High Speed Railway – Bullet Train – in India

There has been a lot of discussion and debate in India on the Bullet Train between Ahmedabad and Mumbai. The High Speed Railway aka Bullet Train project was inaugrated during Japanese Prime Minister Shinzo Abe’s recent visit to India

There have been many questions on the bullet train.  Some of the questions raised are

• Does India need a bullet train?
• What are the economics of the bullet train?
• Is the investment financially viable?

In this blog I will look at High Speed Railways in different parts of the world and their performance. I will use surrogates to check if the  High Speed Railways is a viable proposition in India on the Mumbai-Ahmedabad and Mumbai-Delhi routes. I will also try to answer the question on whether India needs a High Speed Railway.

I will do a detailed calculation on the financials of the Mumbai-Ahmedabad High Speed Railway -some of you may glaze over it 🙂

High Speed Railways in different parts of the world.

High Speed Railway is defined as trains with speeds greater than 250kms per hour using dedicated and special rolling-stock (coaches, locomotives and power-cars).

Japan

Japan is where High Speed Railway was born.

In Japan the Tokkaido Shinkansen between Tokyo and Shin-Osaka opened in 1964, in time for the Tokyo Olympics.

After World War 2, Japan had many aeronautical engineers who had produced very good planes in World War 2. After the war, because of Japan’s pacifist policies, these aeronautical engineers could not work on aeroplanes.  So they used their skills to design and construct trains. So the Shinkansen looks like an “aeroplane on rails”.

The Tokkaido- Shinkansen line, from Tokyo – Osaka (515 kms) , is the busiest High Speed Railway line in the world. When it started, the Shinkansen ridership was 700 passengers per day. Currently the ridership is 400,000 passengers per day.

The Shinkansen network is now expanded to 2764 kms with multiple Shinkansen lines- Tohoku , Sanyo , Hokkaido , Kyushu , Hokuriku , Joetsu , Yamagata , Akita.

The Japan Railway – Central, Japan Railway – East and Japan Railway – West which operate most of  Shinkansens are profitable.

France

The TGV Sud-Est started operations in 1981 between Paris and Lyons (515 kms).

About 100,000 passengers take the train daily. The TGV has been designed to operate on conventional lines; it does not need dedicated high speed lines.

The TGV, since, has been extended in France and neighbouring countries – England, Belgium, Switzerland. The Eurostar and Thalys are TGV derivatives.

A TGV set the record for the world’s fastest train at 574 kms/ hour in 2007 (the record has since been broken by the Chinese HSR).

TGV services are squeezed for profits. But the high density TGV routes , Paris-Lyons and Paris-Nantes are profitable.

Taiwan:

In Taiwan, the HSR was opened in 2007, between Taipei and Kaohsiuing, a distance of 350kms. When it started, the ridership was 50,000 passengers per day which has risen to 140,000 per day currently.

Interestingly, after the HSR was introduced, within a few years 85% flights between Taipei and Kaohsiuing were discontinued. The passengers moved from air and buses. Bus passenger traffic dropped by 10%.

The Taiwan HSR covers 90% of Taiwan population.

The Taiwan HSR made operational profits within  4 months of start of operations. But on the books, it made a loss because the interest costs and depreciation were high.

China

China although a late entrant to the High Speed Railway now has the largest network of High Speed Railway in the world ~ 22000 kms.

The Beijing- Shanghai line is 1318 kms long; similar to the distance between Delhi and Mumbai. This line carried 150,000 passengers per day.  The travel time is 4 hours 24 minutes on the fastest service.

The line is profitable.

The China High Speed Railway offers many lessons to India. Both countries have many cities with population of over 1 million, cities interspersed at distances between 350kms – 1000kms and high population density

There are other High Speed Railways operating in the world- Korea (Seoul-Busan), Uzbekistan (Tashkent-Samarkand).

Factors for success – high passenger traffic and financial viability – for the High Speed Railways

Demographics and Economics

Based on the study by JICA (Japan International Co-operation Agency), the break-even ridership for the Mumbai-Ahmedabad HSR is 22,000 per day (before loan repayment begins in 15 years). Now is this number achievable?

Based on an analysis of the profitable lines, my hypothesis is that the key drivers of ridership and hence, likely financial viability of the High Speed Railway are:

1. Population of the cities connected by the High Speed Railway and
2. The GDP of the cities connected by the High Speed Railway. 

Now let’s analyse the Mumbai-Ahmedabad HSR from this logic – against the backdrop of data from other profitable HSRs. 

Graph showing ridership (size of bubble) co-related with GDP and Population

The ridership of 22,000 for Mumbai-Ahd HSR (indicated by the size of the green bubble) is much lower than other similar HSR lines ie. Taipei-Kaohsiuing and the Paris-Lyons TGV (in comparable time periods). Hence, this seems achievable.

As an aside, the Delhi-Mumbai HSR (if and when it is constructed) is similar to the Beijing-Shanghai in distance. But with a smaller GDP than Beijing-Shanghai, the ridership on the Mumbai-Delhi HSR is likely to be less than Beijing-Shanghai High Speed Railway – from the perspective of ‘ability to pay’.

Travel Time

High Speed Railway works well where the travel time is less than 5.5-6hrs – when door-to-door air travel becomes faster. This is also confirmed in studies in China.- Study 1 and Study 2, where conditions and assumptions would be comparable to India.

5.5-6hrs translates to a distance of 1000-1200 kms. One of the main reasons for the success of the High Speed Railway comes because passengers who earlier traveled by air between the origin-destination cities, move to the High Speed Railway. In many routes where HSR was started- Taipei-Kaohsiuing, Tokyo-Nagoya, Paris-Brussels – the flights were significantly reduced.

Let us compare travel times between Mumbai and Ahmedabad

Travel Time comparison – Mumbai to Ahmedabad – Air and Train

The travel time by the HSR is marginally higher. But cost of travel, punctuality and service (for eg. WiFi in train) may mitigate the marginally higher travel time.

So, from this perspective, Mumbai-Ahmedabad HSR should tick the box. 

Additionally, the HSR will attract passengers who travel between intermediate cities (Surat, Bharuch, Vadodara etc.) whose current options would likely be bus or regular trains. 

The Mumbai-Delhi line, on the other hand, whose distance is 1500 kms, may be debatable even though it may attract some traffic from intermediate cities like Vadodara, Ahmedabad, Jaipur – this line calls for more data and another blog post!

Other Factors:

In advanced countries, other factors for success – lower carbon emission and releasing capacity from passenger traffic for freight are considered.

The High Speed Railway by diverting traffic from air, reduces the carbon emission and hence is more “sustainable”. For developing countries like India and China, the primary consideration would still be financial viability – and lower carbon emission would only be a bonus.

In developed economies High Speed Railway passenger traffic diverts passenger traffic from the regular railway lines, freeing up capacity for more freight trains on those lines, increasing earnings for the railways. However, in India and China, the demand for regular passenger trains will always be high as demand far outstrips supply. So it is doubtful, if any passenger trains can be reduced after High Speed Railways operations start, to create path and capacity for freight trains.

Operational Viability vs Financial Viability:

For the 1^st 15 years (2022-2037) the  Expenses and Revenue on the Mumbai-Ahmedabad High Speed Railway are balanced. After 2037, the interest and principal have to be repaid. By 2037 Passenger ridership will have to increase to 50,000 per day, assuming fares in line with costs and expenses.

To summarize;

On the Ahmedabad-Mumbai High Speed Railway, the break-even ridership of 20,000 per day is reasonable. The travel time of ~ 4 hours is within the sweet-spot of High Speed Railways. These 2 key factors should make the Mumbai-Ahmedabad High Speed Railway, operationally viable  within the 1st 15 years – before repayment starts. Financial viability – loan repayment from 2037 onwards – also seems possible with conservative estimates of increased ridership (see Annexure for detailed financial calculations).

The other High Speed Railway routes possible in India are Mumbai-Delhi (1500kms), Chennai-Bangalore (350kms) and  Chennai-Hyderabad (630kms).

My belief is that High Speed Railways will induce  more people to travel.  It will unleash a “dormant” demand – people who needed to travel, but did not because of the higher cost of travel (by air) and the longer time needed to travel by regular train. In China also, the phenomenon of “dormant” demand for High Speed Railway was seen.

The other indicator, which increases my confidence in High Speed Railways is that air-travel in India is growing at ~16% per annum. This shows that there would be demand for High Speed Railways also.

Here is the link to a good study by the World Bank on China’s High Speed Railway.

Does India really need a HSR?

Maybe similar questions were asked when the Delhi Metro was being constructed. Today nobody questions the existence of Delhi Metro  – in fact one cannot think of a Delhi without the Metro. 

There are more good answers on this question of High Speed Railway on quora.

https://www.quora.com/Is-it-good-for-the-Indian-government-to-invest-in-bullet-trains-high-speed-railway-HSR-Is-India-really-ready-for-it

That said, I am going to share a cartoon by the great and legendary RK Laxman which says it all.

Who should manage the High Speed Railway?

The key to making this High Speed Railway a success,  is good financial management, cost management and operations management.

The High Speed Railway should be managed and operated by a special purpose vehicle which should have experts from all fields to manage the project and then to run the operations.

This model has worked for Delhi Metro and should be used here.

This project should not be given wholly to the Indian Railways. The Indian Railways while a great organization has a poor track record in safety, financial management, project management, marketing management and strategic planning. The Indian Railways management has managed to run to ground the good and great organization that is the Indian Railways. (Discussing the issues of the Indian Railways will need a series of blogs!!)

Annexure:

Cost and Financial calculations of Mumbai-Ahmedabad High Speed Railway

I will work out the costs, expenses & revenue to determine the financial viability of the High Speed Rail.

For the High Speed Rail., Japan has given a loan of Rs 79000 crore (crore = 1 x 10⁷ ) to be repaid over 50 years with a moratorium of 15 years. Indian Government will provide the balance Rs 19 billion.

To calculate the costs, I have used the data found on the internet.

I have appended the data below.

The highest costs have been assumed for the Mumbai Ahmedabad High Speed Rail

Costs of the High Speed Rail

I have used the highest costs, to be conservative.

Costs in the 1^st 15 years of operation 2022-2037

Operations and Maintenance Costs

1. Infrastructure Maintenance Costs: $ 200,000 per route mile per year

= US$ 200,000 x Rs 60 per US$ x 300 miles =  Rs 360 Cr

2. Equipment Maintenance Costs:

= US$ 10 x Rs 60 per US$ x 40 trains x 300 miles x 365 days per year

= Rs 270 Cr

3. Train Operation & Maintenance Costs

= US$ 20 x Rs 60 per US$ x 40 trains x 300 miles x 365 days per year

= Rs 540 Cr

4. Station Costs

= 15 Cr per station x 12 stations = Rs 180 Cr

5. Adding Administration, Contingency Expenses of Rs 250 Cr per year

Total Costs = Rs 360 Cr + Rs 270 Cr + Rs 540 Cr + Rs 180 Cr  + Rs 250 Cr = Rs 1600 Cr

Revenue

= Rs 2200 per one-way ticket x 20,000*  passengers x 365 days = Rs 1600 Cr per year

So for the 1^st 15 years, Expenses and Revenue are balanced.

After the 15 years moratorium, the interest and principal have to be returned.

Costs after the 15^th year of operation 2037 onwards

Assuming that all Expenses increase @ 10% per year.

The breakup is as below;

1. Infrastructure Maintenance Costs: Rs 1500 Cr

 

2. Equipment Maintenance Costs: Rs 2250 Cr ( assuming double the number of trains from 40 train sets to 80 train sets)

Train Operation & Maintenance Costs: Rs 4500 Cr ( assuming double the number of trains from 40 train sets to 80 train sets)

3. Station Costs: Rs 750 Cr

4. Administration, Contingency Expenses : Rs 1050 Cr

5. Interest Cost:

0.1% x Rs 79,000 Cr = 79 Cr per year

6. Capital:

Rs 79,000  Cr / 35 years = Rs 2260 Cr year

Total Cost of Borrowing = Rs 2350 Cr

Total Cost = Rs 1500 Cr + Rs 2250 Cr + Rs 4500 Cr + Rs 750 Cr + Rs 1050 Cr + Rs 2350 Cr + = Rs 12400  Cr

To get a Revenue equal to Rs 12400 Cr, in 2038, Passenger ridership will have to increase to 55,000 per day and Price of  a one-way ticket will have to increase to Rs 6250 @ ~ 9.5% per year.

So the financial viabilty of the project after 15 years is possible. The financial viability depends on keeping costs low, running the operations efficiently and passenger traffic increasing.

	Year 2022 (All figures in Rs Cr)	Year 2037 (All figures in Rs Cr)
Infrastructure Maintenance Costs	360	1500
Train Operation & Maintenance Costs	540	4500
Station Costs	300	1250
Administration, Contingency Expenses	100	425
Interest	0	79
Capital	0	2260
Total Costs	1300	10025
Price per ticket	2200	6075
Passengers	20000	55000
Revenue	1320	10025

There is one more variable in the costs- the risk of INR-YEN exchange rate fluctuation.

I am assuming the loan is denominated in YEN. I do not know for sure if the loan is denominated in INR or YEN.

Looking at data of the past 5 years, it seems that the INR-YEN exchange rate is stable and varies in a narrow band. So, Exchange Rate risk should be low.

So the financial risks are;

1. Passenger traffic has to grow at 7% per year for 15 years
2. Passenger fares have to increase @ 9.5% per year
3. INR-YEN has to be fairly stable

Mitigating factors:

1. Costs are taken at the highest levels; cost could be lower
2. Revenue from other non- ticket streams – advertisement, space rental at stations- is not considered
3. INR-YEN Swap Deal can be done to mitigate the exchange rate risk

To summarize, for the 1st 15 years the Mumbai-Ahmedabad High Speed Railway is financially viable. By 2037, the ridership should have increased sufficiently to make the Mumbai-Ahmedabad High Speed Railway  financially viable.

 

 

Bus Rapid Transit (BRT) – A comparison

I moved to Jakarta about a year back. Right in front of my office is a Bus Rapid Transit corridor and bus -stop.

I was amazed to see that the BRT was working well in Jakarta. The BRT was well-patronized. I am saying I was amazed, because where I came from, in Delhi the BRT never really took off.

It prompted me to explore the reasons for the success of the BRT in Jakarta and failure in Delhi.

Here is my analysis.

Reminds me of a quote;

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat”

– Sun Tzu

 

 

Nutan Mumbai Tiffin Box Suppliers Association

About 3 weeks back, I had the immense good fortune to listen to Mr Raghunath Megde, speak to us about customer service. Mr Raghunath Megde is the President of the Mumbai Dabbawalla Association.

It was a very humbling experience. He spoke from his heart and all the 700+ people listening to him, enjoyed his talk. We must have clapped scores of times during his 45 minute talk.

His talk got the me thinking. What was the secret ingredient that made his organization so successful? What are the lessons for us?   Many articles and case studies have been written about their service. But what I have tried to do is cull out what I thought were the important points from a Logistics standpoint and what I learnt from the excellent talk.

Setting very clear targets – This is a cliché, but this organization really follows it. The goal is that all meals must be delivered between 12.30 and 13.30 hrs. It is as simple as that.

That is the only target or goal of the dabbawallas. They have no other targets. They have kept it very simple. No Employee Satisfaction Survey scores, no customer satisfaction scores, nothing.

The dabbawallas do not even pick up cellphones during this time.[ I know that many German companies do not allow their workers to use cellphones on the shop floor]

Link to a bigger mission – The delivery of meals has been linked to religion. As per the   Hindu religion, there is no bigger and better good deed than feeding someone. Linking the delivery of food to a religion is very smart. In India (as I am sure in many parts of the world) work in the name of religion, is done with full dedication and sincerity. There is no debate or   arguments on a goal or mission linked to religion.

Discipline – Absenteeism without notice is fined Rs 1000 (US$ 17) about 10% of his monthly salary. Not wearing a cap, which is part of the uniform, is fined Rs 1000. Discipline is very essential in logistics. A picker absent in a warehouse or delivery boy absent without notice in a courier company or a truck driver not coming on time leads to delays and logistics failures.

The discipline is required to ensures reliability of service and delivery.

Trust –The dabbawallas trust each other implicitly. The dabba (lunch box) passes through so many hands At the railway stations, the dabbawalla will handover the lunch boxes to a person wearing the cap (which is a symbol of the dabbawalla). The trust element is all pervasive. This ensures that each person in the supply chain link focusses only on his part of the job without looking over his shoulders or checking if  the previous person in the supply chain is doing his/her job correctly.

Owning all elements of the supply chain- The dabbawallas have not outsourced any activity to a 3PL or 4PL. The only service they do not have control is the Indian Railways, which runs a very efficient suburban service in Mumbai. Is there a lesson here? Do 3PLs/4PLs have to be partners rather than vendors?

Backup – Every team has backups so that in case somebody is absent, another person steps in for the person. In modern organizations, there is always a focus on reducing headcount to the extent of impacting customer service. I believe that organizations should be lean, but there is an optimum number required to deliver quality service.

It was a good start to 2014 for me! Wish all of you A Great 2014!

Myth Buster – Diesel and Electric Locomotives

Are you one of those who believe that;

Electric locomotives are less polluting than Diesel locomotives;

Electric locomotives are technically superior to Diesel locomotives;

Steam locomotives to Diesel locomotives to Electric locomotives is the natural technological progress;

Diesel locomotives deplete our foreign reserves since bulk of the diesel is imported;

If you have answered YES to any of the questions above then please read on. Many misconceptions will be cleared and clarified.

Pollution

When you see diesel locomotive hauling a train you see smoke coming out of the chimney while an electric locomotive chugs along along without any smoke. This would lead you to conclude (wrongly conclude) that diesel locomotive are polluting while electric locomotives are non-polluting.

This is similar to cleaning your house by throwing your garbage out on the road and claiming your house to be clean while complaining that the road is dirty. What does this analogy have to do with Electric locomotives and Diesel locomotives?

To compare like to like, the pollution at the power plant that produces the electricity needs to be compared to the pollution generated by the diesel locomotive.

Based on analysis, the results of the pollutants in gms/ bhp-hr is as below;

	Particulate Emission	SOx	NOx	HC	CO
Diesel Locomotive	0.45	0.78	10.44	0.02	2.80
Electric Locomotive	0.51	3.38

Source: Diesel Traction – The Environmental Friendly Option ; AK Kathpal, RDSO

url: irsme.nic.in/files/dsl-kathpal.pdf‎

As the table above shows very clearly and obviously, an Electric locomotive is more polluting than a Diesel Locomotive.

Availability of Electricity

The Indian Railways uses about 11 billion units of electricity per year (or about 1300MW) about 1% of the electricity produced. However, given that India is short of power, by about   14,000 MW, the Indian Railways, if it had electrified only the routes that justified electric traction, could have reduced the shortage of power by about 5%.

5% may seem small but to put in perspective this could have lit up 650,000 homes.

What this electricity shortage also does is encourage use of inefficient diesel generating sets and diesel pumps.

When I say inefficient, I mean inefficient compared to a diesel locomotive on Indian Railways which is micro-processor controlled and which meets Euro 2 or CPA – 2 standards.

This in turn means more imports of crude oil which is then put to in-efficient usage in pumps and diesel generators. Had electrification been limited to the routes justifying electric traction, the electricity shortage would have been less and less number of in-efficient pumps and diesel-generating sets would have been used.

Costing

Is Electric locomotive operations cheaper than Diesel locomotive operations?

Before I answer that question, let me step back. Electric locomotives have a high capital expenditure but a low operations (or running) expense. The capital expense is high because of high initial cost for the equipment ; overhead electric catenary, sub-stations, transformers have to be constructed for electric locomotives to operate. When the traffic is high (Gross Tonne Kilo Metres, GTKM) then it makes economical sense to have electric traction as the capital cost to setup the electric equipment is divided by a larger amount of traffic and the lower running costs justify the investment.

In the Indian Railways context this threshold traffic in GTKM per year was fixed as 47 million GTKM per year. The irony is that only a small % of the electrified routes make the cut according  the criteria. In fact there are routes that have been electrified that have negative ROR!

To explain this concept, let me take an Indian example.

Diesel in India is cheaper than Petrol -why this is so and the vitiated reasons behind this is another story. But diesel cars are more expensive than petrol cars ie, capital cost is high. Maintenance costs of diesel cars is more than petrol cars. Diesel cars are more fuel efficient than petrol cars ie Operating Costs are lower. Given this data, people in India buy a diesel car only when their usage of the car is more than a certain kms/ month or kms/year similar to GTKM on Railways) which justifies a higher capital cost but lower running expenses. What would you call someone who has all this data but buys a diesel car despite not having the minimum usage to justify a diesel car.

Railways across the world which are electrified have a higher operating ratio (ratio of expenditure to earnings)  France: 44% electrified and operating ratio 184%, Italy: 59% electrified and op. ratio 200%, Sweden: 59% electrified and op. ratio 169%, Bulgaria: 63% electrified and op. ratio 325%, Austria: 59% electrified and op. ratio 205%, and Amtrack (USA) is 100% electrified with an op. ratio 146%.

Railways which use diesel traction have lower operating ratios: USA 0.9% electrified and operating ratio – 81%; Canada 0.1% electrified and op. ratio 86%, Australia 9.6% electrified and op. Ratio 89%.

An individual can be excused for making a mistake. But what about the Indian Railways  which has made such a colossal blunder at the cost of the nation.

So how has this wrong decision impacted the Indian Railways and India?

Indian Railways loses an estimated Rs 2000 Cr* (Rs 200 Billion or Euro 2 billion) every year, because of this wrong decision. This Rs 2000 Cr could have been used to reduce freight costs or improve  the railway infrastructure.

*Jal Khambata – Railway’s Electrification Mania

http://www.angelfire.com/in/jalnews/212991.txt

Also from a strategic and security standpoint, why would anyone electrify routes close to the border areas? Sub-stations and overhead wires if destroyed, are more difficult to restore.

What is the reason for this mindless electrification?

Politicians believe that getting electric traction to their constituency can be touted as progress and leveraged for votes. The contracts of maintenance of over head equipment, sub-stations is worth big money and hence there are many vested interests.

So the next time you see a train hauled by an electric locomotive and think of how clean and non-polluting it is, think of all the smoke and pollution from the power plant. And also think of all the unlighted and dark houses who have been robbed of electricity because of this mindless electrification.

Hope this has cleared some of the myths in your mind regarding Electric locomotives and Diesel locomotives.

http://irsme.nic.in/files/CTracSaxena2.pdf

http://www.angelfire.com/in/jalnews/212991.txt

http://irsme.nic.in/files/FACT_RLY_ELC.pdf