On the right track: The government is focusing on reviving the rail segment

A report by the Asian Development Bank (ADB) in 2013 put it pretty bluntly. “Without aggressive and sustained support and restructuring, the Thailand railway system is likely to become irrelevant within 10 years,” the ADB said in March 2013. Given the falling number of passengers, declining freight usage and frequent derailments in recent years, the process might seem to have started already. However, a bold plan for the revitalisation of the whole system is now being touted by State Railway of Thailand (SRT). The gargantuan task includes upgrading and updating a network that still uses 50-year-old locomotives, 95-year-old passenger carriages and, in some sections, a signalling system that SRT itself said is to be found only in museums in other places.

Mind The Gaps

More than half of the existing tracks are at least 40 years old and that in itself, according to the SRT, is a reason for the frequent cracking of rail lines and the resulting derailments. In September 2013 SRT closed the line between Sila At station in Uttaradit province and Chiang Mai for around two months for extensive repairs and maintenance of the lines. The trains were replaced by bus services while substantive repairs were made to the stretch of track that had been hard hit by a series derailments and accidents. Chula Sukmanop, the inspector general at the Ministry of Transport, told OBG, “We have upgraded around 60% of the track that needed repairs in the north-east area, as well as shutting down trains on 200 km of track approaching Chiang Mai to upgrade the track with new sleepers, rails and foundation.”

However, it is not just the track that has been neglected for decades. The locomotives and passenger carriages are in little better shape. SRT has not had a single new locomotive since 1996, although 20 are said to be on order from China, possibly as part of a barter deal. Even if one ignores the age of the current locomotives, the network still does not have enough of them to operate a complete service. To run every scheduled service SRT needs 145 locomotives, but it only has 139. The overall complement includes 50 GE locomotives that were purchased between 1964 and 1966, of which 45 are still in service. Of the most recent additions, 38 GEA locomotives were brought into service in 1996, and 36 are still being used.

Passenger Coaches

Piyaman Techapaibul, president of the Tourism Council of Thailand, told the local press in October 2013 that if Thailand had a professionally managed and developed rail system, tourists would use it. “Quality train services can spread tourism to secondary destinations … and it can be an alternative to airline travel,” he said, citing European rail networks as a model for medium-distance travel.

The passenger coach breakdown is indicative not only of a lack of investment over the decades, but the current revenues as well. In the whole country there are only 23 first-class, air-conditioned coaches compared to more than 1000 second- and third-class cars combined. Of 324 second-class coaches, almost two-thirds have air conditioning and all are between 24 and 35 years old. First-class coaches seem positively brand new in comparison at around 13 years old. The vast majority of passenger-carrying carriages comprise 736 third-class coaches, including 35 with air conditioning. The newest was built in 1985 and the oldest have been around for 96 years.

In the two decades after 1990 the total number of passengers almost halved from 85m a year to 45m. Since then it has fallen even further to the present-day 41m, according to SRT figures. Revenues also reflect the overall decline in the sector, as well as subsidised fares. The 41m passengers are divided between 29m who benefit from reduced-fare public service obligation tickets and 12m who pay regular fares. The 12m account for 29% of passengers, but provided about 88% of fare revenues, or BT3.24bn ($106m), excluding the Airport Rail Link, which is also run by SRT. Conversely, the other 71% of passengers contributed 12% to revenues from tickets, or BT443m ($14.4m). While there are political and social concerns to be taken into consideration when subsidising fares, these numbers indicate that the SRT was never likely to make a profit. The breakdown of its 2012 income was passengers with BT3.68bn ($120.3m), freight at BT1.98bn ($64.7m), Airport Rail Link with BT478m ($15.6m) and various other segments totalling BT2.5bn ($8.17m).

Debt Burden

According to the ADB, around 90% of the passengers travel in third-class carriages. These subsidised coaches are not only old but in poor condition, and fares have not been raised for more than two decades. Even in this situation, as well as declining freight and passenger traffic, SRT was able to cover its operating costs until around nine years ago. Then, as its financial situation deteriorated, it went into the red until 2013, when it again turned a profit of some BT2.8bn ($9.15m), mainly by leveraging its debt against the yen. Until then it had been losing around BT10bn ($327m) annually. Once capital investment spending, even if from years ago, is included, SRT is carrying a debt burden of around BT100bn ($3.27bn). Improving rail transport services are now an imperative. Yongsit Rojsrikul, the governor of the Mass Rapid Transit (MRT) Authority of Thailand, told OBG, “Thailand would benefit from following the model adopted by Hong Kong. ... This would increase the profitability of the MRT system once the network has been expanded.”

Commuters

Short journey travellers enjoy, or suffer from, the same level of comfort as everyone else. Less than a third of the 230 diesel rail cars are equipped with air conditioning and range between 14 and 43 years old. Sisdivachr Cheewarattanaporn, president of the Association of Thai Travel Agents, is another tourism-related professional with strong views on the railways. “Although few foreign tourists travel by train, the SRT and the government have to improve this transport service first for local people,” he told local press. “There are a lot of defects we need to solve … [and] it requires a serious remake.” And a serious remake is on the table. What has not been decided is who will be responsible for putting it into practice or how it will be paid for.

Reorganisation

Of the senior private and public sector transport executives with whom OBG spoke, around half a dozen favoured following the path trodden for rail system change in countries like the UK. Following privatisation, responsibility for tracks, signalling and infrastructure is split from the business of operating train services. The idea was that passengers would benefit from the introduction of competition into the system while enjoying the stability afforded by a permanent infrastructure body. The debate in the UK over whether this works and is good for the passengers continues even after 21 years.

The argument for splitting SRT functions into two stems from various considerations, not all of which are shared by all proponents of the idea. First, the SRT’s level of indebtedness is so high that nothing short of a dramatic cancellation of debts, plus a massive injection of cash, would make it possible for a reasonable assessment of whether it could do a prudent job.

The ADB report concurs with the view that, whatever the details of the SRT’s role in future, it needs to have its debts written off. Another factor in the discussion is the fact that SRT has little experience in managing such a massive infrastructure exercise. Of the overall transport plan, Sukmanop told OBG, “We know what to do, but deciding exactly which way to do it is a different matter. The main difficulties are exact funding and the organisation of how we manage it.” Sukmanop also spoke before the Thai Constitutional Court, which rejected a bill passed by parliament to fund BT2.27trn ($74.23bn) for infrastructure outside the normal annual budget. A year-by-year budget would be difficult as rail relies on more than one ministry for its funds. The rationale for seeking extra budgetary funding was that the whole programme was so immense and spread over such a long period that annual debates over renewing funds would have unnecessarily delayed progress and likely increased the costs.

Finally, there was the question of the SRT’s ability to manage such a large infrastructure project. “Is it the correct vehicle to handle billions of baht in investment?” asked Sukmanop. “We are going to set up a Department of Railways inside the Ministry of Transport to manage infrastructure development, thus separating the operation of train services from building infrastructure. SRT revenues could never recover the sums involved in the infrastructure.”

Cutting Delivery Costs 

The deleterious effect of bad infrastructure on competitiveness is a given and drives the hundreds of billions of dollars being spent throughout the world. Thailand’s heavy investment in roads over the past three decades, combined with more efficient road transport operators, have led to a well-developed national highway network, as well as a delivery system more in tune with customer needs. Rail, however, has deteriorated as quickly as roads have improved, and its share of internal transport has plummeted from 9% in 2000 to 2-2.5% in 2013.

According to the ADB’s 2013 report, the internal transport cost of moving goods to ports is 60% of the overall shipment price – twice the ratio in China and Malaysia. The average domestic cost of container movement in Thailand is $1000, according the report, while the figure in both China and Malaysia is $500.

Savings For Shippers

The benefits of the rail plan, even without considering the introduction of the high-speed rail and upgrading the mass transit system in Bangkok, are obvious. They are ambitious and include very significant targets to cut logistics costs as a percentage of GDP from 15.2% to 13.2%. The ADB report said, “Based on the work done by the United National Economic and Social Commission for Asia and the Pacific (UN-ESCAP), the inland transport component of the delivered value of imports was 5.71%.”

With the addition of a few more statistics it is easy to see why many in the shipping segment and economists are in favour of the scheme. Although the ADB report quotes 2005 statistics, the principle of its argument still hold true. The report said, “The total value of imports and exports from and to Thailand in 2005 was $228bn … This translates into an annual transport cost of $13bn if applied to both exports and imports.”

In face of such numbers, the cost begins to look cheap. The ADB argues that cutting inland transport costs in half with much-enhanced infrastructure would represent savings of about BT262bn ($8.5bn) annually. Ignoring interest charges on borrowings would repay the cost of the entire infrastructure upgrade in around nine years. The overall picture gets even better when non-export and import transport costs are considered.

Faster & Further

Excluding the introduction of high-speed trains, the rail infrastructure enhancement plan aims to increase the network from 4034 km to 4722 km by 2020. Average speeds are projected to increase for passengers from 60 km per hour to 100 km per hour by 2021 and for freight from 45 km to 80 km per hour. SRT and the Ministry of Transport’s ambitions include reducing the proportion of private cars on intercity highways from 59% to 40%, increasing rail’s market share of freight from 2.5% to 10% and more than doubling the number of passengers who use rail to 100m.

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The Report: Thailand 2014

Transport chapter from The Report: Thailand 2014

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