Creaking infrastructure bites into rail network’s potential

There are complexities in funnelling through funding in a timely manner so that the railway sector can modernise itself

Leaders of Petrolimex Hanoi – a unit of Vietnam National Petroleum Group (Petrolimex) – are currently concerned about possible losses as the railway industry might face a halt due to unsolved problems related to the allocation of state funding for this year’s railway maintenance activities.

Petrolimex Hanoi is a partner of Vietnam Railways (VNR), the operator of the country’s railway network, supplying diesel oil for train operation and using rails to transport to petroleum storages across cities and provinces.

Tran Ba Hoa, deputy general director of Petrolimex Hanoi, told VIR, “The railway industry has many more advantages than transportation by air and sea because of the railway’s huge transportation capacity and lower cost. Also importantly, it contributes to ensuring energy security.”

Hoa cited some examples to prove why railways are important to businesses and how a possible stop could impact other economic areas. Currently, each rail car can accommodate about 30-50 cubic metres of petrol, or 600-700cu.m in a train, while each gas tanker can carry just 10-30cu.m by road.

Moreover, the cost of transportation by rail, for example, from Hanoi to the northern province of Lao Cai, is half of that by road.

Alarm bells

According to Hoa, his company and many other partners of VNR are in the same situation. The railway giant now has a large number of partners and customers in the manufacturing and trading fields. For instance, NR Greenlines Logistics, a joint venture between Railway Transport and Trade JSC and Japan’s Nissin Group, is not an exception.

Pham Thi Minh Giang, deputy general director of Greenlines Logistics, admitted that her company is concerned about the situation of the railway industry. Four months have passed, but the state funding for maintenance activities could not be allocated because of different ideas among ministries, agencies, and VNR.

“We mainly operate by rail. Therefore, we may face bankruptcy if the railway industry collapses,” she told VIR.

Greenlines Logistics is transporting finished cars for many leading automobile manufacturers like Toyota, Honda, and Mitsubishi. It transports about 1,000 units per month by rail for these producers. Greenlines Logistics also conveys containers by this means of transport with about 500-600 containers monthly.

Issues related to the maintenance of VNR operations could cause a domino effect for its partners like Greenlines Logistics and Petrolimex Hanoi, as well as the mentioned car producers. Similar to the given example of petrol, railways are an optimal choice for car transportation. Earlier in 2018, Toyota representatives held a meeting with VNR to discuss the possibilities of building a railway route connecting its factory in the northern province of Vinh Phuc to the main north-south network, using the central city of Danang’s railway station as a transhipment hub to other provinces in the central region and for transnational transport.

Industry insiders warned that the list of suffering companies could be lengthened unless a solution is announced timely, as not only companies outside the industry worry, but also those inside are struggling to survive.

As one of the 20 member companies of VNR active in maintenance, Ha Hai Railway JSC each quarter receives about VND40 billion ($1.73 million) on average to perform maintenance. Nguyen Van Hai, chairman of the Board of Directors at Ha Hai Railway said, “As we yet to receive state funding for maintenance this year, we are facing pressure on salary payment and the purchase of spare parts. Meanwhile, seeking a bank loan is impossible because we do not have many valuable assets, and our loan limit is just VND20 billion ($43,500).”

Pros and cons

According to a VNR leader, the state funding of VND2.8 trillion ($121.800 million) for railway maintenance in 2021 has not yet been allocated to VNR, thus hindering the 20 member companies of VNR to pay salary for workers and buy spare parts for the work. The corporation even said that it might have to stop the trains and cannot maintain its operation by the end of April.

In the past, when VNR remained in direct management of the Ministry of Transport (MoT), the funding could be directly allocated to VNR. However, the current problems arose since 2018 as the giant was transferred to the Commission for the Management of State Capital at Enterprises (CMSCE).

As a result, the MoT is now unable to allocate funding as in the past and instead allocates the money to its directly-managed Vietnam Railway Authority (VRA).

Le Hoang Minh, head of the MoT’s Department of Transport Infrastructure, confirmed that what the MoT does is in line with the Law on State Budget. As ruled, the VRA has to sign contracts with the 20 companies of VNR to perform maintenance. VNR, however, disagreed with this, citing the 2017 Law on Railway as the grounds saying that it has the rights to manage the maintenance of the national railway network of 3,143km. The corporation explained that the maintenance should be united with train operations schedule and operation.

“When any incidents occurred, we immediately made a decision and worked with units on dealing with them. However, if the state funding is allocated to the VRA, we have to seek for approval from the authority, thus causing delays and increasing safety risks,” a VNR leader said.

Echoing this view, in the latest document recently sent to the prime minister, the Ministry of Justice (MoJ) said that the MoT’s allocation of state funding for railway maintenance to the VRA is not reasonable with the Law on Railway and the Law on Public Procurement, as well as some others. This also causes an unnecessary intermediate step for VNR.

Despite the Government Office’s documents issued in February and March, asking the MoT to take into account the MoJ’s ideas to soon complete the allocation, the MoT still sticks to its opinion so far.

In an effort to seek a solution, VNR on April 12 sent a document to the prime minister about the difficulties. The MoT also made a similar move with a document to the government leader, proposing to direct the CMSCE and VNR to soon sign contracts with the VRA and ensure the safety of the railway network, as well as payments for labourers.

As noted this is not the first time that the railway sector has got stuck. In 2020, the prime minister had to issue a resolution to solve the problem.

Hoa from Petrolimex Hanoi elaborated that despite the advantages, the company’s transportation by rail just makes up 15 per cent of total logistics. The road remains the major means of transportation, and Hoa blamed the situation for the company’s outdated rail infrastructure as well as the limited capacity of the older trains.

“If we were to receive appropriate funding, our railway could bring into play its efficiency, thus enabling cost efficiency even more than transport by air and sea,” he noted.

While waiting for the solution, trains are operating on a daily basis on outdated infrastructure, causing possible threats to safety. Meanwhile, thousands of labourers are languishing for salaries to live on, and companies like Petrolimex Hanoi and Greenlines Logistics are still on tenterhooks.