Many wonder why MMC’s interested in railway and how it can turn it around?

WHEN news that MMC Corp Bhd had submitted a proposal to take over KTM Bhd (KTMB)
became public recently, it raised some pertinent questions as to why
such a big corporation was interested in the loss-making railway firm
and how it planned to turn it around.
If the deal were to go
through, it will be a challenge for MMC to not only return KTMB to the
black but it will also have to delicately handle an array of other
issues such as the opposition of the Railwaymen's Union of Malaya (RUM)
to the proposal and high operational costs as a result of a
Government-controlled fare that saw KTMB posting a RM92.6mil loss in
2009 versus a RM84.6mil loss in 2008.
Moreover, KTMB's loans now
stand at about RM1bil. KTMB is also reportedly receiving a few hundred
million ringgit a year in subsidy from the Government to manage its
expenses.
This could be the main reason the Government is again considering the privatisation of KTMB.
As for MMC, it could be that it sees synergy between KTMB's train services and its own port operations.
MMC
owns the Johor Port and Port of Tanjung Pelepas, both in Johor. The
company is also said to have submitted a comprehensive plan to take over
Penang Port Sdn Bhd.
MMC's partnership with Gamuda Bhd, MMC-Gamuda Joint Venture Sdn Bhd, is the contractor for the Ipoh-Padang Besar electrified double-tracking rail project.
MMC
could also see the prospects of electric train services connecting
Padang Besar and Johor Baru, once the entire electric double-tracking
project is completed.
However, previous attempts in the privatisation of KTMB were not fruitful.
In
1997, the Government allowed the Merak Unggul Consortium to manage KTMB
as it sought to reduce its financial burden in developing railway
infrastructure.
Renong owns 50% of Merak Unggul, DRB-HICOM Bhd 25%, Bolton Bhd 20% and the balance 5% was held by Jasa Meta Sdn Bhd.
In
October 2001, however, the Government decided to take over the
management of KTMB after it rejected the consortium's plan to privatise
the railway. Some industry observers cited Renong's debts as the reason.
Also, Merak Unggul did not pump in RM100mil as it was supposed to when
it took over KTMB.
The Government was quoted as saying then that
although the plan to privatise KTMB was on the cards, it was still
interested in reviewing it again when necessary and would consider other
exceptionally good proposals.
RUM president Abdul Razak Md Hassan
was quoted as saying that KTMB should not be taken over by any private
companies as there would be a conflict of interest in making profits and
providing social service.
“When Merak Unggul was in operation,
there was a surplus of workers and cases of constructive dismissal where
high-ranking officers were required to do the work of lower ranked
staff,” he said.
A source familiar with the matter told StarBiz
he understood that the Government's intention to privatise KTMB was to
upgrade services in the interest of the public, to lessen the burden of
subsidising its operations as well as to ensure its survival.
“But,
a company that is interested in taking over must do a detailed study of
the operations of a railway company and its workers. This is not just
some other corporate exercise.
“It involves the livelihood of
thousands of workers who have been with the company for years, and this
has to be handled delicately.
“It also involves the services in non-profitable routes that have to be maintained for public benefit,” he said.
The source said what was more important now was for the KTMB management to iron out internal issues with the union.
“I
believe that KTMB, once all the issues are resolved, has the potential
to be self-sustained, if not making some decent profit,” he said.
MMC
and Gamuda had in 2003 also offered to undertake the privatisation of
KTMB. The deal would have seen the operations and management of KTMB
handed over to the consortium for 30 years, while the Government
retained ownership of the railway tracks and rights of way.
However, the offer fell through, along with the suspension of the double-tracking project in late 2003.
And in 2006, talk emerged that companies like Scomi Group Bhd, UEM Group and YTL Corp Bhd were likely to bid for the privatisation of KTMB.