Caixin
Jun 12, 2012 11:27 AM

Stalled by Scandal, Rail Reform Back on Track

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(Beijing) – The Communist Party recently expelled former railways chief Liu Zhijun for disciplinary violations and handed the case to judicial authorities for a criminal trial.

The progress for Liu's prosecutors parallels efforts to speed up financial and operation reforms at the Ministry of Railways, which runs the nation's network of passenger and freight lines, track construction companies and train manufacturing.

As part of the long-anticipated reform effort, the central government in May announced plans to open the rail system to private investors, decentralize the contract bidding process and increase rates for freight customers.

Contractors welcomed the change in the bidding system which, according to representatives from several railway suppliers, was easily manipulated in the old days before Liu's corruption was exposed.

"Before Liu Zhijun was ousted," said one contractor, "basically all the tender results were artificially manipulated."

Moreover the rail agency, now led by Sheng Guangzu, recently got State Council permission to hike borrowing to what could be 150 billion yuan this year, compared to 100 billion yuan annually in recent years.

More borrowing power could help the ministry bounce back from a 50 percent decline in spending in the first quarter, compared to the same period 2011.

Officials are wondering how far to go with rail reform. Caixin has learned the National Development and Reform Commission (NDRC) is asking fresh questions, and feasibility studies are apparently being conducted by rail ministry officials with NDRC's Commission for Economic Restructuring and Department of Basic Industries.

A source participating in the studies said debates have focused on whether the railway should separate its freight and passenger businesses, and whether provincial or regional governments should take over sections of the railroad.

Cautious Capital

The indebted ministry, under pressure from the State Council, has invited private companies to consider building railroads, supplying equipment and providing services.

Private investment and local governments in the past have dabbled with joint-venture railroads, but efficiency was poor.

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