KTM Update: Another restructuring for KTMB promises to accomplish what earlier restructuring(s) did not

TRANSIT took note of this article which describes plans for another corporate restructuring at KTMB.

It is sad that the Malayan Railway has still not managed to figure out whether it is supposed to be a government agency, corporate entity, or something in between.

TRANSIT remembers earlier corporate restructurings that have happened for KTMB. Well, at least they were started but then they got stalled either because of a lack of government support, an unclear vision, or resistance from workers (among other reasons).

The corporatization of KTM began nearly 2 decades ago but it was never finished. A lack of government funding and deferred maintenance since the corporatization has helped bring KTMB to its knees.

Recently one President of KTMB started an RM1 campaign, promising to take KTMB back to profitability. That campaign died aborning, when the president was quickly replaced (it might have had something to do with his “hybrid” trains).

The most recent KTMB President has talked about restructuring KTMB into a holding company, with various railway service subsidiaries (freight, Komuter, ETS, power systems, maintenance, terminal management, etc). and selling track warrants to other companies interested in providing railway services. He believes that this model will be successful because it has worked in Europe – despite the fact that it has not worked in many European countries and that Malaysia lacks the density that makes railway travel profitable.

We wonder what this latest restructuring will bring for KTMB but we wish to share one important point – KTMB needs to have a clear vision of the kind of transport service provider that it needs to be over the next 10-20 years.

Without that clear vision, this latest restructuring will be as effective as the last ones.

Railway revamp (Star Biz)

Thursday October 27, 2011
By SHARIDAN M. ALI
sharidan@thestar.com.my

PETALING JAYA: KTM Bhd (KTMB) will undergo a two-year corporate restructuring programme to turn around the ailing national rail operator and a consultant will be hired to manage this, according to the Treasury, in its reply to the Auditor-General’s (A-G) report.

The A-G’s report had stated that KTMB posted a loss of RM92.6mil in 2009 compared with RM84.6mil loss in the previous year.

The Treasury said that apart from high operational costs, the losses were also due to a decline in cargo transportation earnings by 50% in 2009.

One of the reasons for this was insufficient train capacity of the State Railway of Thailand to support KTMB’s cross-border services.

[TRANSIT: More importantly, the Government is undertaking a double tracking & electrification of the railway all the way up to Padang Besar even though there is no corresponding SRT project. This means that the Government is paying billions for infrastructure that will only support Malaysian passenger railway services inside Malaysia – not freight or international passenger services – without clear economic justification for the entire EDT project.]

KTMB also did not have enough electric multiple sets to support its commuter train services.

KTMB’s associate company KL Sentral Sdn Bhd also saw a 70% decline in revenue during the year under review. KTMB also suffered an asset depreciation charge of RM265mil in 2009.

According to the Treasury, the Finance Ministry has directed KTMB to present its financial and non-financial reports to the Government on a quarterly basis.

[TRANSIT: How about presenting KTMB financial reports to the public on KTMB’s website for all to see?]

The A-G’s report also stated that KTMB must tackle its problem of having a high number of outstanding debtors in order to achieve healthy cash flows.

As of end-2008, KTMB had failed to collect debts amounting to RM40.7mil and RM3.8mil more was owed to its subsidiary.

The A-G’s report also found that KTMB had not charged any interest on overdue credit extended to its customers.

The report suggested that KTMB institute legal actions against companies or individuals who failed to settle their debt.

However, it acknowledged that part of the problems with KTMB’s debt collection was due to its failure to renew its land lease with the Federal Land Commissioner.

It added that the land lease contract had expired and because of this, KTMB was unable to collect debt, rent or take legal actions.

The A-G’s report noted that the Transport Ministry, had on April 8 2010, decided that Perbadanan Aset Keretapi (PAK) would become the custodian of all land belonging to KTMB under the Railway Act 1991.

[TRANSIT: Imagine, the decision was made in 2010 to implement PAK, even though the Railways Act is from 1991. Not to mention, the Railways Act was replaced by the PAD Act in 2010 … meaning that the Ministry of Transport’s decision could be technically invalid unless similar clauses are found in the PAD Act – update: a comment from @nightowl says that the sections of the Railways Act pertaining to PAK are still in effect.]

PAK would manage all land matters relating to KTMB, including land rental.

[TRANSIT: By the way, we should also consider the value of KTMB’s land bank into the equation. Not to mention, considering who gains from unlocking the value of those assets. If we are not careful, it won’t be KTMB that is gaining.]

KTMB was also in the process of drafting a new credit agreement (cargo) that will include a clause on interest charges.

The report added that KTMB had begun legal proceedings against some cargo debtors.

TRANSIT Says:

We have always been clear in our view that KTMB needs to be properly restructured to take on the new tasks and challenges of the 21st century. Unfortunately, KTMB is still stuck in the model of50 years in the past. Aside from the B representing Berhad, KTM is still thinking like the small time “national” railway for the Federation of Malaya that it used to be.

Yes, it does sound a bit harsh to say that but the truth is always harsh to those who do not want to hear it.

KTMB needs to change and innovate in providing railway and transport services in order to secure and reach more customers. There are many ways to do this (some of which have been suggested in numerous posts on our blog).

Whatever the model and process chosen, the whole point is that KTMB must always be seen as a national asset, and as a public utility that benefits the Malaysian economy and the Malaysian people rather than something to be plundered.

What suggestions do you have to help KTMB restructure properly and finally move itself into the 21st century?

Well, they could start by making sure that all stations show the same service standards, even if they are located in small towns that see infrequent or irregular rail service.