Industry Trend Analysis - Urban Transit In Asia: Eight Bellwether Projects - AUG 2017
BMI View: The urban transit segment is the largest component of Asia ' s railway infrastructure industry and will be a major source of opportunities for contractors and investors over the coming decade. We highlight eight projects that illustrate the trends in national and regional rail transit sectors.
The urban transit segment will remain a fast-growing component of Asia's railway infrastructure industry, especially as emerging market governments plan and build vast metro systems in the region's expanding cities. While high-speed rail projects in the region tend to gain the most attention, metro and light rail projects actually form the largest component of the region's rail industry - by both the number of projects and investment value. The economic and financial case for metros also tends to be more robust than for high-speed rail projects, especially in less-developed markets, with projects set to improve urban mobility, reduce traffic congestion and stimulate real estate development. For international contractors and investors, the highly technical nature of building and operating metro systems also means that there are more participation opportunities in transit projects than in conventional railways.
|Transit Projects Dominate Asia Rail Pipeline|
|Asia - Railway Infrastructure Project Pipeline by Value|
|Figures include projects in the planning, pre-construction and construction phases. Source: BMI Key Projects Database|
Below, we highlight eight metro projects logged in our Key Projects Database that are indicative of the opportunities and challenges in Asia's growing rail transit sector. These projects are either at the planning stage, are under construction or have been recently completed. A full list of transit projects in the region can be accessed via the table at the bottom of this article.
Hangzhou Metro Line 5, China: PPPs Expanding, Lower-Tier Cities In Focus
The 49km, CNY35bn (USD5.7bn) public-private partnership (PPP) project, currently under construction in the eastern city of Hangzhou, reflects two trends in China's urban transit segment: the proliferation of PPPs and China's focus on developing transport networks in second- and third-tier cities. PPPs are increasingly used in China's infrastructure sector as local governments attempt to limit debt, although the opportunities for foreign companies remain limited. The concession for Line 5 was, for example, awarded to Hong Kong's MTR Corporation, which is the only non-mainland Chinese company to have rail operations in China ( see ' Limited Private Involvement In Upcoming PPPs ' , December 7 2016).
The rapid expansion of the Hangzhou Metro - there are another five new lines or extensions planned for the system - also reflects the growth of transit construction in smaller cities in China. Between 2010 and 2017, the number of cities with metro systems increased from 11 to 32; another 15 new systems are currently under construction. As traffic congestion and pollution remain pertinent concerns across the country, urban transit projects have overtaken high-speed rail in terms of value in China. According to our Key Projects Database, China has the largest number of ongoing metro projects in the world, with 130 projects worth USD216bn.
Mumbai Metro, India: Ambitious Transit Pipeline
With one line currently operational, three under construction, and six in planning stages, the USD8.0bn Mumbai Metro is indicative of the Indian government's ambitious plans to build rail transit systems around the country. The three-phase project, which is expected to last well into the 2020s, is one of over 100 metro projects currently under construction or in planning in India. The Mumbai Metro is also being implemented at a time when the sector is increasingly open to private players - the Metro Rail Act, passed by the Central Government in 2016, expands the use of PPPs in metro projects. Line 1 of the Mumbai Metro is pioneering on that front, with current operations being handled by a consortium that includes France's RATP and Transdev, and India's Reliance Infrastructure. Improved urban transport infrastructure will be essential to coping with urbanization and industrialization. India has 53 metropolitan regions with more than one million people but only 15 have some form of rapid transit ( see ' Transport Growth Boosted By Road, Rail Investments ' , March 14). In addition to metros, India's urban transit project pipeline also includes monorails, light rail and bus rapid transit projects.
|China And India Have Largest Metro Pipelines|
|Asia - Number Of Rail Transit Projects By Phase|
|Source: BMI Key Projects Database|
Ho Chi Minh City Metro, Vietnam: Delays In An Otherwise Outperforming Market
Although Vietnam's construction industry is one of the top-performers across our five- and 10-year forecasts, we note that infrastructure development has underperformed the residential and non-residential sectors recently. The impact of the new official development assistance (ODA) policy on the Ho Chi Minh City Metro project reflects this trend. Although the policy of restricting ODA is aimed at improving transparency and reducing debt, it has also led to a funding crunch for projects like the Ho Chi Minh City Metro, which is financed by the Japan International Cooperation Agency (JICA). Construction activity has slowed considerably in recent quarters as the city owes contractors tens of millions of dollars. In April, government officials said that slow disbursement of ODA funds, the result of the new policy, could further delay the opening date, originally scheduled for 2017 - to 2020.
Jakarta MRT North-South Line, Indonesia: Long-Needed Traffic Relief
Home to more than 10mn people, Jakarta is one of the largest cities in the world without a metro system, which has resulted in crippling traffic congestion. This is holding back development in the region. The 16km, USD1.4bn first phase of the Jakarta MRT North-South Line, currently being built by a consortium of Japanese contractors and state-owned construction companies, marks the first step towards developing a modern transit system. Like several other metro systems in emerging markets, the project is partly financed by the JICA. The 112km MRT system, comprised of the North-South Line and the East-West Line, was first proposed in the 1990s but delayed for nearly two decades following the Asian Financial Crisis. An accompanying USD2bn light-rail system is also being built in Jakarta by state-owned construction firm Adhi Karya, with a planned completion date of 2018.
Manila MRT Line 7, Philippines: From PPPs Back To Public
The start-and-stop history of the 23km, USD1.5bn Manila MRT Line 7 project, which entered construction in April 2016, reflects the numerous opportunities and challenges facing the Philippines's PPP programme. Although the line was first proposed by a group of private companies in 2002, it was beset by numerous delays and the contract for the project was not awarded until 2007. Further difficulties relating to securing financing continued to delay the project, and the primary contractor San Miguel Corporation did not begin construction until 2016. The line, which will connect Quezon City in Metro Manila to Bulacan Province towards the north, is planned to open in 2020. We have previously highlighted how high-profile delays encountered by PPPs in the Philippines illustrate the gap between the country's robust regulatory framework and poor project environment ( see 'PPP Failures Highlight Project Execution Risks', February 1).
Dhaka MRT, Bangladesh: A Frontier Market Metro
The JICA-backed metro system that is currently under construction in Dhaka shows how even frontier markets are home to opportunities for the rail transit sector. The 20km, USD2.8bn MRT Line 6, which has a tentative completion date of 2019, is the first phase of a long-term vision for a Dhaka's mass transit system. However, we believe that Bangladesh's poor operating environment means that the project will likely encounter delays. As Dhaka and Bangladesh continue to develop, there will be growing pressure to develop transit projects to relieve traffic congestion and pollution. In a frontier markets like Bangladesh, rail transit projects also have the potential to serve as catalysts for residential and commercial real estate development.
Karachi Light Rail, Pakistan: China's Growing Rail Dominance
Another project in a frontier market, the 18.4km, USD1.3bn Karachi Light Rail illustrates our regional trend - Chinese companies expanding globally - is occurring in the urban rail transit space. Although construction has not yet started, we believe that the project, which was launched in 2015, will be largely financed and built by Chinese companies. The initial proposal was put forth by export-credit agency Sinosure. Pakistan's project risk environment presents significant challenges and we note that the pursuit of this project by China shows how politics, not necessarily economics, is driving the country's foreign infrastructure investment plans. Though we note that there are immense challenges to project implementation, as is the case across much of the USD46bn China-Pakistan Economic Corridor, the long-term economic benefits to Pakistan in the form of improved transport and logistics are promising ( see 'Security Risks Have Mixed Impact on Economic Corridor Projects', June 19).
|China's Growing Rail Exports|
|Top Rolling Stock Exporters By Country, USD '000|
|Includes HS Product Groups 8601-8607. Source: Trademap|
Thomson-East Coast Line, Singapore: Stable Developed Market Demand
The USD19bn, 43km Thomson-East Coast Line is currently under construction in Singapore, and reflects the continuing presence of metro projects in developed infrastructure markets. The first phase of the project is set to open in 2019, while the entire line has a target completion date of 2024. Rolling stock for the new line is being produced by a joint venture between Japan's Kawasaki and China's CSR Sifang, a subsidiary of CRRC Corporation. The use of Chinese-made equipment reflects the growing market share of CRRC in the passenger railcar sector, even in developed markets. Although conventional rail construction has taken a back seat in many developed markets, the pipeline of metro projects remains healthy. In addition to the projects in Singapore, our Key Projects Database logs 65 rail transit projects worth USD54.0bn. These are currently planned or under construction in Australia Hong Kong, Japan, New Zealand, South Korea and Taiwan.