Railways in Transition: a Review of Reforms in Europe, Japan, New Zealand and South America

Railways in Transition: a Review of Reforms in Europe, Japan, New Zealand and South America


T Holvad, J Preston, F Raje, TSU, University of Oxford, UK



h4. Background and purpose

The organisation of passenger railways is currently undergoing significant changes in a number of countries in Europe as well as in the rest of the World. Traditionally, railways have been organised nationally as state monopolies responsible for both infrastructure and services, but recent years have seen a move away from this model. In particular, infrastructure and services have been separated in EU countries (although in other parts of the world vertical integrated railways are still present) and there has also been initiatives regarding deregulation, internationalisation and privatisation. A key motivation for initiating reforms of the railway sector in the different countries was the lack of customer orientation and the perceived level of cost inefficiencies due to a lack of competitive pressure. In this context the process of allowing alternative providers is crucial to enhance the competitive pressure in the sector covering organisations from the same country or from other countries. The extent and form of deregulation varies among the countries in Europe with some countries having progressed significantly (such as Sweden and Great Britain). However, even in Great Britain the provision of commercial traffic is not completely deregulated due to the existence of exclusive rights over relative extensive time periods. In this paper railway reforms in a number of countries will be reviewed incl. Japan, New Zealand, Argentina, Brazil, United States, United Kingdom, France, Germany, Sweden, Denmark, Netherlands and Switzerland.

These countries cover a number of the dimensions of railway reform including private vs. public owned companies, vertical integration vs. vertical separation, tendering vs. no-tendering and provide therefore for an interesting comparative analysis. The paper will primarily focus on passenger railways. 2. Methodology For each railway information about the old vs. new organisational framework for rail passenger service provision will be specified, this will include details about the changes introduced and key events. Key characteristics of the organisational framework will be identified, including terms and conditions for traffic rights; competition as regards time and place; competition neutrality between different means of transport; organisation of joint functions. Furthermore, the possible implications of the organisational form will be considered in terms of supply and demand aspect. This will include assessment of the changes in economic and financial performance for the selected countries¡¦ railways. On the basis of the country-specific information it will be possible to draw conclusions about similarities and differences between the railways, incl. comparative performance results.

The selected countries will allow consideration to the following market models:

* Complete deregulation with vertical separation (in theory the model for international services in the European Union as a result of Directive 91/440 and also for Great Britain post 2002);

* Complete deregulation with vertical integration (the model adopted for Class I freight railroads in the United States and also Japan and New Zealand);

* Comprehensive tendering/franchising with vertical integration (the model adopted in a number of Latin American countries, with Argentina, Brazil and Mexico the best known examples);

* Tendering/franchising with vertical separation (the main model chosen in Great Britain);

* National network and regional companies (the model being developed in France and Germany);

* Commercial network combined with the tendering of unprofitable services (the model that currently exists in Sweden, Denmark, Netherlands and Switzerland.

* Hybrid models and other variants including competition within trains, between routes, between modes and between companies (yardstick competition) A key facet of the analysis should determine the impacts associated with different options for passenger rail provision including the present structure. This would enable a comparison of the possible changes with respect to the current set-up. Impacts should be identified across the different stakeholders in order to allow for a comprehensive assessment.

A range of different impacts is likely to be generated as the result of reform of the rail passenger market (e.g. deregulation), including the following broad impact categories:

* Service level This could involve level and quality of the services provided, including aspects such as service frequency and fare structure.

* Market structure The implications of deregulation on the market structure are not clear-cut and would among other factors depend on the regulatory framework used as well as the existence of potential operators. It is possible to move from a situation with a state monopoly to one with private monopoly. The issue of contestability becomes important in that case.

* Externalities Implications on externalities (e.g. air pollution) of changes to the regulatory structure for railways will be relevant where such changes involve modal shifts between car and rail.

These types of impact will depend on the extent to which the attractiveness of rail changes as the result of regulatory reforms, e.g. due to enhanced customer focus and new services.

* Equity A process of deregulation may entail equity implications, e.g. due to changes in which services are provided, whereby some user group will gain while others will incur a loss.

Service changes are more likely to occur in the context of a free market model than within an authority initiative based system, e.g. competitive tendering of the rail services.

* Economics One of the key motivations for regulatory reform of rail service provision relates to the possibilities for cost reductions, thereby enhancing the position of rail within the transport market. Important issues concerning the possibilities for cost reductions include the cost structures for rail service provision, e.g. existence of economies of scale or scope. In particular, there may be cost advantages of operating an integrated network of services by one supplier rather than several suppliers providing

* Welfare Regulatory reforms (including different market model options) may also have implications on welfare, i.e. the extent to which economic efficiency is promoted through such reforms. This would require consideration both to the user benefits and the operator benefits. 3. Empirical basis The information used for this paper will consist of annual reports from rail companies, documents published by railway authorities (e.g. transport ministry policy papers etc.) and other sources of information. These information sources will also include quantitative data about the railways concerned, e.g. passenger trips and kilometres, route kilometres, staff, costs, revenue. In this way the empirical basis will provide both information about the characteristics of each railway considered and an outline of railway performance in the included countries. 4. Results This paper will provide comparative evidence concerning key characteristics of the organisational form used in different countries for railways, thereby setting out similarities and differences. The paper will also include information about the comparative performance of the railways in the selected countries. This may indicate possible linkages between railway reform and performance.


Association for European Transport