KTMB-RAC merger on the cards?

Negotiations between the two parties have been rough, particularly with the involvement of KTMB’s staff union which is totally against the move

by AFIQ AZIZ/ pic by TMR FILE

DEBT-RIDDEN Keretapi Tanah Melayu Bhd (KTMB) is expected to be merged with Railway Assets Corp (RAC) following both parties’ failure to fulfil a restructuring deal as outlined by the Railway Network Access Agreement (RNAA) that was initiated in 2016.

Under the agreement, KTMB’s assets worth billions of ringgit were supposed to be transferred to RAC, a deal that would allow the former to focus on being a railway operator, while the latter as the railway owner. Sources said negotiations between the two parties had been rough, particularly with the involvement of KTMB’s staff union which is totally against the move.

Sources also told The Malaysian Reserve (TMR) that studies on the RNAA are still being conducted by both parties and the Ministry of Transport (MoT), and among the options that were mooted include the merger of KTMB and RAC.

One source said newly-minted Transport Minister Datuk Seri Dr Wee Ka Siong is more “keen” to see both corporations placed under the same umbrella, which would also put an end to the longstanding issues hampering KTMB and RAC over the years.

“However, this process will need to be passed back to Parliament with the amendment of Railways Act 1991 that regulates the country’s railway industry, and that could take a couple of years,” a source, who is in the know of the discussions between the parties, told TMR.

RAC, a federal statutory body under the MoT, was established under the Railways Act 1991 and became fully operational on Aug 1, 1992, which also automatically ended the Railways Ordinance 1948.

KTMB, previously known as the Federated Malay States Railways and the Malayan Railway Administration, acquired its current name in 1962 and was corporatised in 1992.

The country’s longest-serving railway company is now parked under Ministry of Finance Inc. The dissolution of KTMB saw all its property and assets, including its railway land under the Federal Land Commissioner, placed under the RAC.

The move also allowed KTMB to focus on improving its railway services without having to carry the burden of past debts, which amounted to RM2.1 billion that was absorbed by RAC as part of the 1992 agreement.

RAC now controls a staggering RM34.5 billion worth of assets — including rolling stocks, signalling systems, railway land in strategic locations and more than 1,600km of railway tracks aimed at uplifting the country’s railway industry to be at par with those in fully developed nations.

To achieve the target, KTMB and RAC then signed a 30-year deal — RNAA — in December 2016, which clearly set out KTMB’s role as the rail operator and RAC as the rail owner. This also includes the idea of allowing multi-railway operators (MROs) to run on KTMB’s tracks.

One source said the previous due date to fulfil the RNAA was missed at the end of last year and has been deferred until today as both sides could not come to a consensus.

The source said strong objections came mainly from KTMB’s union, who reckoned that the assets would be better managed by KTMB.

While merger seems to be the most likely option, an industry insider said a thorough study still needs to be undertaken to weigh all the pros and cons before such an exercise could materialise.

The insider said if the merger is done hastily, it could lead to KTMB continuing to operate with huge losses, which in the long run would hamper the growth and development of the rail industry.

Until now, KTMB still relies heavily on government cash despite its huge debt having already been absorbed by RAC (or literally “the government”).

The Auditor-General’s Report 2018 Series 2 issued in December last year also revealed that KTMB’s accumulated loss as of Dec 31, 2018, stood at RM2.83 billion.

The insider said apart from a holistic merger, a proper vertical and horizontal separation or integration study must also be carried out to determine the best business model that could create a competitive environment to produce efficient railway industry players.

“It is important for us to ensure that we are really competitive enough. We must look at the root cause of the matter so we do not make any regressive move.

“It must address the issue of competitiveness, efficiency and sustainability,” the insider said.

Another issue that is expected to be raised in the ongoing discussion is whether the number of workers would be bloated after the merger.

Currently, KTMB employs some 6,000 workers throughout the country, while RAC only comprises a small team centralised in the Klang Valley.

“However, it must be noted that 80% of KTMB’s cause is part of a social obligation. Some routes are reporting losses, but they are obliged to continue operations.

“So, the new business model must be in a way or in the form of ‘competitive’ and feasible subsidy,” said an industry observer.

One of RNAA’s objectives is to liberalise the use of the country’s rail network by allowing other rail operators to utilise KTMB’s track. The National Transport Policy 2019-2030 unveiled last year by former Prime Minister Tun Dr Mahathir Mohamad had proposed the move, stating that the railway in the country is still under utilised especially to ferry large and heavy freight.

Dr Mahathir said the MRO modelling would allow train com- panies to invest and then rent the existing railway lines from the rail owner.

In an interview with TMR last February, KTMB CEO Datuk Ir Kamarulzaman Zainal expressed his concerns and opposed both liberalisation ideas, adding that RNAA will not be part of his agenda.

He said the company will not allow non-KTMB trains to run on its existing tracks. The CEO said KTMB could sustain itself better after it enters into a long-lease agreement to acquire future rolling stocks.

This, Kamarulzaman said, would subsequently increase its cargo business capabilities.

As it is, the finalisation of RNAA is still being deliberated between RAC, KTMB and MoT. TMR is awaiting the Transport Minister Office’s response.