1. Ian Brooks Assistant Director, PricewaterhouseCoopers
The UK Rail Industry
Ian Brooks
Assistant Director, PricewaterhouseCoopers
PwC

2. Agenda UK Rail Privatisation Lesson learned UK Rail - 5 Years on
The Industry structure
UK Rail - 5 Years on
Industry statistics
The passenger companies
Lessons learned
Railtrack

3. UK Rail Privatisation Objectives of UK rail privatisation
Innovation and efficiency through management freedom and competition
Minimising and regulating monopoly elements
Maximising private sector involvement and investment
Reducing government subsidy
Preserving socially important services and network benefits
Maintaining safety

4. UK Rail Privatisation Timetable
General
Election
General
Election
Decision to privatise made at party conference
White Paper: “New Opportunities for the Railways”
Rail Regulator appointed
Railways Act 1993
OPRAF established
Railtrack established - assets transfered
TOCs established as subsidiaries of BR - assets transfered
ROSCOs established as Government owned Cos
Railtrack Flotation on Stock Exchange
Freight businesses sold
ROSCOs sold
TOC Franchise Letting
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

5. UK Rail Privatisation Who owns the assets?
Lines - Railtrack
Stations - Railtrack owns and leases to train operators (except 14 major stations run by Railtrack)
Depots - Railtrack owns and leases to train operators
Non operational - remained with British Rail; sold separately
Rolling stock - ROSCOs/others - lease to train operators
Freight stock - Freight operators or financiers
The train operators own few assets in order to facilitate handover of the business at the end of a franchise
Arrangements in place to ensure new operators can lease assets

6. The industry structure
UK Rail Privatisation
The industry structure
Strategic Rail Authority
Rail Regulatory
Grants
Franchise
Operating licence and regulator access charges
25 Passenger Train Operating Companies (TOCs)
Access to network
Access charges
Railtrack owns and operates network
Maintain trains
Access to network
Lease trains
Freight operating companies
Rolling Stock Leasing Companies (ROSCOs)
Maintain trains
Haul materials
Maintain and renew network
Supply trains
Infrastructure maintenance and renewal companies
Supply trains
Train manufacturers and mainteners

7. UK Rail Privatisation Subsidy savings from privatisation
Substantial reductions in costs due to RPI-x pricing formula: Railtrack - RPI - 15% over 7 years Rolling stock - RPI - 23% over 7 years
Passenger operations: £m

8. Subsidies
The graph below shows the split between government subsidy and operating revenue for 4 train operating companies.

9. UK Rail Privatisation Infrastructure access and charging
How do you recover the high fixed costs of infrastructure whilst maintaining optimum utilisation of capacity?
Tariffs based on marginal costs (Sweden) and crude measures of notional value (Germany) bear no relation to total infrastructure costs.
In Britain:
all operators (passenger and freight) pay short run marginal costs plus incremental costs
passenger franchisees (subsidised) also pay a contribution to fixed costs
other operators also pay a negotiated element subject to regulation
Charging is complex and costly:
setting the initial structure and level of charges
charging for variable items, such as traction current and wear and tear

10. UK Rail Privatisation Lessons learnt
Highly complex - 11,000 contracts, 100 companies
Need shadow running of reorganised industry
Privatised businesses consolidate; investors make capital gains
Cost savings and efficiency improvements available; loss-makers can be privatised
Encourage new entrants; recognise practical limitations to competition
Competition for track rather than on track

11. The Rail Industry - 5 years on Passenger companies
Franchises, awarded on lowest subsidy bid, encouraged aggressive bids
Franchise bids assumed revenue growth and cost reduction
Growth- yes, except Regional
Cost reduction- no
costs broadly fixed
wage inflation
more intensive use of network
increased maintenance
Hatfield - impacted demand and put growth back at least 12 months

12. The Rail Industry - 5 years on
Passenger journeys

13. The Rail Industry - 5 years on
Train kms

14. The Rail Industry - 5 years on
Freight Lifted

15. Investment in the Rail Industry
The Rail Industry - 5 years on
Investment in the Rail Industry

16. Lessons learnt The Rail Industry - 5 years on
Infrastructure condition black hole
Recovering passenger growth
Financing and resourcing increased capacity
Rolling stock delivery
With subsidy fixed the role of the Strategic Rail Authority is to ensure delivery of quality
Clarity of policy and funding priorities

17. What went wrong for Railtrack
The Rail Industry - 5 years on
What went wrong for Railtrack
Industry structure
Management
knowledge of assets
management of maintenance and renewal
management of major projects
customer relationships

18. Conclusion Lots of change
Lots of challenge requiring vision and proper planning to ensure delivery of a strategy