Indonesian Rail Masterplan Market Assessment

The role of rail in the Indonesian transport system

Outline

• Background/setting• The role of rail in transport system• Overview of performance• Strengths of rail• Impact of sector policies

• Implications for market assessment• Java main line passenger• Jabotabek passenger• Java freight• South Sumatra Coal• New coal lines

Approach to Market Assessment

• Key principles– price: impossible to assess demand without considering price

and competition– cost: impossible to consider price without considering cost– Here: economic cost not financial cost. Because point of view

• Government• economic efficiency

• Questions – Strengths of rail: what is role of rail in transport system– demand for rail in the transport markets considering cost and

price

The role of rail in the transport system

2 approaches to identify role of rail• Performance in market

– By main tasks/lines of business• Based on revenues

– Growth of passenger/km, tonne/km• Comparison of costs for different tasks

– Scenario analysis – Tonne/km cost of rail versus road

Overview of performance

PTKA revenues by main line of business 2008

Line of business % of revenues

Java main line passenger services 45

South Sumatra Coal 27

Jabotabek passenger services 9

Java freight 8

Java local passenger services 4

Other 7

Total 100

Java main line passengerpassenger/km and yield

• Overall decline of 3% p/y since 2000– Traffic declined sharply early 2000s but is recovering since

2004 • Highlights 2000 - 2008

– executive: + 0.7 % and yields and distances are good– business: - 4.4 % and lower yields – economy: -3.8 % low yields are topped up by PSO– local: + 7.2 % low yields are topped up by PSO– Conclusion: loss of market share – except for local

• This requires in-depth analysis – market research– When was high point reached– What was impact of deregulation in competing modes– What was impact of aggressive performance competition– What was impact of economic crisis– Other factors ???

Jabotabek passenger servicespassenger/km and yield

• 1981 – 2008 : – overall steady growth 7.1 % p/y – but 2.8 % since 2000

• Highlights 2000 -2008– economy: slight decline of 0.3 % p/y - very low yield compensated

by PSO– decline compensated by introduction of A/C and commercial– much better yields for commercial and economy A/C– commercial approach by PTKA

• Jabotabek market segment also requires careful analysis– Scope for further service differentiation - higher yields

• Commercial 250 Rp/pass/km compared to 43 Rp/pass/km for economy

– Scope for developing new markets in context of suburban rail transit development integrated with urban development

Java freight services

• Highlights– Java freight = 8 % of PTKA revenues– Peak probably in 1996: 1,440 tonnes/km– Since 1996: traffic - 2.1 % p/y– Traffic composition has changed considerably– Yield per tonne/km: Rp. 254 – Cost per tonne/km: Rp 500 ? Rp 600 ?– Loss per tonne/km: Rp. 250 ? Rp 350 ?

• Question: Which cargo has future– Need for detailed traffic costing– Focus on profitable services– Exit strategies for unprofitable services

South Sumatra coal traffic

• Highlights– 2008: 10.5 million tonnes – 4.4% p/y since 1991– Coal traffic = 27 % of revenues of PTKA– Coal > than 91 % of freight revenues of SS Railway– yield Rp/tonne/km: Suralaya: 250; Kertapati 313– Haul distance (km): 409 162

• Question: why vertical separation

South Sumatra Freight Revenue

Type of Freight Proportion

(%) Suralaya Coal 81.7 Other Coal 9.7 Petroleum Products 5.4 Other 2.2 Cement/Klinker 1.0 Total 100.0

New coal railway lines

• Several studies and proposals for new lines• Sumatra:

– objective: to enable increase in production– part of new logistics chain from mine to a vessel loading point– example: new line to transport Bukit Assam coal to new deep

water port at Tanjung Api Api, also involving construction of a bridge across Musi river: 3 major investments !

• Kalimantan:– part of logistics chain for a new mine (or group of new mines)

to a vessel loading point. – example: proposals for Kalimantan lines.

• Feasibility is dependent on outlook in coal markets and ability to obtain firm purchase agreements

• Challenges impeding realization– all elements of logistics chain need to be developed– approvals of many central and local govt agencies

Strengths of rail compared to road Impact of volume and distance

• Rail - total operating costs – Java freight: Rp/t/km ?? – ESS coal: Rp/t/km ??

• Why is cost Java more than 2 times higher ?

Total volume(Million tonnes 2008)

Hauling distance

(km)

Java (mix of general cargo)

4.3 258

Suralaya coal(block train)

8.5 405

500 Kilometer Haul – Siding to Siding Versus Pickup And Delivery Costs

0

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1 million tons 3 million tons 5 million tons

Rp

/to

n/k

m

Rail New Inf rastructure - pick up and delivery

Rail New Inf rastructure -siding to siding

Road New Inf rastructure

Road Existing

Rail versus road - impact of volume 500 km haul - Rp/tonne/km

• Scenario analysis – rail versus road– Road is lower cost at low volumes– As volume increases, unit cost of rail declines

• Rail: siding to siding – rail is only lower cost than new road at 5 million tonnes

• Rail: pick up and delivery cost– road remains lower cost even at 5 million tonnes

250 Km Haul - Siding to Siding Versus Pickup And Delivery Costs

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1 million tons 3 million tons 5 million tons

Rp

/to

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Rail New Infrastructure -pick up and delivery

Rail New Infrastructure -siding to siding

Road New Infrastructure

Road Existing

Road versus rail - impact of distance 250 km haul - Rp/tonne/km

• Scenario analysis – When pick up and delivery costs

rail can not compete with road at 5 million tonnes

• Java freight – typical conditions– 250 km typical hauling distance – total volume < 5 million tonnes – and mixed cargo !

– large proportion of cargo requires pick up and delivery• Outlook for rail ? ?

– need to be very selective

Theory and realitywhy is rail carrying traffic that would be lower cost by road ?

Combination of factors• No charging for infrastructure

– rail and road are competing on basis of their operating costs – higher rail infrastructure cost are not recovered

• No detailed traffic costing– rail may not be fully aware of the real costs of some traffics -

multi-product enterprise – depreciation on basis of historical cost– Govt. contributions in kind in the past

• business as usual – legacy of past • is not sustainable. • “above rail” costs are probably not recovered

How to ensure that rail plays its roleperforms the tasks for which it is best suited

• Context - market economy• Private sector firms in other modes constantly innovate and

reduce costs • passengers and cargo owners make choices

• Easiest if prices/tariffs reflect economic costs• Including external costs

• Ultimately largely an issue of sector policies • Infrastructure investment• Infrastructure pricing – level playing field• Price/tariff regulations• Entry and exit regulations - all modes

• Policies affect modal shares

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Ship Carrier: UPS

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Shipment Date: December 5, 2009

Destination: BETHESDA, MD, US

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Java commercial passenger services

• Approach to forecasting demand - micro– market by market – service by service – OD– what is competition doing– relative prices – quality of service – elasticity measures– understanding shifts in demand

• Implications– Lead role – PTKA/train operator– Need for accurate cost data for business unit/service– Need for coordination between infrastructure and

operations – Focus on capacity requirements at the level of facility

and corridor

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J ourney time 01h57 01h57 02h09 01h57 02h03 02h15 01h59

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13h51 - 13h51> via LYON PART DIEU

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11h54 - PARIS GARE DE LYON

13h51 - 13h51> via LYON PART DIEU

06613 1st class Off peak - Reservation required

J ourney time 01h57

34.00 € TGV Prem's : Ticket may not be changed nor refunded.

Hurry, last seats available!

58.00 € TGV Loisir : Ticket can be exchanged and refunded (administrative charge applies) before departure and cannot be exchanged or refunded after departure.

119.00 € TGV PRO 1ère : Exchange and refund service free of charge up until departure, and subject to conditions after departure. Warning, starting on 2 February 2010, these conditions are changing. Contact your nearest sales outlet for further information.See conditions.

Java economy passenger services

• Approach to forecasting demand - micro– BUT– Demand depends on fare – Fare depends on cost and PSO subsidy

• Implications– Need for stable agreement between government and

PTKA/train operator on level of subsidy (PSO)– Need for traffic costing data by business unit/service– Government/MOT to develop concept of: (i) target

population; (ii) level of support justified; (iii) mechanism for PSO delivery

– Need for coordination between infrastructure and operations

– Focus on capacity at level of facility & corridor

Java freight services

• Approach to forecasting demand - micro– market by market, service by service, OD– knowledge of: competition, door-to-door costs, quality of

service, initiatives by competition– changing industrial location

• Implications– Lead role – PTKA/train operator– Need for accurate cost data by business unit/service to

support decision to produce & pricing strategy– Need for coordination between infrastructure and train

operations – Focus on capacity requirements at the level of facility

and corridor – eliminate bottlenecks

Jabotabek passenger servicessuburban commuter rail

• Requirements for efficient metropolitan transport

• integrated multimodal system

• based on complementarity between modes

• need for metropolitan entity

(1) prepare a coordinated metropolitan transport plan; (2) deliver integrated system; (3) providing integrated services

• Role of Jabotabek rail in metropolitan transport

providing high volume suburban commuter transport

• Issues

• Commuter rail is very costly – how to optimize its role

• experience shows that fare box can not cover operating costs

Financing has to be supplemented with other metropolitan income ideally from those who benefit from the economies of agglomeration

Jabotabek passenger services

• Approach to forecasting demand• Identify role of suburban rail in overall transportation system

• based on relative costs of modes

• Macro modeling approach • based on O-D and modal split is preferred

• Planning work has already been done• The Study on Integrated Transportation Masterplan for Jabodetabek• detailed recommendations on investments & actions

• Implications – need for separate business unit for Jabotabek train operations –

operational and financial autonomy– client of business unit = metropolitan transport entity– strong focus on traffic costing to underpin level of subsidy– stable pool of funds from various sources/modes

Integrated land use and transport planning

Goal

to enhance the role of rail in metropolitan transportation

How – Transit oriented urban/suburban development– Central concept: ACCESSIBILITY – Promotion of public transport

In practice (Jabotabek Masterplan Study)– Improve quality of rail services– Upgrade railway stations & intermodal connections– High density real estate development in vicinity of railway

stations

Concept for railway catchment area

South Sumatra coal

Approach to forecasting – institutional status quo• Long term - only one major client

• ideally: long term contract• BUT: credibility of off-take commitments by mining company

• Medium term – coordination/synchronization• Production planning of the mine• Transport capacity planning of railway• Agreement between 3 parties on

• Volumes• Operating procedures at transhipment points• Operating indicators• Cost sharing on rolling stock

Kalimantan new (coal) railway lines (1)

• Obstacles to implementation in past– short distances– collaboration between mining companies for minimum

volumes – coordinated development of ENTIRE logistics chain:

challenge– lack of legal and regulatory framework for private sector

financing• Principles

– integral part of mining scheme (mining permit includes transport)

– mining company fully responsible for• identifying least cost logistics chain• developing, financing and operating all elements of the

logistics chain– Government = facilitator

New (coal) railway lines (2)

• Outlook has now improved– Minimum volumes (5-10 million tonnes)

• available in principle in Kalimantan• In Sumatra if major increase in output at existing location

– Legal framework available

• Remaining issues/challenges– Implementing regulations to be developed– Collaboration for minimum off-take commitments– Government facilitation and coordination during

development stage• One stop shop