Restructuring Options
Transcript of Restructuring Options
Restructuring OptionsFor Reform of TCDD
World Bank Rail Restructuring Seminar
27 May 2003
Agenda
• Introduction• Background• Restructuring Strategies• Implementation Issues• Next Steps
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 2
Congratulations: Great Progress• Completed a number of studies
• Restructuring Strategy Study (BAH)• Options for Reform (World Bank)• Gap Analysis (EU)• Organization Structure Reform (TCDD)• Freight and Passenger business planning studies (TCDD)• Reorganization Plan (TCDD)• Strategy and Proposed Changes in Transport Law (TCDD)
• Preparing for EU entry• Now Need to Move Forward
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 3
TCDD Now Has Many Functions
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 4
Large Swings in EconomyBudget Deficit And GNP
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
12
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
%
Deficit as % of GNP
% Change in GNP
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 5
TCDD Cost $10 Billion Over 20 Years
Railway Cost to Government
0
100
200
300
400
500
600
700
800
900
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
US
$ (2
002
mill
ion)
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 6
Rail Becoming Less ImportantTransport Market Size
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Traf
fic U
nits
(Pkm
+Tkm
)-bill
ion
RoadAirWaterRail
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 7
Rail Now Less Than 4%Transport Market Shares
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Perc
ent
RoadAirWaterRail
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 8
TCDD Has Light Density NetworkBlack Sea
AnkaraKirikkale
Zonguldak
Kayseri
MersinAdana
Narh
Ulukisla
Konya
Iskenderun
AfyonManisaKutahya
Izmir
BandirmaSivas
Kars
Samsun
Malatya
Turkey
Georgia
Russia
Armenia
Syria
Greece
Lebanon
Iraq
Iran
Mediterranean Sea35°
30° 35° 40°
40°
Black Sea
AnkaraKirikkale
Zonguldak
Kayseri
MersinAdana
Narh
Ulukisla
Konya
Iskenderun
AfyonManisaKutahya
Izmir
BandirmaSivas
Kars
Samsun
Malatya
Turkey
Georgia
Russia
Armenia
Syria
Greece
Lebanon
Iraq
Iran
Mediterranean Sea35°
30° 35° 40°
40°
23
22
21
20181617
1905
04
0607
07
0809
40
39
38
412829
3031
37
35
48
36
86
10
43
4245
46
44
71
7273
74 75
76 77
78
80
79
69 64
65 66
63 6768
70
81NA
8283
85
25
26
87
5651
8988 60
62
61
56
57
58
52
54
5559
24
37
5090
49
0302
01
11
1213
14
15 Istanbul
Bulgaria
Hydarpasa
• Highest density is 20 mt/km; highest density freight is 4 mt/km
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 9
Average Density Less Than 2 mgt/km
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Macedonia Greece Turkey Hungary Spain Bulgaria Sweden Finland Portugal United Kingdom
Romania
CzechSlovenia DenmarkSlovakia Poland France Germ
any Italy Austria Belgium NetherlandsUkraine
Mill
ion
Traf
fic U
nits
Ann
ually
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 10
While Rail Traffic Grows Slowly…Railway Traffic
0
1,0002,000
3,000
4,000
5,0006,000
7,000
8,0009,000
10,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Pkm
& T
km (m
illio
ns)
0
100
200
300
400
500
600
Kilo
met
ers
Freight (tkm)Suburban (pkm)Intercity (pkm)Average Freight Haul
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 11
Unit Prices Have DeclinedUnit Revenue (real)
0.000
0.010
0.020
0.030
0.040
0.050
0.060
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
$ (2
002)
Per
Tkm
or P
km
FreightSuburbanIntercity
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 12
Freight Traffic Mix SimilarTCDD Freight Commodity Shares
0%10%20%30%40%50%60%70%80%90%
100%
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Minerals & Ores Other Construction Materials Food and Agricultural Metals & Machinery Chem, Fert, Petrol International
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 13
TCDD Would Cost $10 BillionNet Operating Loss of Railway
(1,200)
(1,000)
(800)
(600)
(400)
(200)
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$200
2 M
illio
ns
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 14
Existing Strategy Helps a LittleNet Operating Loss of Railway
(1,200)
(1,000)
(800)
(600)
(400)
(200)
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$200
2 M
illio
ns
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 15
Consider Alternative Strategies• 90% of traffic, 60% of network. Ten-year loses
are $8 billion• Core network: 85% of freight, 60% of passenger,
53% of network. Ten-year loses are $7 billion• Efficiency Improvements (on core), Ten-year
loses are $5 billion• Concessioning (on core), Ten-year loses are $3
billion• Does not include significant new investments
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 16
The 90% Network
AnkaraKirikkale
Zonguldak
Kayseri
MersinAdana
Narh
Ulukisla
Konya
Iskenderun
AfyonManisaKutahya
Izmir
BandirmaSivas
Kars
Samsun
Malatya
IstanbulHydarpasa
BlackS
Syria
Greec
Lebano
Iraq
Iran
35°
30° 35° 40°
40°
Bulgari
Turkey
Georgi
MediterraneanS
Armenia
Russia
23
22
21
201816
1719
05
04
09
40
39
412829
3031
37
35
48
36
86
43
4245
46
44
71
7273
74
75 7677
7879
64
65 66
63
69
67
68 70
81 NA
82 83
8485
25
26
87
5351
8889
60
62
61
56
57
58
52
5559
24
37
5090
49
0302
01
11
13
15
54
1412
060708
38
10
80
TCDD Network Capturing 90% of 2001 Traffic Units
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 17
The Core Network
AnkaraKirikkale
Zonguldak
Kayseri
MersinAdana
Narh Ulukisla
Konya
Iskenderun
AfyonManisa Kutahya
Izmir
Bandirma Sivas
Kars
Samsun
Malatya
Istanbul Hydarpasa
Black Sea
Syria
Greece
Lebanon
Iraq
Iran
35°
30° 35° 40°
40°
Bulgaria
Turkey
Georgia
Mediterranean Sea
Armenia
Russia
23
22
21
2018
16
1719
05
04
09 40
39
41 28 29 30
31 37
35 48
36 86
43
42 45
46 44 71
7273
74
75 7677
7879
64
65 66
63
69 67
68 70
81 NA 82
83 84
85
25
26
87
53 51
88 89
60 62
61
56
57
58
52
5559
24
37 50
90 49
03 02 01 11
13 15
54
14 12
06 07 08 38 10
80
TCDD Core Network
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 18
Subsidy Needs Can Be ReducedOperating Cost of Railway
($1,200)
($1,000)
($800)
($600)
($400)
($200)
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ M
illio
ns (2
002)
Concessioning
Efficient Core
Core Network
90% of Traffic
TCDD Strategy
No Change
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 19
Considering Bolder Plan
• Government and TCDD are considering restructuring alternatives with greater fiscal impacts but the trade-offs have not been considered
• Plan to develop legal and regulatory framework needed for EU membership
• But need to develop a transition strategy and schedule for implementation
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 20
Strategy Must Address Major Issues
• Address industry structure clearly• Define restructuring, investment, organizational
strategies in detail• Analyze investment priorities• Define service & labor implications-create
mitigation strategies• Prepare culture change program• Develop schedule and action plan
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 21
Work Towards Core Railway StructureHolding
Company
Suburban Operator
Passenger Company
Infrastructure Company
Passenger Company
Passenger Operator
Suburban Companies
Freight Company
Ports Manufacturing
• Separate ports and manufacturing, others where possible
• TCDD holding company• Infrastructure company• Passenger company for intercity• Several suburban companies• Freight company
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 22
Develop Integrated Approach• Find a restructuring champion with mandate to act• Agree high-level goals with government, • Create a forum for discussion and decision making• Develop integrated financial and operational analysis
with all business units and long time horizon• Analyze alternative restructuring strategies and
iterate with TCDD/Government forum till agreement is reached
• Then define legal and regulatory framework
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 23
Analyze Changes in Detail
• Use analytic process to evaluate service and operating effects in detail, some are counterintuitive
• Develop accurate long-term analysis of employment, investment, operating costs
• Analyze investment priorities including market and financial implications
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 24
Define New Role of Government
• Detailed analysis of employment and service changes by region, along with mitigation measures
• Develop understanding of regulatory processes needed and role of Government
• Work with Government to define new regulatory structures and legislative changes
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 25
Culture Change Program Needed
• Existing culture, whatever it is, must change• New culture oriented to commercial
performance and competitive environment• Best to have a vision of the culture you want
and find ways to implement it rather than let one evolve on its own
WORLD BANK RAIL RESTRUCTURING STRATEGIES SEMINAR 26
Next Steps …• Appoint a restructuring Champion with mandate• Create a mechanism for unambiguous dialog with
Government• Define goals and objectives• Develop the integrated planning process• Iterate plans till agreement is reached• Develop changes needed in legal and regulatory
environment• Develop plan for implementation and start