Dis

1. THE RESTRUCTURING AND
PRIVATISATION PROCESS
PAPER PRESENTED TO THE UNION OF AFRICAN RAILWAYS 7TH
MEETING ON RESTRUCTURING AND PRIVATISATION
KINSHASA, DEMOCRATIC REPUBLIC OF CONGO
By
Bernard Dzawanda
31 August 2007

2. Presentation layout
1. Restructuring in general
1.1 Definition
1.2 Driving forces of restructuring
1.3 Objectives of restructuring
1.4 Forms of restructuring
1.5 Key issues under restructuring
 Context of Railway Restructuring
2.1 Definition of railway restructuring
2.2 Driving forces of railway restructuring
2.3 Objectives of railway restructuring
2.4 Key policy issues to be addressed
2.5 Structural options
2.6 Ownership
2.7 Forms of private sector participation
2.8 Privatisation concerns
4. Conclusion

3. Restructuring in general
Restructuring is a major change in
the composition and configuration of
an organisation’s assets combined
with a major change in strategy.
“Structure follows strategy”

4. Driving forces of restructuring
 globalisation of markets, consumer preferences,
commerce, supply chains and financial flows
 rapid technological changes
 deregulation and trade liberalisation
 changing capital ownership
 a shift from an industrial economy to a
knowledge and information based economy
 changing expectations and value systems
 growing direct foreign investment and threats
to environmental sustainability.
 changing demographics

5. Objectives of restructuring
 Optimising management processes
 Enhancing performance
 Reducing costs
 Optimising product mix
 Increasing productivity
 Refocusing strategically to meet competition
 Increasing sales and enhancing growth
 Improving service
 Controlling costs
 Eliminating overlaps
 Maximising utilisation of critical resources

6. Forms of restructuring
The broad forms of restructuring are;
 Portfolio restructuring
 Involves major changes on the mix of the firm’s main
business lines through acquisitions and divestitures
 Financial restructuring
 concerned with changing the company’s ownership and
capital structure.
 Issues for consideration are debt and equity and their mix.
 Organisational restructuring
 fundamental changes made to the structural properties of
the organisation
 following either financial or portfolio restructuring to increase
efficiency and effectiveness

7. Key issues under restructuring
 Organisation structure
 Stakeholder management
 Ownership, management & corporate governance
 Restructuring & employees
 Funding

8. Figure 1: Organisational Restructuring Framework
Environmental Sustainable
Institutional Leadership,
Drivers Outcomes
Training, Communication
etc.
Economic
Organizational
Goals Organisationa
l
Restructuring Social
Stakeholder
Influence Environmental
Source: Sarkis et al (2000): Organizational Restructuring Implications for Corporate Sustainability

9. Context of railway restructuring
United Nations (2003) identified the following railways problems;
 Chronic financial deficits.
 Archaic pricing systems where charges are not related to cost.
 Lack of equitable fare structure and excessive fares.
 Excessive costs.
 Poor management and technical efficiency.
 Low labour productivity.
 Severely congested services.
 Poor service quality
 Failure of service to respond to need.
 Deficiencies in physical infrastructure.
 Poor asset maintenance.
 Inadequate funds to invest in transport infrastructure and or
services.
 Low private sector participation.

10. Definition of railway restructuring
The United Nations (2003) defined railway
restructuring as;
“The adaptation of railway industry structures, institutions
and business processes in response to changing customer
needs and technological change”.

11. Key policy issues to be addressed
Huff and Thompson(1990) & United Nations(2003) identified
the following policy issues;
 Cost recovery from users – both operating and capital
cost.
 Pricing policies – value of service and marginal pricing.
 Social service obligations – direct subsidies.
 Labour adjustment – optimal staff numbers.
 Modal competition – levelling the playing field.

12. Driving forces of railway restructuring
 The need to improve railway performance (e.g. Japan,
United States of America, Germany, Argentina, Mexico,
Brazil & Poland)
 Increased competition from other modes of transport.
 The mismatch between what the railways offers and what
the customers want.
 Government finds it costly to fund railways.

13. Driving forces of railway restructuring
cont’d
 Regulatory framework that prohibits the emergence of business
reactions among railway managers and consequently an
improvement in financial performance.
 Loss of rail market share.
 The need to retain and develop the railways as an important
component of the national transport system.
 Regional pressures, for example in the European Union and North
America Free Trade Area.
 Globalisation, which stresses international linkages.

14. Objectives of railway restructuring
Railway restructuring seeks to address;
 commercialisation through independent management
decisions
 clear division of responsibility between owner
governments and their railway organisations
 change of culture from production orientation to
market minded and customer oriented
 financial viability to create independence from
government financial support
 streamlining the core network to serve commercially
attractive traffic and/or routes
 generating revenue mainly from core activities (train
operations)
 to have a well trained and highly motivated workforce
able to achieve increased productivity.

15. Determinants of structural options
 Relative weight and urgency of governmental objectives.
 Relative importance of markets served by the railways.
 Available technology.
 Scale of railway operations as a whole.
 Administrative capabilities of the government and the railway.
 Compound nature of the cost structure – consisting of
operations, infrastructure, terminal and station and
administration costs.
 Railway infrastructure as a monopoly – efficient and economic
to have a single rail network providing access to train
operators.
 Indivisibilities – capital intensive in nature implying inability to
instantly adjust capacity on a marginal basis when demand
fluctuates.
 Public service obligations

16. Structural options
Structural options seek to address;
 The degree of separation between railway
infrastructure and railway services (operations)
 The nature and extent of competition to be
created
 The extent of private sector participation
(ownership).

17. Structural options cont’d
 Competitive Access
Single dominant railway owning infrastructure and
performing operations (integrated services) with other
operators paying access fees for the usage of
infrastructure.
 Vertical Separation (Institutional separation)
Complete separation of infrastructure from operations. All
operators pay access fees in order to access the
infrastructure.

18. Structural options cont’d
Competitive Access
Advantages:
ii. Performance of incremental users and assuming reasonable access
fees, their operations are strengthened – regulation required to
ensure availability of facilities on a “fair and equal basis”.
iii. Better coordination of infrastructure investment can be achieved
where there is one primary user.
 Disadvantages:
vi. dominant user may be unfair to minority users thereby affecting
service reliability, increasing costs and safety hazards for other
operators.
viii. Does not promote competition

19. Structural options cont’d
Vertical separation
Advantages:
 Ensures equal access to all operators.
 It places the rail transport operator into a similar position
with a road operator.
 Increasing economies of density.
 Improving market focus by various operators.
 Non-profitable services are encouraged to improve
efficiency through competition for the market.
 Promotes intra-rail competition.
 Enhances the clarity of government policy and
expenditures.
 Facilitates the introduction of the private sector into rail
operations.

20. Structural options cont’d
Disadvantages:
 May create coordination problems
 Loss of economies of scale
 Competition may not arise in thin
markets

21. Ownership
Private vs Public ownership
 Private sector participation in railways is expected
to improve
i. Efficiency
ii. Investment
iii. Transparency
iv. Accountability
v. Market focus.

22. Forms of private sector participation
 service contracts for;
i. equipment maintenance
ii. ticket issuing
iii. catering etc.
 management contracts undertaking
i. operations
ii. maintenance responsibilities
 leasing of fixed assets to private sector
 leasing equipment from private sector
 Concessions
 joint ventures
 outright ownership of railway infrastructure and equipment.

23. Privatisation concerns
 Private sector does not want to invest but “sweat”
existing assets
 Effective regulatory framework required
 Private sector “cherry picking” i.e. interested in profit
making services at the expense of social services;
i. Unprofitable passenger services
ii. Uneconomic branch lines
 Government support required in this regard through
a well designed institutional framework.

24. Figure 2: New Organisation Structure of Railways and Interactions between Various Subsystems.
Government
Regional Authorities Regulator
Ministries, Central
Authorities
Shareholders
Operators
State Owned Enterprise
State-Owned
Infrastructure Management Public Organization
New Companies
Private Company
Infrastructure Services
Organizations
State Owned Enterprises
Joint Ventures
Private Companies
Other Stakeholders
Social Alliances
Employees

25. Conclusion
 Organisational restructuring is a complex exercise with
a lot of diverse challenges to contend with.
 There are various forms of restructuring driven by
various forces and organisational objectives.
 The organisation’s structure must follow strategy.
Different organisations are therefore bound to have
different structures due to the differences in strategy,
size, technology and environment.
 Vertical Separation is generally preferred to Competitive
Access for railway restructuring

26. THANK YOU FOR YOUR KIND
ATTENTION
Contact details:
e-mail: bdzawanda@sararail.org