Restructuring Options

Restructuring OptionsFor Reform of TCDD

World Bank Rail Restructuring Seminar

27 May 2003

Agenda

• Introduction• Background• Restructuring Strategies• Implementation Issues• Next Steps

WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 2

Congratulations: Great Progress• Completed a number of studies

• Restructuring Strategy Study (BAH)• Options for Reform (World Bank)• Gap Analysis (EU)• Organization Structure Reform (TCDD)• Freight and Passenger business planning studies (TCDD)• Reorganization Plan (TCDD)• Strategy and Proposed Changes in Transport Law (TCDD)

• Preparing for EU entry• Now Need to Move Forward


TCDD Now Has Many Functions


Large Swings in EconomyBudget Deficit And GNP

(10)

(8)

(6)

(4)

(2)

0

2

4

6

8

10

12

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

%

Deficit as % of GNP

% Change in GNP


TCDD Cost $10 Billion Over 20 Years

Railway Cost to Government

0

100

200

300

400

500

600

700

800

900

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

US

$ (2

002

mill

ion)


Rail Becoming Less ImportantTransport Market Size

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Traf

fic U

nits

(Pkm

+Tkm

)-bill

ion

RoadAirWaterRail


Rail Now Less Than 4%Transport Market Shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Perc

ent

RoadAirWaterRail


TCDD Has Light Density NetworkBlack Sea

AnkaraKirikkale

Zonguldak

Kayseri

MersinAdana

Narh

Ulukisla

Konya

Iskenderun

AfyonManisaKutahya

Izmir

BandirmaSivas

Kars

Samsun

Malatya

Turkey

Georgia

Russia

Armenia

Syria

Greece

Lebanon

Iraq

Iran

Mediterranean Sea35°

30° 35° 40°

40°

Black Sea

AnkaraKirikkale

Zonguldak

Kayseri

MersinAdana

Narh

Ulukisla

Konya

Iskenderun

AfyonManisaKutahya

Izmir

BandirmaSivas

Kars

Samsun

Malatya

Turkey

Georgia

Russia

Armenia

Syria

Greece

Lebanon

Iraq

Iran

Mediterranean Sea35°

30° 35° 40°

40°

23

22

21

20181617

1905

04

0607

07

0809

40

39

38

412829

3031

37

35

48

36

86

10

43

4245

46

44

71

7273

74 75

76 77

78

80

79

69 64

65 66

63 6768

70

81NA

8283

85

25

26

87

5651

8988 60

62

61

56

57

58

52

54

5559

24

37

5090

49

0302

01

11

1213

14

15 Istanbul

Bulgaria

Hydarpasa

• Highest density is 20 mt/km; highest density freight is 4 mt/km


Average Density Less Than 2 mgt/km

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Macedonia Greece Turkey Hungary Spain Bulgaria Sweden Finland Portugal United Kingdom

Romania

CzechSlovenia DenmarkSlovakia Poland France Germ

any Italy Austria Belgium NetherlandsUkraine

Mill

ion

Traf

fic U

nits

Ann

ually


While Rail Traffic Grows Slowly…Railway Traffic

0

1,0002,000

3,000

4,000

5,0006,000

7,000

8,0009,000

10,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Pkm

& T

km (m

illio

ns)

0

100

200

300

400

500

600

Kilo

met

ers

Freight (tkm)Suburban (pkm)Intercity (pkm)Average Freight Haul


Unit Prices Have DeclinedUnit Revenue (real)

0.000

0.010

0.020

0.030

0.040

0.050

0.060

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

$ (2

002)

Per

Tkm

or P

km

FreightSuburbanIntercity


Freight Traffic Mix SimilarTCDD Freight Commodity Shares

0%10%20%30%40%50%60%70%80%90%

100%

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Minerals & Ores Other Construction Materials Food and Agricultural Metals & Machinery Chem, Fert, Petrol International


TCDD Would Cost $10 BillionNet Operating Loss of Railway

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$200

2 M

illio

ns


Existing Strategy Helps a LittleNet Operating Loss of Railway

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$200

2 M

illio

ns


Consider Alternative Strategies• 90% of traffic, 60% of network. Ten-year loses

are $8 billion• Core network: 85% of freight, 60% of passenger,

53% of network. Ten-year loses are $7 billion• Efficiency Improvements (on core), Ten-year

loses are $5 billion• Concessioning (on core), Ten-year loses are $3

billion• Does not include significant new investments


The 90% Network

AnkaraKirikkale

Zonguldak

Kayseri

MersinAdana

Narh

Ulukisla

Konya

Iskenderun

AfyonManisaKutahya

Izmir

BandirmaSivas

Kars

Samsun

Malatya

IstanbulHydarpasa

BlackS

Syria

Greec

Lebano

Iraq

Iran

35°

30° 35° 40°

40°

Bulgari

Turkey

Georgi

MediterraneanS

Armenia

Russia

23

22

21

201816

1719

05

04

09

40

39

412829

3031

37

35

48

36

86

43

4245

46

44

71

7273

74

75 7677

7879

64

65 66

63

69

67

68 70

81 NA

82 83

8485

25

26

87

5351

8889

60

62

61

56

57

58

52

5559

24

37

5090

49

0302

01

11

13

15

54

1412

060708

38

10

80

TCDD Network Capturing 90% of 2001 Traffic Units


The Core Network

AnkaraKirikkale

Zonguldak

Kayseri

MersinAdana

Narh Ulukisla

Konya

Iskenderun

AfyonManisa Kutahya

Izmir

Bandirma Sivas

Kars

Samsun

Malatya

Istanbul Hydarpasa

Black Sea

Syria

Greece

Lebanon

Iraq

Iran

35°

30° 35° 40°

40°

Bulgaria

Turkey

Georgia

Mediterranean Sea

Armenia

Russia

23

22

21

2018

16

1719

05

04

09 40

39

41 28 29 30

31 37

35 48

36 86

43

42 45

46 44 71

7273

74

75 7677

7879

64

65 66

63

69 67

68 70

81 NA 82

83 84

85

25

26

87

53 51

88 89

60 62

61

56

57

58

52

5559

24

37 50

90 49

03 02 01 11

13 15

54

14 12

06 07 08 38 10

80

TCDD Core Network


Subsidy Needs Can Be ReducedOperating Cost of Railway

($1,200)

($1,000)

($800)

($600)

($400)

($200)

$0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ M

illio

ns (2

002)

Concessioning

Efficient Core

Core Network

90% of Traffic

TCDD Strategy

No Change


Considering Bolder Plan

• Government and TCDD are considering restructuring alternatives with greater fiscal impacts but the trade-offs have not been considered

• Plan to develop legal and regulatory framework needed for EU membership

• But need to develop a transition strategy and schedule for implementation


Strategy Must Address Major Issues

• Address industry structure clearly• Define restructuring, investment, organizational

strategies in detail• Analyze investment priorities• Define service & labor implications-create

mitigation strategies• Prepare culture change program• Develop schedule and action plan


Work Towards Core Railway StructureHolding

Company

Suburban Operator

Passenger Company

Infrastructure Company

Passenger Company

Passenger Operator

Suburban Companies

Freight Company

Ports Manufacturing

• Separate ports and manufacturing, others where possible

• TCDD holding company• Infrastructure company• Passenger company for intercity• Several suburban companies• Freight company


Develop Integrated Approach• Find a restructuring champion with mandate to act• Agree high-level goals with government, • Create a forum for discussion and decision making• Develop integrated financial and operational analysis

with all business units and long time horizon• Analyze alternative restructuring strategies and

iterate with TCDD/Government forum till agreement is reached

• Then define legal and regulatory framework


Analyze Changes in Detail

• Use analytic process to evaluate service and operating effects in detail, some are counterintuitive

• Develop accurate long-term analysis of employment, investment, operating costs

• Analyze investment priorities including market and financial implications


Define New Role of Government

• Detailed analysis of employment and service changes by region, along with mitigation measures

• Develop understanding of regulatory processes needed and role of Government

• Work with Government to define new regulatory structures and legislative changes


Culture Change Program Needed

• Existing culture, whatever it is, must change• New culture oriented to commercial

performance and competitive environment• Best to have a vision of the culture you want

and find ways to implement it rather than let one evolve on its own


Next Steps …• Appoint a restructuring Champion with mandate• Create a mechanism for unambiguous dialog with

Government• Define goals and objectives• Develop the integrated planning process• Iterate plans till agreement is reached• Develop changes needed in legal and regulatory

environment• Develop plan for implementation and start

Restructuring Options

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