Taiwan High Speed Rail Corp (THSRC) is now entering the post-privatization era. Whether the build-operate-transfer (BOT) contract is terminated or not, the stage in which private corporate investors played the leading role is formally coming to an end. While there is at present a clamor to “get the fat cats,” it is still more important to consider what course of development THSRC will follow after being deprivatized.
During the period when private companies were in charge, the original shareholders were unable to invest sufficient funds as agreed in the contract. The entire project was not required to be put out to tender in accordance with the Government Procurement Act (政府採購法), and the original European system was abandoned in favor of a Japanese one. These issues have all been targets of criticism and are now under investigation for possible irregularities.
On the other hand, following the 921 Earthquake, Japan’s Shinkansen exported its engineering know-how for the first time to help THSRC deal with the challenge of land subsidence. The additional investment required and deadline extensions involved were relatively limited, demonstrating the flexibility and efficiency of private enterprise project management. Moreover, since the high-speed rail started operations, public impression of THSRC’s flexible ticket pricing, punctuality and other services has generally been favorable, in contrast to the poor standards people have come to expect from the state-run Taiwan Railways Administration.
How are we to weigh the advantages and disadvantages of private companies’ involvement in THSRC? A general idea can be obtained by applying the basic accounting equation: assets equals liabilities plus equity. A look at recently published articles about THSRC shows many comments such as “the public has to foot the bill” and “the debt will be a burden on our children and grandchildren.” THSRC has long and short-term liabilities approaching NT$400 billion (US$12.3 billion), but this has to be set against its assets — the value of a high-speed rail system that runs more than 100 services daily between north and south Taiwan, including its depots, stations and tracks. This property is by no means a pile of inoperable scrap metal. So, according to the principles of double-entry accounting, apart from operating losses, the private shareholders of the company’s privatized period cannot really “carry off” the big hole of between NT$400 billion and NT$500 billion, as expected by the public.
Another point worth discussing is the role of passenger volume in the planning of the project. At the time, the government required that the high-speed rail system must be able to carry at least 200,000 passengers a day. The actual number of daily passengers is now about 80,000, which is why THSRC made a loss of NT$2.7 billion in the first half of this year. If the number of daily trips could really reach the original minimum forecast of 180,000, revenue from ticket sales would be 2.25 times what it is today.
Unfortunately, Taiwan’s faltering economy, along with the fact that the goal of balanced development between north and south has become even more distant, has led to the complete failure of the financial plan. To what degree private institutional investors are responsible for this is a matter that should be further assessed to avoid endless speculation by outsiders.
Just five days after the appointment of a new board of directors, Premier Wu Den-yih (吳敦義) gave his assurance that new stations would be built in Miaoli, Changhua and Yunlin counties. This promise is an indication of the role to be played by government after deprivatization. It shows that the government will be given more room to participate in deciding THSRC’s operations strategy — including having the final say. Will such government intervention be a blessing or a curse for the operational performance of THSRC, which is still, after all, a privately invested BOT institution?
As government shareholders take on the company’s massive debt, the public should expect that not just the fat cats, but the rats, too, will be caught. Past experience of government-run engineering projects is that budgets keep on growing, the design keeps getting changed and so on. These wasteful practices should not be allowed to creep into THSRC. If possible, we would like to see the government catch the “tiger” — the black hole that has eaten up Taiwan’s competitiveness — because it was the lack of state financing that made the company dependent on private enterprises in the first place. If the state coffers had been in a better shape, we would not be talking about BOT irregularities today.
Taiwan could get by without THSRC, but we would not want to lose the benefits brought by the high-speed rail system and its dependable service.
Hank Huang is director of the BOT Research Center at the Taiwan Institute of Economic Research.
TRANSLATED BY JULIAN CLEGG
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