UPDATED RAILWAY REFORM PROGRESS REPORT

Transcription

1 Railway Rolling Stock Operations Improvement Project (RRP BAN ) A. Background UPDATED RAILWAY REFORM PROGRESS REPORT 1. In 2006 ADB approved the Railway Sector Investment Program Multitranche Financing Facility (RSIP MFF) 1 to support improvement Bangladesh s railway sector performance by implementing (i) a reform project of sector policy, organizational, and capacity building reforms to make Bangladesh Railway more commercially focused, and improve governance and accountability; and (ii) an investment project of infrastructure and rolling stock capacity improvement investments to overcome capacity bottlenecks. 2. The Railway Reform Project (Loan 2317), which is one component financed under the first tranche of RSIP MFF, supports the implementation of sector reform and institutional strengthening actions agreed with the Government of Bangladesh and Bangladesh Railway, encompasses (i) restructuring Bangladesh Railway into lines of business (LOB) structure; (ii) preparing an asset register for Bangladesh Railway; (iii) improving financial governance, management, and accounting systems; (iv) improving human resource governance and utilization; and (v) transforming Bangladesh Railway ultimately into a government-owned corporate entity, while enhancing the rail safety regulatory framework. B. Status of Implementation Support for Reform Agenda under the Reform Project 3. To support railway reform, loan 2317 finances (i) consulting services to implement the reform actions and to draft a restructuring plan for Bangladesh Railway; (ii) procurement of computer hardware and software needed to implement the financial management, accounting, and human resource management systems for enhancing financial and human resource governance; (iii) equipment to improve rail safety; and (iv) consulting services for performance and procurement audits. 4. Loan 2317 also includes the procurement of an enterprise resource planning (ERP) ITsystem to implement Bangladesh Railway s management information system, asset registry, new accounting structure and financial management systems, human resource and payroll database system, inventory and procurement management system, project management system and workshop maintenance system. The full implementation also required procurement of IT equipment. In parallel, staff training is carried out to ensure accurate data collection and wide acceptance of the ERP IT system. Loan 2317 was closed on 9 October 2016 and the support is being continued under Loan 3169-BAN: South Asia Subregional Economic Cooperation Railway Connectivity: Akhaura-Laksam Double Track Project The ERP IT-system itself has been rolled out in Bangladesh Railway s headquarters in Dhaka and Chittagong and the Pahartali rolling stock workshop in Chittagong, but the system is yet to be fully utilized due to the delay in basic data collection and input into the system which is a prerequisite to the system operations. Bangladesh Railway lacks consolidated data, equipment such as computers/desktops and staff capacity is not sufficient to use the system effectively. Bangladesh Railway has tried to prepare the first financial statements for Bangladesh Railway 1 ADB Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility and Technical Assistance Grant to the People s Republic of Bangladesh for the Railway Sector Investment Program. Manila. 2 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan and Grant to the People s Republic of Bangladesh for the South Asia Subregional Cooperation Railway Connectitivy: Akhaura- Laksam Double Track Project. Manila.

2 2 based on the Line of Business (LOB) structure and in accordance with international accounting standards for the fiscal year (FY)2017, but this has not been materialized due to the incomplete basic data migration into the system allowing partial use of ERP IT-system only. While the government is processing the proposal of Bangladesh Railway to setup an IT-cell for the sustainable operations and maintenance of ERP IT-system, Bangladesh Railway is planning to use consulting services by IT experts to bridge the gap period before the full setup of IT-cell in the Bangladesh Railway organization structure. C. Improvements in the Railway Sector Performance 6. Traffic. Bangladesh Railway has made progress in attracting and carrying more passenger and freight traffic. The total number of passengers increased from 40 million passengers annually in FY2005 to 71 million in FY2016. On the other hand, freight traffic has decreased from 3 million tonnes in FY2005 to 2.5 million tonnes in FY2016. This is the result of the limited investment in freight rolling stock in the last 30 years and about 89% of freight rolling stocks are over 30 years old. Bangladesh Railway managed to increase the number of containers carried annually from around 45,000 twenty foot equivalent unit (TEU) in FY2005 to 65,000 TEU in FY2016. The increase in the number of container transport is notable, as they were achieved with the marginal investment in the infrastructure and rolling stock. With appropriate investment, Bangladesh Railway will be able to increase its share of freight transportation in Bangladesh, especially in the container transportation. 7. The total number of staff has decreased from around 35,000 in FY2005 to 25,782 in FY2016.Despite a large number of staff, Bangladesh Railway could not have recruited required manpower over the last decade due to government constraints on recruitment. Therefore, Bangladesh Railway lacks skilled labor in some fields but it does not have adequate succession planning. The early setup of the human resource management system as a part of the ERP ITsystem is required to identify the deficiencies to achieve the optimal allocation of its staff and to recruit additional staff with required skill sets as necessary. 8. Improvement of railway safety. The main cause of train accident is derailment representing about 90% of total number of Bangladesh Railway s train accidents. The number of derailments has decreased from 592 in FY2005 to 123 in FY2016, steadily decreasing from 790 in FY2006. The average costs of damage per accident in FY2015 and FY2016 were only about 18% of that in FY2014 indicating the decreased number of serious accidents. The number of collisions between trains has recorded as 7 in FY2005 but no collisions were recorded in FY2015 and FY2016. The improving trend in the field of railway safety amid the increased number of passengers and the amount of freight transported without much addition to its infrastructure may be the result of Bangladesh Railway s greater focus on railway safety. Bangladesh Railway needs further efforts in investing in upgrading its aged infrastructure and rolling stock for further improving railway safety. Additional double track sections, installation of modern signaling, introduction of new rolling stock and improving its maintenance facilities are expected to contribute to the safety improvement while continued traffic growth is expected. 9. Operating ratio. The operating ratio (operation expenses divided by operation revenues) has not improved in parallel mainly due to the passenger and freight tariff that was frozen by the government since 1992 and the fact that Bangladesh Railway has been operating beyond the theoretical operating capacity especially in the Dhaka Chittagong corridor, where additional, revenue generating freight traffic could originate. As shown in the attachment of this supplementary linked document, the operating ratio with subsidy is now at 217% in FY2016. The drastic improvement in operating ratio was observed in FY2013, from 260% in FY2012 to 194%

3 3 in FY2013 after an increase in the tariff was approved by the government in October This adjustment of passenger and freight tariff was the first since Furthermore, under the tariff reform approved in February 2016, a tariff adjustment formula was approved by the Prime Minister to compensate for increased cost, such as fuel prices, expenses for staff and repair and maintenance expenses. This was to ensure that the operating ratio would remain at least at the current level without further deteriorating the financial performance of Bangladesh Railway due to inflation. 10. Steady improvement of operating ratio will be expected with the investments in lucrative business opportunities, e.g. luxury passenger train services and container transportation. Once the ongoing double tracking in the Dhaka Chittagong corridor and the new lines in the Chittagong Cox s Bazar corridor are completed, additional passenger and freight trains with more reliable schedules can be introduced in the Dhaka Chittagong Cox s Bazar and Dhaka Khulna corridors with required new rolling stock. Additional revenues generated by these additional services will increase the revenue improving the operating ratio. It has been assessed that container trains and intercity trains are operating with a net profit. 11. Financial performance. Bangladesh Railway is financed by budgetary support from the government. The government has provided adequate budgetary support to sustain operations in light of the systemic importance of Bangladesh Railway. The budgetary support to cover the full operating expenditures of Bangladesh Railway is provided as a separate budget item (nondevelopment budget), and in addition to budgetary support for development projects (development budget) financed by the government of Bangladesh and partially supported by financial support from development partners. The budgetary support provided to the Ministry of Railways covered 113% of the operating expenditure for BR in FY 2014, 109% in FY 2015 and 123% in FY2016. Table 1: Bangladesh Railway s Financial Performance Fiscal Year Item Unit FY2014 FY2015 FY2016 FY2017 Financial Performance Total operating revenues Tk million 8,002 9,354 9,040 n/a Total operating expenses Tk million 16,017 18,083 22,292 n/a Net operating deficit Tk million (8,015) (8,728) (13,252) n/a Budget allocation from GOB Non-development Budget Tk million 18,158 19,773 27,474 29,378 Actual expenditure Tk million 16,017 18,083 22,292 n/a Budget ratio to operating expenses % n/a Development Budget Tk million 36,687 34,500 46,296 91,150 Actual expenditure Tk million 35,338 34,323 42,203 n/a Total Ministry Budget Tk million 53,645 54,273 73, ,528 FY = financial year. Source: Government of Bangladesh, Bangladesh Railway and Ministry of Finance. 12. Private sector participation. Bangladesh Railway started outsourcing computerized railway reservation and ticketing systems for selected routes and trains to private sector on contractual bases. This has improved the efficiency of the seat reservation system and the number of tickets sold. Catering of food and beverages in trains has also been outsourced on contractual basis, as well as installation, operation and maintenance of fiber-optic cables along major railway lines.

4 4 D. Ongoing Reform Actions 13. Bangladesh Railway is progressing in the reform efforts, which include as key actions (i) outsourcing of non-core services; (ii) accounting reform and implementation of the ERP IT-system, (iii) a tariff reform; (iv) transformation of Bangladesh Railway s container business into a government-owned corporate entity as a pilot case for this Bangladesh Railway s transformation into a corporate entity and (v) revision of manpower strength of Bangladesh Railway. This will allow Bangladesh Railway s container business to be more customer-oriented and in closer contact with its private sector clients, so that the additional capacity in the railway infrastructure, which will progressively be available from 2015 to 2022, can be used to increase the market share in the container business in the lucrative Dhaka Chittagong freight market. 14. In parallel and together with the tariff reform, this will provide Bangladesh Railway more flexibility in setting tariffs in the container business based on the market situation and adjust container freight tariffs more flexible based on commercial considerations. The successful corporatization of the container business, through incorporation of a dedicated separate entity under the Ministry of Railways, can then be replicated in other sectors, while the accounting structure based on the LOB organization together with the ERP IT-system will allow Bangladesh Railway to enter negotiations on targeted financial support for loss-making services based on public service obligations, operation, and concessions. 15. Outsourcing of non-core services. Bangladesh Railway has identified non-core services, which they are currently providing, but are not essential for the safe and reliable operation of trains and maintenance of assets, such as railway-owned and operated hospitals. Bangladesh Railway has developed a strategy for outsourcing these railway hospitals and converting them into medical colleges on a public-private partnership (PPP) basis while continuing to provide the necessary medical services to BR staff. Similarly, Bangladesh Railway will develop unused land in station areas of major cities such as Dhaka, Comilla and Chittagong in cooperation with private sector investment on a PPP basis in shopping centers, hotels, etc. The outsourcing strategy for these non-core services has been approved by the Ministry of Railways and the government. The outsourcing process is being carried out by the PPP office of the government. 16. Accounting reform and implementation of the ERP IT-system. Bangladesh Railway has established a new accounting structure based on the LOB organization and completed establishing the ERP IT-system structure. Starting from May 2016, data are being populated into the system and the system will be rolled out nationwide in all districts of Bangladesh Railway after the data population is completed. It is expected that accrual based financial statements for Bangladesh Railway can be prepared by the ERP IT-system. An IT-cell to fully operate and maintain the system including required updates of hardware and software shall be established by Bangladesh Railway with sufficiently qualified staff to carry out the tasks related to the IT-system, data collection, and its verification. Bangladesh Railway will engage IT experts for the operations and maintenance of ERP IT-system and for the early completion of basic data population into the system. 17. Tariff reform. In February 2016, the tariff reform established a mechanism to adjust the tariff annually based on a formula comprising main cost for operation and maintenance of Bangladesh Railway. The annual adjustment of the tariff will be proposed by Bangladesh Railway and approved by the Ministry of Railways. The annual adjustment will ensure that the operating ratio does not decline further. The new tariff structure took effect on 20 February 2016, with an overall 7.8% increase of the fares to compensate for rising operation expenditure since the 2012

5 5 tariff adjustment. The tariff reform has been communicated to the public and railway passengers in Bangladesh through media such as newspaper and television. The public has responded positively expecting improvement in the railway services, and strong demands have been observed despite the tariff increase. The improved service standard with increased number of air conditioned and the first class coaches has also contributed to the revenue increase. With these efforts of tariff adjustments and improved service standard of passenger trains, Bangladesh Railway achieved about 30% revenue increase in FY2017 from FY Container business corporatization. The container corporation will operate in close cooperation with private sector logistics providers and will ensure Bangladesh s competitiveness in the global market by improving the quality and reliability of transport services provided. This will become possible after the infrastructure investments into the Dhaka Chittagong corridor are completed and additional container trains can operate between Dhaka and Chittagong Port. The expansion of container business will improve the financial performance of Bangladesh Railway. The proposal to form the container corporation has been formally approved by the Cabinet and the company was incorporated on 17 May The company commenced its business on the same day and the first Board meeting was held on 23 May The company is currently in the initial business setup phase. ADB is supporting the full operationalization. E. Conclusion, Recommendation and Way Forward 19. The implementation of the reform took longer than initially expected, nevertheless the major milestones in the railway reform process were recently achieved; (i) the new tariff structure including annual adjustments in the tariff has been implemented in February 2016; and (ii) the container company was incorporated in May ADB will continue to support the reform implementation, including policy dialogues on the tariff adjustments and the early startup of container company business, to ensure the sound progress toward the sustainable operations of Bangladesh Railway. 3 Based on Bangladesh Railway provisional data. Similarly, provisional data of Bangladesh Railway show about 30% increase in July-October 2017 from the same period in 2016.

6 6 Attachment SUMMARY OF FINANCIAL INFORMATION BR summary sheet Table 2: Key Ratios for Bangladesh Railway Unit Financial Performance Revenue -without PSO compensation BDT million 6,034 8,043 8,002 9,354 9,040 Revenue with PSO and Welfare Gant BDT million 7,264 9,293 9,221 10,608 10,273 Operating Expenses BDT million ,524 16,017 18,083 22,292 Net Operating Deficit BDT million -8,406-7,581-8,015-8,728-13,252 Ministry of Railways Budget Non-Development Budget BDT million n.a. 15,900 18,158 19,773 27,474 Ratio Non-Development Budget to Operating % n.a Expenses Development Budget BDT million n.a. 33,100 35,487 34,500 46,296 Total Ministry of Railways BDT million n.a. 49,000 53,645 54,273 73,770 Financial Ratios Operating Ratio -without subsidy Operating Ratio -with subsidy Performance Ratios Service: Passenger carried million Passenger-kilometers million 8,787 8,253 8,135 8,711 9,167 Tonnes carried million Tonne-kilometers million Casualties of Passenger per million passenger originating Coaching vehicles: Broad Gauge Passenger Coaches Meter Gauge Passenger Coaches 1,144 1,160 1, Total System Passenger Coaches 1,456 1,472 1, ,218 Rates and lead: Revenue per passenger BDT Revenue per passenger-kilometer Poisha Revenue per tonne BDT Revenue per tonne-kilometer Poisha Average number of kilometers a passenger travelled km Average number of kilometers a tonne of goods travelled km Container Services: Chittagong Port to Dhaka Inland Container Depot Tonnes thousand Dhaka Inland Container Depot to Chittagong Port Tonnes thousand Total container service Tonnes thousand Employees: No. of employees 26,458 25,939 25,535 27,620 25,782 Cost of employees BDT million 5, , , , , PSO = public service obligation. Note: Operating Ratio equals Operating Expenses divided by Revenues. Poisha is equivalent to 1/100 of a Bangladesh taka. Prior to FY 2013, Bangladesh Railway was a Department under the Ministry of Communications. Source: Government of Bangladesh, Bangladesh Railway and Ministry of Finance.