Creating Performance Incentives: Lessons from the UK Rail Sector
S Ellis and H Ashton, Steer Davies Gleave, UK
The paper will discuss how performance regimes can be used to align the incentives of private sector rail operators with government or regulatory objectives. It will draw on the author's experience of implementing and advising on the business and commercial implications of performance regimes for a number of rail sector clients.
Private sector provision of rail services is now relatively common around the world, although full privatisation has only been implemented in a few countries. However, most passenger operators and all infrastructure providers are protected from market disciplines and other mechanisms are needed to encourage the provision of customer-focused services and efficient operations. Performance regimes, inparticular, can be an effective form of surrogate competition, rewarding improvements in service quality and penalising poor performance much as the market would.
The paper will discuss the practical issues that must be addressed in implementing a performance regime, beginning with the initial definition of the structure of the sector and the allocation of risks and responsibilities. It will cover the design of a performance specification, the development of measurement mechanisms, the design and calibration of payment mechanisms and issues in benchmarking performance. It will conclude by highlighting the need to consider performance incentives as an integral part of any transaction involving privatisation or public private partnership.
Association for European Transport