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Non Farebox Revenue for Metro – A Global Perspective

The frameworks need to be translated effectively in the transaction documents to achieve the objective of enhanced private sector participation and optimal value realisation

Photo Credit : dailymail.co.uk

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Commercial revenues play a critical role in enhancing the overall financial sustainability of capital-intensive transportation infrastructure projects. They provide much needed boost in overall income for the infrastructure, while reducing upward pressure on ride charges (be it metro fare or airport user fees) borne by passengers. Low ride charges ensures continuous traffic growth which in turn brings in more commercial revenues, triggering a desirable virtuous cycle.

Till 5 years back, commercialization initiatives have always been an after-thought while planning and designing metro networks in India, which usually resulted in sub-optimal realization of non fare-box revenue potential.

Unfortunately, most of the metro networks in India have been running on losses and are either being funded through public money or are charging high ride fees. On the other hand, globally, there has been a conscious effort to drive specific initiatives to extract higher commercial value from transportation infrastructure. For example, metro networks in Paris, London, Taipei, Singapore, and Hong Kong are mature and typically generate significantly high non-farebox revenues. Their non-farebox (NFBR) as a percentage of total revenue ranges from ~25 to 60 per cent, with Real Estate development contributing to half and other commercial sources the other half.

Further, the mix of such revenues shows that retail and advertising contribute to roughly half of the total NFBR sources. This can be illustrated by taking the example of Hong Kong, which has managed to generate ~USD 1.5 bn in non-fare revenues through its extensive focus on enhancing revenue streams like F&B, retail and advertising. This is on account of, among other things, proper passenger flow planning while developing the in-station layouts and allocating more space in the unpaid concourse where passenger dwell time is higher.

However,for domestic networks, non-farebox contribution in the most profitable ones is at ~10– 14 per cent of total revenues and pales in comparison to global networks..

However, over the last 5 years, new metro networks in India are actively exploring such commercial opportunities. While advertising and F&B still tend to dominate the NFBR sources, newer avenues need to be explored as networks mature and expand.Among such newer avenues, Station Naming Rights (SNR), Station Adoption Rights (SAR), Pouring Rights, and Multi-Modal Integration (MMI)should be strategically evaluated for their ease of implementation, commercial potential, and acceptance from private sector.

Among these, SNR has become one of the commonly used high value revenue opportunities for select stations in domestic networks such as DMRC, Namma Metro typically ranging from ~₹1 to 5 crores per station per year depending on footfall of station, catchment profile, location of station near transportation hubs and alignment of the corridor.

In addition, several MNCs have signed MoUs with BMRCL for adoption of seven metro stations, either as a commercial investment or from a CSR standpoint with ticket value ranging from ~₹65 to 150 crore in exchange for SNR, direct access to own campus, advertising rights among others.

Further, while MMI has become a necessity in the modern days, pouring rights has significantly gained traction across metro networks such as Hyderabad by providing a beverage company non-competitive access of its products to station users including advertising spaces.

Other innovative revenue sources such as Virtual Stores which has been successfully implemented in global metro networks (Seoul and Singapore) can also be explored in domestic networks due to its novelty and exclusivity associated with value creation potential.

While identification of these revenue opportunities is one of the key pillars for maximizing value, private sector participation is key to the realization of this value, given their experience and expertise in these areas in other similar transportation hubs (such as airports). If strategically framed, private partnerships can enable high quality commercial development and its related services. When designed well and effectively implemented, accounting for the legal and regulatory environment, private partners can bring in much needed efficiency and sustainability to the provision of such services. It can also allow for better allocation of risks.

However, private sector participation will be most effective only when the engagement is long-term and are built on three pillars namely – alignment of interests, clear demarcation of rights and responsibilities, and appropriate ownership or control. These foundations need to be adopted at each stage of the partnership journey. There is a need to establish appropriate transaction structures to ensure long-term sustainable partnerships for each non-farebox revenue sources by assessing the market expectations, its requirements, ground realities, local issues, operational challenges within the legal and regulatory framework through early and active engagement.

The frameworks need to be translated effectively in the transaction documents to achieve the objective of enhanced private sector participation and optimal value realization. Additionally suitable risk mitigation measures should be incorporated in the transaction documents to safeguard metro operator’s interests as well. Last but not least, it is essential to showcase the high business promise to the potential partners.

 The author is Director, Auctus Advisors 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Saurabh Singhal

The author is Director, Auctus Advisors

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