Economics

27
Sep

2011

Should It Be?

A strange thing happened during yesterday’s discussion of the spiralling costs of the London Thames Cable Car:

Like any time before when the topic of urban versus resort installations comes up, the de facto response is: Well, duh, of course it’s more expensive to build in cities and for government.

You’ve said it. I’ve said it. We’ve all said it. We’ll probably be saying it tomorrow.

But the question is this: Should it be?

We have no shortage of examples of tourist-oriented systems built in urban areas. Those systems are always more reasonably-priced than their transit-oriented brethren. And yet they both share the common variable of still being located in urban areas.

Why does the addition of a layer or two of bureaucracy justify an orders-of-magnitude extremely excessive cost increase for a product whose only real difference is said layer or two of bureaucracy?

Maybe that’s an incredibly naive question to ask. Maybe. But it’s also a question that needs to be asked.



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26
Sep

2011

Exploring the Thames Cable Car Costs

Over the weekend it was announced that the estimated project cost for London’s Thames Cable Car (Gondola) has ballooned to an estimated £60m. For those interested, that means the system will cost roughly $100m USD per kilometer.

With the possible exception of the Caracas Metrocable (whose finances are discussed here), the London Thames Cable Car will easily be the most expensive gondola/cable car ever built. It’s even more expensive than the overpriced Burnaby Mountain Gondola, whose cost has also yet to be explained or justified.

As we discuss here, the London Thames Cable Car appears to be nothing more than the latest example of largely English-speaking transit agencies’ unwillingness and/or inability to reign in costs related to transit projects.

Whether this is an example of scope creep, pork barrelling, corruption or just pure out-and-out incompetence is virtually irrelevant at this point because all or some clearly have a role to play in this debacle.

As someone who happens to know a little bit about cable transit systems, let be me completely blunt: There is absolutely, positively, completely no reason whatsoever this project should cost London taxpayers ~$100m USD. Not a single good reason:

 

ONE. Off-the shelf MDG technology is being used.

While we have no confirmation of this fact, we can use a little something called logic to figure it out. Construction on the project started just a few months ago. As the goal is to complete the system by next summer, the only possible way in which to do that is to use MDG technology.

3S technology would be the sexier (possibly even better) choice here, but the reality is this: MDG technology has virtually off-the-shelf availability; 3S has to be built to order. That’s why an MDG can be turned around in such a short period of time.

Widely available renderings also indicate MDG technology.

All-in, an MDG system can be built for $10m – $30m USD per kilometre. Max.

At their most expensive, Medellin’s Metrocable systems were coming in at ~$25m USD and that included intermediary stations, turns, 4,000 pphpd capacity (compared to London’s 2,500 pphpd), land acquisition and all station and tower architecture.

 

TWO. Where the technology is manufactured invalidates questions of where it’s built.

Okay, sure. Medellin isn’t London and it certainly doesn’t cost as much as London. But remember: As the majority of the cable system itself is manufactured in a western-European location (France, Austria, Switzerland and/or Italy), that means the cost of the systems’ electro-mechanical components (cabins, cable, towers, stations, etc.) will not vary much from place-to-place.

The only thing that’s likely to cause any sort of shift in price is currency and/or commodity fluctuations. But as the Euro has been depreciating against the British Pound for much of the last two years, shouldn’t the price actually be decreasing?

The one counter-argument to this could be if much of the system is being manufactured in Switzerland – in which case the rapid over-inflation of the Franc could be leading to these increases but a) much of that over-inflation has been recently stemmed due by Switzerland’s Central Bank and b) as we understand it the system is being built by Doppelmayr not Garaventa.

This is important because Doppelmayr is an Austrian company that trades in Euros and Garaventa is a Swiss subsidiary that trades in Francs. In other words, somewhere between 75 and 90% of the cost of this system is being incurred purely in London alone.

 

THREE. The capacity of this system invalidates the need for large scale station infrastructure.

As reported, the Thames Cable Car is expected to move roughly 1,000,000 people in its first year of operations with a throughput of 2,500 persons per hour per direction. One million looks like a big number, but it’s really not when you consider how many hours there are in a day and how many days there are in the year.

(Note: The Londonist riffs on this concept with a deplorable calculation that demonstrates how only 228 people will use the system per hour. This calculation is a gross over-simplification of the problem because it spreads ridership evenly across every day and every hour of a 365 day year. Of course we know that ridership has peaks and valleys from hour-to-hour and day-to-day especially when you inject a massive peak such as will occur during the Summer Olympics. This calculation is therefore nothing more than brazen misinformation and irresponsible commentary.)

Oversized station architecture typically accounts for the bulk of costs in a cable system such as this, but given the modest number of people this system is anticipated to move, there is absolutely no reason to invest in large scale stations.

To demonstrate: The Koblenz Rheinseilbahn utilizes the above-mentioned 3S technology and moves ~3,600 pphpd. It has been an enormous success and I’m told is moving tens of thousands of people per day due to the bi-annual (and inexplicably popular) BUGA horticultural festival.

The Koblenz Rheinseilbahn is also only 1 km long and cost ~$20m USD all in.

This is what the Koblenz stations look like:

That's the entire station, infrastructure and all. Image by Steven Dale.

Now compare that to London:

See the difference?

Granted the London system has two things that the Koblenz system does not. Owing to Koblenz’s current status as a temporary installation, it does not have the maintenance bay and custom-designed towers that the Thames Cable Car will. Fine. But do those two items justify the Thames Cable Car’s absurd price premium over the Rheinseilbahn?

Not when the Rheinseilbahn carries almost double the number of people.

Transport for London and Mayor Boris Johnson owe the people of London an explanation – particularly as they now plan to pay for it “out of the rail budget.”

Suffice it to say, this isn’t going to win Urban Gondolas any fans – likely just a few more enemies in one of the most highly visible cities in the world.

 



Want more? Purchase Cable Car Confidential: The Essential Guide to Cable Cars, Urban Gondolas & Cable Propelled Transit and start learning about the world's fastest growing transportation technologies.

14
Aug

2011

Sunday Statshot with Nick Chu: Public Transport Profitability – Hong Kong’s MTR (Mass Transit Railway)

Hong Kong's density is a little like New York's... except it's on roids. Image Flickr user by Brad-514.

In terms of financial viability, public transportation in North America is a perpetual loser. However, rumours have it that some transit agencies abroad break even or even make a profit. So let us take a closer look into one of these transit agencies –  Hong Kong’s MTR (Mass Transit Railway) – and see if its profitability scheme could work in your city:

Hong Kong’s population: 7 million

Year MTR was established: 1979

Kilometers of rail in 1984: 66

In 2004: 255

Daily ridership in 2011: 4 million

Percentage of public transport trips taken on MTR: 42

Average fare increase of MTR since 1979: 5.6% per annum

Average growth rate of Consumer Price Index: 5.6% per annum

Percentage more high depreciation and financing costs are compared to recurrent operating costs: 25

Percentage increase in MTR’s non-fare revenue (i.e. developing and enhancing commercial activities) for past 20 years: 50

Percentage of total operating costs due to high depreciation and financial burden of recent/new rail projects: 50

Percentage of railway operating revenue derived from: 1) property development profit and; 2) rental and management income: 50

Percentage of MTR’s profits (before tax) generated by: 1) property development profit and; 2) rental and management income: 90 *

Per-unit operating cost before depreciation and interest of Hong Kong’s KMB (Kowloon Motor Bus) bus operations: HK$0.10 per passenger space-km

MTR: HK$0.09 per passenger space-km

Operating Cost after depreciation and interest for KMB: HK$0.12

MTR: HK$0.18 * (explanation below)

Indirect subsidies available to MTR: Granted exclusive right to real estate property development above railway stations **

Cost of 1200 square foot “old” apartment unit: USD $1.9 million

Cost per square foot of “top” end properties: $10,500

Percentage more costly compared to London, New York and Moscow: 40

Population density: 6,500 persons per square kilometer

Most densely population district in Hong Kong: Kwun Tong

Population density: 53,110 persons per square kilometer

* While the government builds and maintains roads at no cost to bus operators (i.e. bus operating companies use roads for free), MTR funds, builds and owns the railway infrastructure/assets. As such, the operating cost after depreciation and interest for rail operations are always higher than bus operations.

** The local government in Hong Kong virtually owns all land. Given MRT’s exclusive property rights given to them by the government, MRT does not need to go through public auction as is normal for land sale in Hong Kong. Instead, MTR pays a premium that’s determined through negotiations and they earn development profits that payback rail investments.  In other words, without development rights above railway stations, MTR is unable to earn a viable return.



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Economics / Heavy Rail / Sunday Statshot
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06
Jul

2011

A Massive Learning Opportunity

Light Rail only exists in cities as a form of public transit.

Subways and metros only exist in cites as a form of public transit.

BRT only exists in cites as a form of public transit.

Cable Propelled Transit and Urban Gondolas only exist in . . . oh, wait a minute.

As it currently stands, we have little popular understanding about what costs are associated with an LRT, Metro or BRT being located in an urban public transit system.

We accept that to build an LRT system in a city costs x because LRT only exists in cities. We have nothing to compare it with. After all, there are no rural LRT systems.

But with cable we have a different situation. With cable, the vast majority of systems we have are not urban public transit systems. As such, any price premiums  we witness (such as what we’re seeing in London and Vancouver/Burnaby) can logically be assumed to be directly correlated to being located in an urban setting.

But that’s not all.

Given the price point of the Koblenz Rheinseilbahn – which is decidedly an urban system – we also know that there will be a significant price premium associated with the technology acting in a public transit rather than recreational role.

Suddenly we have a way to analyze what exactly are the financial burdens a city and its transit system (and their attendant bureaucracies) place upon any given transit technology.

That’s sure to be some policy-wonks’ dream come true.



Want more? Purchase Cable Car Confidential: The Essential Guide to Cable Cars, Urban Gondolas & Cable Propelled Transit and start learning about the world's fastest growing transportation technologies.

20
Jun

2011

Is Public Transportation 340% More Expensive Than It Needs To Be?

Why is the Koblenz system so cheap compared to public installations?

Cable Propelled Transit systems could prove a boon to public transportation scholars and researchers because the technology’s curious history could open up the ‘black box’ of public transportation funding in the developed world and throw into question our entire model of how we build things that move other things.

Because cable has a long history of being utilized in a variety of other installations, we have an excellent model of how much these systems should – and do – cost. Problem is, this model seems to increasingly run up against the cost estimates prepared by government agencies.

If history is any predictor of the future, then a cable system built in an english-speaking country for the primary purpose of public transportation is likely to cost 300 – 400% more than an equivalent system built for recreational purposes. That’s concerning because whether for recreational or public transportation purposes, both systems are essentially doing the same thing – moving people from Point A to Point B.

Now let’s not make any mistake here: Of course a system built by a public agency for public transportation purposes will be more costly than those built by the private sector for recreational purposes. But should the gulf between these two purposes be so wide?

Consider the Koblenz Rheinseilbahn: It was built for ~$20m USD. It’s state-of-the-art 3S technology and is just under 1 km in length.

Now compare that to the Burnaby Mountain gondola which is estimated to cost $120m CAD (note: at time of writing, USD and CAD were basically equivalent). Now the Burnaby system is 2.7 km long. That additional length should add no more than ~$15m USD to the line costs for the system.

Assuming an alternate universe where the Koblenz Rheinseilbah was the same length as the Burnaby Mountain gondola, the total cost of this alternate reality Rheinseilbahn would therefore be ~$35m USD. That means that the public sector Burnaby gondola is 342% more expensive than the private sector Koblenz gondola.

Granted, there are a few caveats to this analysis which are important:

  • Government is always more expensive than the private sector.
  • The Koblenz Rheinseilbahn doesn’t have any of the air rights or privacy challenges that the Burnaby Mountain gondola has to wrestle with.
  • We have little understanding of the funding mechanism used in Koblenz. It’s possible the system was built at or below cost in exchange for a cut of the gate – a situation that would be all but impossible to replicate in Burnaby.

Nevertheless, a 342% premium is startling. And we don’t have anywhere near enough information to understand why that premium exists.

This isn’t an argument against the Burnaby Mountain gondola. Let me repeat that: This isn’t an argument against the Burnaby Mountain gondola. It is instead a concern about how we build transit in a western, developed city.

After all, we’ve seen equivalent situations with the Portland Aerial Tram, London Cable Car and Oakland Airport Connector. All display similar price points that are simply out of line with what we know and understand about cable technology.

This suggests a problem that is not specific to Burnaby but is systemic to our public transportation model. Either we’re paying a price that’s 3 times higher than is necessary or we could be building 3 times as much transit for the same amount of money. Either situation is unsustainable and should be subject to intense public scrutiny as it undermines our ability to quickly and cost-effectively build transit.

Maybe after we look a bit closer, we’ll conclude that’s just the way the system is. But if so, then shouldn’t we at least be asking why that is?



Want more? Purchase Cable Car Confidential: The Essential Guide to Cable Cars, Urban Gondolas & Cable Propelled Transit and start learning about the world's fastest growing transportation technologies.

08
Jun

2011

Vancouver / Burnaby Urban Gondola: A Sample Of Things To Come?

If the planners are to be believed, the new Vancouver / Burnaby Urban Gondola Transit system will cost $120 million CAD, instead of the $69 million CAD initially reported.

Consider how similar the Burnaby gondola is to – say – the Koblenz Rheinseilbahn or Whistler’s Peak 2 Peak and you realize that $120 million is a steep price to pay for a ski lift.

And as Danish scholar Bent Flyvbjerg has shown us, transit agencies are notoriously bad at under-forecasting capital costs. There’s a good chance this system could cost even more.

So is this a taste of things to come?

There’s no doubt that building for the public transit sector is a lot more costly than building for the private recreation market.

But should the difference be so excessive?

What true added value is a transit agency providing that justifies a price premium of 50, 100, or 150 percent greater than would would typically be paid?

One of the true advantages of cable transit technology over other technologies is that the capital cost of the system is incredibly competitive. But if to build a cable propelled transit system in western, developed nations requires massive scope creep and pork barrel politics, we may see all those cost advantages evaporate.

If this keeps up, urban gondolas may just wind up as expensive as everything else.

 



Want more? Purchase Cable Car Confidential: The Essential Guide to Cable Cars, Urban Gondolas & Cable Propelled Transit and start learning about the world's fastest growing transportation technologies.

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