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World Experience in Railway Restructuring
Clell Harral, John Winner, Richard Sharp, Jonathan Klein
HWTSK, Inc
15 December 2009
2
Review worldwide experience in addressing
five important issues
• Industry Structure
– fully integrated
– vertically integrated
– functional separation
• Ownership and Control
– public ownership
– outsourcing
– concessions
– public share offerings
– sale of assets or stock
• Infrastructure/Network Access
– negotiated access
– mandated access
– open access
• Regulatory oversight
– safety
– rates
– access
– contract compliance
• Community Service Obligations
– corporate governance
– payment accountability
– payment transparency
– funding sources
• Australia
• Argentina
• Chile
• Canada
• Mexico
• United States
• China
• India
• Russia
• France
• Germany
• Netherlands
• Sweden
• United Kingdom
• New Zealand
• Japan
Key Issues Countries Reviewed
Conclusions
and
Implications
for
Restructuring
3
Railways are complex enterprises and can be
structured along a number of different dimensions
G
eography
Operations
Train Control
Infrastructure Management
Infrastructure Maintenance
Administration
Functions
Bulk
Freight Passenger Commuter
Lines of Businesses
General
Freight
Horizontal Separation
VerticalSeparation
Illustrative
Traditional vertically integrated railway
Bulk Freight Railway/Infrastructure Manager
Passenger Service Operator
4
Railway Restructuring Involves Consideration of
Multiple Critical Issues
– Ownership and control
– Network access
– Degree of unbundling of functions and/or assets
– Regulatory oversight in a restructured environment
– Community or public service obligations
Options chosen in each area must fit together to provide a
railway sector framework that will attract investment and support
efficient railway service
5
Whatever options are chosen, efficient railway
restructuring must accommodate complex
interactions
Illustrative for
Infrastructure Separation
6
• Retain control
• Avoid conflicts with Employees
• Legal & administrative barriers
to change
• Services transferred from
national to oblast and local
governments to relive national
government budget pressures
and better match funding
sources with beneficiaries
• Reduce costs
• Enhance services
• Employ core competencies of
outside parties
• Enjoy benefits of competition in
non-specialized functions
• Reduce investment
requirements for railway (and
government)
• Break entrenched restrictive
work practices of labor unions
Benefits of Outsourcing plus:
• Attract more private investment
• Create strong financial
incentives to improve railway
performance and services
• Retain ultimate ownership and
regain control after concession
period or upon bankruptcy
Benefits of concessions plus:
• Generate cash for government
programs
• Involve private-sector capital
• Involve commercial and
competitive pressures to drive
efficiency and effectiveness
• Transparent government
purchases of transport services
Public Control:
• National
• Provincial
• Local
Outsourcing
Functions
and
Services
Concessioning
Sale Options
• public share floatation
• strategic investor
• bits and pieces
Objectives
Ownership & Control
International rail reform includes a wide range of
ownership and control options
Higher Lower
Government Control
7
Governments have used many methods to improve
railway performance and access private capital
• Canada (VIA passenger
services)
• United States (Amtrak, many
urban transport systems)
• France (SNCF)
• Queensland (QR)
• Westrail (WR)
• New South Wales (SRA)
Higher Lower
Government Control
• Germany
• Netherlands
• Sweden
• Australia
• United States
• Canada
• United Kingdom
• Argentina
• Chile (passenger and freight
operations, infrastructure)
• Mexico
• United Kingdom
• Victoria (passenger and freight
systems separately)
• Brazil
• Chile (freight systems)
• Canada (CN IPO)
• United States (Conrail IPO)
• United Kingdom (Railtrack IPO,
asset sales, rail supply
functions, equipment, and
operating concessions)
• Japan
• New Zealand (to a strategic
investor)
• Australia National (to a strategic
investor)
Methods
Ownership & Control
Public Control:
• National
• Provincial
• Local
Outsourcing
Functions
and
Services
Concessioning
Sale Options
• public share floatation
• strategic investor
• bits and pieces
8
There is a wide range of access arrangements
• Vertically integrated railway
controls access to its track
• No requirement for alternative
operators to access track
• Commercially negotiated access
Lower HigherDegree of Access
• Vertically integrated railway
controls access to a majority of its
network
• Access is mandated for specific
parties on selected routes where
necessary
– insufficient competition
– economic efficiency
– need for passenger access
• Can be commercially negotiated
subject to regulatory oversight
• Qualified service providers permitted
to operate on most of the network
• With a vertically integrated railway,
government requires railway to open
its tracks and facilities to alternative
operators. Accounting separation
required
• Infrastructure can be established as a
regulated monopoly with operating
companies contracting for access
• Argentina
• Japan
• United States
• New Zealand
• Australia
• Canada/ United States
• Chile
• Mexico
• France
• Germany
• Netherlands
• United Kingdom
Access Arrangements
Negotiated Access Mandated Access Open Access
9
Access arrangements may have negative as well
as positive impacts on rail sector efficiency
• The primary reason for open access provisions is to
increase the competitive environment
• In many instances, the threat of inter-modal competition
provides similar constraints and competitive pressures
• Market entry is dependent on network architecture and
the number of point-to-point flows that might be captured
by competitors - low densities and highly disaggreated
flows probably cannot sustain more than one operator
economically
• Open access creates the need for complex regulatory
mechanisms and performance agreements. The
transparency can reduce the opportunities for railways to
price in a discriminatory manor, leading to a loss of
revenue and reduced network size.
• Where PSOs are required, there is a reluctance for new
operators to provide on-rail competition due to the
potential risk of deficits
• The threat of competition has produced many of the
benefits of anticipated real on-rail competition - reduced
costs, lower transport prices and improved performance.
• National railways’ highest density network segments
(e.g., those serving the coal fields) are likely to attract
independent operators in an open access environment
• National railways’ general freight networks are unlikely to
justify or attract many independent operators - lighter
density, disbursed traffic flows.
• Introduction of open access will end the national railway’s
ability to cross-subsidize light density lines and provide
nationwide services without direct subsidies.
• The threat of competition may be sufficient in the highest
density portions of the network to produce close to the
competitive outcomes expected from open access
• Transparency of the access regime, pricing freedoms and
other features of access regulation are important
determinants of the success of an open access regime.
CONCLUSIONS IMPLICATIONS FOR RESTRUCTURING
10
Because of potential adverse impacts, a vertical
separation environment, such as mandated by
Law 23, is often conditioned in several ways
 Exceptions made for urban transport and dedicated industrial lines where
multiple above-rail operators are impractical
 Despite legal or accounting separation, close operational coordination is
encouraged between infrastructure manager and main above-rail operator
 Terms and conditions of access may be established that encourage
operational efficiency rather than equality of access between main operator
and third party operators
 Access pricing may giver preference to some services and discourage
others as matter of transport policy
Most railway sectors do not reflect “pure” applications of either vertical
integration or vertical separation models
– nor should they!
11
After structural changes, more commercial
relationships begin to apply so new forms of
performance oversight are needed
 Safety – Internal safety inspectorates must be modified to
provide clear terms and conditions to external rail operators
and infrastructure managers
 Infrastructure access and pricing for rail access – where
there is vertical separationaccess terms must balance
operational efficiency goals
 Contractual compliance – becomes an important new
function where concessions are developed; a more complex
function than licensing, particularly where there are investment
agreements and performance benchmarks
 Transport pricing oversight – a general trend toward
oversight responsive to complaints rather than pre-set rates,
except for PSOs or otherwise subsidized systems
12
Corporatization
• Corporatization of the national railway is usually the first step to provide managerial
freedom, accountability, and market incentives for efficient operations.
– Performance contract between government and railway management
– Management autonomy in day-to-day operations
– Non-politicized process for setting prices
– Railway free to purchase and dispose of assets as needed for efficient
railway operations
• This will eventually lead to commercialization of the national railway.
– Line of business organization and focus on client relationships
– Cost reduction, improved operation, financially sensible investments
– Separation and sale of non-core activities
• Once this is accomplished, private capital could be attracted to the railway industry,
especially in the railway supply industry--investments are now often limited by:
– Internal barter or trading systems that favor internal suppliers
– Unfavorable and opaque regulatory regimes
13
Role of the international consultants
As viewed from the perspectives of international experience:
• WP No 1 The Transport Policy Environment in Indonesia
• WP No 2 Current Status of Railway Operations in Indonesia
• WP No 3 Market Analysis and Forecasting
• WP No 4 Rail Infrastructure Development
• WP No 5 Rail Sector Institutional Options
• WP No 6 The Strategic Future of Indonesian Railways
• WP No 7 Development of sub-national Railway Master Plans
14
Thank You

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World experience-in-railway-restructuring

  • 1. World Experience in Railway Restructuring Clell Harral, John Winner, Richard Sharp, Jonathan Klein HWTSK, Inc 15 December 2009
  • 2. 2 Review worldwide experience in addressing five important issues • Industry Structure – fully integrated – vertically integrated – functional separation • Ownership and Control – public ownership – outsourcing – concessions – public share offerings – sale of assets or stock • Infrastructure/Network Access – negotiated access – mandated access – open access • Regulatory oversight – safety – rates – access – contract compliance • Community Service Obligations – corporate governance – payment accountability – payment transparency – funding sources • Australia • Argentina • Chile • Canada • Mexico • United States • China • India • Russia • France • Germany • Netherlands • Sweden • United Kingdom • New Zealand • Japan Key Issues Countries Reviewed Conclusions and Implications for Restructuring
  • 3. 3 Railways are complex enterprises and can be structured along a number of different dimensions G eography Operations Train Control Infrastructure Management Infrastructure Maintenance Administration Functions Bulk Freight Passenger Commuter Lines of Businesses General Freight Horizontal Separation VerticalSeparation Illustrative Traditional vertically integrated railway Bulk Freight Railway/Infrastructure Manager Passenger Service Operator
  • 4. 4 Railway Restructuring Involves Consideration of Multiple Critical Issues – Ownership and control – Network access – Degree of unbundling of functions and/or assets – Regulatory oversight in a restructured environment – Community or public service obligations Options chosen in each area must fit together to provide a railway sector framework that will attract investment and support efficient railway service
  • 5. 5 Whatever options are chosen, efficient railway restructuring must accommodate complex interactions Illustrative for Infrastructure Separation
  • 6. 6 • Retain control • Avoid conflicts with Employees • Legal & administrative barriers to change • Services transferred from national to oblast and local governments to relive national government budget pressures and better match funding sources with beneficiaries • Reduce costs • Enhance services • Employ core competencies of outside parties • Enjoy benefits of competition in non-specialized functions • Reduce investment requirements for railway (and government) • Break entrenched restrictive work practices of labor unions Benefits of Outsourcing plus: • Attract more private investment • Create strong financial incentives to improve railway performance and services • Retain ultimate ownership and regain control after concession period or upon bankruptcy Benefits of concessions plus: • Generate cash for government programs • Involve private-sector capital • Involve commercial and competitive pressures to drive efficiency and effectiveness • Transparent government purchases of transport services Public Control: • National • Provincial • Local Outsourcing Functions and Services Concessioning Sale Options • public share floatation • strategic investor • bits and pieces Objectives Ownership & Control International rail reform includes a wide range of ownership and control options Higher Lower Government Control
  • 7. 7 Governments have used many methods to improve railway performance and access private capital • Canada (VIA passenger services) • United States (Amtrak, many urban transport systems) • France (SNCF) • Queensland (QR) • Westrail (WR) • New South Wales (SRA) Higher Lower Government Control • Germany • Netherlands • Sweden • Australia • United States • Canada • United Kingdom • Argentina • Chile (passenger and freight operations, infrastructure) • Mexico • United Kingdom • Victoria (passenger and freight systems separately) • Brazil • Chile (freight systems) • Canada (CN IPO) • United States (Conrail IPO) • United Kingdom (Railtrack IPO, asset sales, rail supply functions, equipment, and operating concessions) • Japan • New Zealand (to a strategic investor) • Australia National (to a strategic investor) Methods Ownership & Control Public Control: • National • Provincial • Local Outsourcing Functions and Services Concessioning Sale Options • public share floatation • strategic investor • bits and pieces
  • 8. 8 There is a wide range of access arrangements • Vertically integrated railway controls access to its track • No requirement for alternative operators to access track • Commercially negotiated access Lower HigherDegree of Access • Vertically integrated railway controls access to a majority of its network • Access is mandated for specific parties on selected routes where necessary – insufficient competition – economic efficiency – need for passenger access • Can be commercially negotiated subject to regulatory oversight • Qualified service providers permitted to operate on most of the network • With a vertically integrated railway, government requires railway to open its tracks and facilities to alternative operators. Accounting separation required • Infrastructure can be established as a regulated monopoly with operating companies contracting for access • Argentina • Japan • United States • New Zealand • Australia • Canada/ United States • Chile • Mexico • France • Germany • Netherlands • United Kingdom Access Arrangements Negotiated Access Mandated Access Open Access
  • 9. 9 Access arrangements may have negative as well as positive impacts on rail sector efficiency • The primary reason for open access provisions is to increase the competitive environment • In many instances, the threat of inter-modal competition provides similar constraints and competitive pressures • Market entry is dependent on network architecture and the number of point-to-point flows that might be captured by competitors - low densities and highly disaggreated flows probably cannot sustain more than one operator economically • Open access creates the need for complex regulatory mechanisms and performance agreements. The transparency can reduce the opportunities for railways to price in a discriminatory manor, leading to a loss of revenue and reduced network size. • Where PSOs are required, there is a reluctance for new operators to provide on-rail competition due to the potential risk of deficits • The threat of competition has produced many of the benefits of anticipated real on-rail competition - reduced costs, lower transport prices and improved performance. • National railways’ highest density network segments (e.g., those serving the coal fields) are likely to attract independent operators in an open access environment • National railways’ general freight networks are unlikely to justify or attract many independent operators - lighter density, disbursed traffic flows. • Introduction of open access will end the national railway’s ability to cross-subsidize light density lines and provide nationwide services without direct subsidies. • The threat of competition may be sufficient in the highest density portions of the network to produce close to the competitive outcomes expected from open access • Transparency of the access regime, pricing freedoms and other features of access regulation are important determinants of the success of an open access regime. CONCLUSIONS IMPLICATIONS FOR RESTRUCTURING
  • 10. 10 Because of potential adverse impacts, a vertical separation environment, such as mandated by Law 23, is often conditioned in several ways  Exceptions made for urban transport and dedicated industrial lines where multiple above-rail operators are impractical  Despite legal or accounting separation, close operational coordination is encouraged between infrastructure manager and main above-rail operator  Terms and conditions of access may be established that encourage operational efficiency rather than equality of access between main operator and third party operators  Access pricing may giver preference to some services and discourage others as matter of transport policy Most railway sectors do not reflect “pure” applications of either vertical integration or vertical separation models – nor should they!
  • 11. 11 After structural changes, more commercial relationships begin to apply so new forms of performance oversight are needed  Safety – Internal safety inspectorates must be modified to provide clear terms and conditions to external rail operators and infrastructure managers  Infrastructure access and pricing for rail access – where there is vertical separationaccess terms must balance operational efficiency goals  Contractual compliance – becomes an important new function where concessions are developed; a more complex function than licensing, particularly where there are investment agreements and performance benchmarks  Transport pricing oversight – a general trend toward oversight responsive to complaints rather than pre-set rates, except for PSOs or otherwise subsidized systems
  • 12. 12 Corporatization • Corporatization of the national railway is usually the first step to provide managerial freedom, accountability, and market incentives for efficient operations. – Performance contract between government and railway management – Management autonomy in day-to-day operations – Non-politicized process for setting prices – Railway free to purchase and dispose of assets as needed for efficient railway operations • This will eventually lead to commercialization of the national railway. – Line of business organization and focus on client relationships – Cost reduction, improved operation, financially sensible investments – Separation and sale of non-core activities • Once this is accomplished, private capital could be attracted to the railway industry, especially in the railway supply industry--investments are now often limited by: – Internal barter or trading systems that favor internal suppliers – Unfavorable and opaque regulatory regimes
  • 13. 13 Role of the international consultants As viewed from the perspectives of international experience: • WP No 1 The Transport Policy Environment in Indonesia • WP No 2 Current Status of Railway Operations in Indonesia • WP No 3 Market Analysis and Forecasting • WP No 4 Rail Infrastructure Development • WP No 5 Rail Sector Institutional Options • WP No 6 The Strategic Future of Indonesian Railways • WP No 7 Development of sub-national Railway Master Plans