UNIVERSITY OF OXFORD Transport Studies Unit Review of Introduction of Competition in Railways in...

UNIVERSITY OFOXFORD

Transport Studies Unit

Review of Introduction of Competition in Railways in Europe

Torben Holvad, John Preston and Biao Huang

Transport Studies Unit, University of Oxford

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BackgroundTraditionally, railways were organised nationally as state monopolies.

key motivation for initiating reformslack of customer orientation

perceived level of cost inefficiencies

Allowing alternative providers is crucial to enhance the competitive pressure

The extent and form of deregulation vary among the countries in Europe

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Reform Experience in Five Countries Five case study countries are chosen representing a spectrum of market modelsEmphasis on the issue of competition in the rail market

capital market competition product market competition

Three types of reform pathNo significant change in either marketCompetition mainly introduced in product marketCompetition introduced in both markets

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Capital and Product Market CompetitionMonopoly F 01

G 94

DK 93

GB 93

G-n 01

S 88

Duopoly DK 01

Oligopoly S 01

G-r 01

GB 01

Monopolistic

completion Perfect

competition Gov. Dept

Gov. Agency

Public Corp.

Mixed Private- listed

Private-individual

Capital Market Competition

Product M

arket C

ompetition

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Country comparison using 7-Ds Decentralisation of regulatory control

Disintegration of the industry (vertical and horizontal)

Domain of contractual assignment

Discretion of management

Distribution of risks

Duration of contracts

Destination of subsidies

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Decentralisation of regulatory controlDK: Largely centralised; Regional authorities responsible for small “private” railwaysGB: Fairly centralised despite the fragmentation G: The Länders have been responsible for regional traffic operations since 1996F: Six ‘experimental’ regions took over passenger rail services S: The counties responsible for regional traffic operations since the end of the 1980s

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Disintegration of the industryDK: Vertical separation of operations and infrastructure. Limited horizontal separation GB: Far-reaching vertical and horizontal institutional separation of the industry G: Organisational separation of DBAG; Access for international and regional operations F: Organisational separation of infrastructure; Access for international operations S: Institutional separation of infrastructure and traffic operations

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Domain of contractual assignmentDK: Regulated within detailed contracts including minimum service standards GB: Considerable in theory, but limited wrt the planning of services with poor commercial prospectsG: National—theoretically the widest conceivable; Länder’s—regions determine F: Similar to GermanyS: National—considerable as SJ operates on commercial principles; Regional—very limited

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Discretion of management DK: DSB is now independent public Co. with substantial management autonomyGB: commercial service in theory but extensive specification of service in practiceG: National—commercial; Regional—LA involvement institutionalisedF: National—performance contract but not formal; Experimental regions—vary S: National—commercial; Regional—local services open to political interference

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Distribution of risksDK: DSB—net-cost contracts; ARRIVA—net-cost contract with penalties/rewards included GB: Operators usually bear all the risks; some contract with additional penalty schemes G: National—commercial operation; Länder’s —operators bear production and revenue risks F: National—Net-cost contract; Regional—Operator shares revenue risk with regionS: National—Commercial; NC contract for subsidised service; Regional—Gross cost

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Duration of contractsDK: DSB—5 years; ARRIVA—8 years;GB: As a rule, 7 years; up to 15 years in a few cases; Longer contract for re-franchisingG: National—no formal contract; Länder’s—from 1 year (temporary regime) to 15 years F: National—no formal contract at present; Experimental regions—3 years S: National—no formal contract but 1-3 years for subsidised service; Regional: half a year to 5 years

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Destination of subsidiesDK: State financing of infrastructure project; subsidisation of non-profitable passenger service;GB: Limited public financing of infrastructure work; Selective financing of traffic operations G: Gov. contributes to the financing of new infrastructure project; Regional service subsidisedF: State financing of infrastructure project; subsidisation of domestic passenger serviceS: State financing of infrastructure project; subsidisation of non-profitable passenger service

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Railway Sector Performance ChangeAnalytical Framework of Performance Measurement

PRODUCTIVITYANALYSIS

Resources Inputs Market take-up UtilityService supply

CBA and MCA

SERVICE PROVISION EFFICIENCY ANALYSIS

MARKET EFFECTIVENESS

ANALYSIS

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Performance: Labour ProductivityLabour Productivity Indicator

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0

9000.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

VK

M/S

N

France

Denmark

Sweden

GB

Germany

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Performance: Capital ProductivityCapital (infrastructure) productivity

0.00

5.00

10.00

15.00

20.00

25.00

30.00

VK

M/R

ou

te-K

M (

000s

)

France

Denmark

Sweden

GB

Germany

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Performances: Market Effectiveness Index of Passenger Km

70

80

90

100

110

120

130

140

150

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

France

Denmark

Sweden

GB

Germany

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Performances: Service Provision Efficiency

Partial Service Provision Efficiency Indicator

0.0100.0200.0300.0400.0500.0600.0700.0800.0900.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

PK

M/S

N (

000s

) France

Denmark

Sweden

GB

Germany

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Performance Change: Overall Assessment

Country Period Δ LP Δ CP Δ PKM Δ PKM/SN

France 1994-99 +15.9% +11.8% +13.3% +20.7%

Denmark 1994-99 +102.2% +7.1% +5.7% +101.8%

Sweden 1994-99 - - +25.9% +53.7%

GB 1996-01 +95.1% +19.6% +21.8% +98.9%

Germany 1994-99 +80.7% +19.0% +18.3% +98.5%

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Conclusions and RecommendationsTheory suggests product market competition may be productively and dynamically efficient but may be allocatively inefficientEmpirical evidence is inconclusive: increase in demand and reduction in costsDifficult to identify the effect of other external factors and analyse counter factual Requires detailed analysis at micro level, using quantitative models of on-track and off-track competition

UNIVERSITY OF OXFORD Transport Studies Unit Review of Introduction of Competition in Railways in...

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