Finance Ministry mulls subsidies for essential 'public rail lines'

Finance ministry mulls covering massive losses from essential routes to foster market reform

PUBLISHED : Wednesday, 31 October, 2012, 12:00am
UPDATED : Wednesday, 31 October, 2012, 4:11am

The Ministry of Railways racked up 70 billion yuan (HK$86.23 billion) in losses from its essential but low-traffic "public rail lines" last year, losses the Ministry of Finance might subsidise, according to Xinhua.

But analysts are divided on whether the finance ministry's subsidies, if they came through, would go a long way in overhauling the nation's rail sector to make it more market-driven.

Railways Minister Sheng Guangzu admitted in an internal ministry meeting the nation's "public rail lines" lost 70 billion yuan last year, Xinhua reported.

Public rail lines are rail links that have low traffic but are deemed necessary. They include military railways and links to remote areas such as Tibet.

Despite losses from these services, the rail ministry's overall operations were profitable last year, Barclays Capital analyst Patrick Xu said.

The ministry booked an after-tax profit of 31 million yuan last year, double the 2010 figure but well down on the 2.74 billion yuan of 2009, according to the ministry's financial statements.

The finance ministry was still weighing up whether it should subsidise the railway ministry's public rail lines, Xinhua said.

Xu said that during the first half, the finance ministry guaranteed bonds issued by the debt-ridden railways ministry.

"It's the first time, and the only ministry to enjoy this debt guarantee from the Ministry of Finance, [and it's] because of its debt level," Xu said.

The Railways Ministry's gearing ratio jumped from 53.06 per cent in 2009 to 60.63 per cent last year, while its total debt doubled from 943 billion yuan in 2009 to 1.94 trillion yuan in the same period, its financial statements said.

Guotai Junan Securities analyst Gary Wong said that if the finance ministry did help prop up the unprofitable public rail lines, it would free up the more profitable routes to attract investors, encouraging the sector to become more market-driven.

But, MasterLink Securities analyst James Chung said if the railways ministry accepted subsidies, "it will show it has not split from the government".

Over the next three years, the government aims to plough 1.3 trillion yuan into laying over 20,000 km of railway, which would require much private-sector investment, Xinhua reported.

As a result of the government's recent increased spending on railways to stimulate the economy, the net profit of China Railway Construction Corporation (CRCC) surged 41 per cent to 1.9 billion yuan in the third quarter, while the net profit of China Railway Group soared 67.6 per cent to 1.9 billion yuan.

CRCC's new contracts jumped 88.3 per cent to 181.8 billion in the third quarter.