Deepraj Naiko

Student ID : 1080228

BBM (Hons) Part Time 2010 - 2014

Business Environment Assignment

MIBS 72311

University of Mauritius / Mauritius International Business School

Contents

1.00] Question Statement

1.01] What is the light rail transit system?

1.02] Where can we have a glimpse of light rail travel?

1.03] What are the general benefits of light rail?

1.04] What are the branches of the transport system of Mauritius?

1.05] What are the social costs & social benefits?

1.06] What are the private costs and private benefits?

1.07] What is the Public Private Partnership (PPP) Scheme?

1.08] What are the advantages of the (PPP) Scheme?

1.09] Who will invest in the light rail project in Mauritius?

1.10] Will there be a free rider problem?

1.11] Will the project follow free market economy?

1.12] Will the project follow centrally-planned market economy?

1.13] Will the project follow mixed market economy?

1.14] What can be the advantages of implementing light rail in Mauritius?

1.15] What can be the disadvantages of implementing light rail in Mauritius?

1.16] How to decide the price of the LRT ticket?

1.17] What should be the ticket price?

1.18] What are the operating characteristics of the LRT system connecting Curepipe to Port Louis, devised for Mauritius?

1.19] What is the conclusion?

1.20] End of Document

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1.00) Question Statement

Assume that you are appointed as consultant on the light rail project in Mauritius. You are supposed to analyse the transport industry and give your advice on this alternative mode of transport. How would the knowledge of economics help you in your task?

1.01) What is the light rail transit system?

It is a form of urban rail public transportation that generally has a lower capacity and lower speed than heavy rail and metro systems, but higher capacity and higher speed than traditional street-running tram systems. Light rails usually provide convenient local public transit service on busy urban corridors. They tend to be relatively smooth and comfortable operation, easy boarding, and attractive stations.

The term light rail was devised in 1972 by the U.S. Urban Mass Transportation Administration (UMTA) to describe new streetcar transformations which were taking place in Europe and the United States. Light in this context is used in the sense of "intended for light loads and fast movement", rather than referring to physical weight. The investment in infrastructure is also usually lighter than would be found for a heavy rail system.

The American Public Transportation Association (APTA) in its Glossary of Transit Terminology defines light rail as: "An electric railway with a 'light volume' traffic capacity. Light rail may use shared or exclusive rights-of-way, high or low platform loading and multi-car trains or single cars."

The Transportation Research Board (TRB) defines light rail as a streetcar system that has extensive priority signalling at intersections. LRT are most commonly referred to as Light Metro’s.

1.02) Where can we have a glimpse of light rail travel?

Light rail or light rail transit (LRT) is mostly found in countries like China, Japan, Australia, USA and in European countries

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1.03) What are the general benefits of light rail?

Rail Transits provides high service quality for sure. This directly benefits the users, and by attracting discretionary travellers who would otherwise drive, tends to provide indirect benefits like reduced traffic congestion, road and parking facility costs, traffic crashes, energy consumptions, and pollution emissions. According to analysis described in Litman, 2004, rail transit users save approximately $100 annually per capita in direct consumer transportation expenditures, indicating a high return on investment.

1.04) What are the branches of the transport system of Mauritius?

Mauritians have a well diversified inland transport system. Road transport in Mauritius has gone through a remarkable phase of improvement resulting in the construction of new motorways and improvement of present roads. In Mauritius road is the sole means for the transport of goods and passengers. The road network has reached approximately 1900 kilometres with 90% paved roads. Travelling by bus is the most common means of mobility in the general population. We also have good networks of taxi, bikes, cycles and private cars. If light rail is implemented here, our usual transport system may face a radical change both in the positive and in the negative aspect. These points will be elaborated as advantages and disadvantages of light rail in Mauritius. The figure A below gives a brief graphical idea of the transport system of Mauritius.

4Figure A: Transport means of the Mauritian society

1.05) What are the social costs & social benefits?

In economics, theorists model individual decision-making as measurement of costs and benefits. Rational choice theory often assumes that individuals consider only the costs they themselves bear when making decisions, not the costs that may be borne by others. The costs and benefits to society as whole result from economic decisions. These include private costs (the financial cost of production incurred by firms) and benefits (the profits made by firms and the value to people of consuming goods and services) and external costs and benefits (affecting those not directly involved in production or consumption); pollution is one example of the external costs. In other words, these are the total costs and benefits, both private and external, of an economic decision.

1.06) What are the private costs and private benefits?

Private costs and benefits may be measured partly but not wholly in money terms. For example, if I walk to work rather than taking the bus because I save money and improve my health. On the other hand, I feel tired at work and spend less time with my family or for my hobbies after returning home. Each decision has financial and non-financial private costs and benefits.

1.07) What is the Public Private Partnership (PPP) Scheme?

A Public-Private Partnership is a new approach used by the Mauritian Government to deliver services to the population. The objective is to achieve more and better services, at a lower cost for society.

It can be defined as a contractual arrangement whereby a private party performs part of a Government organization’s service delivery or administrative functions, and assumes the associated risks. In return the private party receives a fee according to predefined performance criteria, which may be:

a) Entirely from service tariffs or user charges b) Entirely from a Ministry's budget or other budget

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c) A combination of both

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The government has designed a strategy to develop PPP in Mauritius, as follows:a) Design and implementation of a legal and policy framework. The

objective is to design a policy and legal environment which will enable PPP projects.

b) Selection of PPP projects. The Government has started the process of identifying projects which can potentially be financed under the PPP Scheme. This is being carried out by conducting feasibility studies.

A Task Force, chaired by the Director-General of the Economic Development Department of MOFED was set up jointly with the Private Sector. The Task Force advised Government on the legal and policy environments of PPP in Mauritius. Membership of the Task Force was as follows:

Public Sector Private SectorMinistry of Economic Development, Financial Services and Corporate Affairs

Joint Economic Council

Ministry of FinanceBuilding and Civil Engineering Contractors Association

Ministry of Public Utilities Institution of Engineers

Ministry of Public Infrastructure Mauritius Bankers Association

Board of Investment

PricewaterhouseCoopers

(local representative of member of the IFSL PPP Working Group)

Business Parks of MauritiusKPMG (local representative of member of IFSL PPP working group)

State Law Office  

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1.08) What are the advantages of the (PPP) Scheme?

Operational gains: Ensuring that one delivers better or more services for the same price (efficiency gains), or making savings to release money for investment elsewhere. Operational gains can be achieved by focusing on outputs rather than processes, by generating economies from integrated design, building, financing and operating phases. As such, the light rail project may be accomplished with finer techniques.

Strategic clarity: Partnership contracts enhance accountability by clarifying responsibilities and focusing on the key deliverables of a service. The managerial efficiency of a Ministry can benefit significantly as existing financial, human and management resources can be refocused on strategic functions.

Our government has already taken debts from other countries like India and China. It is therefore not possible for the government to invest in the light rail project alone. The PPP scheme is very important to the realization of this project.

1.09) Who will invest in the light rail project in Mauritius?

In the situation where social benefits are more than social costs and private benefits are more than private costs, then both the government and the private sector will invest in this project. These are the basic foundations that all consultants would analyse first and foremost. If both the public and private sector share the costs of the project, then the general population may not feel the impact of the colossal cost being invested. The government will try to maximise public welfare and the private sector will try to increase efficiency through more revenue with less cost incurred. If any of the two sectors invests alone, many shortcomings would be encountered in the project.

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1.10) Will there be a free rider problem?

The free rider problem refers to a situation where some individuals in a population either consume more than their fair share of a common resource, or pay less than their fair share of the cost of a common resource. The problem with this scenario is that the client, if allowed to free ride, can profit from a stock trade without actually using any of his or her own capital. This is illegal. Free riding is usually considered to be an economic "problem" only when it leads to the non-production or under-production of a public good, or when it leads to the excessive use of a common property resource. The free rider problem is the question of how to limit free riding & its negative effects in these situations.

If only private companies invest in this project, they might make it very profitable only to their firms. They might set their own rules and regulations or even impose inadequate measures for the use of light rails. Therefore, to avoid the free rider problem, both the government and the private firms should invest.

1.11) Will the project follow free market economy?

A free market economy is an economy in which the allocation for resources is determined only by their supply and the demand for them. According free market economy consumers produce only what is profitable and for which there is a demand while consumers can choose to buy whatever they can afford. So, we can deduce that people may choose by themselves whether to travel by bus or choose the light rails. There should be opportunity costs and alternatives for those who opt for buses. In this economy, the price system will make sure that shortage and surpluses of light rail facilities and services do not last for long.

1.12) Will the project follow centrally-planned market economy?

Here the allocation of resources is made by the government and the forces of demand and supply have no role for decision taking. In this model, all workers are employed by the state. Meaning that the light rail is the property of the government and the government will take all decisions for appropriate use of resources. The services of the light rail will be priced in such a way that everyone can afford travelling by the rails. The profits earned may be reinvested in other publicly beneficial projects.

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1.13) Will the project follow mixed market economy?

It is a mixture of a free market and a centrally-planned economy. Individual people create demand and so determine some of the goods and services that are produced by the way that they spend their money. It is the consumer who will decide the demand and supply for light rail services.

1.14) What can be the advantages of implementing light rail in Mauritius?

Reduced traffic on our roads, which are already saturated with the

increasing number of vehicles travelling daily.

The general population would spend less travelling on light rail than in

their private cars, in terms of energy consumption.

The number of road accidents might be reduced.

It would enable a faster means of reaching the capital by avoiding

traffic jams and congestions.

It would enable people to socialize further when they travel together.

There would be less pollution as the number of vehicles & gas

emissions would significantly decrease.

It would be a far more comfortable means of travelling.

New jobs such as light rail engineers, light rail mechanics or light rail

technicians can be created for the maintenance of light rails as this

would require expert skills.

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1.15) What can be the disadvantages of implementing light rail in Mauritius?

Some people working in the transport industry, like bus conductors,

taxi drivers, and bus drivers may lose their jobs as some companies

may go bankrupt for they may relatively have less passengers.

The electricity consumption may face a considerable increasing.

Some people may not be able to afford travelling by the light rail

system and would face transport problems.

If most people opt for light rail voyages, there can be a monopoly of

light rails and this may trigger the disappearance of some means of

transportation.

The cost of maintenance may well be very high depending on the

type of light rail implemented; electricity-powered or diesel-powered.

It would be difficult for the government to control the free transport

scheme for students, handicaps and retired people.

1.16) How to decide the price of the LRT ticket?

The price of light rail tickets will have to be thoroughly determined and imposed so that the system may function with fairness to all. The fixed costs of electricity, diesel, salary of people within the light rail system and much more will have to be incurred in the price of the ticket. The government would definitely have to intervene and set a maximum price ceiling. There should be a rationing mechanism where the price will be adequate and affordable to the majority of the society.

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1.17) What should be the ticket price?

The price of the ticket will be the very first thing that will trigger the demand for the light rail system. And this will consequently help in the supply as well. The ticket price should be around the usual bus ticket price so that former bus travellers may be attracted to travel by the light rails. For example, if the usual bus ticket costs Rs.25, then the light rail ticket should be around the same price. Not so high (more than Rs.30) that people might not afford it, nor too low (less than Rs.20) that we encounter a loss. The figure B below shows two different situations in connection with the price of the LRT ticket.

If the price of the ticket is high (P1), the number of people that would be able to afford the light rail services will be considerably low (Q1), whereas if the ticket is at an affordable and sensible price (P2), there will be more passengers travelling by the light rails (Q2).

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Figure B: Demand for Light rail with reference to its ticket price

1.18) What are the operating characteristics of the LRT system connecting Curepipe to Port Louis, devised for Mauritius?

Covering a distance of some 25km, the LRT would be having some 13 stations, many located in town centres along the route where existing transport terminals already exist. The end-to-end journey time would be approximately 32 minutes and carriages would be air-conditioned, to ensure maximum attraction of car users. Headways would vary by time of day, but are expected to be of the order of 5 minutes in peak periods. Access to stations would be by an integrated system of comfortable and reliable feeder buses.

Operating characteristics of the LRT system:

• Length of line 24.9 km

• Running Speed 55 - 75 kph

• Average time at stops 20 seconds

• Number of stops (stations) 13 stations

• Journey time, one way 32 minutes

• Time round trip 70 minutes

• Commercial speed 43 kph

• Peak train frequency 12 per hour

• Vehicle capacity 250 per unit (500 per train)

• Vehicle length 30 m per unit (running two units)

• Vehicle width 2.65 m

• Seating % full 25 - 30%

• Peak pax capacity 6000 per hour / direction

• Predicted traffic 93,000 pax (working day)

• Total vehicle required 31 units

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1.19) What is the conclusion?

With reference to the hereby presented exposé, it can be concluded that the light rail system may be introduced in Mauritius.

Countries like USA and China did not have the light rail system some years back. They have had to consider all these points before coming to the final decision of implementing light rails for the benefit of the general population.

So, we should also consider advantages and disadvantages before reaching to a final decision of whether to implement it or not.

It is undeniably true that Mauritius will have better reputation if we realise this project.

The standard of living of Mauritius is increasing and the people may well be able to cope and afford this new means of transport.

If some jobs are lost, on the other hand, many new jobs will be created in the field of light rails

The investments needed, will definitely have to be borne by both the public and private sector.

Our government must make a thorough analysis and consider examples of other countries that have recently implemented light rail transit systems.

The operating characteristics of LRT in Mauritius show that the project may be a success in the society.

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1.20) End of Document

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