SELECTED ISSUES AND TRENDS IN RAILWAYS Karim-Jacques Budin Railway Specialist April 27-28, 2004

SELECTED ISSUES AND TRENDS IN RAILWAYS  The railway in the national economy: “Commercial” services versus services operated under a Public Service Obligation (PSO) scheme  The railway and the Government: Who is responsible for What? Who pays for What? Formalizing a contractual relationship  How to organize the railway enterprise? Regional organization versus Lines of Business organization  Railway multiple operators and infrastructure separation  Private sector participation in railway operations

The railway in the national economy: “Commercial” services versus services operated under a Public Service Obligation (PSO) scheme  The railway provides two types of services to the national economy, which are very different in nature.  “Commercial services” (mainly freight and Inter-City passenger) Financially-profitable services operated under market rules. The main role of a commercially-oriented railway. The railway should be vested with complete freedom in setting traffic

“Commercial” services versus services operated under a Public Service Obligation (PSO) scheme (2)  Services operated under a Public Service Obligation (PSO) scheme (typically suburban passenger). Market rules do not apply. Service configuration and tariffs are decided by Government (central or local) in relation with social or political objectives. Services are generally generating financial losses. PSO services to be operated by the railway under contractual arrangements with Government with adequate financial compensation.  Cross-subsidization between commercial services and PSO services is a bad practice.

The railway and the Government: Who is responsible for What? Who pays for What? (1)  Network configuration is mainly a strategic decision, under Government responsibility.  Commercial services have to be managed as a “business”, under the sole responsibility of the railway operator(s), without Government intervention.  PSO services have to be prescribed by Government (national or local).  Configuration of services and tariffs not a responsibility of the railway operator(s).

The railway and the Government: Who is responsible for What? Who pays for What? (2)  Government to pay for: investment in infrastructure development (new lines) upgrading to a satisfactory level of infrastructure (initial period only) compensation of PSO services  Railway (or railway operators) to pay for all other costs, including rolling stock investment, maintenance, renewal and improvement of infrastructure

Formalizing a contractual relationship between Government and the railway company (1)  Corporatization of the railway company to guarantee effective management autonomy  Rules of the game of railway activity (including financial relationship between Government and the railway to be formalized.

Formalizing a contractual relationship between Government and the railway company (2)  “Railway Law” set the general principles of railway activity  Contractual relationship between Government and railway (or railway operators), a preferred approach to setting down detailed relations between Government and the railway and specifying responsibilities of the railway (The “concession” option in Morocco as an example).

How to organize the railway enterprise? Regional organization versus Lines of Business organization (1)  Traditional organization of monolithic railways under a “matrix” scheme: Functional network-wide “technical” organization (infrastructure, rolling stock, operations) + “Regional” organization (each region responsible for all railway activities in its territory)  Traditional organization not conducive to business- oriented management of railway priority to technical perfection, politicized regional “baronies”, freight and intercity passenger frequently inter-regional activity)

How to organize the railway enterprise? (2)  Commercially-oriented, efficient railways move towards an organization by “Lines of Business” Transport business units (e.g. heavy-haul freight, general freight, intercity passenger, suburban passenger) fully responsible for marketing and sales, train operations, management and current maintenance of motive power and rolling stock Infrastructure business unit Workshops (for heavy maintenance of motive power and rolling stock only)

Railway multiple operators and infrastructure separation (1)  Multiple railway operators: a step beyond the organization along “lines of business”. An efficient way to operate some specific traffics (numerous and successful examples in heavy-haul mineral traffic, container traffic, suburban traffic) Operators sign an infrastructure usage agreement with the “infrastructure manager” (which might be the “integrated” railway company).

Railway multiple operators and infrastructure separation (2)  Infrastructure separation (“The European model”): a step beyond. Justified to promote “intra-rail” competition (several railway operators competing on the same market segment). Implementation often difficult (day-to-day technical management coordination between operations and infrastructure, infrastructure access charge determination, contractual penalties system). A questionable option when intra-rail competition is not a primary objective. Reject “dogmatic” approach on the subject.

Private sector participation in railway support activities  Private sector provision of railway “support” activities (e.g. maintenance of infrastructure or rolling stock) allows the railway to concentrate on its “core” business full privatization when active competition between several providers is possible railway to keep ownership of facilities and grant management contract (4/5 years) to the private sector in case the provider is in a “monopoly” or quasi- monopoly situation

Private sector participation in railway operations (1)  Private ownership of wagons  Private provision of motive power  Franchise or partial concession of specialized transport operations (multiple operators case)

Private sector participation in railway operations (2)  Concessioning of existing railway infrastructure and of (part of or the totality of) operations. Successful experiences in Latin America, Africa in the 1990s  Concessioning of new infrastructure (generally integrated concessions). The preferred tool for railway construction in America, Europe and elsewhere at the end of 19th/early 20th century, abandoned later. A very limited number of experiences today. 100% private-financing generally unrealistic. Difficult issues related to traffic guarantees, political risks.

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