A NOVEL APPROACH OF PRICING MECHANISM FOR THE UPCOMING METRO RAILWAYS IN

CHENNAI

-PADMANABAN T.A.(F10097)

-K.N.SUSIL KUMAR(F10115)

-DILLEPAN RODNEY(F10075)

-RONALD RIJU(F10106)
A NOVEL APPROACH OF PRICING MECHANISM FOR THE UPCOMING METRO RAILWAYS IN
CHENNAI

The Chennai city is gearing up for its metro project at full speed. At the outset, we
developed a pricing model which could be used to realise the project cost. We used a basic
model to estimate the number of people who would travel on this train and the revenue
generated.

First, let us describe one line that runs from washermenpet to Chennai airport. This line has
18 stations totally. We determined the total number of tickets which is (18*17), i.e. from
each station to every other station. Also, the remaining is the platform tickets at each
station. Now, we used the fixed costs and running costs to determine the total cost.

The fixed cost is due to account for infrastructure facilities, royalty, investment and wages of
employees. We fixed it as Rs. 10 as a further increase would discourage the number of users
availing the services. The running costs are to account for electricity and maintenance
charges. The unit is expected to draw 100Mw per day so for a user we placed a nominal Rs.
0.5 per km.

Thus, we calculated the total cost using the formula (fixed cost+ running cost) for each
station to other stations based on the distance travelled by a passenger between them.

Now, doing a careful study during a 1hr interval at one of the stations (Nungambakkam) we
found that there are around 500 passengers travelling both ways per hour only through the
ticket service. This calls for a uniform distribution which means there will be around one
passenger for every 7.2 seconds.

Now we found the average revenue that could be generated at each station and multiplied
with the average number of persons to find out total revenue/user/day at each station. Now
aggregating it over 365 days we find the total revenue

The other aspect is that the project costs Rs.14600 crore including the inflationary rising and
the interest considerations. Our revenue model aims at realising it in 73 years app. Yet, an
increased amount of population and other revenues seem to reduce it to 33 years (acc.
Govt. Sources), it also takes into consideration a value for holistic development which we
could not accommodate financially into our model. Thus, we believe our model would serve
a real-time decision problem.

In our model, just enter the ticket code as input so that you can get the ticket price. Please
refer to the right extreme of the sheet to know the project revenues and realisation time.
We would like to mention that our line has been estimated for 26 kms while actual line is
around 24 kms. This was because of negligible differences in distances between stations
which we as an outsider could not get exactly.
Working to the excel sheet

COLUMN 1&2

 The first two columns give the S.no. And Name of the stations in route 1.

COLUMN 3

 The third column gives the distance from source to destination or the railway line.

COLUMN 4

 It gives all the possible ticket combinations with their codes. E.g.: a ticket from 1 st station
(washermenpet) to 3rd station (Chennai fort) is entered as “t0103”.

COLUMN 5&6

 The 5th and 6th column are indices used for calculation of distance between source and origin
for each passenger.

COLUMN 7&8

 The values are the distance of each source and the destination from origin.

COLUMN 9(Fixed cost)

 The fixed cost is assumed to be constant as Rs. 10 as explained earlier.

COLUMN 10&11(Total Cost)

 The total cost is calculated by the formula FC+(.5*dist travelled by passenger)

 E.g. a person travelling from washermenpet to Chennai fort, i.e. t0103 will have a fare
of( 10+0.5*3.06) which equals Rs.11.53 rounded up to Rs.12 in the next column.

Queuing model used

We observed the model to follow a UNIFORM DISTRIBUTION. We found for every hour 500
passengers arrived to use both lines of the train. This was the mean arrival rate per hour.

So, for every 7.2 seconds we have a passenger.

Now the average of ticket prices comes to Rs.15.04 per user

Now, to estimate the average revenue at each station we multiply 500*18 stations.

Also, every day the metro operates for 20 hrs and 365 days. So revenue is worked out for a year
from each station.
This revenue is estimated to be RS. 2168000000/year (including both phases of metro) (two hundred
and sixteen crores and eighty lacs).

Thus, only by revenue out of fare box we can realize the project cost of 14,600 crores in 73 yrs appx.

Conclusion

Thus, we would like to conclude by saying that at current price and population levels it will take 73
yrs to achieve the proper project cost. If we take into account the revenue generated out of taxes,
advertisements and licensing of stalls at the railway stations and the capital extension, social
development brought in by the infrastructure project it could be achieved much earlier with 12.2%
return according to government sources.

References

http://www.chennaimetrorail.gov.in/FAQ_CMRL.pdf