Exclusive Interview: Ou Chin-der
How to Save the High Speed Railway?
An engineer with a public image of a troubleshooting hero, Ou Chin-der is stepping in as the new chairman of Taiwan High Speed Rail Corporation, in the hope of digging the company out of its financial hole. But how?
How to Save the High Speed Railway?By Yi-Shan Chen
From CommonWealth Magazine (vol. 431 )
At an extraordinary board meeting of Taiwan High Speed Rail Corp. on Sept. 22, the company's board accepted the resignation of Chairwoman Nita Ing and replaced her with the representative of public stakeholders, former CEO Ou Chin-der. The question is whether he can in fact save the high speed railway and what his plans are for the company's future.
"To completely resolve THSRC's problems, structural issues have to change," Ou told CommonWealth Magazine during an interview in his THSRC office on the afternoon of Sept. 18, before news surfaced that Ing would resign.
He believes that THSRC has three major structural problems: passenger traffic is only one-third of the projected volume, depreciation costs are massive, and interest payments constitute an excessively heavy burden.
The Taiwan high speed railway carries an average of just over 80,000 passengers a day, far below the 180,000 per day THSRC projected when the project was tendered in 1997.
"I often tell my colleagues that if our passenger volume were the same as projected, we would have NT$60 billion in revenues, and we would be profitable without having to worry about interest expenses or depreciation," Ou observed.
Because passenger traffic has failed to meet projections, however, THSRC is reeling under the weight of its debt and depreciation.
The high speed railway opened in early 2007, and Ou says that since then, he has essentially been working for banks. Up to the end of last year, THSRC was still paying an interest rate of 8 percent on its loans. From the time the company was established to the end of May this year, THSRC has paid a total of NT$65.5 billion in interest.
Based on normal accounting standards, the high speed railway's infrastructure could be depreciated over 100 years, but because its concession is for only 35 years, it must fully amortize its investment over that time period because the law requires the depreciation schedule to be completed by the time the concession period expires. Over the past three years, THSRC has reported more than NT$40 billion in depreciation.
Government Involvement Unavoidable
Low passenger volumes, high interest expenses and huge depreciation costs are the structural issues Ou must resolve. He believes that direct government involvement in the company's operations following Ing's resignation "may be, and in fact will be, a road that we must travel."
Ou contends that many of the problems that emerged with the high speed railway over the past 12 years were never solved, and this eroded many people's confidence in the venture. Thus, banking groups have insisted that the government get involved, and its participation will boost their confidence. The general public has also seemingly been more receptive to this arrangement, he says.
"Since its assets will be turned over to the government in the end anyway, if THSRC is state-run, then granting favorable treatment to the high speed rail will not be considered to be illegally profiting anybody. In today's social environment, maybe there's no alternative but to use this method to handle the issue," Ou said.
During the interview, Ou carefully avoided discussing Ing's decision to step down. But in looking at the future of the high speed railway, Ou clearly said that to solve its problems, THSRC must fight to have its 35-year concession lengthened.
The new THSRC chairman believes that Taiwan's economic environment 12 years ago was completely different from today's economy, but he says the changing times are not the fault of the high speed railway or the government. Because the situation resulted from uncontrollable forces, Ou says, "then maybe the government could act pragmatically and make a more pessimistic projection. Based on a more conservative passenger traffic estimate, it could consider giving THSRC a longer concession period to recoup its investment."
Ou contends that there are precedents around the world of high speed rail operators getting extensions. Eurotunnel, for instance, had massive cost overruns when it built the Channel Tunnel, and once operations began, it also had passenger numbers that were lower than anticipated. As a result, the British and French governments negotiated with the company, agreeing to extend its concession to 100 years.
Who Will Toss More Money In?
The second step in the process is to solicit lower interest rates on outstanding loans. "The company will have a chance to be profitable only if a major rate adjustment is made. That will also make it possible to proceed to step 3, preparing for a capital increase and restructuring debt. Otherwise, who will toss more money in?" he wonders.
Ou acknowledges the desire of many observers based on moral grounds to first require the THSRC's original principal investors to invest more in the company before it is rescued, but he believes that contention is like trying to determine which came first: the chicken or the egg.
If THSRC's present financial structure is not overhauled, Ou argues it will be very difficult for the company's five original principal investors – Continental Engineering Corp., Taipei Fubon Commercial Bank, Teco Electric & Machinery, Evergreen Group, and Pacific Electric Wire and Cable – to persuade their shareholders that THSRC has a plan that will lead to profitability and that further investments should be made.
"The high speed railway should be looked at from a national perspective. Everybody should remember what the goal of the project was when it was launched," says the 64-year-old Ou, an engineer who began his career working on Taiwan's first north-south freeway in the 1970s and has participated in the construction of all of Taiwan's basic infrastructure projects since then.
He then recites the originally stated goal without any hesitation: "The purpose of the high speed railway is to create an unhindered channel to transport passengers between the north and the south, assist regional development, ease overcrowding pressures, and build new cities and towns."
"I refuse to accept it. Clearly, this high speed railway can be done right," Ou says. He believes that the rhetorical battle among political parties and in the media over who's to blame should give way to thoroughly resolving the high speed railway's problems. It's time, he says, for Taiwan to move forward.
Translated from the Chinese by Luke Sabatier
Four-Step Plan to Rescue the High Speed Railway
1. Extend concession, reduce annual depreciation
2. Get new loans at lower interest rates to retire outstanding debt
3. Increase capital, reduce the debt ratio
4. Develop station areas, increase revenues
Chinese Version: 工程師董事長 如何救難高鐵？