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Analysis of Metro rail Project selection Bias with Principal-Agent Model

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Analysis of Metro rail Project selection Bias with Principal-Agent Model A case of Delhi,Bangalore,Mumbai,Jaipur and Chennai Vinod Rathod Background Urban Metro Projects have proven to be very useful in
Analysis of Metro rail Project selection Bias with Principal-Agent Model A case of Delhi,Bangalore,Mumbai,Jaipur and Chennai Vinod Rathod Background Urban Metro Projects have proven to be very useful in decongesting large cities. 148 cities around the world had Metro System. In World Metro systems carry 150 million passengers per day. In India, many cities are now considering the Metro system as an alternative The 12th fifth year plan Urban Transport group has recommended, Metro is only one of the Options for decongestion. Growth of Metro rail system Growth of Metro rail system in India kms (Canavan, 2015) UnderConstruction (in Kms) Operational (in Kms) Background Metro rail Transit is attached with the High capital and operating costs. It found that most of the metro systems around the world are not financially viable. Public investment in rail transit has long been controversial (Wenling, 2006) Failures of rail projects to materialize the targeted performance in terms of ridership speed, operating costs, and development benefits, on which grounds they had been justified (Pickrell,1989) Anticipated project objectives are moderately met but at very high costs. Under-investment on low-cost and more cost-effective transit alternatives, such as the conventional bus or Bus Rapid Transit (BRT), because resources are often allocated to light rail investments. (Wenling, 2006) Need of Study Why Such a huge Capital Intensive Project??? Analysis of Metro Rail Project Selection Bias with Principal agent Problem model Aim To Analyze performance of metro rail project investments in terms of objective, ridership, revenue, and capital cost To identifying the causes of metro rail forecast errors and its sources Test the hypothesis through the application of the Principal-agent problem to Metro rail funding process Objective Methodology 1.Literature Review Reviewing papers and Metro rail policy Identification of Metro rail Operation Indicators Decision Making Concept (Economic Behaviour Theory) 2.Need for the study 3.Process 1.Data Collection (Metro DPRs & Policy documents) 2.Converting raw data into graphs Identification of Metro rail failure reason Identification of different actor (s) role in decision process. Data How to measure Public Transport Operation Performance? What Sampling method can be used? What is impact of principal-agent problem on decision making process. 1.Delhphi Method 2.Interview with Experts 3.Schedule of Survey and Analyzing the questionnaire prepared. Primary Secondar y Methodology 4.Comparative Analysis 5.Conclusion & Suggestion Preliminary analysis of data Study the Operation Performance of Metro rail Project (Forecast versus Actual Study the forecast errors Application of Principal-agent model on Metro rail funding policy Literature Review Various Researchers Developed and used Public transport Operation Indictors to measure performance Daily ridership, Passenger per Two broad Indicators categories for Public Operation transport measurement kms ; Average Speed, Average Headway Performance Measures Quality System of Manage Service Metro rail ment Operation User Perception Performance Operation based based Indicators Fare box revenue Passenger trips per capita, Passenger revenue per hour, Average Trip length Service Supply Cost Efficiency Operation cost per kms, Cost contingencies, Revenue per kms, Cost overrun Literature Review Forecast errors in metro rail are attached as followed Ridership: In Baltimore and Portland, it ranges from 66% to 85% below the original forecasted. (Don H, 1990) Capital Outlay: The project cost at Pittsburgh s light rail project were actually 11% below as their actual forecast value, whereas Sacramento s light rail and Miami metro project is 13% and 106% less than forecast. (Don H, 1990) Operating Expenses: In case of Buffo s Light rail (12%), Washington (200%), Atlanta (200%) and Miami s metro project (84%) above their foreseen level. (Don H, 1990) Cost-Effectiveness: In case of Zeytinburnu- gcılar Tramway cost effectiveness 58% higher than estimated. (Ozge, 2011). Contingency allowance to cover cost escalation: The contingency allowance for -rail project is ranging from 5 to 10% of estimated project costs. (Don H, 1990) Application of Organisation theories on Research Theory Game Theory Strengths (Regarding the Research Problem) Mathematical derivation of recommendations regarding interdependent choices and actions, Weaknesses (Regarding the Research Problem) Highly restricted viewpoint requires scenario modelling Institutional Theory Defines coercive, normative and mimetic pressures that lead to the sustainable behaviour of organizations Lack of understanding of nonconforming organizational behaviour provides no explanations for incentive mechanism design Network Theory Resource-Based View Descriptive character that may be used to map the interplay between MoUD and Local authority regarding sustainable funding mechanisms Insights into the capabilities and resources that are required to achieve competitive. Lack of theoretical foundation and explanatory power of mapped interplay Lack of explanatory power regarding incentive mechanisms Theory Transaction Cost Economics Principal-Agent Theory / Agency Theory Strategic Choice Theory Stakeholder Theory Strengths (Regarding the Research Problem) Concerns internal and external costs that result from the sustainable behaviour of local authority Structure of the design of incentive mechanisms regarding information asymmetries and agency problems (ex-ante and ex-post contract) Derivation of recommendations for incentive design with respect to the suggestions of agency theory Insights into the development of interorganizational sustainability strategies Explanatory theory that maps the interplay of markets and resources, explains sustainable behaviour as a consequence of stakeholder pressures Weaknesses (Regarding the Research Problem) Dominance of transaction costs No explanations for incentive mechanism design Restricted view on static MoUD and local authority relationships terminate of efficiency objectives and opportunistic behaviour that may conflict with legitimacydriven sustainable behaviour Dominance of strategic decisions No explanations for incentive mechanism design No explanations for incentive mechanism design Analysis 1st Objective: To Analyze performance of metro rail project investments in terms of objective, ridership, revenue, and capital cost Case study : Delhi,Bangalore,Mumbai,Jaipur and Chennai 2 nd Objective :To identifying the causes of metro rail forecast errors and its sources Delhi Metro rail project-brief Delhi MRTS objective was provide non-polluting, efficient and affordable rail based MRTS,duly integrated Forecast with other ridership modes of Transport Metro Network Year The first section 2016 of phase was opened 2026 in and Currently Km (in 2016) of Metro Phase rail network Ridership is operating Ridership Ridership Ridership Phase Phase Phase Total Developed Network Phase Lines Name Length in Km Red Line 25.1 Phase-1 Yellow Line 44.9 Blue Line (3) 49.9 Blue Line (4) 8.7 Phase-2 Green Line 18.5 Violet Line 23.4 Phase-3 Orange Line (Airport Express) 22.7 Total Source: The Metro Guys (in lakh) City Projected ridership pax/day Forecast versus Actual Ridership Projec ted Year Opex versus Revenue Actual ridership pax/day Actual ridershi p Year Achieved Ridership Delhi ,68, ,10, % 500 Metro System PHPDT (in 2016) 0 Delhi Forecast Outcomes Phase Phase Metro Network (in Kms) Operation cost per kms Passenger revenue per kms Phase Estimate versus Actual project cost Operating Cost Estimate Opex per kms is Rs in Cr and Revenue per kms is Rs Cr. Cost per Average per kms fare Rs kms(in Cr) Project Cost Actual Cost Estimate Cost for Phase-1 (as per 2011) : Rs Cr. per kms(in Actual 0.00 Completion cost of Phase-1 (as per 2011) : Rs (118% difference) Cr) Delhi Phase-1 Delhi Phase-2 Delhi Phase-3 In Cr Network (in kms) Mumbai Metro rail project-brief The objective of Forecasted the metro system Ridership was to achieve affordable, safe and Metro environmentally Network free public transport system. The first section of phase-1 was opened Hourly in 2014 and Currently 11.4 Km (in 2016) of Metro rail network is operating Year Daily Ridership Ridership PHPDT Developed Network Corridor Length (Km) Vesova-Andheri-Gahtkopar 15 Colaba-Mahim-Charkop 36 Mahim-Munkhurd 12.8 Charkop-Dahisar (east) 7.5 Ghatkopar-Mulund 12.4 BKC to kanjurmarg cia Airport 19.5 Andheri(east)-Dahisar(east) 18 Hutatma Chowk-Ghatkopar 21.8 Sewri-Prabhadevi 3.5 Line -1 Line -2 Line-3 Line -4 Line -5 Line -6 Line -7 Projected ridership City pax/day Forecast Opex versus Revenue Actual Ridership Projecte d Year Actual ridershi p pax/day Actual ridershi p Year Achieve d Ridershi p Mumbai 5,13, ,60, % Metro System 0.00 PHPDT (in 2016) Mumbai 2014 Forecast 2015 Outcomes 2016 Operation Cost per Kilometer(In Lakh) Revenue per Kilometer(In lakh) Phase Metro Network Operating Cost Annual earning cross Rs 135 Cr. still in loss (opex per kms Rs Cr and Revenue per kms Rs Cr) Fuel and Electricity cost is higher compare to other metro system Average per kms fare Rs.3.9 Project Cost Estimate ` Cost for Line-1 (as per 2011) : Rs.2356 Cr. Actual Completion of Line-1 (as per 2011) : Rs.4151 Cr. (85% difference) (in kms) Jaipur Metro rail project-brief The objective for metro system Forecast is to provide Ridership fast, safe and haste free movement of Metro the public Network in the city. Sectional Daily The first section of phase-1 was opened in 2015 and Currently 9.3 Km (in 2016) of Metro rail Year Corridor Load(PHPD Riders (in network is operating T) lakhs) 2014 Mansarovar-Badi Chaupar Mansarovar-Badi Chaupar Mansarovar-Badi Chaupar Sitapura Industrial Area-Ambabari Sitapura Industrial Area-Ambabari Sitapura Industrial Area-Ambabari Developed Network Description E-W Mansarovar to Badi Chaupar Sitapura Industrial Area to Ambabari Undergroun d (km) Elevated (km) Total (km) Phase-1 Phase -2 c Operating Cost Operation versus Revenue 12 Opex per kms Rs12.21 Cr and Revenue per kms Rs 2.83 Cr Operation Projected Actual Actual Fuel and Electricity cost is higher compare to other cost 10 Cost per ridership Projected ridership ridership Achieved Average per kms fare Rs.1.6 Kilometer(In City pax/day Year pax/day Year 8 Lakh) Ridership Project Cost Estimate Cost for Phase-1A (as per 2011) : Rs.3149 Cr. Passenger 6 Actual Jaipur Completion revenue per 2,10,000 cost of Phase-1A 2014 (as per 2011) 25,486 : Rs.5000 Cr (59% 2016 difference) Kilometer(In 12.14% lakh) Metro System PHPDT (in 2016 ) kms) Jaipur Forecast Outcomes Phase Estimate versus Actual project cost kms Metro Network(in Estimated Cost at April 2011 (in Cr.) Comparison of five metro rail performance Forecast versus Actual ridership Ridership 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Delhi Bangalore Jaipur Mumbai Chennai (in Kms) Operationa l Network(in Kms) Projected ridership pax/day Actual ridership pax/day 25,000 Passenger Per km 20,000 15,000 10,000 5,000 - Delhi Bangalore Mumbai Jaipur Chennai Comparison of five metro rail performance Project (Country) Ridership Comparison No. of projects (N) Quartiles (25/50/75%) Average difference (%) Standard deviation India (2016) 5-49/-88/ Europe (2007) 6-29/-4/ North America (2007) 10-69/-63/ (in lakh) DMRC BMRCL JMRCL CMRL MMRC Operational Cost (in lakh) Other Expence (in lakh) Metro rail Operation Cost Facilities Managment Services (in lakh) Employ expence (in lakh) Fuel & Electricity cost (in lakh) (in lakh) Comparison of five metro rail performance Delhi Phase-1 Project (Country) Delhi Phase-2 Delhi Phase-3 No. of projects (N) Bangalore Mumbai Chennai Jaipur Phase-1 Network (in Kms) Estimate Cost per Kilometer(In Cr) Actual Cost Per Kilometer (In Cr) Quartiles (25/50/75%) Average difference (%) Standard deviation India (2016) 5 33/51/ Europe (2008) 6 39/45/ North America (2008) 10 33/42/ (in Kms) 3 rd Objective: Test the hypothesis through the application of the Principal-agent problem to Metro rail funding process Principal Agent problem Model Why Principal agent model? Structure information asymmetries and principal-agent problem that inherent the inter relationship between the state and central Principal agent government problem regarding the metro rail project selection. It applied when the private information of agent creates a problem for the Principal. What is Principal agent problem? Conflict objective Adverse selection Moral hazard Principal-agent Model-A case of Delhi Metro MoUD Principal CONFLICT OBJECTIVE Assurance or Uncertainty Honesty ADVERSE SELECTION DDA Agent MORAL HAZARD Lack of coordination between the DMRC and DDA regarding the metro route selection Master plan was not referred by DMRC (In 1 st phase) Tassel for Metro route alignment DPR report by RITES (data not cross check by DDA) Forecast and Actual result of metro is biased The fact that transport modelling for ridership was not carried out accurately by RITES The statement of ridership projection is very high in Delhi Hidden agenda Manifesto of DDA proposed Dwaraka sector-21 corridor (DMRC refuse, Traffic study result not supported for MRTS) Forecast ridership changed 3 times Two metro corridor was closed (ridership result was not efficient) Delhi Metro rail Principal-agent Model-A case of Mumbai Metro MoUD Principal CONFLICT OBJECTIVE Weightage base Metro route selection Absence of Social concern in Metro route selection process Funding Problem (VGF controversy) Hidden Agenda, Over estimation of Fare and Cost ADVERSE SELECTION Multiple Agency had produced Traffic data (All private Consults) Overlapping Information Traffic data was not cross check by MMRDA Master Plan was not preferred in Phase-1 MMRDA Agent MORAL HAZARD Legal Controversy of Metro act and Tram act Diffused in Fare decision process Argument raised by the private company (MMOPL) that, the project completion cost reached up to 4321 Cr.whereas the original cost estimated in DPR was 2356 Cr. Absence of transparency in Project Cost Mumbai Metro rail Principal-agent Model-A case of Jaipur Metro MoUD Principal CONFLICT OBJECTIVE Modern Technology for Traffic solution rather than adopting hierarchy of Transport mode as per requirement Political promise and Biased for Mass transit system Client Based Consults, e.g Inflated Ridership and less capital investment Metro board chairmanship conflict Controversy for Funding Political Pressure, Refused for JV model ADVERSE SELECTION Absence of Alternative Transport Plan (Prepaid by Wilbur smith Associates) No coordination between the JMRCL and JDA regarding the Metro route selection No Master Plan and JDA involved in MRTS route selection process Two different approaches for Traffic Management by JDA and JMRCL (Asymmetric Information) (e.g during the construction of phase-1, There are historical monuments were found while drillings. This study was not JDA Agent Jaipur Metro rail Overview of Principal agent problem Lack of power Absence of Committee Fare change Lack of Coordination bwt Local authority & SPV Absence of Land use transport integration Lack of governance structure Conflict in power Lack of initiative to explore other mode of funding More depending on JV model Different Objective Hidden Information (client based consults) Absence of mass transit alternative Leapfrog hierarchy Manifesto of politician Cross check result Lack of Capacity building Absence of committee to review pre and post performance Conclusion Metro Rail Transportation Plan Principal Agent Problem Next Waiting line for Metro Rail Project Suggestion Preparation of Traffic and CMP study Identification of Mass transit Alternative Mass transit analysis Preparation of DPR & Review Design a contract in such way that the objective of principal and agents are incorporated while designing the funding agreement. Revelation of principal; scheme should be design for the truthful information. It may penalty or rewards rates, as per the revelation of Information.The rewards (penalty) would be decided based on the performance.(e.g. operation performance) NUTP review committee should formulate certain indicators to evaluate mass transit option for different size of cities. Special committee formulate under the power of NUTP, who can analyze all report produced during the mass project selection. (Feasibility, Technical, Social & Economic, and EIA report). Increased the capacity building of staff in NUTP committee. Involved different field of Expert in NUTP committee. Corridor Selection Establishment of SPV The MoUD (principal) need to provide minimum level of incentives in terms of funds.due to minimum incentive State(agent) are willing to participated in the contract game mechanisms. The minimum incentive should be worked based on the objective functions of State (agents) If the projects are developed as state sector project MoUD may contribute by way of grant equivalent,as VGF in a PPP project Projects which are viable with admissible VGF without providing real estate rights to the concessionaire may be taken under PPP. Failure in awarding bid should result in project being taken in government sector. If central projects being developed under government sector (due to requisite autonomy in decision making) it provides, 50:50 JV. During shareholder agreement, liability of GoI would be limited to equity and sub-ordinate debt agreed at the time of formation of JV. JV may provide within the ambit of transparency bodies and would be audited by Comptroller and Auditor General Metro board chairmanship should be under Central Government Thank You
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