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Ministry denies railway reform rumor

(Global Times)

08:13, June 18, 2012

The Ministry of Railways (MOR) refuted yesterday a media report which said the country was considering a plan to reform the its railway sector by setting up three separate companies in charge of railway investment, construction and operation respectively.

An unnamed MOR public relations official said it was a "complete rumor" in an exclusive interview with the Xinhua News Agency yesterday, without elaborating.

The MOR was planning to set up three group companies: an investment company in charge of financing and investment of railway construction, a construction company overseeing the planning and construction of railway projects, and an operation company, the Beijing-based Economic Observer newspaper reported Saturday, citing unnamed sources from the MOR and State-owned railway construction firms.

The three group companies would be supervised by the State-owned Assets Supervision and Administration Commission of the State Council, and the MOR would not intervene in the railway operation but be responsible for industry supervision and drafting policies and rules on railway financing, construction, operation and safety, the report claimed.

The 18 regional railway bureaus would be restructured into subsidiaries of the three groups, and a draft plan might be finished by October, it said.

The MOR did not respond to a Global Times inquiry sent by fax yesterday.

"The central government has already determined the overall reform direction of separating government administration and enterprise management in the railway sector. The key issue now is to work out a feasible reform route without wasting many resources," Zhao Jian, a professor specializing in railway economics at Beijing Jiaotong University, told the Global Times yesterday.

Li Lei, an industry analyst with China Securities Co told the Global Times that the reported plan might aim to separate infrastructure management from railway operation, paving the way for commercializing the railway sector.

"But it has limitations because it does not seek to break the monopoly of the railway sector, and thus will have little impact on improving the efficiency of the railway operation," he said.

As part of the railway reform efforts, the central government in May announced plans to open the rail sector to private investors and decentralize the contract bidding process by allowing all railway-related projects to enter local public resources trading markets.

However, due to high debt ratio and long time for railway projects to recover investment, private investors are reluctant to invest in the railway sector.

The ministry posted total assets of 4 trillion yuan ($628 billion) by the end of March and outstanding debt of 2.43 trillion yuan, with the debt ratio reaching 60.62 percent, the ministry's audit report showed.

The MOR is finding it more and more difficult to raise funds. In the first five months, the investment in railway fixed assets was only 129.7 billion yuan, down 41.1 percent from the same period last year, data from the ministry showed.

"The railway sector, especially the freight transport, is in urgent need for investment. But the MOR's existing system which features a mix of government administration and enterprise management dampens private investors' enthusiasm," Sun Zhang, a professor at the Urban Rail Transit and Railway Engineering Department of Shanghai-based Tongji University, told the Global Times.

"The sector could learn from the experience of the country's civil aviation sector reform and introduce market-oriented operational mechanism to improve its profitability to attract private capital," he said.

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