For Railway Corridor Development in ASEAN Countries · For Railway Corridor Development in ASEAN Countries A study to manage smooth cross-border operation & private financing Senior

For Railway Corridor Development

in ASEAN Countries

A study to manage smooth cross-border operation

& private financing

Senior Researcher

Fumio KUROSAKI, Ph.D.

Financing Infrastructure Connectivity for Economic Corridor Development

30-31 Aug. 2017 Bangkok, Thailand

2

Purpose of my Presentation

To provide discussion points and share policy insights

related to:

1) Financing railway system (including private investment)

2) Smooth cross-border train operation

Study will be based on international experiences in the

railway sector

3

Part 1

To provide discussion points and share policy insights

related to:

1) Financing railway system (including private investment)

2) Smooth cross-border train operation

Provider of

Rail Services

Owner of

the Infrastructure

Owner of the Infrastructure

(Government, etc.)

Vertical Integration

Vertical Separation

4

Outline of ASEAN Railways

Provider of

Rail Services

1992 Indonesia 1992 Malaysia 1995 Vietnam

30-year Concessions 2009 Cambodia

3 Types of Organizational Structure

Type 1

Type 2

Type 3

5

Who finances for rail infrastructure?

Organizational Structure Countries 1) Characteristics 2) Entity to finance the infrastructure

Vertical Separation

Indonesia

Malaysia

Vietnam

1) The organizational structure defines

that the infrastructure is the

government’s asset.

2) The government (or public)

Long-run Concessions

Cambodia

1) The private sector (the concessionaire)

has a concession rights to operate the

railway system.

2) The concessionaire

Owner of the

Infrastructure (Government, etc.)

Provider of

Rail Services

Type 2

Type 3

Type 2 & Type 3

6

Discussions Held in Many Projects

Type 1 & Type 2

Try to minimize public expenditure.

Try to encourage private investment.

However,

Is it really reasonable if the private sector finances

the construction costs of rail infrastructure?

7

Profitability of Most Railway Projects

Open of Operation

Ｏ＆Ｍ Ｃｏｎｓｔｒｕｃｔｉｏｎ

Ｃｏｓｔ

Ｒｅｖｅｎｕｅ

Ｏｐｅｒａｔｉｏｎ Ｒｅｖｅｎｕｅ Time

A

B

1) It is possible to make a profit in O&M process. ( “A-B” can be surplus after open.)

Most of recent railway development projects

2) However, the profit can not recover construction costs

Then, who should finance the construction costs ?

The interest rate: Public finance < Private finance

The project can be more feasible when the construction is

carried out utilizing the public finance. In Theory

Private Participation/Investment as an Operator

Open of Operation

Ｏ＆Ｍ Ｃｏｎｓｔｒｕｃｔｉｏｎ

Ｃｏｓｔ

Ｒｅｖｅｎｕｅ

Ｏｐｅｒａｔｉｏｎ Ｒｅｖｅｎｕｅ

Vertical Integration

Vertical Separation

State-owned

Operator

Construction is

financed by the

state-owned railways

(Private) Operator

Asset Lease Asset is retained

by the Public Access

Charges

Public

Time

Operator has heavy liability in case railway finances the construction costs. e.g. JNR (the Japanese National Railways)

・ Profit of an operator can be adjusted by the access charges.

Type 1

Type 2

・ Sustainable management of an operator can be attained.

Thus, the private sector can participate as an operator

e.g. New Shinkansen Lines after JNR reform 8

Cash Flows in Two Types of Railways

Revenue

O&M

Cost

Cost

Interest

Payment

Principal

Payment Negative Cash

Flow

Revenue

O&M

Cost

Cost Slightly Positive

Cash Flow

Asset

Equity

Heavy Asset & Heavy Liability

Railways

Balance Sheet

Heavy liability

results in heavy

Interests payment.

Railways

Asset

Asset Owner

Asset Lease Access Charges

Access charges

can be adjusted

Liability

Light Liability

Public Asset

Public Finance

9

Railway Operations

(SJ)

Ownership of

Railway Facilities

(SJ)

Railway Operations

(SJ)

Ownership and Management

of Railway Facilities (BV)

1988 : Railway Reform in Sweden

Equal footing with other transport

modes

Original Aim of Vertical Separation

Original Aim

10

Transport Volume of VNR in Vietnam

Rail traffic has largely increased since the reform in 1995. 11

0

5000

10000

15000

20000

25000

30000

35000

40000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

0

1000

2000

3000

4000

5000

6000

Tonnes (thousand) Number of Passengers (thousand)

Passenger-km (million) Tonne-km (million)

Real-term GDP (billion Dong)

thousa

nd

pass

enge

rsth

ousa

nd

tons

millio

n p

asse

nge

r-km

sm

illio

n t

on-km

sG

DP (

billion D

ong)

Railway Reform

12

Summary of Part 1

1) Because of high interest rate of private finance, it

seems more reasonable to construct the infrastructure

by public finance.

2) Private sector can invest the operating division of the

railways if the infrastructure is sustained by the public

finance.

13

Part 2

To provide discussion points and share policy insights

related to:

1) Financing railway system (including private investment)

2) Smooth cross-border train operation

JNR Reform in 1987

JNR was divided into 6 regional passenger railway companies

and a single nation-wide freight company.

Access to the Tracks JR Freight

14

6 Passenger Companies

JR Freight does not own its

infrastructure and accesses to 6

passenger railways’ tracks.

Japan

15

JR Freight

（pkm+tkm)/km

Comparison of Traffic Densities

A Case Study

for smooth cross-border train operation

Certainly, market and geographical conditions in Japan are different from those

in ASEAN countries.

However, it is interesting to study how through trains are operated in Japan

by imagining each company as a country.

Country A

Country B

Country C

Country D

Country E Country F

Japan

Passenger Through-train Services in Japan

Philosophy for Safety: Separation of responsibilities at the border station

This philosophy is applied to all the passenger through–services in Japan

such as: 1) JR & JR； 2) JR & Metro；3) Private & Metro； 4) Other cases

16

JRTT (Public) JR West JR Central

JR Central JR West JR Kyushu

Vertical Separation

e.g.) Shinkansen Lines

Hakata Sta. Shin-Osaka Sta. Tokyo Sta.

Vertical Integration

Through-services

Separation of Responsibilities

Japan

Integrated Operation

&

Maintenance

Key Issue

Infrastructure of Railway A Infrastructure of Railway B

Rolling stock of Railway A

Rolling stock of Railway B

: Border Station

Operation by Railway A Revenue to Railway A

Operation by Railway B

Revenue to Railway B

Passenger Through-train Services in Japan

Japan

17

18 Situation in Japan

Operation by a single operator

Exchange of responsibility

for train operation

Japan

19

The system is working smoothly

New sections Total sections

FIGURE. Sections with passenger through-train services (Metropolitan Areas in Japan)

Because of the commercial benefits of the two railways, the number of the

sections has been increasing steadily.

Japan

Country A Country B

Traditional International Railway Transport

Country C Border Border

Border

Liberalized International Railway Transport requested by EU

Country A Country B Country C Border Border Border Country D

Liberalization of the EU Rail Market

Country D

Europe

20

Intention to establish a Trans-European

Transport Network

(Sign of Maastricht Treaty in 1992)

Operator 3、4～

Infrastructutre Manager

Operator 1 Operator 2

1) Open access has become common in the freight rail transport in the

EU countries.

2) EU intends to introduce open access to passenger transport as well. 21

Liberalized International Railway Transport requested by EU

Country A Country B Country C Border Border Border Country D

Competition in the Market (Open Access, On-track Competition)

Europe

Train

Operations

Owner and Manager of

the Infrastructure

Railway

Operator A

Railway

Operator B

Infrastructure

Management

Coordination problems occur

especially when infrastructure

capacity is limited.

Coordination Problems in EU Railways

Railway operation is separated

to promote on-track competition.

“Railway operation” is separated in Europe.

22 This rail management is still controversial in Europe.

Europe

Infrastructure of Railway A Infrastructure of Railway B

Rolling stock of Railway A

Rolling stock of Railway B

Open Access in EU Countries

Europe

23

Train Operation by Railway A Revenue to Railway A

Train Operation by Railway B Revenue to Railway B

24 Situation in the UK

Europe

Vertical Separation with Open Access

25 Vertical Separation

Vertical Separation

Railway

Operation

Train

Operations

Owner and Manager of

the Infrastructure

Railway

Operator A

Railway

Operator B

Infrastructure

Management

Smooth Coordination

Coordination Problems

Infrastructure Owner

Vertical Integration

Comparison of Railway Operation

Japan (passenger)

Direction aimed by EU policy

Integrated

Operation

Ownership of infrastructure varies

Europe

A single train operator

(JR Freight)

Wagon Operator 1 Client 1

Client 2

Client 3

Client 4

Train operation (Locomotive driving)

Off-rail transport services (Wagon operation)

A train operator

Wagon Operator 1 Client 1

Wagon Operator 2

Wagon Operator 3

Client 2

Client 3

Client 4

A Private train operator

Wagon Operator 3

Wagon Operator 2

Japan, Russia, India (Container)

Europe Market entry as a “train operator.”

Private investment as a “wagon operator.”

Private Investment into Freight Railway System － Case in Japan, Russia, India (Container)－

Coordination problems

Smooth operation

26

Origin

Private Investment into Freight Railway System － Case in Japan, Russia, India (Container)－

Port A Port B

Airport A

Airport B

Depot A

Depot B

Location A

Location B

Sea

Sky

Track

Road

Destination

Railway system can work smoothly when a single railway drives all

locomotives for haulages. 27

Ownership of

Railway Facilities

Railway Operations Passenger

Transport

Means for Through-train Operation

Ownership of

Railway Facilities

Fre

igh

t T

ran

sp

ort

28

ASEAN

Fre

igh

t T

ran

sp

ort

Integrated Operation Separated Operation

(The main railways drive all locomotives.)

Train

Operations

(e.g. driving

locomotives)

Infrastructure

Management

Open access: for promoting competition Voluntary negotiation: for commercial gains by receiving access charges

Integrated

Operation

29

Summary of Part 2

1) Through-train services can be smooth when responsibility of train operation is separated at the border.

2) It is also possible to promote cross-border freight transport by: a) asking haulage functions to other railways, or b) permitting an access based on a voluntary negotiation.

Means for through-train services

For promoting through-train services, basic technical standard

such as gauge width must be the same.

1) Open access for competition faces coordination problems.

2) Competition can be introduced in off-rail transport services, and private investment can be smoothly introduced to passenger coaches, freight wagons and depots.

Regarding competition

For Railway Corridor Development

in ASEAN Countries A study to manage smooth cross-border operation & private financing

Thank you very much.

Senior Researcher

Fumio KUROSAKI, Ph.D. (E-mail) [email protected]