-of-the-box ideas to revive itself from the cu-rrent financial abyss. “Rail plus Property” model offers a golden opportunity for the BMRCL to be an independent entity devoid of government interference.

With proper implementation, it will serve dual purpose – decongest inner roads of Whitefield and ITPL and introduce competition to the BMTC. It should seriously consider mimicking Hong Kong MTR in the next two phases that will enable Bengaluru to be a torch bearer for a public transport model across the country.

(The writer is a Bengaluru-based money manager)
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