Regional Workshop on Private Sector Participation in Asian Railways
Welcome Remarks
C. Lawrence Greenwood
Vice-President, Operations 2
Asian Development Bank
14 June 2006
ADB Headquarters, Mandaluyong City
I. Introduction
Special guests, colleagues at ADB, ladies and gentlemen:
It is a pleasure to welcome you to the Asian Development Bank, for what looks to be a most interesting and informative two days. For those who have traveled quite some distance to join us today, may I also take this opportunity to welcome you to Manila. I also want to thank PPIAF.
The issue we are here to discuss is a very important one. Rail transport acts as a catalyst to a nation's growth. It provides access to markets and opportunities to expand trade and industry. It also fills a crucial need for poor people by providing affordable and reliable transportation to jobs and essential services, and by delivering goods and services to remote rural communities. Across the Asia and pacific region, a renewed effort is needed to ensure this vital service can be sustained and expanded to meet increased demand.
II. The Need for Renewal
In looking at the history of rail transport, the close link between rail services and nation-building is striking. Railways played a key role in the economy, politics and culture of the rising modern nation state in the 19th and 20th centuries. It is no surprise that governments from countries as diverse as the United States, China, India and sub-Saharan Africa offered substantial incentives to the private sector to build their railway transport systems.
Over time, however, many of these privately-built rail networks were nationalized, for various reasons. Most ultimately became public sector monopolies. And, virtually all of these have been seen as important public services to be provided at subsidized costs.
As a result, few railways developed the kind of entrepreneurial or commercial focus that promotes efficient management, innovation and market responsiveness. And despite large subsidies, most of the world's railways incurred substantial financial losses in the 1970s and '80s, from which few have recovered.
Today, publicly-owned railways in most countries are in deep financial trouble. Inefficient, deficit-ridden, under-funded and plagued by low productivity, these vital transport links are struggling to meet growing demand, keep up with technological change, and compete for finance with other important public priorities.
And that brings us to the purpose of this workshop. Revitailization of Asia's railway systems is a critical challenge for the region. Railways are important comprehensive transport networks that are urgently needed to bring more people and more countries into the process of globalization and growth. That's particularly important in Asia which is home to 12 of the world's 30 landlocked countries, where the nearest ports are often several thousand kilometers away. Effective and efficient rail systems are needed to ensure these countries can integrate into the regional and global economies.
Secondly, Asia's rapid urbanization is seriously straining existing transport systems and contributing to air pollution and global greenhouse gas emissions. Railway systems are known to be among the most cost-effective, energy- and space-efficient, and environmentally-friendly forms of urban transport. Building such systems is the only way Asia's mega-cities can serve their burgeoning populations in a sustainable, equitable manner.
III. Recent Trends and Challenges in Private Sector Participation
The question is, where will the money come from to build these systems? A study undertaken last year showed that East Asia alone would need more than a trillion dollars in infrastructure investment over five years to meet the demand for transport, energy and utilities. China will need to devote around $17 billion per year just to the railway sector over the next 15 years. This level of investment is clearly beyond the capability of the state-owned railway systems, or the public sector as a whole.
Asian governments are well aware that private sector participation, including foreign investment, is needed to meet these enormous challenges. And it is not only a matter of financing. Given the history of state ownership, there is a serious need to make the rail sector more efficient and cost-effective, through innovations and productivity gains. Governments increasingly recognize that the private sector has much to contribute in this respect.
Many governments have undertaken reforms to put state railways on a more commercial footing through corporatization, technological upgrading and streamlined administration. Some have separated potentially competitive segments of their rail operations from the natural monopoly elements to encourage new entry by private operators.
The role of the government is evolving from that of owner and sole provider, to that of a facilitator and regulator. In this capacity, the emphasis of government is on safeguarding the interests of the vulnerable segments of the community through effective legal and institutional frameworks.
Governments in Asia, like everywhere, need to carefully plan for privatization. Full divestiture of railway assets may not be feasible or desirable, given railway's role as a public good. Even mature economies such as the United Kingdom have found full divestiture to have substantial risks and unintended negative consequences. There will continue to be an important role for the public side of the public-private partnership in national railway systems.
Fortunately, there are many successful models that Asian countries can consider. In Estonia, for example, the government maintained a minority share in a new railway company while retaining arms-length regulatory oversight for safety and monopolistic abuse. In the People's Republic of China (PRC), divestiture is being accomplished through public listing of shares on the stock exchange.
Another approach is concessioning, in which the public sector retains ownership and oversight of infrastructure, but transfers operating responsibility and the delivery of service to the private sector. This enables governments to retain ultimate control, while private operators can enter the market on a competitive basis, without a large initial investment.
Throughout the course of today, you will hear how several countries are putting these and other approaches to work. And tomorrow, representatives of the private sector will provide their views on the challenges, opportunities and lessons learned from their public-private partnership experiences in the railway sector.
IV. Concluding Remarks: ADB as a Strategic Partner
As Asia's partner in development, ADB is committed to ensuring that the railway sector can continue to serve the region's economic and social needs. We invest directly in public infrastructure projects around the region, with infrastructure overall making up roughly 53% of our public sector lending, much of it in transport projects.
But beyond simply offering loans and technical assistance grants for infrastructure, we act as a catalyst to facilitate financing from the enormous global private capital market. One important part of that effort is working with our developing member countries to improve the regulatory regime for private investment.
Second, we can help mobilize private investment through direct financing to the private sector and third, we can mitigate risk through use of innovative products, including political and commercial risk insurance and other credit enhancement instruments. Last year, ADB increased private sector lending by more than 25% to $821 million, much of which went to infrastructure projects. This level of investment helped facilitate private sector financing of roughly ten times that amount.
Finally, we provide opportunities like this, for both public sector and private sector interests to come together and discuss their respective needs and challenges. Given the enormous opportunities for gains on all sides, it is our hope that this workshop will contribute to the development of more and stronger partnerships to support growth, prosperity and greater poverty reduction in Asia and the Pacific.
Thank you, and best wishes for a fruitful discussion.
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