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| Case Study 1 - Overseas Examples | |||||||||||||||||||||
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These
case studies will show the extremes that exist in terms of the types of
deals that are out there. The left
column of Exhibit A illustrates our main line in Guatemala. Contrast this with Estonia
(right column) which is Big-Time, Soviet-Style Railroading. The Former
Soviet network has 25% of the planet’s rail traffic, and in fact, had
50% of the planet’s rail traffic before the collapse of the Soviet
Union in the early 1990s. |
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Exhibit A |
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The Guatemala railway is running a little over 100,000 tons per year;
Estonia is handling about 40 million tons per year.
Forty million tons is close to some of the smaller Class 1s in
the USA, however this is a relatively small railroad which is basically
a transit corridor from the Russian border to the Baltic Sea. In Guatemala one of the interesting aspects of the business, which is why it may have proven to be a rational business decision, was that we got other things along with the railroad – fiber optics opportunities, and port facilities on both the Atlantic and the Pacific. And the best part of the deal was that the purchase price was zero. We got an abandoned railroad in exchange for fixing it up and sharing 10% of the revenue with the government. We took all of the risk but we also get all of the profit, if there ever is any profit. Another interesting aspect is that we financed the equity in the local capital markets. So this is not an American company in Guatemala – it is a joint venture with American and Guatemalan shareholders. We have 50 local investors who are our fellow shareholders. In Estonia, it is a big operation but it is highly dependent on one commodity – oil products, which are running very strong right now out of Russia to the Baltics. The purchase price for 64% of the company’s stock was US$60 million; the government retains 36%. Compared to the economics of some of the deals we’ve seen in the USA, it was a good price. In this particular case, we own the rail assets, namely the track and the rolling stock; it is not a concession where we rent the assets; we actually own them. RDC is a small participant with Ed Burkhardt’s company, Rail World, as well as international investors and the IFC. |
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Case Study 2 - Domestic Examples |
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| Let’s contrast the previous Case Study with domestic examples. Originally we viewed the train going through the garbage dump in Guatemala (left column of Exhibit B); there are places in the USA where that happens too, i.e. New York. This is a Conrail locomotive on the Bay Ridge line (right column), obviously photographed when I ran it quite a few years ago, but I can assure you that it looks more or less the same today. | |||||||||||||||||||||
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Exhibit B |
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| The biggest freight infrastructure project in New York City in the last several decades is the Oak Point Link, which essentially created a detour route as another way to get into Oak Point. Look at the price tag – US$180 million – financed by the public. But the most important point is the tonnage that this $180 million generated – ZERO. Note also the 65th Street Intermodal Yard, which when we were railroading on the Bay Ridge line in the early 1980s, was built as a state-of-the-art intermodal terminal – 90-foot track centers, high mast lighting, welded rail – you could yard a stack train without even having to make a setover. The only problem was that the stack train had to come off a car float or down the Bay Ridge line, where there is a major clearance problem called the East New York Tunnel. These are examples of the public sector run amuck. | |||||||||||||||||||||
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