The Fourth Railway Package:
are legislators passing signals at danger?
Dr Ian Taylor
info@transportforqualityoflife.com
www.transportforqualityoflife.com
Essential pre-requisites for rail liberalisation
A market in rail services requires:
• fragmentation to allow multiple competitors
• profit for market participants
For passengers this results in a system that is:
• more difficult to use
• more expensive
Cost comparisons for UK rail liberalisation
100%+
Cost increase of railway to UK Government in real terms since liberalisation
- for delivery of only 33% increase in train kilometres
40%
Cost-efficiency ‘gap’ UK railway lags less liberalised comparators in Europe
23%
Increase in rail fares above inflation since liberalisation
109%
Extra paid by UK rail passengers for an unrestricted return ticket compared
with comparators in Europe
Costs to UK rail of fragmentation and profit
Fragmentation costs
£290m
€410m
Network Rail cost outsourcing renewals/enhancements
£200m
€280m
Train operator shareholder dividend payments
£227m
€319m
Train operator sub-contractor profit margins
£ 76m
€107m
Rolling stock company dividend payments
£207m
€291m
Rolling stock company subcontractor profit margins
£ 15m
€ 21m
Total cost per year
£1bn €1.4bn
Cost of interfaces to train operating companies
Profit leakage
Does profit leakage really affect the railway?
regional train companies
Total dividend
payments
2003/4-2011/12
Arriva Trains Wales
First Scotrail
Merseyrail Electrics
Northern Rail
Transpennine Express
£ 68m (€ 96m)
£104m (€146m)
£ 50m (€ 70m)
£149m (€210m)
£185m (€260m)
dividends as %
shareholders’
funds
54%
137%
223%
269%
159%
Dividend leakage from regional TOCs since 2003/4 = £555m (€781m)
£300m (€420m) is urgently required to replace the entire Merseyrail Electrics fleet
In 2011/12 Transpennine made a 24% profit margin = £68m (€96m)
£34m (€48m) refurbished the whole Merseyrail fleet in 2003
How did the public sector operator compare?
The UK’s publicly owned train operator DOR showed itself to be
more cost-effective than its private counterparts, but has been disbanded
Liberalised asset stripping
Rolling stock company
Average profit
Time period
Angel Trains
HSBC Trains/ Eversholt
Porterbrook
34%
31%
12%
9 yrs 2003/4-2011/12
8 yrs 2002/3-2009/10
9 yrs 2004/5-2012/13
The claims that
liberalisation would
result in a new era of
improvements from
private sector
investment have not
been borne out.
Effects of UK rail liberalisation on passengers
Fragmentation causes passengers multiple
practical difficulties:
• trains that do not connect
• complex ticket pricing
• bewildering rules about ticket validity
• operators failing to work together to assist
passengers during incidents or engineering
• lack of integrated smart tickets
Liberalisation prevents simplicity for passengers
A simple transparent system is best for passengers ...
... but this requires rules and standardisation that conflict with the
‘efficient market’ that is the basis of liberalisation.
The idea of ‘open access’ is a nightmare for passengers
Liberalisation degrades industrial relations
An efficient railway
service requires a
harmonious workforce
but liberalisation
militates against this.
• The frequency of industrial disputes went up after UK liberalisation.
• Network-wide collective bargaining and dispute resolution was destroyed
removing a major economy of scale
• Resulting disparities in pay and conditions appear manifestly unfair and
are a recipe for industrial disputes
Rail subsidy in Sweden pre/post liberalisation
The cost of the
Swedish railway
rocketed after
liberalisation, as
in Britain
Liberalisation begins
Source: Nilsson 2002
Liberalisation & rail growth: no clear relation
Rail use has grown
slightly more in
France than in
Britain, since Britain
liberalised rail
Rail use in France
has significantly
outpaced growth in
Germany, since
Germany started
liberalisation
Liberalisation & regional rail growth: no relation
French regions grew
regional rail faster
than Britain until the
Euro-zone slump
German regional
authorities let 144
rail contracts
between 2005 and
2011, each just 1/8th
the size of
Transpennine
Express
Liberalisation is not the driver for growth
Economic
activity (GDP) is
the most
obvious driver of
growth in rail
journeys
Levels of public
investment are
the other
obvious driver
Source: CRESC University of Manchester 2013
Liberalisation & cost constraint: no relation
Annual subsidy decrease per regional
passenger-km
Time period for
calculation
3.8%
3.5%
7 yrs 2002-2009
12 yrs 1996-2008
France
Germany
Since French regions have taken over responsibility for regional rail they have
driven very cost-effective deals with SNCF – in a non-liberalised situation.
Source (graph): Crozet et Desmaris 2011
Impacts of the draft Governance Directive
Open access is in conflict with:
• minimising day-to-day operational costs (interfaces are costly)
• achieving a seamless railway network - best for passengers
• retaining revenues within the rail network to spend on network
and service improvements
• using public service obligations effectively and efficiently
• developing the rail network to a strategic vision
Separation of infrastructure and train services is in conflict with:
• minimising day-to-day operational costs (interfaces are costly)
• developing the rail network to a strategic vision
Impacts of the draft PSO Regulation
Removal of the right to directly award a contract to a not-for-profit
publicly owned operator is in conflict with:
• achieving a seamless railway network - best for passengers
• retaining revenues within the rail network to spend on network
and service improvements
• minimising day-to-day operational costs (interfaces are costly)
• developing the rail network (and other public transport modes)
to a strategic vision
• achieving intermodal integration - best for passengers
Thank you
info@transportforqualityoflife.com
www.transportforqualityoflife.com