Strategic future of indonesia's railways


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Strategic future of indonesia's railways

  1. 1. <ul><li>Strategic Future of </li></ul><ul><li>Indonesia’s Railways </li></ul>A Preliminary Vision 15 December 2009
  2. 2. <ul><li>Indonesia Wants to Change Its Rail Sector </li></ul><ul><li>Passenger market shares have been declining – competition from low cost air and new toll roads limit the value of long distance rail passenger services </li></ul><ul><li>Urban traffic congestion is severe and costly, improved and new rail services are needed but can’t easily be financed </li></ul><ul><li>While rail transport can be environmentally friendly, development has been slow </li></ul><ul><li>Freight market share has been declining – the railway is basically irrelevant for freight service in Java </li></ul><ul><li>Current rail sector structure is a competitive disadvantage for the Indonesian economy </li></ul>
  3. 3. <ul><li>Current rail sector almost irrelevant to the development of Indonesia’s economy – </li></ul><ul><ul><li>Tiny and shrinking market shares, </li></ul></ul><ul><ul><li>Services duplicated by competitors at similar costs </li></ul></ul><ul><ul><li>Railway impacts mostly local – devolution principals call for greater local input, budget responsibility, and control </li></ul></ul><ul><li>New developments will require new railways – how should they be organized, developed, and regulated? </li></ul><ul><ul><li>To maximize economic benefits </li></ul></ul><ul><ul><li>Minimize drain on Indonesian finances </li></ul></ul><ul><ul><li>Mobilize private sector capital and knowledge </li></ul></ul><ul><ul><li>To what technical standards? </li></ul></ul>Current Rail Sector Characteristics
  4. 4. <ul><li>Structural Changes are Underway </li></ul><ul><li>Changes in the sector have been underway for some time </li></ul><ul><ul><li>Greater commercial freedoms </li></ul></ul><ul><ul><li>Changes in railway focus and legal status </li></ul></ul><ul><li>Railway law contemplates potential sweeping changes </li></ul><ul><ul><li>New regulatory environment </li></ul></ul><ul><ul><li>Structural changes in sector </li></ul></ul><ul><ul><li>New financing possibilities </li></ul></ul><ul><ul><li>Paves the way for local community and private sector initiatives </li></ul></ul><ul><li>However, implementation has been delayed </li></ul><ul><ul><li>Wide scope, complex nature of the sector </li></ul></ul><ul><ul><li>Necessary vagueness to permit development of practical solutions </li></ul></ul><ul><li>What might the rail sector look like in the future? </li></ul>
  5. 5. <ul><li>Regulatory Framework </li></ul><ul><li>Mr Sharp discussed the potential regulatory role of the DRG </li></ul><ul><ul><li>Setting technical standards for safety and inter-operability – this should be in association with an industry association including railways and suppliers </li></ul></ul><ul><ul><li>Administering safety regulation – implementing the technical safety standards through inspection and compliance mechanisms </li></ul></ul><ul><ul><li>Certification of railway infrastructure managers and railway operators – initially only PTKA but may someday include private entities, local authorities who have built and wish to operate railway infrastructure </li></ul></ul><ul><li>The DRG has other functions as well </li></ul><ul><ul><li>Administers government funded investments in infrastructure </li></ul></ul><ul><ul><li>PSO, regulation of capacity (though not capacity allocation), access charges </li></ul></ul><ul><ul><li>Review of network statement, access practices </li></ul></ul><ul><ul><li>Policy, planning, coordination </li></ul></ul><ul><li>Given rail’s small market share, final price regulation is probably not required but dispute resolution will be needed from an independent body </li></ul>
  6. 6. <ul><li>Infrastructure Manager </li></ul><ul><li>Our understanding of the new railway law is that a railway infrastructure manager will be required </li></ul><ul><ul><li>Most likely appointed/hired by MoT (someday the task could be subject to bid) </li></ul></ul><ul><ul><li>Possible to have multiple infrastructure managers </li></ul></ul><ul><li>For now, the infrastructure manager will have to come from within PTKA </li></ul><ul><li>PTKA should plan a process of internal reforms to fill this role </li></ul><ul><ul><li>Accounting systems should provide for complete accounting separation so that infrastructure costs can be clearly identified and costs computed. </li></ul></ul><ul><ul><li>Over time, PT KA should form an infrastructure business unit to serve as infrastructure manager </li></ul></ul><ul><ul><li>Eventually, PTKA-Infrastructure (PTKA-I) should be set up as a separate licensed company to permit participation as manager in other infrastructure projects </li></ul></ul><ul><ul><li>PTKA-I includes technical staff and work force necessary to specify, build, maintain and operate railway infrastructure </li></ul></ul><ul><ul><li>PTKA-I assets would include maintenance equipment, staff, some facilities </li></ul></ul><ul><li>Licensed/Chartered by DGR, subject to DGR technical and safety standards </li></ul>
  7. 7. <ul><li>PT KA Now Vertically Integrated </li></ul><ul><li>PT KA’s current organization is complex, matrix-based, internally focused </li></ul><ul><li>Complex geographic and functional structure overlay </li></ul><ul><li>Customer relationships managed at lower levels </li></ul><ul><li>26 direct reports to VP-Director </li></ul>VP Ex Board Finance Technical Operation HR Developm’t Commerce IT 1,6,8 Train Asset C&H SHE Log Law Real Audit Risk Sec … … … … … … … … … … … … President 2,4 3,5,7,9 Dv 1 Dv 2 Dv 3 PT-R PT-RL PT-KCJ PT-P PT-L PT-P … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
  8. 8. <ul><li>A Possible Future PT KA Structure </li></ul>Track Signals Dispatch Technical Planning Marketing Sales Customer Stations Equipment Planning Drivers Locos Depots Planning Finance Law IT Environ HR <ul><li>A business unit structure focused on end markets </li></ul><ul><ul><li>Control of facilities and equipment needed for service </li></ul></ul><ul><ul><li>Units plan service requirements, work with central operations unit for resources </li></ul></ul><ul><ul><li>Infrastructure Unit responsible for ultimate plan, capacity allocation </li></ul></ul><ul><li>Eventually, Railway Co could become commercial holding enterprise </li></ul><ul><ul><li>Infrastructure unit stock held by Railway Co and Government </li></ul></ul><ul><ul><li>Other units could raise own capital, could be partially floated </li></ul></ul>LD Pax Commuter Freight Railway Co Infrastructure Operations Corporate Business Units DGR Investment Pvt Finance Marketing Sales Customers Facilities Wagons Planning Functions Local Finance Infrastructure Subsidy Marketing Sales Customer Stations Equipment Local Gov Planning
  9. 9. <ul><li>Special Purpose Railways </li></ul><ul><li>Special purpose railways (e.g., metro, airport lite rail links, separate coal railways) would be Licensed/Chartered by DGR; subject to DGR technical and safety standards </li></ul><ul><li>Special purpose railways probably built under BOT structures </li></ul><ul><ul><li>Special purpose railways could be integrated BOT structures with infrastructure ownership eventually transferring to government </li></ul></ul><ul><ul><li>Special purpose railways likely to include a separate infrastructure unit or at least separate accounting </li></ul></ul><ul><ul><li>Metro’s and light rail airport links could be set-up with infrastructure unit structure but remain integrated for operations (access issues unlikely to arise) </li></ul></ul><ul><li>Privately financed special purpose coal lines also likely to be BOT structures but with access regime built into license/charter and a two unit structure or separate accounting </li></ul><ul><li>Through this means, Indonesia could have multiple infrastructure managers, depending on financing structures </li></ul><ul><li>PT-KAI would be a likely and highly qualified partner for any privately financed railway – but would require special accounting for this purpose </li></ul>
  10. 10. <ul><li>Other Arrangements </li></ul><ul><li>A means to separate segments of existing railway infrastructure should be available – subdividing the existing infrastructure for a special purpose </li></ul><ul><ul><li>For example, the DGR and PT-KA-I may want to separate segments of the existing network for metro, suburban commuter, or airport links </li></ul></ul><ul><ul><li>These segments would be managed by the special purpose railway entity, but preserve access for other operators (e.g., for long distance trains to operate into urban areas) </li></ul></ul><ul><ul><li>Such an arrangement would be a win-win for all parties involved </li></ul></ul><ul><li>Over time, the PT-KA-I infrastructure unit could be separated from the other business units to become a stand alone state-owned enterprise, </li></ul><ul><li>Alternatively, over time, shares in the other units could be sold to raise capital for private railway infrastructure projects, leaving PT-KA with one primary business unit </li></ul>
  11. 11. <ul><li>Clarity and Simplicity </li></ul><ul><li>Ground rules for licensing and chartering private railways need to be clear and relatively simple </li></ul><ul><ul><li>One stop license/charter would be most desirable </li></ul></ul><ul><ul><li>Standards to receive permit should be clear and straightforward </li></ul></ul><ul><li>Standards for railway infrastructure should also be clear and straightforward </li></ul><ul><li>No particular reason to require same standards as PT-KA-I </li></ul><ul><ul><li>Gauge, axle loadings, equipment standards should assure safety but not retard implementation of new technologies </li></ul></ul><ul><ul><li>If special purpose railways to connect with the national network, will of course use the same gauge but may have heavy haul standards (heavy rail, higher axle loadings, with no limitation on technologies employed) </li></ul></ul><ul><li>A privately financed heavy-haul railway connecting to an existing railway may require upgrading the existing railway </li></ul><ul><ul><li>Could be part of the private railway, or the upgrades could be investments from the national government </li></ul></ul><ul><ul><li>Access charges should reflect the cost of upgrades for those using them </li></ul></ul>
  12. 12. <ul><li>Thank you! </li></ul>