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Dutch and Indonesia Railway Reforms and Performance

Annas Rifai

SAPPK, Institut Teknologi Bandung, Bandung, Indonesia

March 27, 2012

Introduction

Over the past years, the Dutch rail market has been comprehensively liberalized and thus opened to

competition in passenger transport as well as freight transport. This process will persist in the future

years as more open tender procedures are planned or ongoing. The reformation of the Dutch railways

initiate in 1995, its designed to raise the market share of railways in on the whole transportation mode.

in 1991 the Minister of Transport has received advice from the Wijffels select committee to to push

reorganization of the national railway company, Netherlandse Spoorwegen (NS) had to divided into a

number of division (passenger, freight, infrastructure management and allocation of infrastructure

capacity). It occupied important deregulation, giving NS the freedom to decide its investment, finance,

service supply, fares, and personnel policies. The modification was implemented by a transitional

agreement for 1996-2000.

Figure 1. Main Public Institution; Source: European monitoring center on change

In Indonesia until the last one and half-century, the national railway network which initially developed

by Dutch Government, only established in Java and Sumatera Island. The total length of railway track in

this network is 6,797 km, which is 4,675 km (68.78%) of operating line and 2,122 km (31.22%) of non-

operating line. Operating track consists of 3,327 km in Java and 1,348 km in Sumatera. In 2006, the

contribution of railway based on national transportation share is lower than other transportation

modes, only 7.32% of passenger transportation and around 0.63% of freight transportation. In contrast,

road still dominates by nearly 84.13% of passenger transportation and 91.25% of freight transportation

(MoT, 2007).

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After the interviews to PT. KA (Indonesian Railway Company) in July 2005, the Director General of

Railway (DGR), a Government body in Indonesia was established. It was decided that other entities such

as local government and private sector permitted to operate railways accessing the existing tracks, and a

new railway law has passed in March 2007. Despite its stipulation, there has not been any new

participant to the railway services in Indonesia as of December 2007, and only PT. KA operates railway.

Recently, the problems faced by Indonesian railway are more complex and dynamic due to social

behavior, economy-financial, and technical-operational issues. Therefore, Indonesia’s railway industry,

part of the Asia/ASEAN Railway Network, is still striving for improvement, towards the establishment of

better mass railway transportation.

Railway reforms especially in vertical separation, it significantly changes the relationship between

infrastructure and operation, and the suitable relationship between the two entities is one of the most

fundamental factors in turn that the railway can be operated efficiently. It changes relationship type

between the two entities and also the operation scheme of railways. I think very interesting to compare

the performance of railways for each country before and after privatization or vertical separation.

The structure of the paper

In this paper I will divide into two main categories, firstly I will discuss about the vertical separation and

reforms of the Dutch railway, in this section I will also present the performance of the Dutch railway

according to it reformation. Secondly, this paper will present about Indonesia railway, a brief story and

vertical separation that held in Indonesia railway recently, as well as in the pat section, this part also

content about the main reason and aims of reforms in Indonesian railway, passenger and freight

performance before and after separation. In the last part of this paper is conclusion, which will conclude

all findings in this discussion before.

Institutional Changes of the Dutch Railway

European Directive 91/440 on the separation of railway infrastructure and operations was one factor

triggering this transformation. In 1991, the European Union initiated a process of institutional changes in

European railways in order to improve the position of this mode of transport. In the years before,

railways had lost market share, both in passenger and in freight, produced less output as well as

increasingly needed financial support by governments (Nash et al., 2004).

The institutional changes arranged by the European Union included separation between operation and

network management, third party access to the infrastructure, rules, and rules for pricing of network

use (track access cost). The goals of these changes were to increase the performance of the business, i.e.

improving the market share of railways, to increase efficiency as well as to reduce government

involvement.

Once, The Netherlandse Spoorwegen divided into NS Reizigers (passenger services), NS Stations

(develops and operates stations), and NS Vastgoed (manages property portfolio real estate). NS also has

interests in other business such as Railion, formerly NS Cargo (joint venture with Deutsche Bahn Cargo),

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and until recently, in Telfort (joint venture with British Telecom). In the other side, The three additional

organizations are Railned, NS Verkeersleiding (Traffic Control), and NS Raillinfrabeher (infrastructure

management). Railned is responsible for licensing rolling stock operators, for allocating existing capacity

(passenger, freight, and infrastructure maintenance), for observing railway safety, and for giving

recommendation to the Ministry of Transportation.

In the first stage of this reform, charges for using the infrastructure were put at zero. And, state

subsidies to NS for train operations were set to zero by the year 2000. Passenger services now should

cover operational cost (i.e. excluding infrastructure costs).

Current structure of Dutch railways

On the main line of the network, one firm, NS, is providing passenger services. The concession for the

main national lines is given to NS for the period up to 2015. Before this period, this story begin when the

Wijffels did not clearly propose the introduction of competition in passenger services, the 1995 reforms

made competition possible and a number of new operators appeared from 1996-2000. During this

period, NS Reizigers provide all intercity, express and local train services on the main-time network,

while NS international provided the Thalys high-speed services to Brussels and Paris (jointly with French

National Railways), Belgian National Railways and German Railways) as well as some other international

connections.

In the eastern part of the Netherlands, the main state-owned bus operator ConneXXion won the right to

run a short local railway line from NS Reizigers by competitive tendering. After that , NS Reizigers started

a joint venture called Syntus with ConneXXion and Cariane Multimodal International (part of the SNCF

Group) to operate an integrated bus-train network on the basis of non-competitive contract with the

provincial government of Gelderland.

A similar development was seen in the northern part of the country where NS Reizigers, Arriva (a British

operator who entered the Dutch market) and a bank were granted a non-competitive contract by the

provincial government of Fryslan (Friesland) to operate the integrated NoordNed bus-train network in

neighboring province of Groningen. These movements toward contracting and tendering in regional

passenger transport are largely the result of experiments related to the new passenger transport law

(Wet Personenvervoer 2000) adopted in May 2000 did not involve competition but only the threat of

competitive tendering in public transport if local state bus company and NS did not agree to cooperate

and create an integrated bus-rail network.

Dissimilar to passenger transportation, freight transport shows competition in the market. Here, the

institutional changes have resulted in increased competition. at present, eight freight operators offer

services using the Dutch rail infrastructure. The largest of these firms, Railion Nederland BV, which is the

successor of the freight division of the former national rail company, now has a market share of more

than 80%, implying that this firm has lost almost20% of the freight market. Railion Nederland BV is a

subsidiary of Railion which is active in several European countries. So, at European level a process of

concentration has emerged.

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.

Figure 2 Structure of the Netherlands railways network; source: Anzir Boodoo, 2006

Figure 3 competitive tendering in railway; source: Tendering and decentralization of regional rail

passenger services in the NetherlandsVan Dijk, 2006

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Performance of Dutch Railways

The major propose of the institutional reforms were to develop the performance of the business, i.e. to

realize a escalation in output, and to boost efficiency. Looking at the performance of Dutch railways, a

mixed picture emerges. The network has a moment ago recovered from the decline performance in the

mid 1990s; passenger transport has difficulties in realizing historical levels, while freight transport

produced a remarkable growth in output.

Passenger transport

The performance of passenger transport, measured in number of travel kilometers, changed since the

early 1990s but did not result in a steady improvement: the total annual number of travel kilometers in

2004 about equals the number in 1991. As passenger transport by other modalities, in particular car

transport, has increased strongly in this period, the market share of railways in the passenger transport

market has declined significantly. In 1995 is the highest number of passenger-km travel 16.35 billion, but

in 1996 this number extremely decrease into 14.09 billion passenger-km, and continuously decreasing in

1997. After 1998 the passenger-km is gradually slight increasing and in 2002 the number of passenger-

km is 15.50 billion.

Figure 4 Transport performance of passenger transport in passenger-km; Source: Eurostat;2005

Freight transport

Since the mid 1990s, freight transport by rail in the Netherlands has shown a strong growth, both in

historical context and compared to other European countries (Eurostat, 2005). In the years 1990 to

1995, annual total transport of goods by railway hardly changed, but it grew by approximately 50% in

the remaining years of that decade. This pace of growth exceeded all other European countries. In the

period 1990 - 2003, total freight transport by railway increased by 54% in the Netherlands, while only

Portugal produced a growth figure of comparable magnitude (i.e. 44%). The growth of freight transport

is largely realised in international transport; domestic freight transport increased by only a few

percentages over the whole period. As a result, the relative importance of international transport in the

Dutch freight railway industry has increased from 66% in 1990 to 78% in 2004.

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Figure 5 Transport performance of freight transport in ton-km; Source: Eurostat;2005

Figure 6 market share of freight transport Source: Eurostat;2005

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Figure 7 the Netherlands railway network: Source: SPSP Lecture, Paul Van Steen, 2012

Institutional Changes of Indonesia Railways

After Indonesian independence, railways industry has been amended for many times, but the essential

things is there is only one firms play in this business. It began when Djawatan Kereta Api (DKA)

transformed to Djawatan Kereta Api Republik Indonesia (DKARI) in 1950. Followed by Perusahaan

Negara Kereta Api (PNKA) in 1963, and then converted as Perusahaan Jawatan Kereta Api (PJKA). These

national railway institutions were the same institution oriented for public service with strong

contribution of Indonesia government. Later, in 1991, it changed to a state-owned enterprise,

Perusahaan Umum Kereta Api (PERUMKA) providing both public and semi commercial services. Later

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than it became Perseroan Terbatas Kereta Api (PT KA) as Limited Company. It marked the new beginning

of the national railway business given the independence to perform commercial service.

The new railways Act which established in 2007 (UU no.23 Th 2007) distinct end of the monopoly era of

PT KA. As the monopoly advantage of PT KA had been redundant, other commerce entities as well as

private sectors and local government were welcomed to enter in the national railway business. The

main concern of reforms of the railway sector in Indonesia was to cover for past shortfalls in investment.

According to Indonesian Railways the main reason of Indonesian railways reformation are: the

insignificant role of railways transport; minor role of the private sector; the enormous require for

maintenance as well as improvement; reduce to dependence on the government as regulator.

The main goals of the reform through vertical separation in Indonesia railways are: to involve the private

sector and to encourage private investment for railway network growth, to renew the maintenance

arrangement and to make railways well-organized so that the transportation degree and revenues will

enhance consequently, and to formulate the railways as the backbone of land transportation.

Ownership of the infrastructure and financial responsibility for it was transferred to the government in

the progression of the reorganization. Range of Government’s responsibility on the infrastructure in

Indonesia is excluding stations, depots, and workshop.

However, some challenges remained to trigger the management of the railway get better. In the

managerial structure, PT.KA has been corporatized. But all of the shares are owned by Government, and

PT.KA must get an approval from Government in every important decision such as investment for

upgrading. It has been pointed out of the lack of autonomy hinders PT.KA from dynamic and liberalized

management respond to the market’s demand.

In addition, even though the state involved very high priority for initiatives to raise performance and to

enlarge the ability of railway transportation, the progress of the railway segment relies greatly on

insufficient government budgeting in this vertical separation. Lack of the financial abilities of the

government to accomplish the payment of the stipulated amount of costs has been regarded as the

major reason of the failure to make a smooth railway operation. It seems that, although financial flow

has not been sufficient even before the reform, this non-fulfillment of the payment was resulted in

organization troubles because of severance of finance among the different departments.

Nowadays PT. KA has established a new subsidiary that operates for commuting in Jakarta Metropolitan

Area, this subsidiary named as PT. Kereta Api Commuter Jabodetabek (PT. KCJ, which 90% of PT. KA

shares.

The performance of Indonesia railways

While PT. KA has been gaining profits since the introduction of vertical separation, the performance has

still not improved much in the last 10 years. The railway is still frequently facing daily operational and

engineering problems such as delays, accidents, lack of maintenance, deteriorating condition of rolling

stock and so on (Indonesian Railways 2002). In 2001 passenger trains were delayed on average 36

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minutes for departures and 59 minutes for arrival. The average delays for freight trains were more than

those passenger trains. (Indonesian Railways, 2005).

Figure 8 Indonesia railway performance compare to GDP Source: Kurosaki, 2008

Figure 8 presents the rate of change of the railway performance in contrast with the GDP. As the trend

of the traffic shows, even though the separation of financial task of the infrastructure in 1999, PT.KA has

been experiencing some difficulties to develop its traffic performance.

Passenger transport

As well as the Dutch railways, the performance of passenger transport is measured in number of travel

kilometers, changed since the early 2007 but did not result in a steady improvement: the total annual

number of travel kilometers in 2009 about equals to 19 million in Java Island, and 3,9 million in Sumatra

Island, and slightly increase in 2009 at 20 million in Java island and 4,2 in Sumatra island, but in 2010 this

number slightly decrease into almost equal with 2008 number 19.6 million passenger-km.

Figure 9 Indonesia passenger performance Source: MoT of Indonesia, 2012

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Freight transport

Contrary to the Netherlands, freight transport by rail in Indonesia has not shown a strong market, it only

have 0.6 markets share for a whole transportation mode. Regarding to the graphic below, annual total

transport of goods by railway slightly changed, especially in Sumatra Island, for Java Island there is no

significant growth. The growth of freight transport is largely realized in coal transport in Sumatra; As a

result, the relative importance of international transport in the Dutch freight railway industry has

steadily in 2010.

Figure 10 Indonesia freight performance Source: MoT of Indonesia, 2012

Figure 11 Indonesia railway network in Java Island Source: Indonesia Railway, 2012

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Figure 12 Indonesia railway network in Sumatera Island Source: Indonesia Railway, 2012

Conclusion

Compared with the Netherlands, Indonesian railways reforms is only for vertical separation, the

government owns almost all of the infrastructure except station, workshop, and depots, and state is

responsible for it investment and maintenance, and the main operator presents daily operation. This

reform also characterized by separation of financial responsibilities between government and the

railway enterprise. In general, the reforms in Indonesia railways, forced by the change of the legal status

and reorganization of the organization, have made Indonesia railways more active even though

practically a single state-owned railway enterprise arrange the railway operation without within-railway

competition.

In the Netherlands, the government has intention to introduce within railway competition among

operator, and expects the incumbent state-owned (NS) to compete with other transport mode

(although only in the competitive tendering) making the most of its engineering and operational

capabilities, and this is background of introducing vertical separation of the Netherlands.

The impact of the railway reforms to it performance in each country is quietly has no different, the

performance of passenger transport, measured in number of travel kilometers, changed but did not

result in a steady improvement. But for freight transport in Netherlands it grew by approximately 50% in

the remaining years of that decade. This pace of growth exceeded all other European countries. In the

period 1990 - 2003, total freight transport by railway increased by 54% in the Netherlands, the growth

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of freight transport is largely realised in international transport; domestic freight transport increased by

only a few percentages over the whole period. As a result, the relative importance of international

transport in the Dutch freight railway industry has increased from 66% in 1990 to 78% in 2004. This

raising of performance in Dutch freight transport did not happen in Indonesia, freight transport by rail in

Indonesia has not shown a strong market, it only have 0.6 markets share for a whole transportation

mode.

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