Railways ministry struggles with debt

Facing expanding losses, the Ministry of Railways is unlikely to emerge from its debt-saddled predicament any time soon, but since it is "too big to fail," debt payback will not be a problem, insiders told the Global Times Wednesday.

For 2012, the Ministry of Railways is expected to post increasing losses, reflecting the bigger losses reported by local railway bureaus for the last year: Shanghai's 13 billion yuan ($2.1 billion), Nanchang's 7.9 billion yuan and Guangzhou's 2.6 billion yuan, according to a report by the Guangzhou-based 21st Century Business Herald Wednesday, citing unnamed sources with direct knowledge of the matter.

The local agencies refused to comment on this issue when contacted by the Global Times.

An insider told the Global Times on condition of anonymity that debt payment plus interest is a big burden for the ministry, and "for 2012, the ministry had to pay more than 20 billion yuan in interest."

According to a financial report posted by the ministry in late October, its losses during the first three quarters of 2012 amounted to 8.54 billion yuan, following losses of 31 million yuan in 2011 and 15 million yuan in 2010.

And its debt had reached 2.66 trillion yuan by the end of September 2012, giving it a debt-asset ratio of 62 percent.

The ministry's press official refused to comment Wednesday.

"The main reason for surging losses in the industry is that the cost of building railways, especially high-speed railways, is too high," Li Lei, an industry analyst with CITIC China Securities, told the Global Times Wednesday.

According to Yu Bangli, chief economist with the ministry, the cost of constructing one kilometer of high-speed railway averages 130 million yuan ($21 million) in China. In comparison, the cost of building the LGV Est high-speed rail network in France was $15 million per kilometer, the European Union announced in 2009.

But Li noted that the relatively weak domestic economy has also played a part in the increasing losses, as railway networks usually rely heavily on cargo transportation for revenue.

Wang Mengshu, a railway expert at the Chinese Academy of Engineering, told the Global Times that because the railway authority needs to borrow a large amount from banks to set up new networks, the ministry's debt problem is unlikely to be solved anytime soon.

To alleviate the debt burden, the ministry and its subsidiaries view issuing bonds as one option for raising funds.

"Although the debts and losses are skyrocketing year by year, the ministry is too big to fail," said the insider, noting that the authority will eventually figure out ways to support railway construction, and default is not a possibility as the ministry can borrow new loans to pay the old ones.