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At the price of building more than 20 Panama Canal cost projects, what might due diligence suggest about India’s $124 billion railway strategic plan?

Based on past performance, will execution on time and within budget actually occur? Or another “bridge too far” expectation?

Within four years? Likely impossible within that timeline

Who is giving them such technical advise?

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Bloomberg headline tonight asks: Asia’s Oldest Railroad Needs $124 Billion. Who’ll Foot the Bill? Feb 24, 2016

The superlatives are dazzling: India’s railway is the fourth-largest in the world, the oldest in Asia and carries about as many passengers daily as Australia’s population.

But it is old, less reliable now, and has been losing market share to highway mode bus, truck, and auto. ( So reports my professional associate David Burns)

Its grand new rail projects are now about a decade behind schedule. What is different going forward?

To read the entire article, pleae go to bloom.bg/1KKYgFx

Anurag Kotoky is the journalist –

Prime Minister Narendra Modi now wants to spend 8.5 trillion rupees ($124 billion) through 2020 on new tracks, India’s first bullet trains and modern stations. The unanswered question for companies such as General Electric Co. and Alstom SA, which are hoping to gain from the revamp, is where all the money will come from.

Railway Minister Suresh Prabhu may shed some light on that in his railroad budget speech on Thursday.

Bloomberg reports that the sheer scale of the modernization task is daunting. A looming wage increase of 320 billion rupees makes the task of funding investment even tougher —

The India railway network already spends most of its revenues on operating costs. It does not generate much free cash for reinvestment.

The railways may seek to sell land, export trains to Asia and Africa and sell advertising space while curbing costs, to cope with the wage burden and find funds for investment.

Fare increases are unlikely, people familiar with the matter said last month. Fare increases are often political suicide for the railway leadership

FUNDING SOURCES?

Here are some of the highlights from Prabhu’s railway funding speech:

•No passenger-fare increase to keep costs down for the poor
•Explore options for land, such as using some to generate solar power
•Market borrowing of about 200 billion rupees in the year starting April 1
•Considering possibilities for international and multilateral funding
To set up special purpose vehicles to implement high-speed train projects

India Rail,accounting is a bit vague. Claims a profit. Hard to prove.

The plan intends to improve its implied existing operating ratio by two points from 92 to 90

The Times of India|The Economic Times reports the following statistics:

* Expect saving of Rs 8,720 this year

* Operating ratio at 92% FY17 as against 90% in current year

* Traffic revenue targetat Rs Rs 1.85 lakh crore

* Capital plan of Rs 1.21 lakh crore

* Expect revenue growth of over 10% this year

* Commission 2,800km of new tracks in next year, almost 30% higher than last year

* Railway electrification increased by 50%; 2,000km route to be electrified next

* Railways to get Rs 40,000 crore budgetary support from the government

* Rs 30,000 crore is the loss on subsidizing passenger fares

* 20% less accidents this year. No specifics on how to reduce this.

MARKET ANTICIPATION?

Bloomberg reports that some India railway-related stocks have already rallied ahead of the budget speech, though project execution remains a risk, said Ashish Kejriwal, an analyst with Elara Securities Pvt. in Mumbai. Here are some of the stocks which could be in play as Prabhu speaks: * Titagarh Wagons Ltd. — Wagons and freight manufacturer * Texmaco Rail & Engineering Ltd. — Manufacturer of freight cars * Kalindee Rail Nirman Engineers Ltd. — Signaling system provider Closing

OBSERVATION

In American terms, the $124 billion is equivalent to maybe the current cap ex valuation of two Union Pacific’s — —- without any realistic type Union Pacific operating income pro forma expectations offered yet by any professionals as due diligence oversight.

Not impossible. But certainly a huge financial feasibility challenge.

Who will risk the capital under such circumstances and under what terms?

PLANNING?  THAT HAS NOT BEEN SET UP YET

While presenting the Railway Budget for 2016-17 in Lok Sabha on Thursday, Union Railway Minister Suresh Prabhu announced that the Indian Railway intends to set up a Railway Planning & Investment Organisation for developing a National Rail Plan to draft medium (5 years) and long (10 years) term corporate plans and identify projects which will fulfill the corporate goal.

 

Sent from my iPhone

IMPORTANT WEB SITE for timely access to Hazardous Materials Railway regulations. // My recommendation is this STARS site

Important periodic weekly updated intelligence that is useful for your business.

Log  onto this S.T.A.R.S. internet site. 

starsconsulting.org/february-18-2016-c3rs-midterm-accomplishments-at-another-site-and-success-factors-across-sites/

STARS stands for the name Specialty Transportation and Regulatory Services

STARS is a consulting firm specializing in all facets of Hazardous Waste Management & Hazardous Materials Transportation for rail and highway movement as well as covering aspects of pipeline wnad waterborne transportation.

They can help you develop the expertise you need to make technically informed safety decisions…      …for practical, cost effective solutions to following complex regulatory rules.

Good way to keep up to date with current regulatory compliance rules.

This is Jim Blaze  Your go-to rail due diligence contact.  I highly recommend these experts.

Cheers!

Management advise of the day. From Warren Buffet. // BNSF’s owner

Here in brief is a warning about how even a world class railway can deteriorate.

The “ABCs of business decay” include: arrogance, bureaucracy, and complacency.”

“When these corporate cancers metastasize, even the strongest of companies can falter.”

Wise thoughts for many of the world’s railway leaders living on their past corporate reputation.

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Source: Bloomberg business notes, published by Noah Buhayar and Lily Katz

– 24 Feb.2015

Cheers! Jim Blaze

Mongolia back to 2006… That was the first time it sought a rail loan from China. A decade later it repeats it seeks$1.3 Billion from China to Complete long delayed Gobi Coal Railway

Incredible but true.

Bloomberg report — Feb 22, 2016 Mongolia is seeking a $1.3 billion loan from the Export-Import Bank of China to complete a railway connecting its Tavan Tolgoi coal deposit with the Chinese border, a project that has stalled because of lack of funds.

To read the entire article, go to bloom.bg/1mU7yDE

Officials from Mongolian Railway SOSC are meeting in China for talks with the bank to secure the loan, Idesh Ivshin, the company’s head of projects, said Monday in an interview in Ulaanbaatar.

The 240-kilometer (150-mile) railway will increase export volumes and lower the cost of transporting coal to Mongolia’s biggest customer at a time when weak prices are tightening margins. Coal is Mongolia’s nation’s second-largest export earner, accounting for $556 million last year. The Ministry of Finance may also offer a government guarantee, said Manduul Nyamdeleg, Head of Financial Markets and Insurance Division.

These are practically the same terms that many consultants, including myself, have been suggesting to Mongolia for about a decade.

The proposal would need to be ratified by the Mongolian cabinet. That ratification is not a sure thing.

He believes that the railway could be completed by 2018 if work begins AGAIN this year.

According to terms under discussion, the Export-Import Bank would appoint a Chinese contractor to construct the railway, Idesh said. That would replace the existing agreement with South Korea’s Samsung C&T, which has stalled over a debt of more than $30 million that the railway says it can’t pay due to lack of funds. The two sides are negotiating a settlement, according to Idesh.

THE ACTUAL FACTS ARE MORE LIKELY THAT the Mongolian government either can’t or refuses to pay the giant KOREAN Samsung company for work on parts of the under obstruction already “expensed” Gobi project.

An official at the Export-Import Bank of China’s press office in Beijing told Bloomberg reporters that he couldn’t immediately comment.

Roads are gradually eroding rail freight dreams as China builds out the initial modern highway sections of its New Silk Corridor initiative.

Dreams of a bold new Chinese financed silk corridor giveaway are behind the scenes taking execution shape. Lots of it will be a financed highway network growth.

EVIDENCE?  Kazakhstan, rather than Mongolia, is the first link west from China as construction of the first phase HIGH CAPACITY paved highway network is actually underway.

Started slowly after 2009, a modern multiple lane truck capable highway network already links western China and much of eastern Kazakhstan. Journey’s from local villages to sub regional cities with this geography have been shortened by the first improved highways in some cases from ten hours to less than three.

Slowly construction appears to be improving and expanding the older lane and a half width Soviet road network during 2014-2016 — gradually spreading west towards Western Europe.

Not unexpectedly, the first links were east into China. Because China wrote the checks and bought the Kazakhstan resources and commodities.

Under the label WE-WC, the Western Europe to Western China corridor funding is opening up high valued goods logistics to more and more short, Mid distance, and yes even long distance trucking. Rail freight now sees much more truck/road competition for the Asian freight market share.

Where have we seen this before? Ah yes, the Eisenhower sponsored US Interstate Highway program some 60 + years ago. And in India as highways are being improved faster than India’s railway capacity is.

The early benefits are for linking the shorter to mid length Western Asia communities together. Think Baltimore to Philadelphia. Think Berlin to Warsaw. These short to mid distance lengths of haul less than 500 kilometers are expanding sub regional trade and commerce ties. Not as glamorous as in Berlin to Beijing, or long distance Philadelphia to Los Angeles. But critically important to jump start local region growth.

LONG DISTANCE EURASIA SURFACE FREIGHT TODAY IN 2016

And as one traveling journalist (Wade Shepard) points out in his published works, lots of wine and other valued goods are moving as much as 5,000 to 8,000 kilometers between central China into central and Western Europe. Mostly by trucks.

Trucking is considered more reliable. With low driver wages, not much more expensive than what is charged by the national rail companies. Truckers often charge less than 7 cents US equivalent per ton-km. Service in either direction takes as little as 7 to 9 days by truck.

Rail can cost 10 cents or more per ton-km and take 14 to 21 days.

Trucking to an east coast China port and then by giant 18,000 TEU vessel can take between 25 to 29 days. Longer if the shipper opts to pay an even lower price. But the truck/ocean price paid is overall less than 4 cents per ton-km. Sometimes less. Which is why the water option according to most experts is calculated at a whopping better than 95% range.

Trucking at maybe a 4% market share.

Rail freight at 1% or less. I am ignoring air freight.

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For more, read Wade Shepard @vagabondjourney.  He cites the following.

China’s “New Silk Road” A massive infrastructural and political project that’s overtly opaque, extremely relevant, and globally important that spans across a massive swath of geography. Capital cost to build might be in the three trillion dollar equivalent range. No one is sure. Closely guarded state secret.

Even the route and the physical capacity details are sketchy. Shepard’s travel out into the Asian “boondocks’ shows that although there are currently many contrasting versions of the actual routes, the vision behind this plan is to build a network of rail lines, highways, logistics centers, and new cities connecting China with Central Asia. And yes, with Europe

Geo-politically, it’s already fairly well under constructed. Certainly the highway portion is.

Though it’s being developed somewhat quietly, this project and its broader implications will be one of the big global stories of the coming decades. But a lot of it will be highway based changes. It’s much more than a railroad story.

There are also large scale pipeline and maritime project details. You might scan his research papers for more of his local color field reports. Jim Blaze Sent from my iPad ==============================

Riding the New Silk Highway: New Road Connects Europe and Asia   //by Wade Shepard @vagabondjourney

Norwegian open access freight carrier “closes shop”. Background. Search for reasons.

NORWEGIAN open-access rail freight operator Cargolink ceased operations on February 11, 2016 as the company’s board decided to file for insolvency.

I have confirmed this News report by checking multiple sources, including the IRJ.

Like IKEA, Cargolink was heavily focused on moving cargo as if a subsidiary of another industry.

First operating its trains in November of 2008, Cargolink operated selected cargo freight trains across Norway from the terminal at Alnabru in Oslo to Bergen, Trondheim, Stavanger and Åndalsnes. It sought to build upon the open access concept that supposedly favored new entrants as competition to the established national rail train operating divisions.

That European rail model isn’t working out as well as originally expected. There have been some successes. This is a noted failure.

What does the closing tell us as rail economists? ========

Cargolink AS as a Norwegian railway company was initially organized and owned by the automotive distribution company Autolink.

Autolink, was at the time the largest distributor of automobiles in Norway, and had previously bought train services from the national rail operation trade named as CargoNet.

Cargolink focused on moving both autorack and container trains since November 2008.

Cargolink has a fleet of ten diesel locomotives, five shunters, 100 autoracks and 60 container cars. Its combined autorack and container trains were typically operated up to five times per week along the Sørland-, Bergen-, Rauma-, Røros- and Nordland lines into parts of Sweden.

The company at one time transports as many as 55,000 automotive cars annually using about 600 trains. It had reported at one time rail revenue of NOK 65 million.

LACK OF CRITICAL MASS?

In 2015 it reported that its traffic formal of 2014 was 13 400 TEUs = 6700 trailers, 340 000 tons —amounting to just 30 equivalent trailer trucks per day. Many of its trains operated with fewer than 15 of 40 foot length trailers/containers per train.

In 2015, the company made a presentation citing among its problems: 1) short sidings and resulting short freight trains; 2) Low priority for freights in a passenger rail culture; 3) both snow and water on tracks periodicity recurring track maintenance schedule interruptions;

Its primary customer Autolink was at one time responsible for about three-quarters of all new-car distribution in the country. On the weekly return trips from Northern Norway, Cargolink had used the empty cars to transport aluminum from Elkem Mosjøen.

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In a statement, Cargolink said this week that “it has struggled financially in the face of challenging competitive conditions.” At it closes, the company employed 70 staff. That is down from 100 reported in 2014. ======

There is about 25 million to 27 million tons of annual rail cargo to compete for. Rail handles less than 15% of all of Norway’s annual cargo. //////



Competition. Gaining competitive advantages as the new player.

Lessons for railroaders in fighting against trucks for freight market share. i

Weaker player can often win.

By innovation that changes the rules, the smaller force can more than ofen win.

The lesson is from a close reading of the competition phenomenon in a book authored by  Malcolm Gladwell in 2013.  Titled: David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.

Suppose you were to total up all the wars over the past two hundred years that occurred between very large and very small countries. Let’s say that one side has to be at least ten times larger in population and armed might than the other.

How often do you think the bigger side wins?

Most of us, I think, would put that number at close to 100 percent for the big guys. A tenfold difference is a lot.

But he found that the larger force only won about two-thirds to three quarters of the time.

A political scientist Ivan Arreguín-Toft did the calculation a few years ago. His big versus little sample came up with was 71.5 percent of the time the big guys won.

Still– about a third of the time, the weaker country won.

INCREASING THE ODDS

Arreguín-Toft then asked the question slightly differently. What happens in wars between the strong and the weak when the weak side … refuses to fight the way the bigger side wants to fight.

Perhaps like the American revolutionary generals, they used a lot of unconventional or tactics. (Read more about that in the book First Salute).

CHANGE TACTICS, and the weaker party’s winning percentage climbed from less than a third to about two thirds (63.6 percent for those who want more precision).

Railroads in North America in the past won in select markets by changing their tactics against more numerous highway network and numbers of trucks.

Longer, heavier axle loading and double stacked container train TECHNOLOGY INNOVATION converted the Chicago-LA 2,000 mile long origin/destination 70% truck market share for high value truck load commodities to a 70% rail share over about a decade.

Want proof?  Check my calculations by reviewing ICC footnotes in railroad merger cases back in 1992 period.

The western railroads worked selectively to change its intermodal business model between 1984 1990.  It worked. The change was largely technology driven.  some culture change too.

Meanwhile, the European rail industry so far has not followed this model change.  Three decades after the North Americans took on the bigger truckers by changing the rules, the Europeans and South African railroads have not yet learned the lesson.

Smaller market size railroads can win more than half of the time.  But it takes innovative leaders to do it.

Russian Hopper wagon contract reflects post World War-2 engineering design. –

RUSSIA: United Wagon Co has signed an agreement with fertilizer producer Uralkali to supply 400 hopper wagons from its Tikhvin factory.

The Type 19-9870 cars will have an axle-load of 25 tonnes and can carry up to 76·5 tonnes.

That design reflects engineering standards found in North America in the 1950’s

Modern North American rail freight wagons have typically been built and operated across the USA, Canada and Mexican rail tracks with 30 to as high as 3 metric tonne axle loading.

As a global benchmark, this is not good news for Russian shippers.

www.railwaygazette.com/newsfreight/single-view/view/hopper-wagon-contract-signed.html Sent from my iPad

Back to the Future for the UK rail structure? // 2015 review

Was the British Rail privatization effort ever successfully completed. Or just a juggling of the accounting books?

What do you think? Here is an interesting review in part from Zthe Economist in early October 2015 //

The original Railtrack company actually according to many economists was partially re-nationalized when financial oversight shifted to the replacement Network Rail company within about a decade of the initial change.

More passenger riders? Yes. At more public subsidy? Yes.

Is that success?

Quite a few in the UK don’t think it was successful. Note this from The Economist on 3 October 2015 Railways “Gravy trains” Why Labour’s plans to renationalise the railways are so popular

FEW topics get Britons as hot under the collar as the state of the country’s railways. When trains are delayed—at the slightest hint of snow, or when leaves fall on the track—passengers fire off furious letters and tweets. According to polls by YouGov, more than half of Britons would like the government to take the railways back under state control.

This makes Labour’s plan for a publicly run “People’s Railway”, affirmed at its conference this week, a popular policy as well as a radical one.

By some measures Britain’s railways are booming. Since the network was privatised in 1994, the number of train journeys taken each year has doubled. The growth in passenger-kilometres travelled has been among the fastest in the European Union.

BUT… …the service has become far more expensive, with rail fares now 24% higher in real terms than in 1995.

And as well as being pricey, the service is often uncomfortable: 22% of passengers commuting into London and 16% of those travelling into Manchester have to stand.

// The Economist writes that …”passenger frustration also reflects the fact that privatisation was rushed through and in many ways flawed.” When British Rail, the monolithic state operator, was broken up in the 1990s the government stringently followed a European directive to separate the tracks from the trains.

The idea was to boost competition by ensuring that different train operators could whizz up and down the same stretches of track.

But in some circumstances this led to inefficiencies, with employees of privately run train companies doubling up against those from Network Rail, the state-owned company which controls all 20,000 miles (32,000km) of track. Investment has risen since privatisation, but so has government subsidy…

The subsidies adds up to around £4 billion ($6 billion) a year.

According to a report published in 2011, costs per passenger-kilometre have hardly improved since 1996.

And Network Rail is in disarray. The company, which was brought on to the government balance-sheet in 2014 with £34 billion of debt, is due to publish three reports over the next six months looking at how it can be restructured.

Read the column in full at: www.economist.com/news/britain/21669057-why-labours-plans-renationalise-railways-are-so-popular-gravy-trains

Restructuring Overview // opinion column from India on India Railways

Bravo!

A gutsy but professionally focused opinion column points out why modernizing the vast but bureaucratic Indian Railways may be a hopeless task.

It’s about politics and the self preservation of jobs and management roles while facing objections from other land users. It is not just a technology fix that is needed.

Here are just a few points that illustrate the issues.

1) BROKEN MARKETING TACTICS

The government has so far lacked the will to increase passenger fares because it is an unpopular suggestion. Instead, they hike up the cost of freight transport to subsidize passenger rides. What India gets as a result is a vicious cycle: Companies (shippers) choose to transport goods via highways because doing so by train has become too expensive and inefficient. That results in a lack of the expected cash flow freight subsidy funding needed to make rail improvements for passenger rail. And to the extent possible by bus or auto, the rail commuters leave the railways for highways.

2) CUT UP THE RAILWAY INTO MORE BUT SEPARATE ORGANIZATIONS

One ever popular policy suggestion is to minimize the Ministry of Railways power by making the Indian Railways two independent organizations—one responsible for the track and infrastructure and another for operating the trains. But some do not see that restructuring happening anytime soon. Furthermore, it did not work out well when tried in the UK. Why would it work in India?

It might be better to just fire everyone in charge today and hire an all new monopoly provider.

3) TAKING FOREVER

“If nothing changes, it will take them 100 years just to build the Dedicated Freight Corridor,” say some professional observers. For example, the government hasn’t even started looking at people and land relocation plans in urban area for an alternative, high-speed railway network.

Heck, the Dedicated Freight Corridor execution is already about a decade delayed. That is about the professional in charge lifetime of the current leadership generation (at about 10 to 15 years as the top people in an organization).

TICK TICK TICK The clock is ticking.

So little is happening.

Read the column at: www.citylab.com/commute/2015/10/what-it-will-really-take-to-fix-indias-railways/408664/ Sent from my iPad