Economic viability of foreign investment in public transport of Pakistan – orange line metro train in focus

Abstract

Pakistan, like other developing countries, is also facing environmental and economic challenges in its transportation sector (especially in public transport). Pakistan is going to get finances for the infrastructure-related projects under the China-Pakistan Economic Corridor (CPEC) initiative. One of the CPEC projects is the Orange Line Metro Train (OLMT). The study employs traditional techniques such as linear trend regression, benefit-cost ratio (BCR) and geometric progression to analyse the economic viability of the project. The results show that with given interest rate and stability in exchange rate the project is economically viable, with a benefit/cost ratio (BCR) of 2.11 and Internal Rate of Return (IRR) equal to 3.07 per cent. Furthermore, the sensitivity analysis is done for possible changes in economic conditions as well as for different interest rates for loan repayments. The study is useful for policymakers interested in the benefit–cost analysis of public transportation projects.

Keywords:

• CPEC
• orange line metro train
• economic viability
• cost-benefit analysis
• mass transit systems
• public transport

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The calculations are as follows: First, US$0.23 per trip is multiplied with number of passengers that are 250,000, and then the resultant is multiplied with 360 days. i.e., (US$0.23 per trip × 250,000 × 360 days = 209.875 million US$.

2 It may be noted that while conducting this study there has been variations in US$-PKR exchange rate. This recent and sudden rise in US$-PKR exchange rate was considered an outlier as linear regression take into account the trend of the data and ignores abrupt changes. Moreover, linear regression only considers the historical data and predicts the future values, ignoring the economic conditions. To counter this, sensitivity analysis is done by varying the values of β.

Additional information

Notes on contributors

Yousaf Ali

Yousaf Ali holds his first master's degree in applied mathematics from Quaid-i-Azam University, Islamabad, Pakistan. He also obtained an MS degree in Operations Research from the Department of Management Sciences, University of Southampton, UK. He has completed his PhD degree from the University of Macerata (Italy). Dr Yousaf has research interests in quantitative modelling practices in economics and management, Operational research, and in environmental economics.

Abdul Rahman

Abdul Rahman received a BS in Material Science & Engineering from the Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, Topi, Swabi, Pakistan in 2020.

Shamsher Lala

Shamsher Lala received a BS in Mechanical Engineering from the Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, Topi, Swabi, Pakistan in 2020.

Muhammad Sabir

Muhammad Sabir did his PhD from (Vrije University Amsterdam, the Netherlands. He also obtained Master of Applied Science MAS from (Applied Economics Research Centre, Karachi University). He also holds a Master of Arts (MA) degree in economics from the (University of Peshawer). Currently, he is serving at NUST Business School, National University of Science and Technology (NUST) Islamabad, Pakistan as an associate professor.