Mon, Oct 03, 2005 page8

• Editorial: Learn from the high-speed rail crisis

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  Shortly before midnight on Friday, the Taiwan High Speed Rail Corp (THSRC, 台灣高鐵) announced that it had secured NT$7.5 billion (US$230.77 million) from selling preferred shares. This will make it possible for the company to obtain loans from banks by the end of the month, and thus solve the looming financial crisis that is facing the nation's first bullet-train service.

  Despite such good news, the row over the rail company's latest injection of funds from two government-funded organizations -- the China Technical Consultants Incorporated Foundation (中技社) and the China Aviation Development Foundation (航發會) -- has escalated to the point where it could undermine the authority of Premier Frank Hsieh (謝長廷) and his Democratic Progressive Party government.

  Critics argued that the government's financial intervention goes against a legislative resolution passed earlier to limit the government's stake in the rail company via state-owned enterprises to 12 percent, down from an original 20 percent ceiling. THSRC claims that after the injection of fresh funds, government and state-owned enterprises will still only have an 11.89 percent stake in the company, while its major shareholders will jointly hold a 28.52 percent. But it is well known that government investments are often made indirectly and hidden under the category of "private investments."

  Critics are also concerned that the government's decision to pump more capital into the rail project conflicts with the spirit of the "build, operate and transfer" (BOT) model. In this model, the government is not supposed to interfere with the project, but rather let private investors build and operate the system for a certain period of time before transferring ownership to the government.

  The critics have a point. The government's financial boost to the nation's first BOT project has raised doubts about the viability of that business model in Taiwan. Nevertheless, the project is now almost 90 percent complete, and no one wants to see it collapse. The government therefore has little choice but to aid the high-speed rail project in its hour of need. In fact, if the rail project is disrupted because of fund-raising difficulties, the government would have to make a compulsory buyout, which would cost an estimated NT$300 billion -- not to mention the job losses, legal disputes and economic fallout that would result.

  And so, the government's decision should be viewed rationally. The Cabinet has decided to form a special task force of experts in transportation, financing and operational management to evaluate the rail project. Hopefully this special team will act to supervise the multi-billion dollar project. THSRC's major private shareholders -- whose affiliated companies make big profits by contracting construction work -- have been hesitant to inject more money into the project. The task force should also thoroughly review major shareholders' responsibilities and consider whether the board of directors should be adjusted after the high-speed railway begins service next October.

  It is important to note that the THSRC's contracts with the government were finalized by the Chinese Nationalist Party (KMT) before the DPP took power. It is therefore unreasonable to blame the DPP for all the project's difficulties. For its part, the government should avoid pointing fingers, and work to review the its previous agreement with the THSRC and establish a new division of rights and responsibilities between the government and the private sector.

  There were high hopes in the past about the high-speed rail project, and expectations that it would be completed in the fundamental spirit of the BOT model. The project's current crisis shows that the BOT experiment has failed. The government, private sector and the public should learn from this fiasco and avoid making the same mistakes with other BOT projects in the future.
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