problems, opportunities, implications and priorities for rai april 28, 2004 1 ? moradkhani general...
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Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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? Moradkhani General Director, Bureau of Planning & Budget
Kamyar GolestanianProject Manager, Organization Structure design project
April 28, 2004 (1383/2/9)
Problems, Opportunities, Implications and Prioritiesfor RAI
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART I
Basic Problems and Opportunities In Railway Industry
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Decreasing market share
Decreasing Government funds
Annual cost growth more than revenue growth
Major Problems
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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1991-1992 2001-2002 Avg. Annual Growth
Rail Road Rail Road Rail Road
Freight Ton-km (000,000,000)
7.70 34.2 15.80 83.60 7.4 8.5
Share % 18.38 81.62 15.90 84.10 - -
Tons (000,000) 16.98 58.00 26.46 298.0 4.5 16
Share % 22.65 77.35 8.16 91.84 - -
Passenger Passenger-km
(000,000,000)
4.80 29.00 8.60 52.00 5.4 5.4
Share % 14.20 85.80 14.19 85.81 - -
Passengers
(000,000)
8.10 99.40 14.35 389.30 5.3 13.2
Share % 7.53 92.47 3.56 96.44 - -
Subsectoral share in transport
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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1991-1992 2001-2002 Growth%
Road Sector 31.7 56.2 24.5
Rail Sector 31.8 27.2 -4.6
RAI 16.6 10.7 -5.9
Subsector share in total Government funds
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART II
RAI’s attempts in Restructuringand Privatization
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Compliance with general government policies like decreasing government role in operations and holding governance role, development in private sector participation, …
Improving quality, efficiency and productivity
Implementing more flexibility in responding market demand
Cost reduction and finding appropriate ways in covering heavy depreciation costs
Restructuring and Privatization main drivers
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Converting governmental railway institute to Railway Company (1993)
Corporatization of Railway Company
Transfer of of infrastructure maintenance personnel and activities to Sleeper production company
Transfer of buildings and stations management activities to Ballast company
Restructuring and Privatization main drivers
Preliminary steps
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1) Service contracts
2) Outsourcing
3) Leasing from private sector
4) Partnership and Joint venture
5) Making financing facilities
6) Leasing to private sector
Restructuring and Privatization activities
Main Methods
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Several service contracts in non-core activities like catering, cleaning, health services, …
Restructuring and Privatization activities
1) Service contracts
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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More than 400 annual outsourcing contracts including fleet, signaling&communication and Infrastructure maintenance
Restructuring and Privatization activities
2) Outsourcing
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Leasing wagons and locomotives (in progress)
Restructuring and Privatization activities
3) Leasing from private sector
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Establishment of joint railway freight companies with big customers (in progress)
Initial investment of private sector about $60 million(?)
planned to run about 5000 wagons (about 30% of current total wagons) by these new railway companies
RAI share in these companies is planned to be a little more than 50%
Restructuring and Privatization activities
4) Partnership and Joint Venture
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During the last 4 years more than $25 million was financed to private sector for buying passenger fleets and freight wagons due to RAI support
Restructuring and Privatization activities
5) Making financing facilities
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Leasing Infrastructure maintenance equipment to private sector (in progress)
Restructuring and Privatization activities
6) Leasing to private sector
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Reducing cost of track Maintenance per km by $8000 to $1700
…
Achieved Results
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART III
Organizational Structure Design Project Overview
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
18 Background
Project Overview
Designing a new Organizational Structure for RAI as the main project goal
No strategy was defined and there were no interest in developing the corporate strategy prior to implementing a new organizational structure
Review the experience of some countries in Railway Restructuring (Sweden, UK, Germany, Argentina, Mexico, US, Japan, China, India)
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
19 Background
Project Overview (2)
3rd Five Year Development Plan regarded as general guidance and overall strategic direction
Scenario Building method chosen for mapping general industry evolution and future industry structure in order to design new RAI’s organization structure
Started About One year ago
Still running
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
20 Background
Practical project challenges after startup
Insufficient and undocumented information
High level of reliance on personal interviews with managers
No clear direction set by TFYP
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
21 Background
Levels of Analysis
Level 3 – Company LevelLevel 3 – Company Level
Level 2 – Corporate LevelLevel 2 – Corporate Level
Level 1 – Industry levelLevel 1 – Industry level
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
22 Main Analysis Tool
Railway Industry Conceptual Model
Focusing on major elements of industry: Their role and relationship
A Conceptual framework helping analyze, develop and evaluate different unbundling scenarios
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
23 Industry Conceptual Model
Asset ModelAsset Model
Railway
Industry
Railway
Industry
Process Model
Process Model
StakeholderModel
StakeholderModel
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
24 Industry Conceptual Model
Stakeholder Model
Classified in 28 Major stakeholder groups including customers, passengers, government bodies, Neighbor countries railways, suppliers, financers, …
Relationship according to RAI was classified and analyzed based on relative bargaining power
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
25 Industry Conceptual Model
Process Model
Defining 6 major business area:
1) Freight
2) Intercity Passenger
3) Regional & Suburban Passenger
4) Rail Network
5) Freight Terminals
6) Passenger Stations
Identifying different process roles like process owner, customer, partner and stakeholder was identified for each process in each business area
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Planning
Auditing&Control
Marketing&Sale
Operation
Maintenance
Development
Main processes in each business area
Industry Conceptual Model
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Industry Planning
Map of Process model (Total 38 processes)
Industry Conceptual Model
Industry Regulation & Control
Freight Intercity Passenger Regional Passenger
Terminals Rail Network Passenger Stations
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
28 Industry Conceptual Model
Asset Model
Classifying main assets in 14 tangible and 6 intangible asset groups
Tangible assets include Locomotives, wagons, depots, rail network, maintenance equipment, …
For each asset group the ownership structure (public, private) , utilization type (leasing, owner direct utilization) and major issues for private sector investment was analyzed
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART IV
Main Issues - Company level
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
30 Main Issues: Company Level
Command and Control paradigm is shifting to Standard and Contract
A new culture is needed for supporting this new paradigm covering better communication, openness, more documentation, standardization, …
The need for government approval for changing job definitions, organization structure changes, Hiring new personnel, …
Expectation of government bodies to manage the organization in a commercial and innovative way!
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
31 Main Issues: Company Level
Scheduling train movements and path allocation methods and systems are out of date
Network Capacity Improvement process is weak
Formal methods and procedures in almost every area are outdated
There is no powerful culture and incentive to reduce costs
Marketing is still mostly centralized
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
32 Main Issues: Company Level
There is no managerial and industrial accounting system so the full cost of different services including freight, passenger, network access and traction power are not calculated precisely
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART V
Main Issues - Corporate level
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
34 Main Issues: Corporate Level
No corporate strategy
Need for more coordination and cooperation between passenger and freight companies especially in mid-term and long-term planning
In service contracts, high transaction costs between group companies because of very high insurance fees in contracts (between 8% to 15%)
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART VI
Main Issues - Industry level
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
36 Main Issues: Industry Level
Structure and amount of government funds
Railway industry planning: Whose responsibility?
Separation of Infrastructure building and operation in MRT
Government Strategy in energy price
Governmental promotion and regulation in safety
Environment: how much important is it to government?
Major Issues
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
37 Main Issues: Industry Level
Inexperienced and Financially weak private sector in transport sector
The need to utilize commercial, managerial and engineering knowledge and skills of private sector in railway industry
Major Issues (2)
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
38 Main Issues: Industry Level
Mixed Public and Private ownership
More Outsourcing More Auditing and quality control
More concern in provinces to build commuter services, but under municipalities authority
More foreign Investment
Decentralization in government Regionalization?
Major trends
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
39 Main Issues: Industry Level
Making Competition in Rail Industry
Introducing separate regulatory body
But:
Lack of National transport policy and Railway strategy raises the risk to introduce incompatible and non-integrated legislation and inadequate decision making which may threat private sector participation
Directions foreseen in 4th Five year Development Plan
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
40 Main Issues: Industry Level
What role the rail Subsector must have in future economic and social development of IRAN? (according to the 20 year vision and national development plans)
Follower, Driver or becoming a burden?
The strategic question
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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PART VII
Major Scenarios for future Industry structure
Problems, Opportunities, Implications and Priorities for RAI April 28, 2004
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Selling to private sector and concession is unlikely
Competitive access to rail must be introduced (Due to legislation)
Network density will improve substantially in near future (about 30% of current track length will be added to the network in less than 5 years) which means the growth in operations need to accelerate
Decentralization in government, highly centralized structure in RAI: Increasing need to build more efficient relationship with provinces
Major Issues in developing scenarios
Major Scenarios
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Ownership of the network must be held by government (Due to Legislation)
The structure must promote private sector to become more and more active in railway industry
In fact, commercialization and not privatization must be the main driver in structural changes
Major Issues in developing scenarios (2)
Major Scenarios
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4 major Scenarios
Major Scenarios
1) Vertical integrated structure with competitive access (Current structure with competitive access for private sector)
2) Vertical separation of network (with total or major ownership of government) and operations with competition in operations between public and private companies
3) Regional Governmental companies with competitive access in each region for other regional companies, no dominant private sector company (Current movements in India and China)
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4 major Scenarios (2)
Major Scenarios
4) Regional Governmental companies with competitive access for both private and public companies