Urban rail transit PPPs: Lessons from East Asian cities

Private sector participation in urban rail transit has proliferated in the past two decades. The large metropolises of East Asia have had decades of experience with private sector participation in the provision of heavy metro services. The design of these public-private partnerships (PPP) are varied. The diverse experiences of Tokyo, Hong Kong, Singapore and Beijing contain valuable lessons for other cities. Using a case study approach, this paper discusses three features of urban rail transit developments in the context of East Asian cities, viz., farebox recovery, land value capture mechanisms, and vertical structure of the industry. Super vertical integration between rail transit and real estate development as land value capture strategy to finance urban rail transit has proven to be successful in Japanese cities and Hong Kong. Singapore's experience illustrates that vertically unbundled PPPs could cut off avenues for cross-subsidisation, reduce information flows as well as economies of scale and scope, introduce principal agent problems, and result in underinvestment in capital stock and maintenance. We conclude that (i) a combination of high farebox recovery ratios and successful land value capture contributed significantly to the development of urban rail transit in East Asia cities; (ii) given the complexities and high costs of heavy metros, the optimal structure is a vertically integrated public-owned and driven system, with the public sector entering into selective partnerships with the private sector where risk sharing is clearly defined and allocated.