corporate
true
Issues  |  JULY 8, 2015 12:00AM

Making KTM’s RM36 billion double-tracking project work

Story by
[email protected]

High-speed rail issue inside story bannerThe government would have spent at least RM36 billion by the time double-tracking is finished by perhaps 2016. But how much this mammoth project has benefited KTM is debatable. How can the project be made to work? And what lessons can be learnt from it before Malaysia commits to a KL-Singapore high-speed rail link?

______________________________________________________________________

The intention of the electrified double-tracking project was to improve the rail network running across the West Coast of Peninsular Malaysia, from Padang Besar in Perlis all the way down to Johor Bahru. To date, the project has been completed up to Gemas, Negeri Sembilan and the various authorities are deciding the best way to award contracts to finish the last leg of the project.

By laying these double-tracks at a cost which is likely to exceed RM36 billion when completed, it was hoped that Keretapi Tanah Melayu (KTM) would be able to increase both the speed and frequency of its trains, which in turn would allow it to improve its passenger and cargo services. The ultimate aim was to increase its revenue and profitability.

KTM 280115 01Double-tracking was to result in a veritable explosion of passenger and cargo services via rail, which would have a wide-ranging impact on logistics operations throughout the Peninsular Malaysia and improved the competitiveness of the overall economy.

Furthermore, it was meant to save many lives as rail was supposed to be safer than road travel. It was also greener because the trains would use more energy-efficient engines powered by electricity.

All these were factored into the cost-benefit analysis for double-tracking – the largest single infrastructure development plan when it was first mooted in the ’90s. The same factors will undoubtedly be rolled out to enforce the argument for a high-speed rail (HSR) link.

Nonetheless, KTM has struggled to harness this massive project to its benefit, and questions abound if the many promised multiplier effects of double-tracking have actually materialised.

The ongoing struggle of making this multibillion-ringgit project work is an expensive and important lesson which proves that just because you have built it, it does not mean they will come.

The challenge of making double-tracking profitable

To give a sense of how much needs to be done to make double-tracking profitable, here are some back-of-the-envelope calculations put together by KINIBIZ.

If we assume that the cost of the entire double-tracking project is taken at RM36 billion and that the government or KTM sets a target of a 3% return on assets (ROA), to achieve this modest goal, the rail operator will have to make a yearly net profit of RM1.1 billion.

Keretapi-Tanah-Melayu-Berhad-220615-01As at end-2013, the latest available financial numbers showed that KTM recorded a RM128.2 million loss, an improvement from the RM240.2 million loss seen as at end-2012.

If based on KINIBIZ’ parameters, one assumes a 20% net profit margin, then KTM will have to garner an implied revenue of RM5.5 billion to achieve the ROA goal from double-tracking. With revenue in 2012 at just around RM491.8 million, this more or less translates into KTM needing to multiply its revenue by about 11 times!

The magnitude of the challenge is massive – KTM needs to significantly increase its ridership. Double-tracking is just the first step, having the adequate rolling stock capability to be able to run the service is also crucial.

Double-tracking seen as game-changer for KTM

Nawawi Ahmad

Nawawi Ahmad

Speaking to KINIBIZ last year, KTM’s new chairman Nawawi Ahmad said he saw the near-completed project as one of KTM’s biggest opportunities, saying that “with double-track and electric trains, a higher number of trips can be introduced with higher reliability and frequency”.

“I have high confidence that we can increase the ridership because trains will be more comfortable, more convenient, faster, cheaper, and safer compared to other modes of transport,” he said.

However, he accepted that it depended on KTM’s ability to maintain a high level of frequency, reliability, and punctuality. He also noted that rates would have to remain competitive, acknowledging that air travel (and not just road) is increasingly becoming a key competitor to rail.

Double-tracking and the Electric Train Service (ETS)

So far KTM has struggled to maintain that high standard of service despite the double-tracking. The double-tracks allow trains to go quicker, but most of KTM’s rolling stock are older models not able to take advantage of this. Ideally, KTM needs Electric Train Service (ETS) trains to fully capitalise on the time-saving benefits.

These ETS trains have the capability of going at speed of up to 160km per hour (km/hour), and ideally run at speed of around 140km/hour. They are the most effective option KTM has to run on the double-tracks.

KTM has five such ETS train sets (each set has six car coaches). In addition, it has placed an order for another 10 sets, and the first arrived in January this year. Each train set is said to take around 24 months to make.

The long delay between the completion of the double-track project from KL to Ipoh and the actual start of services (and therefore contribution to KTM’s revenue) was often blamed, in large part, on the fact that KTM did not have the necessary rolling stock.

To be fair to KTM’s senior management, it is a problem that is not easy to fix. Insufficient funds have made the job of maintaining its current trains already a battle; finding the budget to buy new stock is not that simple.

In an interview with KINIBIZ, Nawawi accepted rolling stock is an issue. He said: “With double-track coming to be part of the system very soon, KTM requires a lot more locomotives, wagons, and coaches… we have to find ways and means to realign these requirements with budgets.”

KTMB TrainsFurther to the 10 sets that have already been ordered (the first of which arrived in January this year), KTM will be requesting for funds to buy additional 30 train sets, said Nawawi. KTM’s last purchase of 10 sets cost RM500 million and therefore, it will need an allocation of around RM1.5 billion from the government to purchase the additional sets it needs.

This sum does not take into account what it needs to spend to improve its cargo rolling stock – which the rail operator said it will need to do in line with plans to increase revenue from this area of operations.

The benefits of making double-tracking work

If double-tracking can be made to work effectively, then there is much to be gained from it and not just for KTM. One of the biggest selling points of the HSR is that it will open up new areas of development because there will be good and efficient connectivity.

However, a reliable and efficient service will also enable that to happen, albeit not at the breakneck speed of the HSR. Still, ETS trains running on the double-tracks do considerably quicken the journey.

Furthermore, KTM fares will also be considerably cheaper than the HSR and which realistically will attract a larger amount of ridership. Analysts have said that the HSR and KTM will not cannabalise each other because each project will cater to a separate target group. However, given the likely high cost of HSR tickets, the question remains if the link will be able to even garner an adequate ridership to meet its costs.

The most crucial thing is improving KTM’s reliability and efficiency to fully capitalise on the double-tracking project, and this means having the right rolling stock. If people are confident in the service, they will patronise it. Hence along this route, opportunities for development will be created.

KTM needs about RM1.5 billion to have adequate trains for its commuter services. If we assume that it needs about that amount to improve its cargo trains, that is an additional RM1.5 billion. Give or take, that means it needs about RM3 billion to be able to fully capitalise on the project.

The attractiveness of using KTM as a mode of transport can be enhanced by refurbishing its stations and the accessibility by adding conveniences like park-and-ride facilities for stations outside the main cities. Even all these added up will surely cost a fraction of any HSR link.

Yesterday: Is HSR necessary for Malaysia?

Tomorrow: Is KL-Singapore HSR the best way to spend RM40 billion?



 
Comments
comments powered by Disqus
 
181857
1
1
1
0
latest
1