Rail operators juggling with outbreak pressures

February 26, 2020 | 11:00
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Amid the challenges driven by the long-awaited approval of a new restructuring plan and the impact of the global coronavirus outbreak, state-owned giant Vietnam Railways is increasingly struggling to fulfil 2020 business targets.
rail operators juggling with outbreak pressures
Vietnam Railways oversees vital operators across the country such as SARATRANS and Ratraco. Photo: Le Toan

Nguyen Thi Phuong, a 40-year-old white-collar worker at a tourist company in Hanoi, last week once again cancelled a business trip on train for a group of five people to the northern province of Lao Cai, which borders China, for fears of coronavirus (COVID-19). Phuong previously often took trains at Hanoi railway station to the locality on a weekly basis to work with her partners there.

“Train is my favourite means of transport. However, our company has seemingly suspended all business activities in Lao Cai because of the epidemic,” she said.

Unlike in previous months Hanoi railway station, the largest station run by Vietnam Railways (VNR), has not been its usual crowded and bustling. COVID-19 has infected 16 people in Vietnam and reached 30 countries and territories worldwide, with China being the hardest hit.

According to a recent report on effects of COVID-19, between January 25 and February 12 Hanoi, Railway Transport JSC (Haraco) and Saigon Railway Transport JSC (SARATRANS) saw a drop of 14,000 and 47,000 passengers on-year, respectively.

“As a result, Haraco and SARATRANS – the two largest passenger train operators in Vietnam under VNR – suspended a total of 75 passenger trains, resulting in a loss of VND46 billion ($2 million) during this period,” said VNR chairman Vu Anh Minh.

Meanwhile Railway Transport and Trading JSC (Ratraco), the biggest cargo train operator in the country, halted 16 cargo trains with a total loss of VND6 billion ($261,000).

Elsewhere, transnational passenger and cargo train performance also witnessed a loss. VNR officially suspended related trains to China from early February as a measure to prevent the spread of COVID-19.

At Lao Cai and Dong Dang, two key border railway gates for transnational passenger and cargo trains, VNR incurred a loss of VND226 million ($9,800) in revenue on average for not running a couple of cargo trains via Lao Cai.

In January, when trains were still operating as normal, the volume of goods exports and imports on train via Lao Cai rose 26 and 23 per cent on-year, respectively.

The poor performance has been blamed for a halt of a number of traditional festivals, as well as for a fall in exports to China since the outbreak of the virus. China remains the key export market for Vietnamese farm produce, woodwork, mobile phones, and components, while the commodities moved by train typically involve fruit and frozen food, among others.

“We are updating the COVID-19 impact, and are striving to seek partners and markets to cover possible losses,” Minh noted. “However, if the epidemic continues in the long term, the railway sector will be hard hit, thus possibly reducing 2020 revenues by around 10 per cent on-year.”

In the last decade the railway sector has been facing bigger challenges due to stiffening competition, limited state funding, and downgraded infrastructure despite strong efforts. At present, VNR’s passenger and cargo transport market shares are just 0.2 and 1.2 per cent, respectively.

In 2019, VNR made consolidated revenue of VND8.19 trillion ($356 million), equal to that of 2018 but lower than the yearly target by 2.8 per cent, while the parent company made a revenue of VND2.39 trillion ($104 million), down 9.1 per cent on-year and meeting 97.3 per cent of the annual target.

This year is forecast to be a more troubling one for VNR. The epidemic will put more pressure on leaders, forcing them to brainstorm for more efficient measures to help the sector speed up. As a result, they are discussing with potential partners an increase in cargo volume, while increasing service quality and focusing on short-way and medium-way routes to cover the loss.

VNR is betting on the new restructuring plan to increase its operational efficiency. In the plan, it will dump its monopoly in cargo transport by merging Haraco and SARATRANS into one joint-stock company. This company would then be separated into two, with one part specialising in passengers, in which VNR would hold a controlling stake, and another part focusing on cargo transport, with VNR possibly divesting the entire stake.

Foreign investors and private firms have previously shown strong interest but movement has been slow as the plan has been delayed since it was mooted in 2017. In addition, the transfer of the giant to the Committee for Management of State Capital at Enterprises from the Ministry of Transport (MoT) has kicked approval into the long grass.

To assist VNR emerge out of the impasse, experts and many National Assembly deputies have proposed that the government re-transfer the corporation to the MoT. The prime minister has since asked the MoT and the committee to appraise the proposal in a comprehensive manner before submitting a report to him, scheduled for next month.

By Thuy Nguyen

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