Fare fixation a tricky exercise for Delhi Metro

The Delhi Metro Rail Corporation (DMRC), which had seen its ridership impacted by an increase in fares a few months earlier, is now under pressure from the elected city government to not go for a second phase of increase from October 10; this phased rise had been announced months earlier.

DMRC suggests a comparison of metro rail fares across India. In Delhi, it competes with buses, three-wheelers and ride-hailing apps Uber and Ola. The upward revision in journey fares from April 1 had led to a nearly eight per cent drop in ridership on most routes.

DMRC, operating since 2002, presently has 2.7 million passengers a day. Under the Delhi Metro Operations & Maintenance Act, a Fare Fixation Committee (FFC) decides. Its previous scheduled meetings were either postponed or cancelled, as the city government or the Union ministry of urban development was against an upward revision.

Source: Industry estimates
Last week, Chief Minister Arvind Kejriwal called for putting on hold the proposed hike of fares till DMRC’s accounts were audited. Needed, he alleged, as in the past, private power distribution companies would raise electricity charges by showing fake losses.

DMRC noted there had been no fare increase since 2009, whereas the input cost for DMRC rose by 105 per cent in energy, 139 per cent in staff cost and 213 per cent for repair and maintenance. It also has to pay instalments on the loan from Japan International Cooperation Agency to build the network; the debt is Rs 26,760 crore.

In New York, a Metropolitan Transit Authority undertakes fare hikes but usually, a citizen forum is engaged in the discussion. In the Australian state of New South Wales, a body named the Independent Pricing and Regulatory Tribunal exists, to give regulatory advice on pricing decisions, on services paid for by citizens, including transit services.

“DMRC for the financial year 2016-17 made a net loss of Rs 378 crore. The operating ratio of DMRC was 0.52 a decade back and was considered one of the top five metros in the world. This ratio has been steadily increasing. Postponement or cancellation will burden the corporation, considering the increasing operating ratio, coupled with the debt servicing it is undertaking,” says Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory. 

DMRC also has to provide for depreciation and replacement of various assets such as trains, which have a life of 30 years and will have to be replaced.

Ashish Tandon, managing director of Egis in India, a provider of engineering services for urban infrastructure, said: “The biggest challenge for execution of metro rail projects is to bring reputed companies to invest in these projects. The evaluation of metro projects should be done on quality and cost estimation.”

DMRC has said it making efforts to reduce its operating cost but as its system is getting older, more maintenance procedures, preventive and corrective checks, safety and reliability checks, replacement of electrical fittings, base plates, rail testing, etc, are required. These are essential for a world-class service but also means increased cost.

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