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RAILWAYS LOOSEN REINS ON SERVICES BY FREDERIK RICHTER Imagine you’ve been assigned to regularly deliver 10,000 tons of bagged cement from your Cairo factory to a seaport for shipment abroad. You have two options. Either hire a fleet of 500 diesel-guzzling trucks, or load the shipment onto 10 average-sized freight trains. The train option – about 30 percent cheaper and a whole lot environmentally cleaner – would seem to make sense. Each delivery would save your company about £E 70,000. It’s an option few companies actually exercise. Egyptian National Railways (ENR), the sole national operator of freight rail services, transports 12 million tons of cargo a year – mostly military cargo or the ENR’s own material. Private sector shipments, which account for just 4 million tons, represent about 1.2 percent of the nation’s freight shipments, the vast majority of which is transported by trucks or river boats. After years of neglect, the government hopes to develop Egypt’s idle freight train network. Negotiations are currently under way between ENR and private investors with the aim of launching a private-public company to handle freight forwarding by train. The proposed consortium would seek to boost freight rail shipments by 42 percent to 17 million tons by introducing new marketing and customer-oriented services, explains Hamdy Barghout, business development director at Egyptian Transport & Commercial Services (Egytrans), one of the potential private investors. He says ENR would hold a stake of less than 25 percent in the new company, which would operate cargo trains using the existing ENR rail network. Eventually, the company would operate inter-modal freight transport,
a concept virtually unheard of in Egypt. Inter-modal traffic forwards
cargo using various means of transportation for the same container,
utilizing rail, river and road. But in order to succeed, says Barghout,
the company would need to establish cargo distribution centers with
container handling ability in Cairo and other cities. The devastating financial situation of ENR has opened the door for private sector involvement. ENR suffered losses exceeding £E 322.6 million in FY 2000-01 alone. According to a recent report by DE Consult, a subsidiary of German railway giant Deutsche Bahn AG, freight revenues cover just 60 percent of operating expenses, with sugar shipments recovering only 10 percent of their cost. El-Amir Abdel Monem, former chairman of Egyptian Railway Project & Transport Co. (ERPT), believes the problem is ENR’s outdated administrative thinking. “All railway people have one daily headache – to run trains and keep the schedule. We call that ‘working under running wheels.’ There is no time to think of investments,” he told Business Monthly. “ENR [operates under] government law and this prevents any private sector involvement,” explains Andreas Tockhorn, project manager at DE Consult. “These administrative rules simply don’t leave any space for manoevering.” To get around this, ERPT was established in 2004 under Investment Law No. 8 for 1992, which allows private sector companies to lease assets to investors for up to 25 years. The state-run company acts as an intermediary for ENR, operating under private sector investment legislation to bypass age-old government legislation that forbids public sector companies from leasing out their assets for periods exceeding three years – which is hardly an incentive for investors seeking profitable returns. ERPT’s prime function is to review and make better use of ENR’s land and assets as a way of boosting its revenues. In the past six months, the company has rewritten 120 ENR contracts in its own name to allow investors to take advantage of the perks offered by Law 8/1992. In doing so, it has made ENR land holdings much more attractive to investors. In one case, the price for one square meter of ENR land jumped from £E 4 to £E 40 almost overnight. ERPT is slowly introducing market thinking to ENR, but resistance to change is strong as many ENR employees could see their low-paid jobs in jeopardy. “Re-engineering ENR is essential,” asserts Barghout. “They have lots of people doing nothing but resisting development, and they have lots of [unnecessary] manpower.” Tockhorn, who has spent more than 20 years as a consultant for ENR, worries that these staff could ultimately derail efforts to streamline the railway authority. “What this company [ERPT] wants to place in the market is owned by the railway and the railway still influences these procedures and evaluates the projects to be tendered by this organization,” he explains. Complicating matters further is the fact that ENR does not legally own any of its assets, but rather manages them on behalf of the state. “The exploitation of all these assets might fail because of these principal issues, which strongly hamper the business,” he says. ERPT also faces challenges from within. Tockhorn points out that the company is staffed by former ENR personnel, many of whom brought “old thinking” with them. “They don’t have any interest in cost reduction or other improvements,” he asserts. “They say to themselves: ‘We let things slide and take care of our daily business, but we don’t change anything.’” The new freight shipping consortium will also face similar challenges. “Our target is to privatize the thoughts, the ideas and the actions of these people in ENR,” says Barghout of EgyTrans. The government is more open to private sector involvement these days and willing to cooperate, he notes optimistically. Even ENR realizes that it’s a “do or die situation.” Barghout says the proposed freight shipping company would seek to better utilize ENR’s resources and improve overall profitability. He hopes the new private-public partnership will lead to more private sector involvement in the railways sector and, eventually, privatization. Abdel Monem, however, warns against jumping to conclusions. “Privatization is not on our mind,” he stresses, noting that the private sector will – for the time being – only be allowed to invest in railway-related enterprises. |
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