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» Feature Article

15th June 1999

Privatisation of Public Transport in Australia, will it work?

John Dymond takes a look at what the Victorian Government is attempting and discovers that it’s not that novel after all.

Background

In 1996, the Victorian Government commissioned a major consultancy study to provide directions on the future of public transport in Victoria. The consultant’s report recommended that the existing transport framework be segmented along geographical and product lines to produce five businesses which could be corporatised prior to privatisation. The Government subsequently indicated that the 5 corporatised passenger services would be sold as individual franchises, with re-tendering for each business to occur at the end of the franchise period, with the franchise period ranging from between 7 and 15 years.

On 8 April 1998, the government announced a 12 point package of guarantees designed to protect passenger rights and improve service quality on Victoria’s trams and trains under a privatised system. These guarantees will be included in contracts with any future private sector operators. The guarantees cover commitments to services, fares, concessions, ticketing, performance, customer service, information, compensation, overcrowding, safety, accessibility and heritage.

In April this year, the Government included as an additional contract condition for tenderers the requirement to upgrade existing rolling stock at a cost of approximately $1 billion.

International Comparisons

Local commentary repeatedly refer to the above plan as "radical" and "fraught with risk", but just how unprecedented is this plan and what has been the overseas experience? A review of the major public transport privatisation programs instituted around the world to date is very revealing.

Argentina

Since 1990 Argentina has sold or closed public enterprises with assets valued at more than $22 billion, and has embarked on a major privatisation of its public transport network. Public transport privatisation was implemented by a system of franchising with associated public service commitments. The result has been a much stronger than expected growth in patronage of urban passenger rail services, reduced subsidisation and improved service.

Japan

The Japanese Government privatised its public transport network by converting the public corporation, Japanese National Railways, into several smaller enterprises designed to serve specific markets. The result has been reduced subsidisation and improved service.

United Kingdom

In 1993 the UK Government embarked on a public transport privatisation program. It segmented British Rail into geographical and functional units, resulting in a total of 25 franchises which were eventually sold to 13 different companies. The franchise agreements, which have terms ranging from 7 to 15 years, impose public service obligations and commitments to order rolling stock. In addition, each of the operating companies is licenced by the Office of the Rail Regulator, which is a public corporation independent of the Government. The Regulator has the power to impose fines and ultimately terminate the licence in the case of non compliance with the public service obligations.

The privatisation program became fully operational in 1997 and to date reports are mixed. The Financial Times in an editorial on 25 February 1997 entitled "Age of the new trains" reported that:-

".........Delays were reduced by 30 per cent in the six months to September, compared with a year earlier, and numbers of passengers are increasing on most routes. Moreover, companies such as Virgin have announced ambitious investment plans to make the service more competitive. These, combined with the 16 billion pound investment plan announced by Railtrack [one of the operating companies] could help to make faith in rail more a material than a spiritual value......"

On the other hand, Mark Davis in The Australian Financial Review on 14 May 1999 quotes The Economist magazine as saying earlier this year that:-

"The consequence has been overcrowding [increased patronage?] and declining punctuality"

Conclusion

In short, the Victorian Government is embarking on a program which has been implemented successfully in several different parts of the world over the last ten years or so and it has every reason to be reasonably confident. As can be seen from the above, the plan is not "radical", it’s not even original. One cautionary note should be sounded, however. In all the above cases, the privatisation program resulted in significant numbers of jobs being shed. Whilst the Victorian Government’s timing is perhaps better than that of the other governments before it in terms of the economic cycle, minimising the social cost of employment dislocation during the transitional phases of the program should be a prime focus of the Government’s attention.