June 10, 2013

Argentineans won’t shed any tears over ALL

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JUNE 3 was a cause for celebration within most of the Argentinean railway community when the government announced its decision to revoke the two 30-year railfreight concessions held by Latin American Logistics (ALL) due to contract irregularities and ALL's failure to invest the amounts agreed in the contract for both infrastructure and rolling stock.

Far and away, ALL has proved to be the worst concessionaire that we have experienced since the first concession for part of the former Argentine Railways (FA) network was awarded in 1990. Many of ALL's failings were clearly exposed in a report by the National General Audit (AGN), even if the report falls a little short of reality.

ALL presented itself as a highly efficient, high-quality operator, however the reality was rather different.

More than 60% of the network under its responsibility was in a total state of neglect, and a large proportion of its motive power and rolling stock was in a state of disrepair or cannibalisation for spare parts. This resulted in the loss of existing customers or the rejection of new ones, thereby damaging Argentina's economy. To add insult to injury, ALL often used its own fleet of Brazilian trucks to compete with its own rail services along the routes it served.

There was also widespread disinvestment, abandonment of scheduled maintenance which resulted in frequent derailments, and instability among the workforce which made it difficult to create a pool of expertise. In addition, ALL failed to take any action against the illegal occupation of its Retiro yard in Buenos Aires, it took over the principal branch into San Luis City without permission, and it illegally removed rails on some active branch lines for scrap.

As in other cases where the government has found that the concessionaire has failed to meet the terms of its contract, this is not nationalisation because the railways are still owned by the state. Instead this should be looked upon as a concession rescue by enacting the termination clause in the concession contract.

There was an attempt in 2000 to annul the contract by a private individual who filed a lawsuit in a federal court. ALL was able to defeat the attempt by making good use of the concession contract, which was far too one-sided in its favour, signed by the government of president Menem and later renegotiated by the governments of presidents De La Rua and Duhalde.

As a result the National Commission for Transport Regulation (CNRT) and AGN had to take great care to ensure that terminating ALL's concession was legal and within the constraints imposed by the contract.

The experience so far with rescuing railway concessions - seven during the Néstor Kirchner administration and three during Cristina Kirchner's government - has been positive. In each case, professional teams have been assembled, including civil servants, staff transferred from the concessionaire and redundant railway workers, which have been able to improve the quality of services and make repairs. Good examples of this are the Roca, Belgrano Sur and San Martín suburban passenger lines in Buenos Aires.

Much more could be exposed about the disaster which befell the Argentine rail network during the privatisation phase initiated in 1990. Suffice to say, things were far worse in general than could be observed with the naked eye. And while the recovery, even partial, of the rail network, will require billions of pesos (or dollars) and will take a lot of time and consistent effort, at least something is finally being done.

Pablo Martorelli

Pablo Martorelli has more than 38 years' experience in railway civil and transport engineering. He is currently president of the Argentine Institute of Railways (IAF), a position he has held since 1991, a railway exploitation coordinator with Unión Pacifico Railway Consortium, railway exploitation manager with Deseado Railway Consortium, director of Redes de Integración magazine, and railway team coordinator with the Secretary of Science, Technology and Productive Innovation at Buenos Aires National Technical University.

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