Archive for Decision Making

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?

======

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.

… ======

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.

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.

Another story of how during good times so little due diligence is done on projects

 

THE REST OF THE STORY?  This railway due diligence alert is from the Middle East.

Previous sound second opinion advise  ABOUT THIS ETIHAD Railroad project from David Burns was apparently “dismissed”.Instaed, a huge capital cost project was approved.

Today, the same project he warned about is “in economic limbo”.

David participated in the early on market analysis for this railway and made the mistake at an important meeting of saying, in front of several “big guns”, that there might be a maret sizing issue.  Fo example, this then proposed railway might have a chance of being viable if it built inexpensively and with second hand locomotives and rolling stock.

That due diligence alert did not go over well.   Times were economically good back then. Why rock the boat?

Basically the only traffic on the railway is aggregate and that could go by water.

It appears that they are now realizing it.

Today’s headline is that Etihad Rail suspends Stage 2 tendering.  In a news report circulating in January 2016 and Written by Keith Barrow

ETIHAD Rail confirmed on January 26 that it has suspended tendering for the construction of the second phase of the UAE’s national railway network in a move which is likely to deal a significant blow to the GCC Railway project.

Stage 2 involves the construction of 628km of new lines, encompassing the line from Ghweifat on the Saudi border to the Omani frontier near Al Ain together with links to the UAE’s three principal ports at Khalifa, Jebel Ali near Dubai and Mussafah.

The project has an estimated price tag of around $US 11 billion.

Etihad Rail says it has informed bidders that tendering will be suspended while it reviews “the most appropriate options for the timing and delivery of this phase of the project.”

“Etihad Rail is one of the biggest and most complex infrastructure projects ever undertaken in the UAE,” says Etihad Rail chariman HE Nasser Alsowaidi.

In December the UAE’s Federal Transport Authority (FTA) granted Etihad Rail final safety authorization for Stage 1

The 264km Shah – Habshan – Ruwais line, clearing the way for the start of commercial operations on the first phase of the network. Etihad Rail says the decision to suspend tendering for Stage 2 will not have any impact on its preparations for the launch of operations on the first phase.

=================================

It appears that they are now finally realizing that Mr Bruns rendered sound due diligence counsel.  Other project leaders should take note.  Always get and at least consider a second opinion.

The Big Short. Next movie version may cover Africa as a series of bad bond deals might unravel // Get a second opinion

EUROBOND FEVER

A few years ago, many African governments started issuing Eurobonds (bonds issued in a foreign currency) as a way to raise money. Nigeria, Zambia and Kenya are just a few to have tested their money-raising luck on global markets. Interest payments on some of these Eurobonds are due this year..

Important point… ….- most of those payments have to be paid in US dollars. That’s not great if your local currency has lost up to half of its value against the dollar.

Any one short these bonds?

Many investors have become increasingly worried about the ability of some African governments to repay their Eurobonds… …the credit ratings of many countries have been sliding to near-junk and junk status.

Need evidence?  CHECK OUT the related BBC report

Zambia issued its first Eurobond in 2012 at 5.4%. When they did, copper prices had already been falling. Where was the due diligence?

Falling copper prices, a power crisis and a credit rating downgrade now mean that investors who willingly lent money to Zambia in 2015 ignored the reality that these deals would actually be more risky than it had been in 2012.

When the country issued its third Eurobond last year, the rate was 8.5%. Now Zambia has to make those increased interest payments from declining tax revenues. And with much more expensive dollars. This will not end well.

Other projects from mines to railways and ports badly need due diligence second opinions.  When they don’t get them, buyers should beware.  Or the next Academy Award nominated best movie could be about you.

This includes massive mine/rail projects in Namibia, Botswana, South Africa, Senegal, and Mali…    …to name a few.

Most of these strategic plan paper projects lack due diligence pro forma assessments of their long term Income Statement outcomes against traffic risks projections ofrevenue volume being unrealistic.  Always get a second opinion.

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

Reports shows just how poor Brazil’s transport infrastructure is. // Two decades of progress hope — wasted on things like global soccer get them this

Something to reflect upon from a Bloomberg global news story on Oct 7, 2015

Two decades of promised growth and investment. Much of it wasted.

Now Brazil is forced to compete against nations like Mexico who have far superior road and highway infrastructure that move their supply chains. What a shame. What a mistake. Where was the oversight due diligence during all of those years?

================

Gerald Lee, a former airline executive, thinks he can help ease one of Brazil’s most-absurd problems: “How do you ship large quantities of goods fast from the nation’s manufacturing hub when there’s not a single usable highway in or out of town?” Barge it down the Amazon River for a ten day transload supply chain. That is the best he can make out of a bad situation.

What happens is that products like TVs made in deep-in-the-jungle Manaus float down the Amazon River by barge to the Atlantic Ocean port town of Belem. From Belem, the goods go on trucks for pothole-filled delivery runs, many of them to distribution centers in Sao Paulo, about 1,600 miles away — and 10 days later.

MEXICO WINS

That can be more than twice as long in time as an 18-wheeler traveling a similar distance from Mexico City to the U.S. road-and-rail hub of Kansas City, Missouri. Or to even closer Houston.

When people criticize Brazil’s transportation infrastructure for being among the worst in the world, behind even Ethiopia’s, this is what they’re talking about.

Manaus, the nation’s only tax-free zone and home to 40 percent of its computer and electronics manufacturing, is just one of many reasons the World Bank says companies in Brazil spend more on logistics than in the U.S.  Moving many of Brazil’s exports can take twice as long as out of Mexico.

This was going to be fixed. But it never was.

How long will the needed investments take? No one is saying. I professionally would expect about 15 to 20 years.

The funding for long promised roads and railways is uncertain.

Heck, one point two years ago Brazil was promising foreign aid to help build Ethiopia railways. Unbelievable? Fact is often stranger than fiction.

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