As the world experiences rapid urbanization, there is growing interest in using Mass Rapid Transit (MRT) to solve urban transportation problems. Yet developing MRTs is a complex and capital intensive process. Governments and public authorities are using a variety of public-private partnership (PPP) models to leverage resources and expertise.

MRT is a bus or rail-based public transport mode operating on fully or partially exclusive rights-of-way—also known as the “alignment.” This alignment can be at-grade (i.e., surface-based), elevated, or underground. Some of the most common forms of MRT are metros, streetcars, tramways (sometimes referred to as light-rail transport, or LRT), and bus rapid transit (BRT).

MRT Type Speed Peak Capacity
(pax/hr)*
Technical Traits
Streetcar/tram Low
(less than 30 kph)
Low
(5k or less)
Frequent street crossing
Primarily at-grade
Single-car configurations
Light rail train Low-medium
(avg. 30 kph)
Low-medium
(10k-20k)

Mostly at-grade
Single and double car configurations
2-3 lanes from existing road

Bus rapid transit Medium
(avg. 25-30 kph)
Medium
(5k-10k)

Mostly at-grade
Articulated buses
2-4 lanes from existing road

“Light” metro High
(avg. 45-65 kph)
Medium-high
(15k-30k)

Either elevated or underground
Requires grade crossing

Heavy metro High
(avg. 45-65 kph)
High
(60k or more)

Either elevated or underground
Complex civil works

*passengers/hour at peak

Benefits of MRT

MRT solutions are increasingly preferred by policymakers because they provide high carrying-capacity coupled with energy efficiency. MRTs support strategies for reduced air pollution and encourage higher density development and better use of scarce, expensive urban space. They can also promote greater equity and mobility for a larger segment of the population.

Critical success factors

MRT solutions are typically customized to a particular city or transportation corridor. Coordination is necessary among various levels of central and urban governments that have overlapping responsibilities and policies. Managing such complexity and the associated risks can be a daunting challenge for even the most experienced and sophisticated public authorities. Critical
success factors for MRT schemes include:

  • Completing robust engineering feasibility studies to ensure viable technical design solutions (particularly for elevated and underground MRT).
  • Having a good understanding of the minimum passenger volumes (ridership) so that the system and its operations can be
    dimensioned accordingly.
  • Ensuring that the operation of the system is responsive to customer needs such as comfort, speed, and punctuality, and that the system is safe and reliable.
  • Understanding the fare structure and how that structure may affect demand.
  • Designing operations and maintenance to maximize the system life, and adequately budgeting for regular operations and maintenance expenditures.
  • Considering continued investment in the system design and contractual mechanisms that allow for this investment.
  • Considering integration of the MRT scheme with other transportation modes (pedestrian links, parking, rail, and airport links) to ensure a comprehensive urban transport strategy.

Together, these factors can ensure that the MRT solution, and the PPP mechanism in place to deliver it, are tailored to the particular needs of a city or transport corridor.

The economics of MRT

MRT projects involve large capital expenditures for the design and construction of the system, along with significant operation and maintenance costs (O&M). Revenues generated by the system (known as farebox revenues) are generally set by public authorities with political, social, transport, or urban planning objectives in mind. As a result, farebox revenues rarely cover operating expenses, and rarely cover the full cost of the project. As the graphic to the right shows, for a project to succeed, more often than not the funding gap must be met by some form of government subsidy.

A common misconception is that the gap between the farebox revenue and the cost of service can be made up with other forms of revenue, such as advertising and real estate development. Typically, revenues from advertising in stations and trains are not significant. Figures represent around 4 percent of farebox revenue; station concessions such as small kiosks, newsstands, and vending machines may generate an additional 7 percent. Similarly, real estate development or capturing increased land values directly linked to MRT presents challenges.

mrt_true-cost-of-service

Trends in MRT PPPs

PPP models for MRT projects can range from full system concessions, where the private sector takes design, construction, and operation risk, to outsourcing of operation and maintenance, where the role of the private sector is limited to operations risk. Appropriate risk allocation is a defining quality for a successful PPP—risk should be transferred to the party that is best suited to manage it.

Some of the advantages for cities developing MRT projects through PPP structures include placing the risk of development and construction with the private sector to achieve improved system design, faster completion, and lower cost, and leveraging the diversity of expertise and experience of a worldwide operator. Together, these can help achieve more innovative and cost- effective approaches to service delivery.

More recently, the trend for MRT PPPs is a move away from full concession and investment risk, toward public financing of capital investment with private operation and management. These contracts, which would appear to be easier to structure and manage, pose their own inherent challenges. Although under an O&M contract structure, ownership of the assets remains with the government metro authority and some or all of the operation and maintenance risk of the metro system is transferred to an O&M operator, the typical commercial incentives are not present. This is because the operator has not had a financial stake in the development of the project and its payments are normally not directly linked to the revenue received from the system’s customers.

This structure also does not allow lenders to watch over the operator, which acts a form of internal oversight. Care needs to be taken to ensure that the contractual terms avoid the potential for “asset sweating,” where the operator defers maintenance on assets to reduce costs.

Contracts can be designed to overcome some of these issues by incentivizing the operator to behave as if it owned the system. One method of accomplishing this is through a financial structure that encourages ridership, thereby creating the incentive for the operator to ensure the system’s performance is attractive to customers.

Another method is through a carefully-defined regime of key performance indicators (KPIs) that covers a variety of O&M areas, such as punctuality of train services, and ensures the best use of the system’s assets. Payment deductions and bonuses would be based on the operator’s performance, incentivizing the desired behavior. In many instances, both of these methods (ridership incentive and KPIs) are used in tandem.

As MRT becomes a tool for urban expansion, it is important to take stock of its record. Understanding the importance of effectively allocating risk between the public and private parties, and developing structures that are flexible and responsive to the public’s needs, will power MRTs forward in a rapidly urbanizing world.