Panama Metro: Ridership The Key For Reducing Line 1 State Subsidy

Panama Metro: Ridership The Key For Reducing Line 1 State Subsidy

According to government figures, Metro de Panama has generated $10.75 million during its first 6 months of operation, which represents only 26.4% of the maintenance and operation costs. With the project funded largely by international creditors, questions are being raised as to how the metro can reduce dependence on state subsidies and move toward profitability.

The cost of maintanence in 2014 was $40.67 million, covering electricity, maintenance of machinery, equipment, spare parts and insurance, while the operational costs from June until December totalled $10.75 million. This means that the income generated from the 30,951,543 passengers transported in 2014 only covered 26.4% of the annual maintenance and operational costs of Panama Metro.

The organisation was keen to reiterate that the income from fares was significantly influenced by discounted travel for students, the disabled and elderly passengers, a shortfall in revenue which amounted to US$25 million a year, and that was guaranteed by state subsidies.

While there are many external economic and social factors that must be considered, the initial figures are not promising in regards to providing a return on the investment of international agencies. Between $1,500 million and $1,600 million of the $1,800 million project was raised through external, international creditors.

The Latin American Development Bank (CAF) provided $600 million towards the project, while Citibank, in collaboration with the World Bank, contributed $500 million, Spanish Export Credit Insurance (ECESB) loaned the project a further $200 million while French company COFACE also supported the project. These loans have deadlines of between 16 and 20 years, with a soft interest rate of 1.75%.

Agreements mean that the maximum interest to be repaid will be $200 million, on the total secured for the project. As of yet, revenue raised from Line 1 has so far meant that Metro de Panama have been unable to repay 1% of the debt accrued from the project.

While increasing ridership is a positive, it would seem that if debt repayments are to materialise the cost of travel will have to be increase significantly. The Panamanian Society of Engineers and Architects (SPIA) predicted that during the Metros first year of service, $138 million and $56 million would need to be raised to cover financing and operations. The SPIA also concluded, that tariffs would need to be $3 per passenger per trip, to meet the Metros financial obligations.

President of the SPIA explained that, when considering costs and operation, “we found little that would recover the rate of return on investment”. “With this fare and despite the riser in users, you cannot recover the investment”, he added.

The current situation would seemingly require a fare charge of between $1 and $1.25 to cover the operational and maintenance costs of the metro, significantly higher than the 30 cents that is currently in place.

Once current works are completed and with ridership continuing to increase, the annual state subsidy will be maintained at $25 million, according to Frank de Lima, former minister of Economy and Finance.

He explained that many public transportation systems globally are subsidised, and that in Panama this will continue to be necessary to prevent fare charges being prohibitively high for users.

“The real operating cost of the metro should fall between $50 to $55 million and fares providing $25 to $30 million, while the difference is what the state must subsidise” Lima explained.

Roberto Roy, Chairman of the Metro de Lima Board of Directors, rejected the claims of the SPIA, reiterating that, given the long-term infrastructure will be repaid over a 40 year period, the subsidy would be more like $20 million a year.

It is also predicated that the infrastructure works in the city will support economic development, improving the profitability of the network directly and providing significant economic and social benefits for the city more generally.

This year the Line 1 subsidy totals $21.3 million for maintenance, while $37 has been budgeted for operations.

Increasing ridership and generating additional income will be key in gradually reducing the contribution of the state and ensuring that creditor repayments are met. While the social impacts of the metro are clear and numerous, such obligations must be carefully managed to ensure that metro does not limit the states ability to provide further social benefits to the Panamanian capital