If Indian Govt becomes ready to sink in the vast money in it,
There is very less chances to run it on financially sound basis
By S. K. Sharma*
The bullet trains are generally classified as High speed trains more than 300 Kilometers per hour (kmph). The bullet train are running at present in many countries as high-speed rail to connect major cities, in China, France, Germany, Italy, Japan and other several other countries. The bullet trains commercial speeds are hovering between 300 kmph and 430 kmph in a typical track vehicle interaction mode. The track gauge is generally standard gauge (1435 mm) in Japan and European railways resulting that most of the high speed technology has been developed on standard gauge viz track, coaches, engines, signalling, telecommunications and electrical systems.
At this high speed the track vehicle interaction becomes highly sensitive to even minute obstructions like a small pebble or a small iron piece which may cause major catastrophe. In Indian conditions major obstruction on the track are quite common. Even under ordinary passenger trains, people place 4 annas coin to convert it into 8 annas coin playfully. Or they simply put nails in track joints to see what happens. Not only village illiterate but also urban literate people find the track as most convenient place for morning chore where even politics is discussed in addition to relieving themselves. The crossing of track takes place not only on level crossings but also on plain track which leaves any high speed operation to a horrendous imagination in case of any catastrophe.
The Indian railway track suddenly develops the major grasslands on both sides and Indian cattle have become habitual in track crossings. In such circumstances any high speed operation even beyond about 140 kmph becomes a big question mark leave alone the bullet train operations. For this to solve, various suggestions are made. The continuous fencing becomes too prohibitive and chances of fence breakage are fairly quite common hopefully. The avoidance of all level crossings by Road over bridges or Road under bridges may not prove to be a solution since it may not provide a guarantee that people on both sides shall not cross the track or cattle shall not graze the track greenery on both sides.
To run a high speed train on mixed traffic route (Where goods and passenger trains operate on the same track) is not technically possible since the track design, track degradation and maintenance practices are quite different for slow moving high axle load goods trains and high speed low axle load passenger trains. Therefore to sum up for high speed bullet train operations a new dedicated over head elevated alignment over columns along with Cab signalling becomes a must. Under this arrangements large scale land acquisition problem shall also be addressed. Some quarters oppose the construction of High speed train structures on viaducts (Elevated) since it is unsafe. California High speed track was constructed on ground with an added advantage of lesser cost. Japan has been operating High speed train operations on elevated tracks for more than 40 years without a single mishap. In Indian scenario if the probability of an accident on elevated structure is one in million then with surface track the probability of an accident is quite high in High speed operations due to various reasons as mentioned above.
Under bullet trains operations since trains operate to and fro from both directions keeping track crossings to the barest minimum only at terminals, double line track is absolutely necessary. Since high speed is possible technically only with electrification therefore electrification of these double lines, is a bare necessity.
High-speed rail development began in Germany in 1899 when the Prussian State Railway joined with ten electrical and engineering firms and electrified 72 kilometres (45 miles) of military owned Railway between Marienfelde and Zossen. The line used three-phase current at 10 kilovolts and 45 Hz.
In Japan High Speed Railway operations started with the new service, named Shinkansen (meaning new trunk line) providing a new alignment, on standard gauge, continuously welded rails using new rolling stock provided the High Speed services at the speed of 300 Kmph. But this speed was only a part of the Shinkansen revolution. The Shinkansen offered high-speed rail travel to the masses. The first Bullet trains had 12 cars and later versions had up to 16 and double-decker trains further increased the capacity. After three years, more than 100 million passengers had used the trains, and the milestone of the first one billion passengers was reached in 1976. In 1972, the line was extended a further 161 km (100 miles), and further construction has resulted in the network expanding to 2,387 km (1,483 miles) as in March 2013, with a further 776 km (482 miles) of extensions currently under construction and due to open in stages between March 2015 and 2035. The cumulative patronage on the entire system since 1964 is over 10 billion, the equivalent of approximately 150% of the world's population, without a single train passenger fatality.
Let us analyse the financial aspects of bullet train construction and operation for a sample test case let us say from Mumbai to Ahmedabad, 500 Kms.
The construction cost shall include the cost of structures, track, electrification, Signalling and telecommunication works, rolling stocks and other appurtenances.
Hyderabad elevated metro is costing about Rs 200 Crs per km including rolling stocks running in the speed range of 80 Kmph. If this is to be adjusted to a speed potential of 300 kmph and above, this cost is expected to be about Rs 300 Crores per Km at today costs.
In USA, the estimated cost of building a key Central Valley segment of the California bullet train has increased by manifold from the original estimate, based on figures in an environmental impact statement approved by the Rail agency. The California High speed corridor (1300 Km) with a speed of 320 kmph in 2014 is costing about Rs 284 Crs (Inflation adjusted @7% per annum).
In USA again,the estimate prepared for the state by a team led by San Francisco-based engineering firm URS Corp., includes higher costs for tracks, structures, land purchases, signals and electrical systems in a segment that would run from Fresno to Bakersfield. The lowest cost estimate for the 114-mile segment in a 2011 environmental report was Rs 211 Crs per km (Taking the conversion rate of Rs 54.00=1 Dollar in 2011). If this cost is inflated to today cost then it shall increase to Rs 259 Crs per km taking into consideration the very modest inflation rate of 7%.
In China, the high speed track on viaducts(Elevated) is costing about 4 Crore dollars per km in 2011 for a speed potential of 350 Kmph which is equivalent to about Rs 241 Crores per Km. Since China is a cheap labour economy therefore the concept of PPP (Purchasing Power Parity) is to be applied if these figures are to be compared with Europe or USA.The present PPP conversion rate is about 0.56, therefore the comparable cost comes to about Rs 439 Crores per Km.
The present day cost of elevated structure in Chennai Metro of standard gauge is about Rs 220 Crore per Km for a speed potential of 80 Kmph and if the same type of structure is to be constructed for a speed potential of 300 kmph and above for bullet trains, electrical/Signalling and telecom systems to be of sophisticated fail safe feature then the approximate gross estimate is expected to be in the range of Rs 300 Crs per kilometre.
In Japan the origin country of Bullet Train concepts and originally called as Shinkansen Trains infrastructure was constructed and operation started in 1965 for a distance of 507 Kms between Tokyo and Osaka at a cost of Yen 400 billion in 1965.Taking the exchange rate of 1 Rs=2 yen in 1965 and a very realistic inflation rate of 5% over a longer time span of 50 years the present day cost comes to about Rs 440 Crore per km.
The cost reference per Km taken from foreign countries as detailed above are; Rs 284 Crores (USA), Rs 259 Crores (USA), Rs 439 Crores (China), Rs 440 Crores (Japan). Also these figures are to be adjusted to to PPP (Purchasing Power Parity ) to Indian conditions which may not be relied upon since it depends on monthly variation of labour and wages,WPI and CPI which is very volatile now a days.
The labour market is changing due to large volatility in investment scenario in infrastructure not only from Govt but also from Indian private sector and foreign investors. Therefore two figures from our own Indian projects i,e Hyderabad and Chennai Metro adjusted to 300 kmph appears to be more reliable and that too on lower mode say about Rs 300 Crores per Km. Therefore Bombay to Ahmedabad Bullet Train infrastructure shall cost about Rs 1,50,000 Crores (5000x300).The most important question is therefore where this colossal amount of Rs 1.5 Lac crores shall come from.
Before proceeding further let us analyse one very important factor about Bullet train operations. On all Bullet train operations or High speed Rail operations, the trains operate from city centre to city centre, to eliminate the delay in approaching the stations at origin and destination both. After coming out from home an using the road for shortest journey one can catch the bullet train and on reaching the destination again by using the road transport for a shortest distance he shall finish the job and again come to city centre and catch the back train.
In this scenario, let us assume that the time taken from Bombay city centre to Ahmedabad city centre is about 100 Minutes by taking the average speed of 300 kmph. As per Peter Jomitsma formula, the rail market share comes to about 87%. In both these cities, it is next to impossible to approach city centres (It can be taken underground to city centres) in which case it shall be extremely costly beside posing difficult situations of dealing with multi storied structure foundations in various soil conditions.
In addition it shall cause immense inconvenience to public in construction phases which may create anti Bullet Train feelings thus fraught with danger. Therefore the origin and destination stations shall have to be constructed at city boundaries at Bombay and Ahmedabad. Let us assume that the travel time at both stations to catch a train and his home is 60 minutes on either side therefore the total travel time between home and final destination shall be about 220 minutes in which case the rail market share shall drop to 50%.
There are lot of confusions about PPP (Public Private Partnership) and FDI(Foreign Direct Invstment) at least in Indian Railway Circles. PPP simply means that one portion of fund comes from Govt and other from private investor/sector. This private sector fund can come either from domestic investor and/or it can come from Foreign investor (FDI). Similarly the Govt portion can either come from Govt own funds or loan/Assistance/Aids taken/borrowed from local public/other Govts on Govt to Govt basis. Here it shall be extremely important to note that present interest rate in India is about 7.5% while in International market the interest rate hovers around 3.5 % to 4.0 %.
While dealing with Indian conditions in all contracts a extra margin of 10% is kept to meet administrative expenses. Recently Japan the originator country of bullet trains pledged a loan of about Rs 80000 Crores at an interest of 0.1% on one of the most attractive repayment terms after pretty strong negotiations for the financing, with a 15-year moratorium on a 50-year repayment period for Mumbai-Ahmedabad Bullet Trains. The period of construction has been assessed as 7 years.
With this arrangement the annual return from Bullet Train operations must be around 10.1% for Japanese investors. Whatever may be the occupancy/frequency of bullet trains such a high return can never be expected from any Rail operations leave alone bullet train operations. For other sector bullet Trains in case sufficient publicity is given in International circles, definitely some foreign investor backed by their Govts shall show their interest on the conditions that their Govt shall give the soft loan to Indian Govt subject to the conditions that (1) - Entire contract shall be given to their companies and (2) - All imports shall be from that Govt including technology.
The soft loan to Indian Railways or any other Organization without federal guarantee is highly improbable, therefore Govt of India shall primarily be a debtor country indirectly. In other words, the soft loan shall be given to their companies to invest in Bullet Trains in India subject to the conditions that; (1) - The foreign investor shall execute the project. (2) - The entire imports shall be from that country. (3) - The entire technology shall be from that country. Though Japan has agreed for technology transfer but in general for other sectors it is important to note that, that country shall resist tooth and nail on two counts; (1) - The Bullet train technology shall not be transferred. (2) - Make in India moves shall not be enforced because their own exports shall be hampered.
In case of Japan for Mumbai-Ahmedabad bullet train operations the initial shocks of losses shall be borne by India because this is a simple loan. In other cases various International firms fully backed by their govts shall show interest only on the concept of Viability gap funding model by Indian Govt. In this process the project cost shall be artificially jacked up and also they shall raise the level of expected profit to a new high level to maximise their gains. If Indian Govt shall show less interest or question their motives the threat of non participation shall be given. These FDI investors fully backed by their Govts not only jack up the price tag artificially but shall also enjoy the low interest rate available in International market.
The biggest attraction of such loan/ investments by various foreign govts backed investors shall be; (1) - The GDP of foreign govt shall improve and (2) - They shall improve the employment opportunity in their countries and in India marginally by exporting manpower and various components to India on the plea of adopting High quality, improved, latest and Modern technology even if some components are available locally.
These type of investments shall be beneficial to India partially that too by agreeing to various conditions put forth by foreign investor. The partial benefit shall be in the form of firstly out of Rs 1,50,000 Crores only contribution of fixed structures costing about Rs 40,000 Crores shall be spent with local materials by employing large nos of cheap Indian labour.There shall be a jump of Rs 8000 Crores per year in Indian GDP subject to the conditions that most optimistic time of implementation shall be 5 years. Therefore the Indian GDP growth shall jump only by 0.0016% i,e from present level of growth of 7.3% to 7.3016% taking GDP of India as 8.02 Trillion dollars as in 14-15 and one dollar exchange rate of Rs 65.45 in Nov 2015 which is very negligible.
The bullet train proponents shall argue that the employment opportunity shall increase. Yes that shall be only partially on the presumptions (From published literature) that for every one percent increase in GDP in India the employment increase by only 0.2%, the net employment opportunity shall increase by only 0.0003% very very negligible and miniscule. The employment Opportunity shall certainly increase if we compress the time of Bullet Train implementation to two years which is practically and technically possible but highly improbable in present Indian conditions.
It shall be interesting to return to the question of gauge that why we are stressing the Standard gauge .Firstly all High speed technology has been developed on Standard gauge and not on present day Broad Gauge(1676mm).The transfer of technology is practically impossible in a shorter time span but also fraught with danger that BG shall be impressed by Indian Railways since it shall then be a half cooked potion in the hope that this Bullet train operations shall be integrated with Indian Railways. This shall be the net in which only intelligent investor shall refuse to trap in since then on such type of Bullet Train track, there shall be biggest attraction to run Slow/high speed passenger and slow speed high axle load freight trains also with numerous types of rolling stocks. This stage shall be the start of death process for bullet train operations since the track structure behaviour shall change completely and making it completely unsuitable for high speed Bullet train operations any more.
The other indirect advantage may be; (1) - Since up and down movement shall be easy therefore housing need and consequential pressure on infrastructure in Bombay shall reduce. In such eventualities, Ahmedabad shall be benefitted since there shall be increase in Demand of infrastructure.
Coming back to proposed loan arrangement of Japanese loan for Mumbai-Ahmedabad Bullet train operations the implementation of 7 years is highly optimistic touching to the periphery of impossibility which may extend to 10-14 years easily. In that case the cost of Rs 1,50,000 Crores shall be twice or thrice easily.
Lastly, for Bullet trains first finding a investor shall be an uphill task and if Indian Govt becomes ready to sink in the vast money in it, there is very less chances to run it on financially sound basis.
Even if we are able to run it on sound financial basis the advantage of GDP growth and employment growth shall be very minimal. The only dimming and remote possibility may be that after getting the technology transferred fully and by putting on its head Make in India cap, we may export again the Bullet Train Technology to other Countries.
(*Author is Retired Additional General Manager of Indian Railways. The views expressed here are his personal views.)