Thursday 1 June 2023

Government studies options to subsidize electric train rates

Paying the bills


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Paying the bills


Payments from the State to a company that obtains a service concession would ensure profitability and access for users is one of three subsidy models for the intercity electric train fares being studied by the Instituto Costarricense de Ferrocarriles (Incofer) – Costa Rican Railroad Institute – and the Central government.

Image for illustrative purposes

Elizabeth Briceño, executive president of the Incofer, explained that they have studied at least three subsidy models that are implemented in other rail systems in the world.

1. The first is to offer the concessionaire a minimum income with a defined rate. In this case, the State would assume the risk of paying the difference, if the operator does not achieve that defined amount in ridership.

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With this state subsidy, the profitability of the project would also be guaranteed to the concessionaire, which must assume most of the investment.

2. The second alternative is to hire the company for availability, that is, the company charges for available spaces, whether used or not. The State would have to periodically subsidize the concessionaire to operate the new transport service, to ensure that the rates are accessible to users.

This modality is the one that is being quoted in the latest metro project in Bogotá, Colombia. The advantage is that the State, through public policy,  can incentivize the use of the mass transit with packaged or special rates.

3. The third option is a subsidy system for the number of passengers transported, that is, only for the spaces actually used.

“It is a shared modality. The risk of the demand is on the concessionaire, but also the State so that it can have public policies to incentivize the train,” said the head of the Incofer.

According to the feasibility studies, the project would cost US$1.236 billion dollars, with the State contributing at least US$550 million dollars to make it viable.

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The development contemplates that the electric train runs 85 kilometers of double track through 15 cantons of the Greater Metropolitan Area (GAM), from Coyol, in Alajuela (west of the international airport) to Paraíso, in Cartago.

The electric train project by the numbers

The initial promise of the Government is that there be 46 stations, some 1.8 kilometers apart, with a frequency of services of between three and five minutes.

“Rail systems are not supported by fees. They are not supported by fares either here, or in Manhattan, or in Europe. Imagine if the most important cities in the world disconnect their passenger rail system, it would be total chaos. Well, we already live (in the GAM) in that chaos, what happens is that we have not realized what it is like to live better,” Federico Villalobos, an economist at Deloitte and expert in financing, evaluation, and analysis of infrastructure projects.

For Villalobos, there must be a balance in the numbers so that public transport is sustainable for state finances, and make it attractive so that national and international private companies are interested in competing in the concession.

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The main problem of the current train (commuter train) is that fares have no direct subsidy from the State and does not cover the operating expenses of the system. To sustain it, the Government must make direct payments to the Incofer.

This train, which operates on combustible fuel, mover at least three million passengers every year, and operates only on weekdays during mornings and afternoons. According to the Incofer, the majority of users are university students and blue-collar workers.

“We cannot think that we must have multimillion-dollar works because if the people have to pay it, socially it will have a rate that is not acceptable, as what happened with OAS (failed concession of the road to San Ramón),” said Rodolfo Méndez, transport minister.

In 2014, the State had to pay the Brazilian company US$35 million as compensation for breach of the contract, given the discontent of the communities on the west side of the Central Valley with the toll rates proposed.

The electric train project is being coordinated by the office of the first lady, Claudia Dobles, indicating it expects to send the bill to the Legislative Assembly in the first quarter of 2020.

This initiative of law will contemplate the business model, both in capital investment and in operating expenses. Legislators will also have to debate the US$550 million loan approved by the Central American Bank for Economic Integration Development (CABEI).

The electric train is one of the various proposals by the Carlos Alvarado administration response to the growing traffic congestion in the Central Valley.

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Paying the bills
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"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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