Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
Case Study: China Rail
2.5 Financial Performance
Figure 6 shows financial performance indicators 158 for the railway component of
MOR-administered and supervised organizations for key years between 1990 and
2009. It appears that government policy, as reflected in tariff regulation, has allowed
MOR broadly to break even, or make a small surplus, but not maximize
profit. The revenue figures in Figures 6 and 7 include freight surcharges imposed
above basic tariffs to provide capital for new construction through a dedicated
railway construction fund (RFC). The surcharge revenue is ear-marked for infrastructure
upgrading and not subject to tax.
Income tax is levied (after excluding the RCF revenue) and net result, after tax, is
a small profit of around CNY 2-4 billion, an insignificant sum compared to the
cash flow from RCF and depreciation, which in 2007 came to CNY 57 billion and
41 billion respectively.
Basically, China Rail is a self-funding organization that receives no operating
subsidies from the national budget and only modest support for capital investment
for lines to remote areas—less than 10 percent of capital funds during
2000-05, and declining since. In 2005, China Rail adopted the joint venture (JV)
model, which is an important development in funding new lines. A typical ‘new’
JV is funded 50:50 by debt and equity. The equity comes from MOR and third
158 Financial statements do not adhere to international accounting conventions and
should be treated with caution. In the early 1990s prices were a mixture of administered
and market prices and costs were calculated on a different basis prior to 1999. All figures
refer to the railway transport component only of the various organizations. Various
reported results for MOR in statistical yearbooks include and sometimes exclude non
transport subsidiaries.
The World Bank Page 347