The Auditor General’s (AG) Report 2018 on Keretapi Tanah Melayu Bhd’s (KTMB) accumulated losses of RM2.829 billion. Referring to the lesser-known quotes of former United States President John F. Kennedy is most apt to describe the dilemma facing the age-old railway operator. The statesman, who’s better known for saying “Ask not what your country can do for you, but ask what you can do for your country”, was spot on when he said: “Our problems are man-made, therefore they may be solved by man. Similarly, the AG’s report appears to have pinpointed what ails KTMB, and many of the issues were man-made. It can be solved with enough thinking on what can be done without fear or favor.

Ethical dilemma according to the report, when KTMB was not given the freedom to make decisions, particularly on the company’s operations and usage of assets. This had indirectly contributed to a less stable financial position for KTMB. The audit found inefficient maintenance of commuter trains and significant weaknesses in its ticket system, which was laid bare recently. The AG felt that the objectives of establishing KTMB by corporatizing Keretapi Tanah Melayu had yet to be fully realized. Improvements would also have to be made at the company secretary level, standard operating procedures, strategic business plans, and best-practice key performance indicators.

The crux of the matter is that KTMB relies solely on ticket sales and freight haulage, which are bound by the government’s policy in determining fares and charges. So, who disallows KTMB from making decisions to perform better? Surely that’s man-made. Can this seemingly Gordian knot of a problem be resolved quickly to allow KTMB to have a fresh start? Interestingly, the problems that plagued KTMB are not unbeknown to the current leadership, as some of them had issued a strong statement on Aug 9, 2017, on what should be done if they came to power.

Now that they’re in power, they should put their heads together and decide what can be done to make KTMB robust and successful. After a meeting to discuss matters afflicting KTMB, Pakatan Harapan (PH) issued a statement to assail the Railway Network Access Agreement (RNAA) between KTMB and Railway Assets Corporation (RAC), which entailed KTMB transferring all its rolling stocks and land to RAC. PH had hinted that the deal provides a backdoor for crony companies to use the rail network and undermine KTMB’s core businesses, including the freight and haulage business.

This would surely increase KTMB’s operational costs as RAC would charge KTMB for the use of its rolling stocks. A matter-of-fact statement was issued by RAC on March 23, 2017, when it said the railway network in Peninsular Malaysia was owned by it — a federal statutory body under the Transport Ministry — and the network was being used fully by KTMB. In accordance with the Transport Ministry’s policy on multiple railway operators (MRO), the use of the railway network in future would be expanded to other qualified operators, said RAC after it inked an agreement with one party for the latter to use the network, in which RAC is hailed as capable of taking the national railway industry to great heights.

Politicians, who were on the cusp of gaining power some nine months later, had countered that

RAC, with only 38 employees, was in no position to manage KTMB’s assets, including the maintenance of rolling stocks and tracks. Those responsibilities, they claimed, would be subcontracted to other crony companies. After PH’s election victory last year, the KTMB workers’ union sprang into action a month later and urged the government to restructure RAC and place it under KTMB, so that the latter can be a more multi-faceted business organization.

By restructuring RAC, the union argued, KTMB would have additional revenue sources through assets, and would not have to depend on operations and the government for assistance. The union also clamored for a drastic policy change to transform KTMB into a multi-faceted business organization.

A study by Penang Institute, a think tank in which some members of the administration may be familiar, had suggested in March last year that the rationale of the RNAA should be examined, and employing Britain’s Network Rail’s experience would be instructive. It said the separation of ownership and operation did not prevent the British asset owner (then known as Railtrack) from suffering unsustainable financial losses despite serious accidents, such as the Hatfield train crash that killed four people and injured 70 on Oct 17, 2000. Eventually, Railtrack was wound up and replaced with a government entity — Network Rail.

Although the Penang Institute cautioned that the situation in Britain and Malaysia was different, some of the underlying lessons and principles applied to KTMB’s situation, in that the separation of ownership and operations would not necessarily increase the efficiency and transparency of either the asset owner or the operator. Penang Institute had suggested a less radical approach in reviewing RNAA, and for RAC to return the ownership of rail assets to KTMB. It should not charge the latter for the use of railway tracks or rolling stocks to reduce operational expenses. A more radical approach would be to return the ownership of the tracks, stations, and land back to KTMB, so that it may monetize some assets to subsidize ticket prices.

Required

Discuss the possibility of risk that exists in KTMB

Discuss the effect of the risk on the performance of KTMB.

Recommend any improvement necessary for the corporate governance structure of KTMB.

Answer rating: 100% (QA)

1 POSSIBILITY OF RISKS THAT EXIST IN KTMB KTMB is a is an inter City rail passengers service and if ... View the full answer