The World Bank

RAILWAY RESTRUCTURING

EXPERIENCES

Ankara, Turkey

October, 2001

The World Bank

A Perspective The World Bank and Turkish Railways

(TCDD): two loans, over $240 million last loan more than 13 years ago

TCDD’s problems: market and financial pressures

Coming challenge: EU requirements What other countries are doing A few comparisons Ideas for Turkey

The World Bank

Km of Line (1999, 2000 for TCDD)

534542902324

31423

37477

22991909

22891

2813

11364

3662

99788671

0

5000

10000

15000

20000

25000

30000

35000

40000

Austria

Bulgaria

Denmark

France

Germany

Greece

Ireland

Poland

Portugal

Romania

Slovakia

Sweden

Turkey

The World Bank

Passenger-kms (000,000)

(1999, 2000 for TCDD)

789938195113

66495

72543

15831421

26187

4329

12304

296874346146

0

10000

20000

30000

40000

50000

60000

70000

80000

The World Bank

Passenger TrafficIndex: 1980=100

40

60

80

100

120

140

160

1980 1985 1990 1995 2000

France

Romania

Turkey

Poland

The World Bank

Freight Tonne-Km (000,000) (1999, 2000 TCDD)

52971938

71494

326466

55460

2179

15927

986214400

8237

14733

53438

0

10000

20000

30000

40000

50000

60000

70000

80000

The World Bank

Freight TrafficIndex: 1980=100

20

40

60

80

100

120

140

160

180

200

1980 1985 1990 1995 2000

France

Romania

Turkey

Poland

The World Bank

Traffic Mix:Passenger-Km as % of P-km + T-

Km(1999, 2000 TCDD)

34.9

41.9

72.5

55.450.4

82.9

75.3

32.1

66.5

43.6

23.1

34

42.7

0

10

20

30

40

50

60

70

80

90

The World Bank

Ratio of Average Passenger Fares

to Average Freight Tariffs(1999)

1.04

0.35

1

1.36

2.77

0.4

3.17

0.610.86

0.360.33

4.13

1

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

The World Bank

Employee Productivity:(P-Km+T-Km)/Employee (000)

(1999, 2000 TCDD)

437

196

672688739

182170

400

521

268262

1220

337

0

200

400

600

800

1000

1200

The World Bank

Traffic Density:(P-Km+T-Km)/Km (000)

(1999, 2000 TCDD)

2125

3034

38173843

830988

3567

23142484

3504

2188

1659

4234

0

500

1000

1500

2000

2500

3000

3500

4000

4500

The World Bank

What Others Are Doing

The railway as enterprise, government as policy maker/regulator

Choices in structure: Turkey will look at the EU models

Moving the public/private boundary -- concessioning and privatization are major elements in restructuring programs in some countries

All railways are changing: mixes emerging

The World Bank

Directions of Railway Change

Private Involvement

Str

uct

ura

l Ch

ange

Mixtures are possible!

Public Ownership

Partnerships: Concessions or Franchises Awarded Private Ownership

Integral

China, Russia and India (ministries), MAV, SRT, MZ, others, (SOE's), TCDD

Argentina (13), Brazil (9), Mexico (5), Peru (3), Guatemala, Bolivia (2), Panama, Cote d'Ivoire/Burkina Faso, Cameroon, Congo (Brazzaville), Malawi, Madagascar, Jordan

New Zealand, Ferronor (Chile), CVRD (Brazil), A&B (Chile)

Dominant Integral, Separated Minority Operators

Amtrak, VIA, Japan Freight

Mexico City suburban, CONCOR (India)

US Class I, CN and CP, East/West/Central Japan Railways

SeparationE.U. and Chile passenger

Swedish suburban, FEPASA (Chile), LHS line (Poland)

U.K. franchises and EWS, Polish and Romanian freight

Range of the EU model

The World Bank

EU ORDER 91-440(Updated as Order 2001/12,13,14)

Freight Intercity Passenger Regional Passengers Suburban Passengers

Infrastructure Ownership

Infrastructure Improvement Kept at national level, Can be devolved

Infrastructure maintenance may be privatized

Control of Operations

(Dispatching and Scheduling)

Train Movement

Equipment Can be Can be Can be devolved

Marketing Privatized Privatized

Financial AccountabilityPSO Support Permitted

The World Bank

The Deutsche Bahn Structure

DB AG Holding Company

DB Netz(Infrastructure)

DB Stations and Service AG

DB Cargo DB Reise & Touristik AG(Intercity Passenger)

DB Regio AG(Local Passengers)

The World Bank

Romania: The New Railway SystemWith Focus on Transition

Minister of Transport

Ensures uniform data

Rail ManagementServices Company

PassengerCompany

InfrastructureCompany, publicenterprise

Real EstateSubsidiary

FreightCompany

Rail AssetCompany

Old SNCFR

Graduallydissolve

First to be soldSplit commuter from ICP,transfer commuter, eventuallyconcession ICP

Sell or develop

Spin off

The World Bank

Railway Concessioning

Began in Argentina in 1991 Now 13 countries with concessions -- freight (32), inter city

passenger (2), suburban passenger (8) and Metros (4) A concession is NOT a sale of assets: it is, instead, a transfer

of control for a period (+/- 30 yrs) Concessions can be either payment to government for use of

assets or payment by government for subsidy and capital program

Experience to date has been highly positive As of now, the only privatization and concessioning in Europe

is the UK and Estonia. Not required by EU rules

The World Bank

TCDD’s Problems

Confusion of government and enterprise roles Organization for production, not market

no Lines of Business, no costing informationLack of commercial, financial goals

Imposed social roles (low passenger fares) Non-core distractions (ports)

The World Bank

TCDD’s Program: Initial Actions

TCDD as enterprise separated from government -- enterprise under commercial rules (profit motive, business Board with outside involvement and private sector personnel rules)

Operating functions (Infrastructure, Freight, Passenger) adopt LOB organization on an accounting basis

Separate and localize suburban operations -- accounting first, then institutional

Spin off social, non-rail activities Separate Ports operations

The World Bank

Structural Options Structure -- infrastructure and line of business

separation Why separation of infrastructure?

clarity of costs and benefits of various services facilitate mixed solutions EU rules

Why NOT separate complex and costly -- transaction costs potential conflicts and confusion

Critical issues access charges -- structure and levels? scheduling and dispatching -- who and where?

Lines of business Ports separated freight, local passenger,intercity passenger

The World Bank

Options for Private Sector Role

Private sector, per se, is neither panacea nor ideological objective

Don’t privatize monopolies -- restructure them first, along with railway services, and provide for regulation

Consider specialized companies (like CONCOR in India) for private sector involvement

Consider privatization or concessioning of passenger or freight

The World Bank

What Has the World Bank Done?

Restructuring analyses, analytical tools and TA Support for required new accounting systems Asset rehabilitation to support new structures Labor transitions and retraining (Argentina, Brazil,

Poland – potentially Russia) Environmental cleanup Changes in structure (suburban devolution,

creation of management and accounting systems) Support for required new accounting systems Risk guarantees Transaction management Investment in private operators