Transcript Document

Financing freight railways in developing countries
Global Rail Freight Conference
Sponsored by Indian Railways and UIC
Paul Amos: Transport Advisor World Bank
New Delhi, March 2007
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Contents
 Financing sources for public railways
 Supply chain challenges
 Importance of private finance
 Project and governance risks
 Opportunities for private finance
 The World Bank and rail freight
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First, a thank you for the invitation….
To Indian Railways who, at this exciting time in that organization's own
business development, are hosting this conference of high international
significance to the future of railway freight;
To the International Union of Railways, for their continuing relationship with
the World Bank and their world leadership of an industry that is vital to
international economic development, poverty reduction and the world’s
environment.
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Rail freight demand is increasing strongly in most regions…..
3500
3000
2500
2000
2000
2005
1500
1000
Source UIC
500
0
N/S Am
As-Pac
CIS
Eur
Afr
Global freight task: 25 percent growth over five years
(net tonne-km bill)
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In most public railway systems, retained earnings have not
provided sufficient funds for rail freight re-investment
 In the best performing public rail freight systems, profits earned from freight are
often implicitly used to cross–subsidize passenger services, for example:
direct transfer to passenger operating losses, and/or
indirect transfer through excessive track charges (implicit or explicit)
reinvestment of freight profits in infrastructure standards higher than would be
required by rail freight services alone.
 In medium performing systems freight surpluses are sometimes sufficient to reinvest
in motive power and rollingstock but cannot contribute fully to infrastructure costs
 In many systems, generally smaller railways with little base-load of bulk or transit
freight, revenues do not cover their own ‘above rail’ costs and cannot cover
reinvestment in the train operating assets
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Public railway systems can in principle raise finance from a variety
of other sources, for example…
Budget sources
Direct Borrowing
Private participation
Asset finance
Deficit financing
Corporate
borrowing
Joint-Ventures
Export credit
Government
loans/equity
Revenue-backed
borrowing
Concessions
Leasing
Government
grants
Project-specific
borrowing
Privatization of
business units
Availability
contracts
In practice, most publicly railway systems depend heavily on the budget sources,
particularly those that have a big passenger role
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The public sector’s ability and willingness to finance or guarantee
investment in rail freight is likely to decline…
 An increasing proportion of government expenditures is to meet higher
health, education and social aspirations and expectations
 Governments are increasingly questioning whether carrying goods is a
core (or even an appropriate) Government role
 Some governments are concerned whether state subsidies of public rail
investment are competitively neutral vis a vis other modes:
…though heavy road haulage is also often subsidized by
governments or other road users
At the same time, there is a growing need for investment in rail freight to meet the
challenges of serving global supply chains…
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Supply chains are becoming more challenging… and
competitive
Markets
Rapid expansion of international trade, and particularly
in Asia: many supply chains are now truly global
Expectations
Global competition in product and service markets is
driving higher standards and lower costs in logistics
supplier markets
Competition
Despite some industry concentration (e.g. ports) the
freeing of transport markets is creating greater
contestability in logistics services and sub-markets
Technology
All modes of transport are investing to obtain more
efficient, usually larger units and improved traffic
dispatching, monitoring and control capability
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more challenging supply chains….contd.
Inter-modality
Both standard and specialized containerization continues
to grow , facilitating inter-modal transit and multi-modal
allocation of traffic
Energy/climate
The expectation of perpetually cheap energy is waning
due both to declining fossils fuel stocks and expectation
of higher energy taxes in response to global warming
Security
Higher standards of security in freight transport are being
sought in all modes
Bottlenecks
Logistics services depend heavily on public infrastructure
: capacity increments are not matching world freight
volume growth
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Freight railway services will need to be able to offer supply chain
managers, who owe railways no favours, ever improving value for
money…
Service
attributes
•Customer responsiveness
•Geographic reach (= intermodal)
•Delivery time
•Reliability of delivery time
•Frequency of delivery
•Safety and security of goods
•Protection of corporate image
•Value-adding services
Cost
components
•Transport & storage tariffs
•Inventory holding costs
•Product damage or deterioration
•Pilferage losses
•Insurance costs
•Administration
•Customs and other clearances
•Informal payments for service
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The success of rail freight as a business will depend on three Cs….
Competitive spirit
A focus on
customer service
High-order
marketing skills
Pricing agility
Commercial culture
Capital access
Lean decision
structures
Rigorous management
of internal and
outsourced costs
Keen incentive
mechanisms
Investment in
physical assets that
deliver high service
standards
Investment in IT to
monitor and control
operations
Private sector participation can make the rail
industry more competitive, more commercial and
provide new sources of capital !
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The private sector is therefore a vital way of increasing the role of
rail freight in global supply chains, not just for its finance
 Private participation and finance can take many forms – including
partnerships and ventures with the public sector - as shown later
 But private finance is not a panacea for rail systems development: in many
countries, rail networks will depend mainly on public investment for the
foreseeable future
 Private participation can help reduce (though is unlikely to end) the problem
of politically driven internal cross-subsidies to passengers as it will require
well built and repaired ‘ring-fences’ round invested businesses
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Many governments are unlikely to privatize public railway
networks for wider social or cultural or policy reasons
 This is particularly true of networks with high proportion of passenger
services
 It is reinforced in:
 large countries with remote rail connected regions
countries in which rail has features of natural monopoly in freight
typically larger countries with high rail distances
with heavy bulk traffic markets
Track access rights can provide a route to private investment in freight
while retaining the public railway network in public ownership and control.
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Track access rights for freight train operators can in principle
come in a variety of different forms….
Contractually agreed: specific
access rights:
Legally mandated: narrowly
defined access rights
Legally mandated: general
rights of access
 USA (approx 25% of
US network is
subject to ‘trackage rights’)
Canada (30km beyond company
boundaries)
Mexico (specific lines to ports/cities
to create competition))
 Most EU States, EU international,
Australian State-owned railways*
*Australian interstate rail is carried on vertically separated infrastructure managed by the Australian Rail Track Corporation
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Private freight access on public rail networks will require a rigorous
governance (legal and regulatory) framework if it is to be financeable..
1. Laws and regulations on
access to public rail systems
2. Criteria and process for
licensing new rail entities
6. Agreements on rollingstock
interchange and revenue division
7. Procedures for incorporating
new operators fairly into timetable
3. System for safety
accreditation and monitoring
4. Procedures for applying for
capacity on public rail network
5. Standard documentation for
track (& facility) access contracts
8. Rules for sorting out operating
priorities/conflicts between trains
9.Institutions and procedures for
regulatory review and compliance
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Therefore, financing rail freight is not only about commercial risks
but also the predictability and acceptability of governance risks
Commercial risks
Governance risks
•Financing risks (e.g. currency risks)
•Land acquisition: costs and time
•Construction and/or rollingstock
engineering risks
•Residual asset risks
•Safety risks
•Market risks:
Volume of freight
Yield: revenue/tonne-km
•Fair and transparent market access
process (whether privatization or track
access to private companies)
•Legal enforcement of Agreements
•Market and pricing freedoms
•Adherence to agreed operating
freedoms
•Any government financial
contribution is paid on time
•Regulatory risks
•Protection against expropriation
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With good governance and regulatory structures there is a wide scope for
private finance in railway freight transport
Functions Finance & build Operate & maintain
rail line
rail line
Finance
rollingstock
Operate freight
train services
Rollingstock leasing/
availability contracts
Public
Public
Private
Freight train
operating company or
concession
Infrastructure build or
renovate concession
Public
Public
Private
Public (pays R/S
hire prices to
private)
Private
Private
Public (pays usage
charges to private)
Public
Public
Infrastructure build &
operate concession
Private
Private
Public
Integrated infra.and
train service company
or concession
Private
Private
Public (pays
access charges to
private)
Private
Structures
Private
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World Bank support for the railway industry is increasing
(Annual lending for railways1999-2008 projected)
500
400
300
200
100
0
1999
2001
2003
2005
2007
USD millions (3 yr moving average)
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The World Bank is ready to extend its support of global rail freight
development…
 Investment support of public railways with strong freight business plans that
will support trade and development in an economically and environmentally
sustainable way;
 Knowledge sharing and technical assistance to bring to bear best practice
advice on railway policy, institutions, regulations, corporate restructuring
and business strategy;
 Advice on and support for structures that can increase private investment in
freight railways (together with IFC and MIGA products);
 Regional and corridor approaches to rail trade and transport facilitation.
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Thank you for your attention
Questions and comments to:
[email protected]
The findings, interpretations and conclusions expressed herein are those of the author
and do not necessarily reflect the views of the Board of Executive Directors of the
World Bank or the governments they represent
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