Exploiting real estate, besides fare hike – the only option left for Mumbai Suburban Rail to recover from losses

Mumbai: Mumbai’s suburban railway system is deep in the red. Cumulative losses over the last five years have touched Rs 4,150 crore, and losses for the year 2013-2014 alone amounted to Rs 1,111.8 crore. The situation has sparked fears that the quality of services may be affected if a turnaround does not happen.  The situation has been deteriorating at an alarming rate since 2008-09, reveals a white paper on the entire suburban system – the Western, Central and Harbour lines – that the Mumbai Railway Vikas Corporation (MRVC) is preparing.

The losses had not breached the Rs 50 crore mark till 2006-07, but they zoomed to Rs 328.6 crore in 2008-09, the year in which the Central government announced payment of Sixth Pay Commission salaries with retrospective effect from January 1, 2006. An MRVC official said, “This dealt a body blow to the finances of suburban railway.”

After that, it has been all downhill, and according to the official, “from a profit of Rs 80 crore in 1999-2000, we are bleeding by more than Rs 1,000 crore per year. I suspect the losses may cross the Rs 1,400 crore mark for the financial year 2014-15.”

The introduction of more rakes and services over the years and the fact that the suburban system’s non-fare revenue is only 6.5% of its total revenue are among the factors that have contributed to the losses.

Another reason for the losses is the absence of political will to increase fares at periodic intervals. For example, there have been only three fare revisions since 1999: in 2003, in January 2013 and June 2014.

The white paper is being prepared on the directions of railway minister Suresh Prabhu, who himself is from Mumbai.

According to railway officials, the benefits of important projects like the Mumbai Urban Transport Project (MUTP-I) began to accrue around the same time as the losses mounted, but it has proved to be a costly affair. The first MRVC rake under the MUTP-I arrived in July 2007 and was put into service by November that year.

“In 1999-2000, there were only 123 12-car equivalent rakes. As the MUTP-I rakes began rolling out, the railways began not only to augment more 9-car services into 12-car and 15-car ones, it also introduced more services, increasing operation and maintenance costs,” an official said.

In 2008-09, the capacity of 12-car equivalent rakes increased to 148. The fleet strength is now 197, a 60% rise in rakes since 1999-2000. The number of services too has jumped from 1,544 in 1999 to 2,679, an increase of 73%.

Railway officials said the lack of finances is posing a problem for the upkeep of the system. MRVC’s chairman and MD Prabhat Sahai said, “We need innovative solutions to shore up finances. Not only a fare hike, but other options of beefing up finances are also necessary to increase passenger comfort.”

Railways must look for out-of-the-box solution – should exploit for revenue streams from Real Estate and fare hike

The railway ministry and the state government need to look for out-of-the-box solutions, including a fare hike, exploitation of real estate and subsidies to shore up finances of the suburban railways, which cater to almost 75 lakh passenger per day.

Affordability and sustainability are key to ensuring commuters are willing to pay the right fare and the operator is able to run the services without compromising on safety, maintenance and comfort.

A fare hike is a solution but not panacea for all ills. An official said, “A survey revealed that commuters are comfortable with only a 15% hike. This should be the first step, even though it will give us Rs 250-300 crore more, which still leaves the suburban railways with a loss of around Rs 800 crore.”

The official said the railways was subsidizing the cost of private enterprises by charging low fares.

He said, “If higher fares are charged, traders and corporates will have to increase conveyance allowance to retain their workforces.”

Mumbai is the costliest city in terms of real estate but the railways has failed to exploit its potential.

A senior MRVC official said, “In Mumbai, only 6.5% of the revenue is through fare box revenue. Of this, only 27% of it is through rentals from stall-owners. We need to create more commercial space at stations to earn good revenue. It is challenging as we cannot open a mall or shopping centre, even though people would find it convenient. But it may add up to congesting the station building.”

He said, “The Delhi Metro Rail Corporation (DMRC) is able to earn almost 20% from non fare-box revenue. The Hong Kong Metro earns 41% through exploitation of real estate.”

The DMRC also got transit-oriented development approved, which will allow it to further earn revenue through real estate development and help keep fares affordable.

The official said, “The electricity tariff is Rs 9 per unit, which is costly, as power utilities are assuring uninterrupted supply. On the other hand, the DMRC is getting power at Rs 6.50 per unit. The power that the suburban railways consumes is for public benefit. The government should step in and subsidize the cost of power.”

The government must also set up a dedicated fund by levying a cess, tax or parting with revenue earned from real estate-related transactions by way of stamp duty and registration. He said, “The property value increases when a mass rapid transport is efficient in a city. The railways has never benefited from this property boom. The dedicated fund can be used to subsidize all forms of public transport.”

The official felt it was futile to expect the railways to bear the burden.