Railways are greedy for capital. They require lots of materials, labour and capital equipment, which all cost money. With an explosion in global demand, rail projects often end up competing against each other for investment.
The financing and funding of rail tends to create headaches for cities and corporations looking to get their schemes off the ground. A well-thought-out investment approach to rail financing and funding can create incentives that will unlock the wider value that rail projects can bring to the economies and communities they serve. However, how that value is captured is a balancing act. The mix of land and property taxes and charges, real estate development options and farebox revenues required to fund a rail project is wide and varied.
Government policy interest in combined development and land value-led models for railways is increasing.
Next to direct user benefits of a new line – such as faster rail journey times – decision makers are thinking early on about the real estate development case. These days, it might even help to determine the alignment of the scheme. So increasingly, value capture, in its various forms, is playing a greater role in helping to pay for new schemes.
But generating revenue is only one side of the equation; the other is controlling costs. In this context, different procurement models that harness the strengths and capabilities of the private sector can help to bring in projects closer to budget.
Getting the incentives right in using tried and tested technologies, modular design, sensible innovation or solid contracting set-ups can make the difference between projects staying in the black or going bust. Ultimately, getting a rail scheme from the drawing board into service demands an almost magical mix of skills, resources, foresight and luck. But it all starts with the question ‘Who pays and how can we finance our railways?’
Transformative rail – the issues shaping the future of the industry
Rail’s popularity is increasing, but the industry faces pressures like never before. How do we ensure our systems are fit for today’s demand and tomorrow’s opportunities? Over 100 global rail specialists from around the world discuss and debate the many themes shaping today’s rail and mobility agenda.
From a single commuter journey to a country’s wider economy, rail can transform lives, businesses and communities. Arup has over 60 years’ experience delivering rail projects for clients in the public and private sectors, across the world.
Finance and economics
We help clients by developing business cases, underpinned by economic and financial modelling. On larger programmes, our economics teams can research and evaluate the wider economic value of a proposition and assess its viability within existing and future regulatory and policy frameworks.