IRAN TRANSPORTATION & LOGISTICS FORUM Iran Rail Transport, Moving toward PPP (A vertical separation approach) Majid Babaie Secretary General, Guild of Rail Transport Companies and Related Services

Shift to Privatization 2005 (1384) Vertical Integration A public railway Vertical Separation Toward PPP Need to private sector’s investment Low Productivity of services & assets Low labor productivity Low quality of services Low market share

VI VS Degree of EOS Vertical Integration vs. Vertical Separation Balance (Regulator, Size, Investment Cost…) Degree of EOS VS Degree of market pressure and openness

pros and cons of Vertical Separation in Iran’s rail industry (privatization and regulatory reform) Broke down barriers to entry in industry An appropriate way to curtail the monopoly power of “natural monopolies” Labor productivity is relatively higher than VI More intensive use of capacity More flexible management An independent regulator does not exist. No certain arbitration unit. Government may pull out national budget from the sector. Government don’t like to withdrawal from operational tasks. Loss of Economies of Scale

Rail market share growth depends on? (Goal: 30% + 20%) Developing new tracks? Providing new rolling stock? Increase of prices? Increase of rail budget? Increase demand for rail? ??? Appropriate Policymaking, A Sustainable PPP structure, More productivity,

Rail transport performance (2006-2015) Index Unit 2006 2009 2012 2015 %2015/2006 Tracks Km 8595 9482 10223 10459 21.6% Tonnage M/ton 33 32.8 34.3 35.7 8.2% Ton-Kilometer Billion 20.5 20.2 22.6 25 22% Transit Tonnage 1000/ton 1500 1487 906 1435 -4.3% Passenger Million 21.3 27.7 27 24.4 14.5% P - Kilometer 12.5 16.8 17.2 14.9 19.2% Allocation of development credits % 78.6 78.9 53.9 39 50% Track productivity M/ton-passenger K 3.8 3.9 0% Freight wagon productivity 1000/ton-K 1044 980 1100 1150 10.1% Passenger wagon productivity M/p-k 10.4 11.8 11.3 20.2%

Share of freight revenue % Locomotive owner(70% public) Value added tax Wagon owner Locomotive owner(70% public) Access charge year 25% 23% 52% 2009 22% 21% 57% 2010 2% 54% 2011 5% 18% 2012 6% 31% 41% 2013 7% 29% 30% 34% 2014 8% 32% 2015 8.2% 31.3% 32.4% 28.2% 2016 مرجع: گزارش رقابت پذیری حمل بار ریلی, معاونت بهره برداری و سیر و حرکت راه آهن, اسفند ماه 95

(Train-Km per each km of main tracks) Track productivity (Train-Km per each km of main tracks) 1000/Train-Km نام کشور ردیف 27.6 Japan 1 20.2 China 2 19.7 England 3 16.9 Germany 4 12.1 Russia 5 11.5 EU 6 10.5 World 7 9.9 France 8 8.1 Kazakhstan 9 6.2 Iran 10 مرجع: گزارش رقابت پذیری حمل بار ریلی, معاونت بهره برداری و سیر و حرکت راه آهن, اسفند ماه 95

Freight wagon productivity rate (Ton-Km per each ton of wagon capacity) Year 1000/Ton-Km Annual Growth% Comments 2001 16 3.2% 2002 16.9 5.6% 2003 19.2 13.6% The highest record 2004 18.4 -4.2% 2005 15.9 -13.6% Starting new PPP 2006 16.8 5.7% 2007 14.9 -11.3% The lowest record 2008 15.1 1.3% 2009 15.8 4.6% 2010 16.4 3.8% 2011 -7.9% 2012 16.1 6.6% 2013 15.7 -2.5% Start point of the 11th government 2014 17 8.3% 2015 17.3 1.8% 2016 18.3 5.8% 16.6% increase in wagon productivity in 3 years مرجع داده ها: گزارش رقابت پذیری حمل بار ریلی, معاونت بهره برداری و سیر و حرکت راه آهن, اسفند ماه 95

Starting new PPP 16.6% more productivity در سال 82 یعنی دو سال قبل از شروع خصوصی سازی بازای هر تن ظرفیت اسمی واگن های باری معادل 19,200 تن کیلومتر عملکرد جابجایی بار محقق گردیده است. همین شاخص در سال 95 معادل 18,300 تن کیلومتر بوده است. این یعنی با گذشت یک دوره 13 ساله که تمام ایام خصوصی سازی را نیز در درون خود داشته است عملیات سیر قطارهای باری نه تنها بهبود نیافته بلکه 4.7% بهره وری واگن های باری کاهش نیز یافته است. البته خوشبختانه طی سه سال اخیر اقدامات اصلاحی خوبی آغاز گردیده بطوریکه همین شاخص بهره وری واگن در سال 95 در مقایسه با سال 92 به میزان 16.6% افزایش داشته است. مرجع داده ها: گزارش رقابت پذیری حمل بار ریلی, معاونت بهره برداری و سیر و حرکت راه آهن, اسفند ماه 95

Rail Transport Contribution 2005-2016   Years Total Ton-Kilometer (Billion) Access Charges Paid by Rail sector to government (Billion $) Fuel consumption Saving Other savings  2005-2016 265 1.5 3.5 Billions of savings by Externality and side effect Costs in compare to road

Rail Market Share Growth Requirements Facilitate Competition Facilitate rail Transport External Requirements Internal Requirements Harmonization of rail and road access charge Uniform subsidies for rail and road fuel consumption Move to market Solutions Increase Productivity Setup Regulatory Body Eliminating investment barriers by private sector More competitive advantages for rail More market share and growth for rail Based on a Roadmap

Results of VS imperfect restructuring? No separation between governance and operational activities Government approach not changed More intervention by government without any limitation Real Private companies not entered (more government linked companies) Unreliability space is the most important obstacle for new investors Policymaking is a forgotten role of government There is no enough authority for rail private companies to improve productivity by their capabilities As a whole internal and external requirements for rail development is not available at both public and private sides

US railway, A successful reform

US rail performance after 1980 reform Index 1980 2009 Change% (Last year/Base year) Rail Market share% 27% 2007 – 39% +45% Ton-Mile(Billion) 900 2007 - 1800 +100% Revenue to Operational cost 60 2008 - 360 +500% Cost index 1990 - 90 2008 - 190 +110% Price index 1985 - 100 2007 – 65.5 -35% Price to cost index 1990 - 140 2008 - 55 -61% Return on investment 2.93% 8% +173% # of Personnel 450,000 2008-150,000 -67% Human resources cost index 100 2008 - 250 +150% Revenue by each Person($) 792 4177 +427% Fuel consumption cost index 2008 - 130 +30% Revenue by each gallon($) 228 480 Revenue by each track Km($) 3297 9530 +189% Accidents per each million train-mile 11.4 2.6 -77%

Performance of Class I Railroads 1964-2005 Source: Railroad Facts, AAR

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