The Egyptian Railways Authority has taken a bold move to increase revenues by developing its massive land holdings, Sherine Nasr reports For the first time in its long history, the Egyptian Railways Authority is embarking on a large scale investment of one of its largest unutilised assets -- land possessions -- in an attempt to increase revenues and generate funds to improve a sharply deteriorating transport service. Last March, the Egyptian Railways Authority formed its first shareholding company: the Egyptian Company for Railway Projects and Transportation. The new company's task is to generate revenue from the vast areas of idle land owned by the authority. In 2001, the authority, in collaboration with a number of major consulting firms, made an overall survey of its land possessions and listed possible projects for different governorates. The authority possesses a whopping 192 million square metres of land all over the country, nearly one half of which is occupied by rail stations and maintenance workshops, but the rest has not been utilised. "The initial goal of the newly established company is to wisely invest in 24 pieces of land measuring some 42,000 square metres across different governorates," said El-Amir Abdel-Moneim, chairman of the authority. "It has to be clear that the new company will not sell the land to investors. The allocated sites will be open for investment in general tenders. Projects under Build, Operate and Transfer (BOT) will be built on these sites," Abdel- Moneim said. According to Abdel-Moneim, the idea for the new company first emerged in 2000 when the authority realised that it had to act in order to increase revenues, which cover only 70 per cent of its expenses. "In the 1950s, the Egyptian Railways Authority was a profit-making, public-owned utility. Things changed in the past couple of decades and now the authority receives LE300 million in government subsidies to break even," Abdel-Moneim said. He added that the ever-rising costs of maintaining facilities and equipment and providing service to some two to three million passengers per day have placed a tremendous strain on the authority's resources. According to Abdel-Moneim, the main source of revenue for the Egyptian Railways Authority is transporting passengers and goods. "We transport some 12 million tonnes of goods annually for LE200 million and revenues for transporting passengers are estimated at LE550 million. Other revenues totaling LE90 million come from miscellaneous activities, including the three catering companies which are co-owned by the authority," Abdel- Moneim said. As a public-owned utility, the authority is obliged to transport armed forces supplies and equipment, oil, petrochemicals and export cereals at a subsidised rate. "This is the strategy of the state and we have to live up to the national role we have been entrusted with," he said. Additionally, almost 89 per cent of the passengers using the railways are students and civil servants who receive a subsidised service, which normally does not cover expenses. "The social dimension of this service cannot be overlooked by the government," Abdel-Moneim said. But he added that LE600 million of profits could be added annually if the subsidies were removed. Air-conditioned compartments in trains are the only profit- making service. "This accounts for only 11 per cent of the total service provided by the authority," he said. The combination of subsidised rates and mismanagement are the main reasons why great assets, including land possessions, have not yet been fully utilised. "While the railways transport only 11 million tonnes of goods annually, they have the capacity to increase the volume to 40 million tonnes," said engineer Hamdi Barghout from the Egyptian Transport and Commercial Services (Egytrans). He wondered if the new company will introduce solutions to increase the volume of goods transported. Unlike the laws governing the authority, which many believe are restrictive to real investment opportunities, the new company has full authority to use the allocated lands for different investment purposes and can freely deal with businessmen and define the terms of contracts on an individual basis. One of the limitations faced by the private sector when dealing directly with the authority is the law that workshops, vacant areas and equipment belonging to the authority can only be hired for three years, after which a new contract must be signed. Because the turnover is too short to yield profit, the private sector has been discouraged from doing business with the authority, thereby keeping many of its assets out of use. "Flexibility in dealing with the private sector is one great advantage the new company has," Abdel-Moneim said, who added that the company, which operates under the Investment Guarantees and Incentives Law, has the right to sign contracts for periods up to 49 years and more freedom in its dealings with the private sector. The terms of the relationship between the newly born company and the Egyptian Railways Authority have been clearly defined. The authority will collect 20 per cent of the new company's revenues as rent for land that will later be used for building complexes, such as hotels, housing, administrative offices or hospitals, and 80 per cent of revenues from land with preexisting buildings or workshops. This is an unprecedented move for the Egyptian Railways, established in 1825 as the third railway company in history, and the business community in Egypt received it with a cautious welcome. "This great initiative will only be successful if the company has the means to run these assets professionally," said Nabil Makhlouf from the Engineering Consulting Office. He believes the new company's greatest asset is the land itself. "A million square metres of land is worth at least some LE100 billion," he said. Some businessmen suggested that the new board should meet with the business community in Egypt and the banking sector to promote projects and plan the best way to utilise their assets. Consulting firms have developed ideas on how to best utilise different sites. While the planning for many of these sites has already been started, the company is still in the process of informing the business community of its plans and is open to suggestions. "Those in charge are willing to accept any changes to the initial planning of any area if it will help bring better investment opportunities," Abdel-Moneim said. In fact, the company has already started to invest in land around the main railway stations in Tanta and Zagazig in Lower Egypt and El-Menya, Assuit, Luxor and Aswan in Upper Egypt. In Tanta, for example, work will soon begin to upgrade the main station and build more facilities. In the meantime, an area of 17,000 square metres has been evacuated to accommodate a mall and an underground garage in the first phase of construction and a cinema, hotels, housing and administrative buildings will eventually be added. In Luxor, a 6,000-square-metre area has been allocated for a service complex, including a hospital. In Cairo, a large piece of land neighbouring the main Cairo railway station has been allocated to build a multi-storey parking area. And railway stations in Alexandria and Zagazig are getting a face-lift. "Many services are now provided, including pharmacies, coffee shops, restaurants and telephone services," Abdel-Moneim said. This process will soon include other railway stations in all the governorates.
