ADB 8078-THA: Supporting Thailand Railway Sector Reform

Summary of ADB Technical Assistance

Focus of Technical Assistance

• Only concerned with current Thailand railway system

• Other future systems will all depend on a strong base foundation on which to build

1

Thailand’s Railway System The Basics

• The Thailand Railway System serves three useful purposes;

– A prime component of the intercity public transport system;

– A key mode for long distance goods movement and a key link in Thailand’s transport logistics structure;

– Serves as a hub for the region through which most of the other regional rail traffic will be channeled.

2

Thailand’s Railway System The Financial Challenge

• Passenger traffic has declined 40% since 1992;

• Freight traffic has declined 30% since 2002;

• 25% of SRT losses are from operation;

• 25% are from debt service costs;

• 25% are from excess asset costs;

• 25% are from pension obligations.

3

Thailand’s Railway System The Future

• Increased intra-regional trade between China and Southeast Asia;

• The role of Thailand as a regional economic and transportation hub for economic and trade linkages;

• Integrated, multi-modal transport networks and services to support trade;

• Railways can offer a strong backbone to such trade opportunities, but the existing structure and future relevant services are critical.

4

ADB 8078-THA: Supporting Thailand Railway Sector Reform

• Technical Assistance began in August 2012 • Objective: define practical options for structural reform of the

railway sector; • Based on the need to revitalize the railway system to overcome

many years of declining standards of infrastructure, equipment and thus service;

• Reviewed all past literature and project reports related to railway restructuring;

• Consulted all agencies with a responsibility for some aspect of railway system development and operations;

• Focus on achieving consensus about the end point of railway reform; and

• Focus on the railway system enabling environment to allows reform to take place, not on specifics of changes to SRT operations.

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1 2 3 4 5 6 7 8 9 10 11 12

Should SRT

be made

debt free and

with new

working

capital?

Gov’t

Responsibility

for railway

Infrastructure

Implement

responsibility

with SRT or

new SOE?

Can transfer

of land asset

offset debt

relief and

new SRT

capital ?

Non Core

Assets with

SRT or in new

land manage

SOE?

Should rev

from non core

land be used

to cover

ongoing

pensions?

Should rights

and benefits

of union be

maintained in

new railway

SOEs?

Should

Thailand

have an

Open

Access

Policy?

Gov’t

willing to

subsidize

ongoing

infra costs?

Allow

special

JVs to

serve

special

railway

needs?

Create a

railway

regulatory

body?

Maintain

low cost

passenger

rail service

with PSO

subsidy

payments?

Is

passenger

service or

freight

service

more

important?

Should

passenger

and freight

operations

be

separated?

Should gov’t

invest in

HSR or left to

PPP?

State

Enterprise

Policy Office

Debt free.

SRT

submission

Treat as Public

Utility as per

constitution

Create new

SOE. Cabinet

Res. 2007

Yes, agreed

as per SRT

long term

plan

New SOE.

Cabinet 2000

and 2009

Yes revenue

can cover

pensions

Yes, maintain

rights. State

Enterprise

Relations Act

Create

Open

Access

Cab. 2007

Subsidize

but

increase

charges to

offset

costs.

Yes

support

JVs.

Cabinet

res. 2007

Separate

body is

needed.

Maintain

with PSO

but

gradually

red.

subsidy

Passenger

short term

and freight

longer

term.

Separate as

per Cabinet

res. 2000

and 2009

Support PPP

as per

Cabinet res

2007

Public Debt

Management

Office

Change to

debt free but

fix

accounting

problems

Government

should be

responsible

Create a new

SOE

Government

can lease or

transfer

assets.

Current BU

should be

upgraded to

an SOE

Land assets

can be used

to cover

pension or

also SRT

profits in

future

Union

agreements

will need to

be

renegotiated

Create

open

Access

Gov’t will

subsidize in

beginning

but access

charges

can help

cover costs

Yes,

support

JV’s as

way of

serving

special

needs.

Separate

body is

needed like

power

sector.

Gradually

reduce

subsidies

and pay

support to

poor via

non distorting

means

Reduced

logistics

cost is

critical and

Thailand

needs to

improve freight

service

Long term

need to

restructure

services

under open

access

approach

Government

will need to

make the

investment

and use PPP

for rail

operation and mtc.

Office of

Transport

Policy

Change to

debt free and

recapitalize

Gov’t should

be responsible

Create a new

public entity

Yes, but only

core assets

Leave with

SRT to decide

Yes, as per

SRT

Leave with

SRT to

manage

Create

Open

Access

Subsidize

but use

access

charges

Yes

support

JVs with

open

access

Separate

body is

needed but

may be

limited

Yes, Gov’t

will pay

PSO

Free

market will

decide.

SRT can

compete for PSC.

Free

market.

Operators

will control

service structure

Support HSR

with PPP.

State Railway

of Thailand

Change to

debt free and

recapitalize

but not sure

the size of working

capital

needed

Infrastructure

should be

under

Government

SRT needs

separate BU

and

Accounting

System

Needs

Cabinet

decision.

Can be all or

part. MRTA is example

SRT can

manage this

with BU

SRT has tried

to do this but

not enough

revenue yet.

Yes, but

should apply

to all

employees,

not just labour

SRT only

operator

now. Not

possible

without changes to

operations

NA NA

There are

too many

players

now. One

body would be OK.

NA

Both are

important.

PSO

should be

cleared.

Yes, but at

the

moment,

the system

is not available to

do so.

NA

SRT Union Yes but

should

remain as an

SOE

Yes, treat as a

public utility

like roads

Gov’t should

pay but SRT

can manage

and Gov’t needs to

create full

multimodal

structure

No should

not transfer

land.

Non core can

remain in SRT

but with new

independent management

company.

Pensions are

responsibility

SRT as per

Act 2494 Art. 43

Yes or

improved

No. Do not

agree to

have new

companies like HSR.

Better to

improve

SRT track.

Yes

If JVs are

needed

Union

should be consulted

on case

basis

No need for

a separate

regulator

Yes Should

focus

mainly on

passenger service

No don’t

separate

operations.

Accounts can be

separated.

Gov’t should

not invest in

HSR

National

Economic and Social

Development

Board

Change to

debt free and recapitalize

Gov’t should

be responsible

Establish a

new SOE with regulation.

Yes that is

one plausible option.

Transfer to a

new company with SRT

input.

Yes as part of

overall debt restructuring.

Yes, for

current members.

New

members

could be

different.

Create

open access

structure

Yes, that is

consistent with Gov’t

policy

Yes,

support JVs as

part of

Gov’t

policy

Separate

body is needed.

Yes, pay

PSO but use service

agreement

to prioritize

Yes, pass

initially but better track

will allow all

traffic to

benefit

Keep

together initially.

Separate as

needed in

future.

Focus of

investment should be via

PPP

Consensus

View

SRT should

become debt free and

recapitalized.

Government

should be responsible.

Implementation

needs to be done by a new

public entity

but consistent

with SRT

requirements.

Land can be

transferred to another

company.

But SRT and

unions need

to have input.

Non core

assets need to be

managed

independently

in new

organization.

Yes non core

land revenue can be used

to cover

pension

obligations.

Yes rights of

union members

should be

maintained in

new

organizations

With good

regulation an open

access

policy is

appropriate.

Yes, this

fits with ongoing

government

policy.

JVs good

idea if needed

but must

include

union

input

Yes,

independent regulator is

needed.

Yes, pay

PSO but key

payments

to service

agreement.

Pass.

Initially important

but freight

longer term

critical.

The market

can define when to

separate.

Leave to

SRT plan.

Minimize

gov’t investment

and use PPP

to lead

Endpoint – Survey Results

Railway Transport Policy Mission

The Government is committed to providing the people of Thailand with an integrated transport system whereby they can choose the means of transport that most appropriately moves people and goods, cost effectively, efficiently, safely and with sound environment standards.

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Priority 1: SRT Debt Relief and Recapitalization

• A debt free business with a viable capital base and agreed Public Service Obligation (PSO) or Public Service Contract (PSC) payments

• SRT becomes a viable, productive and competitive enterprise.

• Suggestion: Transfer Baht 100 billion SRT debt to Government and recapitalize SRT with B 3 billion working capital.

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Priority 2: Reduce Infrastructure Costs

• SRT cannot pay for infrastructure and be a viable enterprise. Full maintenance of track in good condition will cost Baht 6.5 billion/yr. Total revenue in 2010 is about Baht 10 billion. Lack of ability to fund track maintenance for 30 years has led to poor current condition.

• Railways with low traffic volume such as SRT cannot cover infrastructure costs with operating revenues

(Swedish Railway only covers 10% of its infrastructure cost)

• Suggestion: Separate infrastructure ownership and

operation, and transfer infrastructure assets to a separate organization such as Department of Railway within MOT.

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Priority 3: Pension Obligations

• Current pension obligations account for 25% of SRT’s losses

• Other countries have designated railway pension obligations as the government’s responsibility. Fully capitalized SRT Provident Fund will need injection of about Baht 50 billion.

• SRT’s non core land revenue is large enough to reimburse governments capitalization of pension obligations over time

• SRT’s return on assets in 2010 was -6.7%. (should be >10%). Current asset management is poor.

• Suggestion: Assets should be professionally managed by an asset management company.

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Priority 4: Establish a Railway Regulator

• SRT safety record is poor. Improved safety is essential. Other countries regulate safety through the MOT. Safety standards are needed.

• “Open access” to the infrastructure will be introduced to promote the development of competitive transport options for freight shippers and passengers. Licensing will be needed.

• Service providers will contribute to the maintenance and renewal of infrastructure through access charges. Fairness in pricing will be needed.

• A revised “PSO” payment framework will be introduced that will provide direct compensation to service providers (initially SRT) for operating uneconomic passenger rail services in the public interest. Compensatory PSO levels may require adjudication.

• Suggestion: Establish a safety regulator in MOT. Establish an independent economic regulator for other economic issues .

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Priority 5 Create a Time Bound Implementation Plan

• The proposed reform agenda requires:

– A champion;

– A high caliber multi-agency implementation team;

– A clear mandate, the authority to carry it out, and sufficient capital to finance the key elements such as setting up a PMU;

– A reporting relationship directly to the Cabinet through MOT/MOF;

– Done within 1 year.

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Reform Implementation Key Players

Champion • Minister of Finance and Minister of Transport

Implementation Coordination Committee (ICC) • Director General – OTP – Ministry of Transport;

• Director – Public Debt Management Office;

• Director – State Enterprise Policy Office;

• Director – Budget Bureau;

• Director Planning – State Railway of Thailand.

The final decision on the implementation team will be made following further consultation with senior ministry staff.

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Organization Structure for Reform

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Restructuring Implementation Costs

Costs – SRT Debt Relief Baht 100 billion; – SRT Recapitalization “ 3 billion; – Urgent infrastructure recovery “ 176 billion; – Provident Fund Capitalization “ 55 billion; – Infrastructure maintenance “ 121 billion;

• Revenue – Land revenue “ 55 billion +.

• ICC Technical Support Unit $1 million/ 1 yr • PMU Infrastructure Development and Operation Organization $250 million/5 yrs • SRT Restructuring Technical Support Unit $15 million/5 yrs

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Impact on Key Players SRT

• SRT becomes debt free and recapitalized SOE;

• Cost for infrastructure reduced considerably;

• No obligation for pension payments going forward;

• PSO or PSC agreement in place;

• Focus on railway operations and service quality;

• Railway services may be offered by other organizations – infrastructure and operations.

16

Impact on Key Players SRT Union

• No change in Union conditions of service;

• Some staff may be transferred to Dept. of Railways or new SOE;

• Under Thai law, options will be offered to those staff;

• Pension obligations capitalized through funding of Provident Fund;

• Non core land allocated to separate independent management company.

17

Impact on Key Players MOT

• Establish Department of Railways;

• Assume responsibility for infrastructure ownership, renewal, maintenance and operations;

• Establish a safety regulatory authority within the MOT;

• Lead the reform process through the Implementation Coordination Committee.

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Impact on Key Players MOF

• Clear SRT Debt;

• Recapitalize SRT;

• Capitalize Provident Fund;

• Finance rehabilitation and infrastructure development program;

• Finance ongoing maintenance cost of infrastructure;

• Oversee reform activity through the Implementation Coordination Committee.

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Impact on Key Players Thailand Railway Authority

• Newly established with mandate to regulate economic issues;

• Registration of new companies in railway sector;

• License operations and establish standards for training and operations;

• Approve track access charges and mediate disputes regarding PSO/PSC;

• Enforce performance standards and other regulations.

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Thank you