1. World Experience in Railway Restructuring Clell Harral, John Winner, Richard Sharp, Jonathan Klein HWTSK, Inc 15 December 2009

2. 1 Review worldwide experience in addressing five important issues Industry Structure –fully integrated –vertically integrated –functional separation Ownership and Control –public ownership –outsourcing –concessions –public share offerings –sale of assets or stock Infrastructure/Network Access –negotiated access –mandated access –open access Regulatory oversight –safety –rates –access –contract compliance Community Service Obligations –corporate governance –payment accountability –payment transparency –funding sources Australia Argentina Chile Canada Mexico United States China India Russia France Germany Netherlands Sweden United Kingdom New Zealand Japan Key IssuesCountries Reviewed Conclusions and Implications for Restructuring

3. 2 Railways are complex enterprises and can be structured along a number of different dimensions Geography Operations Train Control Infrastructure Management Infrastructure Maintenance Administration Functions Bulk Freight PassengerCommuter Lines of Businesses General Freight Horizontal Separation Vertical Separation Illustrative Traditional vertically integrated railway Bulk Freight Railway/Infrastructure Manager Passenger Service Operator

4. 3 Railway Restructuring Involves Consideration of Multiple Critical Issues –Ownership and control –Network access –Degree of unbundling of functions and/or assets –Regulatory oversight in a restructured environment –Community or public service obligations Options chosen in each area must fit together to provide a railway sector framework that will attract investment and support efficient railway service

5. 4 Whatever options are chosen, efficient railway restructuring must accommodate complex interactions Illustrative for Infrastructure Separation

6. 5 International rail reform includes a wide range of ownership and control options

7. 6 Governments have used many methods to improve railway performance and access private capital

8. 7 There is a wide range of access arrangements

9. 8 Access arrangements may have negative as well as positive impacts on rail sector efficiency

10. 9 Because of potential adverse impacts, a vertical separation environment, such as mandated by Law 23, is often conditioned in several ways  Exceptions made for urban transport and dedicated industrial lines where multiple above-rail operators are impractical  Despite legal or accounting separation, close operational coordination is encouraged between infrastructure manager and main above-rail operator  Terms and conditions of access may be established that encourage operational efficiency rather than equality of access between main operator and third party operators  Access pricing may giver preference to some services and discourage others as matter of transport policy Most railway sectors do not reflect “pure” applications of either vertical integration or vertical separation models – nor should they!

11. 10 After structural changes, more commercial relationships begin to apply so new forms of performance oversight are needed  Safety – Internal safety inspectorates must be modified to provide clear terms and conditions to external rail operators and infrastructure managers  Infrastructure access and pricing for rail access – where there is vertical separationaccess terms must balance operational efficiency goals  Contractual compliance – becomes an important new function where concessions are developed; a more complex function than licensing, particularly where there are investment agreements and performance benchmarks  Transport pricing oversight – a general trend toward oversight responsive to complaints rather than pre-set rates, except for PSOs or otherwise subsidized systems

12. 11 Corporatization Corporatization of the national railway is usually the first step to provide managerial freedom, accountability, and market incentives for efficient operations. –Performance contract between government and railway management –Management autonomy in day-to-day operations –Non-politicized process for setting prices –Railway free to purchase and dispose of assets as needed for efficient railway operations This will eventually lead to commercialization of the national railway. –Line of business organization and focus on client relationships –Cost reduction, improved operation, financially sensible investments –Separation and sale of non-core activities Once this is accomplished, private capital could be attracted to the railway industry, especially in the railway supply industry--investments are now often limited by: –Internal barter or trading systems that favor internal suppliers –Unfavorable and opaque regulatory regimes

13. 12 Role of the international consultants As viewed from the perspectives of international experience: WP No 1 The Transport Policy Environment in Indonesia WP No 2 Current Status of Railway Operations in Indonesia WP No 3 Market Analysis and Forecasting WP No 4 Rail Infrastructure Development WP No 5 Rail Sector Institutional Options WP No 6 The Strategic Future of Indonesian Railways WP No 7 Development of sub-national Railway Master Plans

14. 13 Thank You