KTMB’s proposed merger with RAC to help sustain operation

CEO Kamarulzaman says the merger would allow KTMB to have better control of operation and infrastructure, thus ensuring train service efficiency with minimum disruption

by AFIQ AZIZ/ graphic by MZUKRI

KERETAPI Tanah Melayu Bhd (KTMB) said its proposed merger with Railway Assets Corp (RAC) will help the country’s rail operator sustain its operation.

In a text reply to The Malaysian Reserve (TMR), KTMB CEO Datuk Ir Kamarulzaman Zainal (picture) said a proposal was sent to the Ministry of Finance (MoF) to address the concerns on KTMB’s inability to fully capitalise its assets due to the vertical separation since the establishment of Railways Act 1991.

The separation — which resulted in billions of ringgit of KTMB’s assets placed under RAC since 1992 — is deemed not viable for the company to sustain its business.

TMR reported last week that the discussion to merge both organisations is on the cards after the Railway Network Access Agreement (RNAA) in 2016, that sets clear demarcation between both parties, met a dead end.

“A counterproposal (of the vertical separation of KTMB in 1992 and the establishment of the RNAA agreement) was sent to MoF recently.

“It is about the main line railway governance structure, which involves both KTMB and RAC,” Kamarulzaman said, adding that the railway operator is waiting for further discussion and direction from its stakeholders.

He said KTMB has also sent the copy of the proposal to the Ministry of Transport (MoT).

After the separation, KTMB is now placed under MoF Inc, while RAC is a federal statutory body supervised by the MoT. The corporatisation of KTMB saw all its properties and assets, including its railway land under the Federal Land Commissioner, placed under RAC.

RAC absorbed RM2.1 billion of KTMB debts and liabilities. It cur- rently controls up to RM34.5 billion worth of assets — including rolling stocks, signalling systems, railway land in strategic locations and more than 1,600km of railway tracks.

KTMB continued to report yearly losses with the latest Auditor-General’s Report 2018 Series 2 issued in December last year revealing that its accumulated losses as of Dec 31, 2018, stood at RM2.83 billion.

Citing the success of Japanese railway industry, Kamarulzaman said the integration of both KTMB and RAC would allow the former to have better control of operation and infrastructure.

This, he said, ensures train service efficiency with minimum disruption.

“The proposal is to have vertical integration like the Japanese model, which proves viable in terms of ploughing back asset revenues to sustain railway operation.”

In the railway industry, vertical separation means the functions of asset management and train operation are carried out by two different organisations. A vertical integration is where the functions of train management and train operation are carried out by one body.

In Japan, the railway system was formerly managed by Japanese National Railway (JNR). However, due to steep financial losses, the government decided to reform the industry in 1987 by privatising JNR and creating divisions of Japanese railways that manage and operate according to regions.

Known as horizontal separation, JNR was divided into six regional rail companies and one freight company. Five of those companies — JR East, JR Central, JR West, JR Kyushu and JR Freight — are reportedly running in the black.

JNR operates with no public subsidy and is generally profi- table due to the high population density and similar travel cost between rail and road.

In an earlier report, Kamarulzaman said KTMB could leverage a huge vacuum in the cargo freight sector, provided the company is allowed to enter a long-lease purchase of rolling stocks and it can run exclusively on its own tracks.

It is understood that a meeting between KTMB, RAC, MoF and MoT will be held soon to find a holistic solution on this matter.

Both RAC and MoT are currently unable to comment on this matter.