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Daunting journey for new KTM CEO
Ng Wai Mun 
Commuter services’ revenue accounts for 25% of KTM’s 2015 earnings
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Newly-appointed Keretapi Tanah Melayu Bhd (KTM) CEO Mohd Rani Hisham Samsudin faces the massive task of bringing the loss-making national railway back to the black, an achievement that has eluded his more recent predecessors.

Nevertheless, some market observers rate Mohd Rani’s appointment, effective Sept 15, as neutral to positive.

They also see as positive the fact that Rani is a non-railman, which may allow him to think out of the box and come up with innovative solutions to turn around KTM. Rani was formerly Pos Aviation Service Sdn Bhd Group CEO.

He replaces Datuk Sarbini Tijan whose contract ended on April 30. Some observers have questioned why it took KTM almost five months to fill the vacated post.

However, some believe KTM needs more than just a new CEO to arrest its poor financial performance. Its prospects are expected to get cloudier now that the Mass Rapid Transit (MRT) line from Sungai Buloh to Kajang is operational.

 

Short termism

KTM’s practice of awarding short-term contracts to its CEOs is also viewed negatively.

A transport industry official tells FocusM: “KTM should consider awarding the CEO with a longer-term contract, say up to five years. I am not saying it will definitely work (by improving KTM’s earnings) but it can’t be worse than the current situation.”

KTM’s statement on Mohd Rani’s appointment doesn’t mention his tenure. Previous CEOs were awarded two- to three-year contracts.

The official says KTM has nothing to lose in awarding a longer tenure contract as previous two-year contracts had not produced the desired outcome.

“On commencement of the second (year), those on two-year contracts will start to ponder if their contracts will be renewed, otherwise they will have to start looking for alternatives.

“Some may have wanted to implement new strategies which may take over two years to bear fruit. Others might hold back and not implement anything, assuming the new incoming person has his own ideas,” he says, adding that the company’s operations will be on auto-drive in the meantime.

Centre for Research, Advisory and Technology (CREATE) CEO Ng Yeen Seen concurs, saying a longer contract by right should encourage CEOs to pursue longer-term projects. “Naturally CEOs with more contractual time will indeed invest more in making things happen.”

Notwithstanding the contract period, Centre for Public Policy Studies chairman and Sunway group corporate adviser Tan Sri Ramon Navaratnam says: “KTM must be run on the basis of merit and good governance. It must be more professionally and commercially managed.

“It cannot be managed like a government department and must have more efficiency and less bureaucracy,” says Ramon, a former transport ministry secretary-general.

 

Fresh blood

Rani being a non-railman is a key reason which prompted some positive reviews of his appointment. “Fresh eyes are probably what KTM needs,” says the transport industry official.

Credit is also given to the Finance Ministry for sticking to its word of ensuring new blood is brought into the company.

The official says the move to appoint an outsider as CEO was laudable. “It may be a small issue to some but to take in a non-railman is commendable for an organisation steeped in tradition. It’s really out of the box.”

Sarbini, who was appointed in May 2015 to replace Datuk Elias Kadir, was described as a true blue “railway man”. He joined KTM in 1981 before moving up the corporate ladder.

Elias was appointed in May 2012, taking over from Dr Aminuddin Adnan who was appointed in 2009. Elias was previously KTM’s cargo division CEO while Aminuddin served as Express Rail Link Sdn Bhd CEO.

However, opting for new blood may not be the panacea to KTM’s woes, the official cautions.

“What if losses continue to persist during the new CEO’s tenure?”

Rani’s first key task is to stop the continuous losses. “I foresee one area of priority for him is to ensure that (KTM) Komuter doesn’t lose more passengers in light of MRT’s existence,” the official says. The commuter services’ revenue accounted for about 25% of KTM’s 2015 earnings.

Late last year, KTM chairman Datuk Nawawi Ahmad said the Komuter services lost 15,000 passengers daily whenever the Light Rail Transit (LRT) service rolled out discounts for the public.

KTM had about 140,000 passengers daily then. It claims it can break even only if it increases the Komuter fare by two sen per km. With the MRT up and running, can the Komuter afford to raise its fare now?

Earlier this year, the company was considering downsizing its cargo services to cut losses. The cargo services division reportedly incurs losses of about RM55 mil per annum. Given 2015’s pre-tax loss of RM226 mil, even if the cargo services were to be downsized, its financial woes are far from being resolved.

In 2015, its freight and haulage service division posted revenue of RM215 mil, accounting for 43% of KTM’s revenue.

The company has been bleeding red ink for years. In 2013, it posted a pre-tax loss of RM128 mil followed by another RM43 mil loss in 2014. The losses would have been much higher if not for a RM115 mil return from a joint-venture arrangement.

Losses would have been much higher without government compensation. From 2013 to 2015, KTM received RM40 mil to RM55 mil per annum from the government as compensation for “fare increase” and “uneconomic services”.



This article first appeared in Focus Malaysia Issue 253.