This article first appeared in The Edge Malaysia Weekly, on January 11 - 17, 2016.

DATUK Zarul Ahmad Mohd Zulkifli, the man behind the RM6.3 billion Penang undersea tunnel project, is now eyeing a licence to operate freight trains in Peninsular Malaysia.

If his application to the Ministry of Transport is approved, it will break KTM Bhd’s (KTMB) monopoly on rail freight service in the country.

“We have got a letter of support from the ministry to be the second rail freight service operator in the country. We are now making our application to SPAD (Land Public Transport Commission) for the licence,” Zarul tells The Edge in an interview.

Last week, Transport Minister Datuk Seri Liow Tiong Lai told reporters that his ministry was studying two applications from local companies to provide intercity freight and passenger rail services.

The ministry is hoping for more than one operator to be approved this year.

Liow also said rail transport would continue to be one of the items on the agenda for the ministry in the new year.

The ministry believes that allowing others to operate rail freight services alongside KTMB will improve the quality of service.

“I don’t know who the other party is, but I am one of the applicants,” says Zarul, who is the chairman of Consortium Zenith BUCG Sdn Bhd — the company that will be undertaking the construction of the massive undersea tunnel connecting Penang island and the mainland.

“Once we get the licence, we should be able to start operating within a year or so. We will be investing around RM800 million in this project.”

The RM800 million will be utilised mainly to purchase rolling stock.

For this project, Zarul says he is working with the same group of people who will be overseeing the undersea tunnel project. It is worth noting that China Railway Construction Co Ltd (CRCC) is a key partner with the operational expertise.

A special purpose vehicle, Asia Freight Rail Sdn Bhd, has been set up to undertake the freight service project.

According to Zarul, Asia Freight is 70%-owned by Beringin Waja Sdn Bhd. The remaining 30% is held by Alriz Associate Sdn Bhd, a company formed by former KTMB staff.

Checks with the Companies Commission of Malaysia (SSM) show that Asia Freight was incorporated last October, with Zarul and one Datuk Raman Ismail as equal shareholders.

As for Beringin Waja, Zarul holds an 80% stake in it while Ozidin Baharuddin and Mohd Fauzan Mohamad each own 10%, according to SSM.

“We will set up two entities. One is the entity that will own the rolling stock and it will lease it to us (the second entity) to operate.

“CRCC will own the assets and lease them for three to four years. Then I will buy the assets from them through an entity that will involve government institutions as partners, and it will continue to lease to me,” Zarul says, adding that CRCC will retain a stake in the assets.

“By that time, I will have a track record and they (the government institutions) will see steady income and dividend flow.”

Currently, KTMB is the sole operator of rail freight services in the country via Multimodal Freight Sdn Bhd. The monopoly has not done much where freight rates and connectivity are concerned, and worse still, KTMB has been incurring losses since 1996.

For a company incorporated in 1992 — posting net profits for just three years — this is not an impressive track record. The losses were mainly due to the rail passenger services. In fact, the rail cargo segment was once the breadwinner.

In 2012, KTMB, under former president Datuk Elias Kadir, had come up with a five-year plan to turn around the rail operator.

Since its financial year ended Dec 31, 2013 (FY2013), it has been trimming its losses, from RM238.44 million to RM128.23 million in FY2014.

Current president Sarbini Tijan has reportedly said the net loss in FY2015 is expected to halve to RM55 million and that KTMB should be able to report a small operating profit in FY2016. But this is still with the government’s help.

It is known that KTMB relies on government money to cover funding gaps for its operations.

Sarbini reportedly attributed FY2015’s forecast net loss to the smaller-than-expected government handout of RM60 million, which is less than half the RM200 million KTMB had requested.

Hopefully, KTMB is able to get its finances in order because competition is about to start.

While Zenith BUCG’s Zarul will be grateful to obtain the licence, KTMB will have a lot at stake if it loses its monopoly on the market.

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