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Economy

Debt-ridden bullet train operator warned of March crisis

Taiwan High Speed Rail is the first overseas train system to use Japanese shinkansen bullet-train technology.

TAIPEI -- Taiwan's high-speed rail system, which uses Japanese shinkansen bullet-train technology, is caught in a financial crunch after eight years of service. High depreciation expenses and interest payments have left the company deep in the red.

     Taiwan High Speed Rail, the company that operated the bullet trains, may go under "as early as in March," warned a Taiwanese official.

     "We should have done more ," Yeh Kuang-shih said, announcing his intention to resign as the minister of transportation at a Jan. 7 press conference. The Transportation Committee in parliament rejected the ministry's plans to improve the company's finances. Tony Fan, chairman of Taiwan High Speed Rail, also tendered his resignation.

     Taiwan's high-speed train lines are the first to adopt shinkansen technology outside Japan. They began operating in 2007 under a build-operate-transfer agreement with the Taiwanese authorities. At that time, the company projected that the number of passengers would reach 240,000 a day in 2008.  Even in 2014, however, a little more than 130,000 use the train a day.

Cronyism rejected

The high-speed lines cost 480 billion New Taiwan dollars ($15.09 billion) to build. Heavy depreciation charges and interest burdens have led to accumulated losses totaling NT$47 billion at the end of June 2014 for Taiwan High Speed Rail. It logged a net profit of NT$3.2 billion in the year ended in December 2013, too small to see any sign of eliminating the cumulative debt.

     The restructuring plan presented to the parliament by the Ministry of Transportation envisioned, among other things, extending Taiwan High Speed Rail's concession to 40 years from the current 35 years and curbing cumulative debt through capital reduction and increase.

     The biggest opposition Democratic Progressive Party criticized the plan, saying it was designed to benefit only major shareholders. The ruling Kuomintang also voted against the plan.

 

   Taiwan High Speed Rail issued preferential shares totaling NT$53.2 billion between 2003 and 2005. It failed to buy back or pay dividends on NT$39.2 billion of them that were not later converted into common shares. As a result, 39 lawsuits have been filed against the train operator.

     The Supreme Court is expected to issue a ruling on a case involving NT$3.5 billion in March. If the deb-ridden company is ordered to pay the sum in full, the ministry believes the company will fall short of cash.

     After the restructuring plan was voted down by lawmakers, the ministry began preparations to seize Taiwan High Speed Rail, saying it will draw up no new restructuring plan. The ministry is expected to take over the whole company and find a buyer within a year or so.

Political tool

Company officials appear composed, expecting operations and employment will be maintained. The rail operator's bankruptcy speculation is a mere "threat" from the transport ministry to gain parliamentary passage of its restructuring plan, a person familiar with the ministry's thinking said.

     Taiwan High Speed Rail still has funds in an account under control by a group of creditor banks and can raise funds if it sells development and other rights around train stations, the person said. But the image of the company will undoubtedly deteriorate if it goes under.

     Japanese companies such as Kawasaki Heavy Industries and Toshiba have ties with the Taiwan rail operator. It uses Tokaido and Sanyo shinkansen line 700 series train cars.

     Shinkansen technology faces competition in the global market from France and other countries. If Taiwan High Speed Rail goes belly up as the first non-Japanese shinkansen system operator, adverse effects will be unavoidable.

     It is also uncertain whether the rail system can maintain high-quality services if it is seized by the ministry.

     Analysts point out that the rail operator's problems are being used as a political issue. Between 2000 and 2008, when Kuomintang was out of power, it opposed Taiwan High Speed Rail's capital increase. This time, Kuomintang has voted against the ministry-crafted restructuring plan because it needs to get tough on big businesses following a stunning loss in local elections last November.

     As a national project, the high-speed rail service will likely remain under unstable management that is affected by politics.

 

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