Breathing new life into Thailand’s national railway operator-
The Thai national railway operator, the State Railway of Thailand (SRT) is currently struggling with a huge debt burden and financial losses. Its future depends on how rapidly and effectively it can be restructured. According to P. Chongsanguan, governor of SRT, the transformation of the erstwhile Royal Railways of Thailand into a state-owned enterprise in 1951 propelled the national railway on a downhill path, as it had to take on a combination of previous debts and new financial burdens of investment in the railway network. Combined with the political exigencies of keeping fares artificially low and the failure to invest in the improvement of services, the state-owned enterprise is experiencing serious financial problems. This has also significantly affected the performance of the country’s railway sector as the SRT is the sole operator of Thailand’s nationwide railway services.
To pull out the railway sector from this crisis, the government has now embarked on a reform programme entailing a 1.6 trillion baht investment in order to upgrade its ageing infrastructure, improve governance, increase operational efficiency, and help the railway to recapture a share of the transport market. Reform of the SRT will be an important part of this programme. Moreover, reforms in the railway sector will help establish Thailand as a key infrastructure hub for the whole Mekong subregion.
Old, inefficient, and in the red
The railway network in Thailand serves 42 of the country’s 76 provinces and accounts for 45 per cent of passenger traffic in Thailand. Nine out of every 10 passengers belong to the intercity passenger traffic class – a class that requires public service obligation (PSO) payments by the government to the SRT. In lieu of paying the SRT, the government encourages the operator to meet its operational losses by borrowing from the commercial capital market, using sovereign guarantees. As a result, the debt burden of the SRT has reached 80–100 billion baht; it has been in the red for the past five-six years.
The extent of its financial difficulties has undermined the enterprise’s ability to invest in new infrastructure and efficient operations. Based on the estimates of international development agencies like the Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA), more than 67 per cent of the railway lines have been in use for over 30 years. In addition, the signalling and interlocking system is obsolete. According to experts, service is slow, inefficient, and dangerous.
Furthermore, the SRT’s share in freight transport has also eroded as a result: specifically, its share in freight fell from 9 per cent in 2000 to 2–2.5 per cent in 2012. The costs of freight transport through railways are also estimated to be double those of its neighbours in South Asia, at $1,000 per container on average, compared to $500 for Indonesia, Malaysia, and China.
Getting a new lease of life through reforms
To regain lost ground, the national rail operator will receive funds as well as undertake an overhaul of its operational structure. With assistance from ADB, the government is working out the modalities for the same.
In a workshop organised jointly by the Thailand government and ADB, the government unveiled the planned transformation of the SRT into a specialised operator by establishing separate institutions for managing infrastructure, regulation, and safety – functions that have till now been in SRT’s domain. While regulation and safety is being proposed to be entrusted to a new department established under the Ministry of Transport (MOT), infrastructure is to be hived off into a separate asset management company formed as a new state-owned enterprise.
The government has also indicated that the railway administration could be restructured to encompass other government departments. Other possible measures include establishing a regulatory board and involving private participants in commercial operations. The table presents a possible restructuring arrangement.
The restructuring strategy is aimed at turning the SRT into a debt-free business with a viable capital base. As a first step, the government is proposing to transfer the ailing operator’s debt of 100 billion baht to the government’s books. It will also recapitalise the SRT’s operations through an infusion of a working capital loan amounting to 3 billion baht. With the proposed restructuring, the organisation would have separate business units for operations, assets, and maintenance, as well as for establishing an airport–rail link.
To increase track capacity and introduce four new high speed trains, the government has earmarked 80 per cent of its transport investment package worth 1.6 trillion baht for the railway sector. The SRT will receive 95.6 billion baht, equivalent to a share of 6 per cent. It is likely that the government will obtain the funds from foreign exchange reserves and domestic bond markets, at an expected interest rate of about 4.17 per cent per annum.
A new beginning
The success of this reform programme will require more than management will and financing. As Chongsanguan points out, “I believe that the progress of the SRT requires cooperation from the SRT people. They must be encouraged and should enjoy high morale.” The political will to carry out reforms speedily will also play a role as the time frame to bring about any legislative changes for establishing new departments is expected to be at least one–two years.
The success of the reforms would not only infuse new life into the country’s national railway operator, but also act as a catalyst for the economic development for the larger region. All the pieces of the reform puzzle are now in place; the SRT’s future now lies in the putting together these pieces effectively with the full support of all stakeholders.
