Malaysia’s railways in need of vertical integration

 

Although significant investment has been ploughed into Malaysia’s railway sector, particularly for projects like the East Coast Rail Link (ECRL), the original Malayan Railway lines from Padang Besar in Perlis to Singapore and a branch line from Gemas to Tumpat have seen very little development.

In fact, the Gemas to Tumpat line has remained a single-track railway for well over a century.

While significant funds have been invested in double-tracking the west coast rail alignment from Padang Besar to Johor Bahru, no new investments have been made to extend Keretapi Tanah Melayu Berhad’s (KTMB) existing route network or increase its catchment area.

In fact, the rail route length has stagnated for over half a century, even as expressway development has rapidly expanded.

Failed imitation

In 1992, Dr Mahathir Mohamad’s administration introduced a rail privatisation policy, inspired by a similar model adopted by the UK’s Conservative government.

Margaret Thatcher, the UK Prime Minister from 1979 to 1990, had broken up the government-owned British Rail through what was known as a 

vertical separation

, splitting track and land ownership from train operations.

Despite many objections, anticipated failures and the overall unpopularity of the privatisation project, Thatcher’s successor, John Major, proceeded to privatise British Rail between 1994 and 1997.

Mahathir mirrored this policy in Malaysia, leading to a vertical split of Malayan Railway into two entities.

In 1992, KTMB, the train operator, was corporatised and became owned by the Ministry of Finance, Inc, while a new body – Railway Assets Corporation (RAC) – was established.

The exercise saw all railway assets previously held by the Federal Land Commissioner, including stations, tracks and land transferred over to RAC. Some of these plots of land later ended up in the hands of property development companies.

Meanwhile the loss-making KTMB was privatised into a small company. With no prior experience in rail operations, it was only a matter of time – barely two years later – before the company withdrew.

The consequences of separation

Today, RAC controls assets worth up to RM34.5 billion, including rolling stock, signalling systems, railway land in strategic locations, and over 1,600 kilometres of railway tracks.

In 2010, Najib Razak emulated Mahathir by selling 217 hectares of land in Singapore, stretching about 30km into the republic. Unfortunately, the proceeds from this sale were not used to support rail operations or services.

As a result, KTMB has continued to report yearly losses, with the Auditor-General’s Report at one point questioning the company’s viability.

A proposal for change 

I propose that the current government revert to a vertical integration policy, similar to the model used in Japan, where railway assets and operations are unified under a single entity.

This approach allows for revenue from assets to be reinvested in sustaining railway operations.

The UK model of vertical separation has also been disastrous. In Feb 2020, then UK prime minister Boris Johnson acknowledged the chaos and financial failures of the system and announced plans to return it to public ownership.

Malaysia must learn lessons from the UK’s mistakes and adopt a vertical integration model, where both train management and operations are handled by the same organisation.

In Japan, the railway system is managed by the Japanese National Railway (JNR), albeit divided into six regional companies and a central freight unit.

This model, known as a horizontal separation, has been profitable, with five of the regional companies operating in the black without public subsidies, thanks to high population density and competitive travel costs.

Moving toward sustainable railway

In Malaysia, KTMB’s market share in both passenger and cargo freight sectors remains negligible.

Separated from its assets, KTMB has been unable to invest in expanding its market presence, with RAC focusing on property development rather than enhancing railway services.

The failures of railway privatisation are well-documented in both the UK and Malaysia.

Prime Minister Anwar Ibrahim would do well to understand these issues and adopt a vertical integration approach to rectify the problems created by his predecessors, Mahathir and Najib.

Doing so would not only address chronic inefficiencies plaguing KTMB but also create a more sustainable and resilient railway system.

By reuniting railway operations with their underlying assets, the government can ensure that revenues generated from railway properties and services are reinvested into the rail sector itself, rather than being siphoned off or misallocated.

This would enable KTMB to modernise its infrastructure, expand its network and better compete with other modes of transport, ultimately improving its service to the public.

Moreover, a unified railway system would likely better support Malaysia’s broader economic and environmental goals, promoting greener transportation options and reducing road congestion.

Anwar has the opportunity to correct past missteps and position Malaysia’s railways as a vital component of the nation’s future growth and sustainability. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.