The Reform of UK Railways —Privatization and Its Results Gérard Mathieu

Home , Alastair Morton, British Rail, Direct Rail Services, Railtrack, Rail Regulator, Speedlink

Feature Railway Reforms in Europe

This article presents the results of a differences included: According to the privatization supporters, detailed analysis by the High Council of • A very low market share (about 5% of this separation of business activities would the Railway Public Service (CSSPF)1 of the the overall market) and a seemingly lead to a more responsible, innovative, and reform of UK railways 5 years after their irreversible decline in rail transport customer-oriented management style—the privatization. Privatization was a difficult • Great dependence on large subsidies older organization had been designed more process that had been put off for a long • Presumed vigorous opposition from for dealing with operating constraints than time. It was carried out in great haste by local residents to line closures and for satisfying market needs. In 1991 and the government, who first opted for network downsizing 1992, an additional step was taken with excessive fragmentation of the rail sector the introduction of The Organizing for and establishment of Railtrack as a private Prime Minister Thatcher and her cabinet Quality (O for Q), which would lead to ‘landlord,’ to manage the infrastructure, were extremely cautious about the idea abolition of the old regions and establish and then—despite the initial intentions— of privatizing railways, judging the issue profit centres within each business sector. had to renounce real competition to be complex and ‘potentially The BRB assumed overall responsibility (for between the franchised Train Operating unworkable.’ The Prime Minister ‘…felt general policy, finances, technical Companies (TOCs). Although traffic that Middle England held an inexplicable standards, etc.), while each profit centre increased, the mixed results were much affection for its railways and that to tinker had its own management. The high degree criticized in Britain, because the quality with BR would precipitate a political of autonomy and the new O for Q of services deteriorated considerably and disaster.’2 organization provided managers with the railway infrastructure has been poorly The initiative came from both Norman experience and principles that would prove maintained and managed. This situation Fowler, the Transport Secretary, and from invaluable when the railways were led the British government to place the British Railways Board (BRB) itself. Both privatized. To a large extent, this BR Railtrack in administration on 7 favoured privatization of BR subsidiaries. reorganization created favourable November 2001 and a new organization Above all, Fowler saw a way to reduce conditions for privatization. called Network Rail was announced on 3 subsidies, while the BRB hoped for more October 2002 (see JRTR 33, pp. 32–40). investment in the rail sector. This did not Long road to privatization from happen; once united within the same 1988 to 1997 Reform—Laborious and holding company, BR subsidiaries were BR privatization became a top priority for Risky Venture sold off gradually between 1981 and 1989. the government again only in 1988 under the initiative of Paul Shannon, Transport Denationalization or not? Precedent of BR reorganization Secretary. Even so, the government Reform of UK railways was part of the vast by business sector wavered between three options: programme of privatization undertaken by The privatization of UK railways was • Regional division, following the Margaret Thatcher’s Conservative facilitated by the reorganization model provided by the old private government in various sectors of the undertaken by BR in the 1970s. The aim networks in the pre-BR period economy, including telecommunications, was always to reduce BR’s need for public • Separation by business type into water authorities, air and road transport, subsidies. At the heart of reform efforts intercity, regional, and freight and maritime ports. However, the rail was partial reorganization emphasizing • Physical separation of infrastructure network was not an obvious choice for operations (business sectors) and using the and operations by establishing a Track denationalization and took place through existing structure based on regional Authority a long privatization process lasting from offices. The latter were then limited to 1979 to 1997. The British government operating trains. The business-sector The 1992 White Paper New Opportunities was perfectly aware of the unique offices designated people who were for the Railways reached the final choice; difficulties posed by the rail transport responsible for managing their sector and its intent was ‘To harness the management sector because British Rail (BR) was very achieving objectives, especially in skills, flair and entrepreneurial spirit of the different from other industries. These marketing, costs, and investments. private sector to provide better services

Acknowledgement: This article was first published in French in Transports No. 423 mai/juin 2002, pp. 149–169. It is reproduced in English by courtesy of the publisher, Les Éditions Techniques et Économiques, at 3 rue Soufflot, 75005 Paris, France.

16 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. to the public’ by creating guidelines for the privatization process and following the spirit of preceding privatizations. The chosen method was to: • Separate infrastructure and operations • Create a single manager for all infrastructure (Railtrack) • Divide BR into some 20 operating units • Adopt a franchise system for passenger services

Why privatize? Despite her first reservations, Thatcher finally rallied to the principle of rail Commuter train at London Victoria Station before BR privatization (EJRCF) privatization. However, she was deposed as party leader and it was Prime Minister from train operations, the British purchased BR’s rolling stock and let it John Major who oversaw the BR government’s decisions went well beyond to the TOCs. privatization after Parliament adopted the these measures. • Many subcontracting companies were difficult 1993 Railways Act. The Act created, mainly to maintain and obtained royal assent on 5 October 1993 Fragmentation of BR improve infrastructure according to but 3 more years were needed to achieve Operations ‘modern equivalent’ rules. a functioning business structure. In promoting privatization, the The chosen option ultimately divided UK The TOCs have a monopoly on the lines government had three objectives: railways into some 100 separate entities they operate on, although other operators • Reduce the level of government summarized as follows: can use some track sections. The same subsidies for rail transport over the • Railtrack became the sole owner and applies to stations and depots, which were long term manager for the entire railway leased by Railtrack to a TOC (a Station • Open the transport sector to infrastructure including tracks, Facility Owner (SFO) in charge of track competition to improve services, signalling equipment, electrification operations and management). increase railway productivity, and equipment, stations, depots, shops, Competition is limited because very few reduce administrative sluggishness etc. services compete on the same • Respond better to market needs, • Twenty-five TOCs were established infrastructure. There is competition in thereby meeting demand and with franchises to run passenger awarding the franchises, but there is very improving financial results operations for durations of between 7 little in the market itself. years (18 franchises) and 15 years; Despite total privatization of the Privatization opponents ascribed ulterior • Eurostar, an international company, railway freight sector, the rail freight motives to the process, including the began managing joint operations with companies have a quasi-monopoly government’s desire to relieve public French National Railways (SNCF), status (although this is entirely relative, finances from the weight of investment Belgian National Railways (SNCB), because roads account for 94% of the necessary to improve a network that had and Eurostar UK as a 26th operator. freight market) and each carrier is very suffered from 20 years of chronic under- • Four freight companies were specialized (combined transport, investment, by transferring responsibility established: English, Welsh & Scottish nuclear, aggregate, etc.). to the private sector; and the desire to Railways (EWS, the most important), reduce the ‘paralyzing’ influence of the Freightliner, Direct Rail Services transport unions. Although privatization (DRS), and Combined Transport Ltd. Railtrack—A Private Monopoly was legitimized by the new European (CTL). policy of opening the rail sector to • Three Rolling Stock Companies Before being taken into administration on competition and separating infrastructure (ROSCOs) were established. They 7 November 2001, Railtrack was the sole

owner of the railway infrastructure. It was responsible for major repairs and provided a core of guaranteed slots (firm created by the 1993 Railways Act and was maintenance, assuming the time slots permitting train operations), initially organized under public statutes. responsibilities incumbent upon an which were tacitly renewed unless a TOC The company was privatized in May 1996 owner. The proper operation of the system wished to reduce them. Requests for and listed on the London Stock Exchange was monitored by the Regulator who had additional slots, especially requests from with 665,000 shareholders owning £1.9 powers of arbitration in case of conflict. competitors (other TOCs or freight billion (£1 = $1.58) in stocks, placing the The creation of a private monopoly companies), were considered during company in the top rank of initial public holding the entire railway infrastructure twice yearly planning conferences offerings (IPOs). By this measure, the sale posed problems for the other players, between Railtrack and the operators. of Railtrack was a success. The especially the government. Railtrack was The second important function of management’s public-relations campaign in a strong position when demanding Railtrack was to organize and manage had a strong impact; Railtrack enjoyed the public subsidies for investments in safety train traffic according to the pre- confidence of institutional investors who equipment and attaining standards of established timetables. appreciated the soundness of the new comfort with little or no effect on Railtrack had two command levels for this structure, the security of its future profitability because Railtrack was not function: regional centre supervisors who resources, its relative flexibility, and the conceived with responsibility for these were responsible for several main lines, weakened transport unions. tasks using its own resources. and signal box traffic managers. Both In 1996, Railtrack owned 16,649 km of groups worked in cooperation with the lines (1611 km dedicated to freight) of Railtrack’s main functions TOC operations centres. This separation which 5166 km were electrified; 50 Railtrack’s main function was to provide of command did not create problems tunnels; 40,000 bridges and viaducts; network access to the operators and to when trains were on time, but required 2508 stations; 1500 signal boxes; 9000 assign time slots. arbitration after a delay to determine level crossings; and 90 shops and depots. To enjoy access to lines, stations and whether the TOC or Railtrack was (For comparison, SNCF operates depots, a TOC must possess a licence from responsible for the delay, and which 31,735 km of lines of which 14,206 km the Office of the Rail Regulator (ORR). company would compensate the other are electrified). Railtrack administered 14 The definition of standards and approval impacted company or companies. This large stations directly, and leased the of new rolling stock is the responsibility forced Railtrack to record all train delays, remaining stations and depots to their of a non-commercial office of Railtrack, to determine responsibility, and then to principal TOC, which at that time, had supervised by Her Majesty’s Rail decide the amount of compensation to be the status of either an SFO in the case of Inspectorate (HMRI), which is a paid. Railtrack compensated impacted stations, or a Depot Facility Owner (DFO) specialized department of the Health and operators from its own funds when it was in the case of depots. Safety Executive (HSE). In this area, responsible for the delays, or imposed The duration of the lease was basically Railtrack was heavily criticized for ‘…its penalties on responsible TOCs the same as the franchise. Because bureaucratic operations, its inability to determined. The size of the compensation stations and depots may be used by quickly provide builders with reliable often amounted to many millions of several TOCs, the SFO or DFO had to information on mandatory safety pounds sterling. guarantee access to the others users. standards, continuous changes in those In these disputes, Railtrack was both judge Station (or depot) access agreements standards, the impossibility to access the and litigant, which acted as a disincentive specified the capacities and services network to perform tests, and excessive to work for the public interest in available to the users. In addition, users slowness in approval procedures.’ The minimizing all delays. For example, had to sign a supplementary collateral result was inordinate delays in making Railtrack sometimes decided to delay an agreement with Railtrack. The entire new rolling stock available, with several on-time local train so that it could be process was regulated by the National hundred carriages backlogged in builders’ overtaken by a late InterCity train, Station Access Conditions, which yards. This created problems for TOCs in although the overall delay (local + determined the responsibilities of each meeting the heavy increases in traffic and InterCity) would have been less by not party. SFOs (or DFOs) are generally for their customers in suffering from doing so. responsible for the operation, cancelled services, etc. The third important function of Railtrack maintenance and provision of certain With regard to capacity, track-access was to ensure maintenance of the services to other users. Railtrack was contracts between Railtrack and the TOCs network.

18 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. Figure 1 UK Rail Passenger Traffic 1994–2000 Figure 2 UK Rail Freight Traffic 1990–99 (billion passenger-km) (billion tonne-km)

40 20 18.4 17.4 18 16.9 35 7.5 7.5 16 15.5 7.2 16 15.3 15.1 30 6.8 13.8 6.55 14 13 13.3 6.2 25 5.7 17.6 18.4 12 20 16.5 15.55 10 14.4 15 12.9 13.3 8

10 6 5 12.25 12.6 13.2 13.2 10.1 10.5 11 4 0 2 1994 1995 1996 1997 1998 1999 2000 0 Long distance London and SE Regional 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Railtrack’s mission was defined at a time Railtrack’s Resources fees would be calculated henceforth on when prospects for growth in rail traffic —Fees and Public Subsidies the much more favourable basis of short- seemed very limited and the network term marginal cost. The estimated lost configuration and equipment appeared In principle, Railtrack’s financial resources revenue over 5 years of £416 million was capable of satisfying demand. Thus it was came only from fees paid by the TOCs to be compensated for by government expected to maintain its infrastructure in (85% of revenue) and freight transporters subsidies. a state that would guarantee performance (6%). The remaining 9% came from Railtrack also received government and, in due course, to replace the income on real estate and miscellaneous subsidies (and sometimes from local components with modern equivalent proceeds. Access fees were negotiated government) which were projected to equipment, assuming more or less between the TOCs and Railtrack based on amount to £8 billion over the 2001–06 constant traffic levels. However, complete-cost (full-cost) standards period. This amount was increased to £15 unforeseen growth in passenger (+36%) determined by the Regulator. This billion after Hatfield when the accident and freight (+42%) traffic between 1994 principle lead to deliberately high fees report highlighted the need for massive and 2000 changed the situation intended to give Railtrack an adequate investment to make the network safer. considerably (Figs. 1 and 2). Capacity financial base for procuring funds in the However, there is a risk that even this bottlenecks appeared at many locations market without dependence on massive subsidy will be insufficient to and required new infrastructure with government guarantees or appropriations. prevent postponement of completion of much larger unforeseen investments. Originally, access fees were comprised of numerous projects, such as the West Coast The fourth important function of Railtrack a fixed part representing 90% of the total, Main Line linking London, Birmingham, was to guarantee train safety. which was supposed to cover the ‘price’ Manchester, Liverpool and Glasgow. This Railtrack was one of the main entities of capacity, and a variable part. But this cost of this project has ballooned from responsible for train safety and was also led to cases where extra trains could not £2.2 billion to £5.8 billion, requiring responsible for ensuring the reliability of cover their marginal cost. With a view to additional public subsidies of £2.6 the infrastructure. It also enforced traffic managing network capacity problems billion—three times more than originally management procedures and safety better, the Regulator decided to modify expected. There is even talk of a need for regulations. Several accidents over the the complete-cost standard by reducing £6.3 billion! last few years (see JRTR 33, pp. 32–40) the fixed part to 78% and increasing the cast considerable public doubt on the variable part according to traffic levels. integrity of the track, signalling Following the Hatfield accident in Railtrack’s Operations equipment, and safety systems, and October 2000, the Regulator cut freight played a major role in the government’s access fees by about 40% in order to Railtrack employed some 11,000 November 2001 decision to take Railtrack stimulate freight traffic, which had been personnel working in regional rail into administration. badly affected; it was also decided that operations centres, switch boxes, etc.,

to BR’s privatization from the opposition Labour Party and unions. Even some Conservative MPs took the same initial position as that of Prime Minister Thatcher, opposing any reform judged to be politically risky and difficult to accomplish technically and financially. • The urgent need for the government to arrive at a quick conclusion before the anticipated spring 1997 elections. Lord Roger Freeman, Conservative MP and Minister of State for Public Transport, is reported as saying, ‘We had literally daily meetings of senior officials and ministers. We had a clock Crowded London Waterloo Station in 2001 (EJRCF) at the back of our minds aimed at the last possible election date.’ with responsibility for regulating train engineering companies, such as Balfour operations. Even so, Railtrack suffered a Beatty, Tarmac, Jarvis, Fastline, Amec, and A further factor was the apparent debilitating loss of talent; privatization and Amey, and research offices. The contradiction between the franchise system the massive increase in subcontractors led Parliamentary commission of inquiry into and free access to infrastructure. It was to the departure of many experienced the Hatfield accident criticized Railtrack soon evident that nobody would bid for a operations managers and engineers. The for a lack of control over its contractors, franchise unless they were certain of profits. attrition was so bad that Railtrack sought lack of communication between them, Just the idea of another operator running to recruit engineers from other parts of and lack of experienced professionals on the same line and skimming off the most Europe, India, South Africa, North responsible for defining needed lucrative markets would undermine America and elsewhere. infrastructure improvements. confidence in the revenue source. It Railtrack’s total sales increased from £2.3 followed that competition and, even more billion in 1996 to £2.5 billion in 2000 with 25 New Franchisees in importantly, free access to the network 85% of all receipts coming from TOC 1996 and 1997 would have to be limited. This decision access fees. The main expenses were for was inevitable, although many privatization renovations (51%), infrastructure The UK rail network was carved into 25 supporters found it difficult to accept maintenance (28%), and investment in franchises awarded by the Office of because they felt that the main reasons for improvements (18%). Net profits rose to Passenger Rail Franchising (OPRAF) privatization were to introduce and £360 million in 1999–2000, but after the within the framework of the 1993 encourage competition while reducing Hatfield accident and the burdensome privatization reforms. The franchise subsidies, create new services, and increase verification, maintenance and contracts vary in duration but generally supply. It became necessary to demonstrate improvement work that followed, Railtrack run for 7 years and stipulate the level of that the free-access model was not viable. recorded a pre-tax loss of £534 million for services and subsidies. This division into The opposition Labour Party was keen to FY2000–01. Prior to being taken into many franchisees led to a reduction in the point out that the proposed reforms would administration, substantial losses were length of lines operated by a single entity simply replace a public monopoly with a projected for the 5 following years, possibly (several hundred km for 16 franchises, private monopoly run by Railtrack. reaching £8 billion in 2003. with only 9 franchises exceeding Labour MP John Prescott complained on In addition, Railtrack called upon some 1000 km). 2 February 1993 that, ‘We shall be 20 subcontractors for maintenance and Two factors played a major role in the replacing the public monopoly with a renewal of the network infrastructure. Conservative government’s actions private one.’ John Swift, the Rail Regulator These subcontractors were mainly regarding franchises: said, ‘Railtrack would run a monopoly.…It regional BR divisions purchased by civil • Significant and strenuous opposition would control network access of

20 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. franchisees who will themselves be making the process irreversible. However, the equipment on the one hand, and the protected from competition.…Under such competition between the operators was much shorter duration of the franchises conditions, how could I promote almost non-existent. When two operators on the other. competition among operators?’ used a certain line section, the The answer came in the Moderation of competition is more apparent than real, Creation of ROSCOs Competition Regime, which regulated the because the competition does not entail The government established three access of new entrants by setting three major origin–destination connections. companies: Angel Train Contracts, access stages: Instead, it involves different supply and Eversholt Leasing, and Porterbrook • Exclusive access rights to companies service (speed and price) levels. Leasing. If common logic had been franchised until 1999 followed, the passenger rolling stock • 2000–02: Competition allowed up to The current situation (about 9000 carriages) would have been a limit of 20% of a franchisee’s The Shadow Strategic Rail Authority assigned to the three operation sectors— revenues (SSRA) decided to renew the franchises, InterCity, Regional and Network South- • 2002–05: Competition allowed up to beginning in October 1999. The intent East. But the aim was to create a limit of 50% of a franchisee’s was to proceed before the end of the competition between the new companies. revenues franchise terms by issuing invitations The device that was adopted consisted of before the end of 2001 for tenders for distributing the rolling stock between the Aside from the difficulty of applying short-term franchises (7 or 7.5 years), new ROSCOs in a way that would permit such a measure, it only dealt with while reducing the number of franchises. TOCs to call upon several suppliers for possibilities, not obligations. The However, it soon became evident that this the most up-to-date equipment. The most TOCs were opposed to it and the timetable could not be met and that the widely used carriages were distributed measure was not adopted and no most probable horizon was 2003. between all three ROSCOs; less longer seems to be on the books. Moreover, given the post-Hatfield commonly used carriages were divided Then, what were the reasons behind situation and the need to reorganize the between two ROSCOs and series with just privatization? What was the meaning sector,Transport Secretary Stephen Byers a few cars were assigned to one ROSCO. of a reform dedicated primarily to announced his intention to place the Selling the three ROSCOs proved difficult. opening the entire network up to process on a new foundation by Finally, the GRSH consortium stepped competition? Did the reform permitting the TOCs to promote medium forward to buy one, while businesses measures, which were a complete and long-term investment policies. On launched by former BR managers bought reversal of previous transport policy, 16 July 2001, Byers invited the SRA to the other two (so-called management not clearly demonstrate a lack of propose 2-year extensions to the short- buyouts). foresight that originally prevailed in term franchisees, and to concentrate on Angel and Porterbrook were sold in the design of the new organization? negotiation of advantages for passengers January 1996 for £696 million and £528 At any rate, it was no longer possible within existing franchises, which would million, respectively, while Eversholt was to turn back the clock without having provide a 2-year period of stability to sold in February 1996 for £518 million. the entire privatization process reorganize the sector. In total, 25 The three companies invested in new trains derided once more by its opponents, franchises are currently distributed among to cope with the rapidly growing market, which would have made it impossible 11 groups, with two groups holding half but the new owners were soon heavily to meet the spring 1997 deadline. the franchises. A number of these groups criticized when they resold in the space of The first two franchises were awarded on were already heavily involved in the just a few months between August 1996 4 February 1996, and 13 had been transport sector. and December 1997. Due to the awarded by 31 December 1996. The substantial and rapid appreciation in stock remaining 12 franchises were awarded values (between +40% and +58%), the with some haste during the first quarter of Privatization of Rolling Stock sales realized short-term profits of £910 1997—seven were awarded ‘just on time’ million, mitigated somewhat by the in March. The allocation of rolling stock to considerable dividends paid to the The privatization of BR’s passenger companies other than the TOCs was a government prior to privatization. The operations was achieved by 1 April 1997, necessity, due to the incompatibility beneficiaries emphasized that the London meeting the government deadline and between service life and amortization of stock market had grown by comparable

proportions during the same time but even inflexible circumstances that hinder the engineering companies with a few to so the difference remained considerable system operation and increase costs, management buyouts. Although the and difficult to justify. The controversy especially in the case of stations and sector still remains fragmented, some focussed mostly on the considerable relationships between Railtrack, TOC management buyouts were resold after personal profits realized by the company SFOs and ordinary user TOCs. 1997, following the trend towards managers. The National Audit Office concentration. (NAO) was asked to analyze the situation, Direct orders Who overhauls rolling stock in addition and determined that political Many TOCs believe that the prices to TOCs? The same process was applied considerations at the time of the charged by the ROSCOs are abusive and to British Rail Maintenance with the sale privatization affected the government have tried to escape the ROSCO of the seven largest units—four to ABB valuations and sales. The NAO determined middlemen by buying rolling stock (becoming AdTranz and then that the total value of the three companies directly from rolling stock builders. These Bombardier); two to Railcare (a Babcock had actually been about £2.5 billion. This attempts are supported by the current International–Siemens joint venture); and finding launched a debate that has not yet efforts to lengthen the duration of the TOC one to Wessex Traincare, a management been resolved and cast suspicion about the franchises. buyout. This had the effect of absorbing conditions of the entire privatization. New rolling stock is now being used by a large part of BR’s in-house expertise and about a dozen TOCs. More than 3300 helped promote the smooth functioning Role of ROSCOs carriages were ordered after privatization, of the maintenance sector. The ROSCOs lease rolling stock to the and nearly half were in service by the end TOCs for their operations. In theory, the of 2001. However, deliveries have Tailor-made Freight ROSCOs are responsible for major proceeded slowly (184 in FY1999–2000, Transport Organization overhauls, with ongoing maintenance 257 in FY2000–01), and 511 vehicles that done directly by the TOCs. However, the were supposed to enter service in 1999 Rail’s share of the UK freight sector has ROSCOs actually do not have or 2000 had still not been delivered by 1 declined continuously for 50 years, both maintenance workshops while the TOCs June 2001. in absolute value and market share (from do. Consequently, the ROSCOs are forced Realizing that difficulties in certification 40% in 1954–56 to about 6% by the early to conclude various types of maintenance of equipment and resulting delays would 1990s). This decline was accelerated by contracts with the TOCs as follows: have extremely negative consequences for restrictive government policies that • Contract between the ROSCO and both passengers and operators, the SRA imposed strict budgetary reductions on TOC contracting the TOC to perform coordinated efforts with builders to BR, causing it to divest some freight overhaul of the rolling stock it rents develop a National Test Facility, guided operations. The closing of Speedlink from the ROSCO for the ROSCO by procedures followed in Europe and accentuated the process by encouraging • Contract with one TOC to perform North America. transfer of freight to roads except for overhaul of the rolling stock leased by trainload freight shipment. Traffic the ROSCO to another TOC minimums were imposed in the form of Maintenance Companies high-volume guarantees or minimum The ROSCOs can also conclude contracts annual payments and customers who with independent workshops for major Who maintains infrastructure? Railtrack could not reach these minimums had to maintenance operations. Two private had a monopoly over infrastructure and endure rate increases that could reach companies purchased BR stock for spare was directly responsible for its 200%! Some terminal operators were parts. Porterbrook handles the majority maintenance and replacement. However, compelled to reduce operations and close of contracts involving financing of new in practice, Railtrack subcontracted all some freight platforms while others went rolling stock, and wants to equip itself with maintenance operations to specialized bankrupt. Parallel with these a fleet that it would make available to companies formed during the break-up of developments, BR businesses encouraged TOCs needing it, either as a short-term British Rail Infrastructure Services, which their customers to invest in modern rental or as a lease. was established by BR the 1990s as a new equipment (including purchase of All-in-all, the system is incredibly organization for activities in 13 different locomotives) that BR could not buy itself. complex. There are a multiplicity of sectors. These specialized companies The government’s original aim was to contracts and agreements creating were sold in 1996 mainly to major British promote a high degree of competition by

• Awarding franchises after calling for • Management of financial flows implicit in tenders performance incentives and penalties calling for tenders for rights to a relatively • Administration of franchises established to ensure acceptable level of large number of companies. Rail Freight Negotiation of Franchise Agreement services Privatization: The Government Proposals contract awarded to each TOC stipulating: • Regulation of fares with social character, – Level and content of services representing about 48% of total receipts recommended the creation of six – Amount and timing of subsidies of 25 TOCs. These rates were indexed to companies derived from BR. Competition – Duration of franchise the Retail Price Index during the 3 years between the companies was planned • Negotiation of Franchise Plan, stipulating after privatization, then to the same index through incursions into competitors’ TOC commitments with regard to supply minus 1% regions. improvements, new trains, reliability and • After the final awarding of franchises in late punctuality objectives, connections with 1997, the government determined that bus companies, station furnishings, etc. protection of passenger interests was Ambition to reality • Payment of subsidies to TOCs (in OPRAF’s most important priority Privatization of freight was not a matter cooperation with the Passenger Transport of granting franchises to operators (as done Executives) for the TOCs), but of completely privatizing freight business and permitting establishment of private companies that companies were created: Direct Rail reality numerous overlaps caused were not obliged to maintain service Services (for core equipment) and difficulties, increased transaction costs, levels and that could buy operating Combined Transport Ltd. (to handle and conflicts between various players licences, own their own rolling stock, and transport to and from the continent). sharing control of the sector including, operate in a very open environment. Their However, free access remained HSE, HMRI, The Rail Passengers Council only obligations were to acquire a licence, theoretical. Some manufacturers showed (RPC), and BRB. respect safety regulations, and negotiate an interest in transport operations on their access terms directly with Railtrack. own, but ran up against numerous barriers Office of Passenger Rail Initially, there were no buyers. Ed such as the cost of the ‘Safety Case,’ Franchising Burkhardt, President of the successful and involving prohibitive insurance (premium OPRAF is an independent public authority prosperous Wisconsin Central, was shown of £0.5 million for coverage of only £1 financed directly from the Treasury. Its the proposal by the British government million or £2 million). Another problem main function is to award franchises to and declared, ‘This structure is crazy.’ He was the difficulty in recruiting and training TOCs. Within this framework, OPRAF criticized the separation of operations and new drivers. was made responsible mainly for infrastructure, the insistence on free determining minimum levels of service access, and the break-up into six and performance standards, fares for companies in a sector with just 6% of the New Privatization Framework ‘captive’ passengers, subsidies to TOCs, total market. He also sharply criticized and control over services (Table 1). the plans as ‘…the brainchild of a bunch For the supporters of privatization, the Consequently, OPRAF both negotiated the of ideological consultants, economists, goal was simply to make rail transport award of the 25 franchises and also public servants of various types, all very more efficient. Nevertheless, after ensured conformity of agreements signed intelligent and capable people, but no one considering the unique nature of rail by the franchisees and other newly with a true knowledge of what it means services, the public’s general perception privatized companies. The aim was to to run a railway.’ of rail services and the belief that any quickly establish commercial entities that Finally, five companies were sold to an change was an attack on ‘its’ railway, the would pay Railtrack fees for the use of American consortium led by Burkhardt, government soon realized that market infrastructure and stations, and leasing of primarily Wisconsin Central, Berkshire forces alone would not safeguard the rolling stock by the ROSCOs. OPRAF’s Partners and Fay-Richwhite. The new greater social good. Obviously, regulation 1998–99 budget was approximately £11 company took the name of English, Welsh was essential to maintain the coherence million with a staff of 109 coming from & Scottish Railway. The consortium made and integrity of the national network and government offices and BR. It received a the purchase with great hesitation, to protect consumer interests. subsidy of £1.2 billion in FY1998–99. regarding the rail freight entity as ‘…a The retained system shared Initially, OPRAF’s operations were business losing a million pounds a week.’3 responsibilities between ORR and supervised by the Department of the Only Freightliner, a management buyout, OPRAF. Although these two organizations Environment, Transport and the Regions remained independent. Two specialized were supposed to be complementary, in (DETR), which established objectives and

The Health and Safety Executive The HSE monitors adherence to regulations designed to protect the health and safety of the general public. HMRI is a specialized department within the HSE that is responsible for safety in the rail sector and has control over railway safety regulations and procedures by enacting standards for the design, construction and operation of railway equipment. In the broad sense, these standards cover rolling stock, infrastructure and all railway equipment. HMRI’s functions also include improvement and modification of existing equipment that must be authorized after notification. HMRI also approved standards, systems and procedures proposed by Railtrack within the Safety Huge Railtrack banner at London Paddington Station in 1999 (EJRCF) Cases. HMRI’s budget is £230 million and it has a staff of 90. provided guidance set out in Objectives, governing competition, and ensures that HMRI worked with Railtrack in accepting Instructions and Guidances. This passenger rights are respected. The or rejecting use of new rolling stock. This arrangement placed OPRAF under strict Regulator also supervises Railtrack and the arrangement created many difficulties, government control but its functions were ROSCOs. including cases where Railtrack and later assumed by the SRA. Generally, the Regulator ensures the HMRI refused to authorize commissioning cooperation of all parties involved in of several hundred new carriages. Office of the Rail Regulator railway operations and the proper working The Regulator is an independent of the entire system. He or she verifies The British Railway Board magistrate, appointed for 5 years. His or that Railtrack’s behaviour within the The BRB was the only operator after WWII her functions are: network is efficient and in the public and has been retained after privatization • To protect the interests of passengers interest, that competitors clearly respect with the following functions: • To promote the use of railways for the interests of passengers and, in cases • To respond to the call for franchise shipment of freight of a monopoly, that the monopoly is duly tenders, if the call is unsuccessful • To promote the use and development controlled (particularly with regard to rates • To manage non-operating inherited of the rail network and profits). assets (mainly real estate) • To promote competition and To successfully perform his or her duties, • To administer the British Transport efficiency the Regulator has an administrative office Police, which is responsible for • To monitor the safety of rail transport (ORR), funded by income from operating policing the railways • To monitor maintenance of the licenses and from DETR. In 1999–2000, • To manage remaining debts network ORR had a budget of about £13 million • To ensure that through-ticketing and a staff of 133. The Rail Passengers Council agreements are respected The Regulator is not legally obliged to The RPC is composed of a National • To monitor the financial situation of follow government instructions. He or she Council, plus nine regional committees the sector is more independent than OPRAF, (for London, for six regions in England, receiving only advice from DETR. and one each for Scotland and Wales). The Regulator grants operating licenses, However, the Regulator is appointed by The committees were established in 1947 supervises the TOCs’ access to the the Transport Secretary and the Regulator’s to represent regional and user interests. infrastructure under fair competition, mandate cannot be extended beyond that Their existence and function were verifies TOC rates, determines regulations term. reaffirmed in the 1993 Railway Act, which

• 50% growth in total passenger traffic • Better integrated information on customers • 80% traffic increase in InterCity traffic • Better service and better station quality • Greater InterCity service frequency • Significant increase in rail freight share: clearly gave them the role of protecting • Faster InterCity operations – +80% or additional 15 billion tonne-km consumer interests while acting as a • Increased frequency on suburban lines projected for 2010 ‘watchdog.’ The Act expanded their • Better east–west connections, for example: – Increase to equivalent of about 1 billion truck – across Pennine chain trips jurisdiction to cover a wide area, – new lines across London • More effective and competitive supply system including fares, marketing, information, • Increased reliability and punctuality: punctuality and availability of services, – quantitative aims (15 out of 16 (94%) trains on time) competition, timetable changes, crowded – stipulated in new franchises trains, sanitation, and comfort of trains and stations. The purpose is to have the RPC contribute to the control of private reopening of lines and stations, mentioned rights, protection of the environment, line monopolies and ensure a good balance above. closures, and the role of spokesperson for between operators. It likewise has a say consultative bodies) the relevant functions in decisions to close or open stations and Why was SRA established? of the Transport Secretary, in the freight lines, having successfully urged the The SRA was established to compensate sector. opening or reopening of more than 300 for certain shortcomings and to ensure The SRA has a wide reach. First, it defines stations, the transfer of 600 km of freight stricter control over the sector by working: long-term strategies for the entire sector lines to the passenger rail network, and • To clarify the separation of to promote rail transport, increase market the construction of some 15 new track responsibilities that were previously share (particularly at the expense of roads), sections totalling 60 km for passenger diluted between numerous players promote intermodal transport, and services. (primarily OPRAF, the Regulator, steadily ensure inter-operability of certain The RPC does not act under its own Railtrack, the TOCs and the BRB), and major British routes with the network in power. It presents recommendations and to specify the objectives of each and continental Europe. This new role is advice to the Transport Secretary, handles their respective roles, in order to avoid intended to compensate for the absence individual and collective claims, opens conflict and redundancy of a long-term vision since privatization inquiries, and transmits the results of its • To promote a long-term vision, which in the strategies of important players such inquiries to the relevant departments and was severely lacking previously, to as Railtrack and the TOCs. Second, it authorities. Its budget is around £5 million plan development strategies for the rail regulates competition and application of with resources coming from funds network in order to ensure the controls to ensure conformity of services, allocated by the Regulator and presently effectiveness of the sector, and to and has taken over OPRAF awarding of relayed through the SRA. Members are propose ways to achieve greater franchises with the aim of calling for new appointed after calls for candidates, and capacity for passenger and freight renegotiated tenders. In return, new are chosen after consideration of their transport franchisees must commit themselves with experience in, and knowledge of, the • To promote greater use of rail services regard to investments, service levels, transport sector. However, they are not within the framework of new policies subsidies, and the appropriateness of very representative of the population—the to achieve a better balance among connections with other companies. (Too majority are managers, professionals, and transport modes. Transport 2010— often, these factors were ignored in order farmers from rural areas and women are The 10 Year Plan, an integrated to reduce delays and limit competition.) a minority. The RPC appears to be transport White Paper has been set as Third, it controls and coordinates the completely unhampered when it comes the objective (Table 2) players through a previously lacking to expressing its opinions and levelling • To integrate various transport modes: leadership role. Finally, it works in criticisms, as is evident from various Passengers—better connections with partnership with private investors. documents and hearings. Even so, it other modes of transport, depends on the government for financing. Freight—modernization and creation Relationship between SSRA and Other consumer organizations, such as of intermodal platforms. SRA Railfuture, are independent but have SSRA officially started operation on 1 July limited means. They participate in The SRA has taken over all functions from 1999. This status was assumed while deliberations, mainly with regard to OPRAF and the BRB; some roles waiting for the conclusion of consultations regional or local improvements. They previously held by the Regulator (mainly and the legislative process required to have played an important role in the involving safeguarding of passengers’ permit formal establishment of the SRA

(on 1 February 2001). However, the SSRA did not concede the roles of developing OPRAF to complete a type contract. was able to act in many areas, particularly and extending the network, or maintaining Progress was also hindered by constant in renewal of franchises, many of which the existing network to the SRA. government intervention due to its strong had adapted poorly to market conditions. desire to complete the entire sale before It also prepared and negotiated the Legal and Contractual the General Election in the spring of 1997. Strategic Agenda with its partners, Agreements to Promote The process was undertaken urgently but especially Railtrack. As Sir Alastair Operations pragmatically. The early contracts were Morton wrote, ‘agenda’ means ‘that which quite different from each other due to is required to be done.’ The Strategic The complex relationships between the specific circumstances but later contracts Agenda is not simply a plan but is a many players within the new system led were more standardized. document with the following objectives: to systematic legal or contractual Naturally, a key discussion point was the • To highlight challenges the SRA must agreements specifying (in the greatest size of the track access charges. The face detail), the conditions and obligations of government’s key aim was to make • To eliminate or reduce areas of each of the partners and the major Railtrack profitable, so the guiding uncertainty transportation cost generators. The principle was that track access charges • To achieve progress in defining the following sections explain the major must cover the total cost (operating costs content of statutes contracts and arrangements. + current depreciation + return on capital). • To provide future orientation for SRA Fees were calculated as a fixed cost actions Track-access contracts representing 91% of the total. Such a • To open debate on and promote the Network access contracts constituted the concept was viable if traffic remained future strategic plan foundation of relationships between stable or decreased. (The latter condition Railtrack and the TOCs. The relationships was broadly expected by a number of Nevertheless, establishment of the SRA did were difficult to define. There was no political leaders and experts, who not resolve problems posed by the original reference baseline, so it was necessary to assumed that the railways were in a period OPRAF/ORR duality (although the create the entire system from scratch, of decline that should be managed as best Regulator’s powers are somewhat defining both commercial factors and as possible.) reduced). The many problems and technical form and content. Preparation However, this was not the official difficulties arising from this dualism still of these contracts was affected reasoning. It seems that there was a remain. The conflict between the SRA and considerably by the time constraints of the contradiction in using this principle for Railtrack was even greater, since Railtrack privatization schedule, and did not permit calculating track access charges while clearly indicating a desire to improve services, which should lead logically to increased demand and revenue. This is what subsequently occurred, although the rate determined for track access was not considered from this perspective. As a consequence, revision became necessary and the Regulator introduced a new element that took into account capacity problems that had become acute on certain sections of the network, and reduced the fixed cost portion from 91% to 78%.

Infrastructure maintenance contracts Railtrack was persuaded to award 36 infrastructure maintenance contracts for Virgin Class 220 Voyager running through the countryside (Virgin Train/Milepost 92 1/2) terms of 5 to 7 years. Initially, the

26 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. government wanted to separate values were exceeded, Railtrack Management of the system was maintenance into ongoing maintenance, received a bonus from the beneficiary incumbent on Railtrack, which was both and track replacement and major works. TOCs. When the values were not judge and litigant, even though it was itself Experts judged such a division artificial achieved, Railtrack paid a penalty to the main cause of delays. Even more and not viable. the affected TOCs. serious, the system had adverse impacts In the early stages (FY1996), contracted • TOCs: The same principle applied; on overall traffic management. Railtrack maintenance permitted an average 4% TOCs paid penalties to Railtrack when was tempted to reduce its penalties by reduction in maintenance costs. they were responsible for delays. trying to reduce delays for which it was However, although standards were However, in order to encourage responsible, instead of minimizing all respected in most cases, it was apparent Railtrack to take steps helping the delays and placing priority on the general that some instructions had not been TOCs to improve punctuality, it good. All parties agreed on the need to followed satisfactorily and that increased received only 80% of the due reform but it will not be easy to decide follow-up monitoring by Railtrack was penalties. If a delay caused by one how to modify the system. necessary. Unfortunately, Railtrack TOC impacted other TOCs, Railtrack appears to have not been vigilant enough received penalties from the TOC The Passenger Service as the aging infrastructure came under causing the delay and distributed them Requirement greater stress caused by substantial, to the affected TOCs. unforeseen traffic increases, leading to a Determination of a minimum level of subsequent series of accidents and Before the Hatfield accident, there were services was necessary before franchises widespread network closures, etc., an average 3000 delays per day could be awarded. This, together with following the Hatfield accident in October throughout the entire network. All delays the requested subsidy level, was a decisive 2000 (see JRTR 33, pp. 32–40). are recorded by a computer system and factor in choosing a franchise applicant. the cause of each delay is identified from Each franchise contract contains a among 204 possible predefined causes. Passenger Service Requirement The Performance Regime Responsibility for the delay is then committing the franchisee to a specific assigned to a specific entity and/or service level. There is clearly a One common criticism expressed by manager. This system requires a contradiction between the flexibility privatization opponents was that BR ponderous organization, with 2900 directives governing the awarding of a would be fragmented, its activities checkpoints where train passage times are franchise, the expressed intention of parcelled out, and, most importantly, the recorded (86% are done automatically but which is ‘…to permit maximum scope for single management centre would the remainder are done manually). A the initiative of the franchisees, imposing disappear. Opponents said this would complex marking system, involving more requirements no more burdensome than lead to an overall deterioration in supply than 1300 delay-attribution points, are required to achieve your objectives.’4 and performance. governs calculations of the bonuses and and the framework objectives aimed at It was evident that measures were needed penalties. Follow-up of minutes lost, defining minimum service levels for so that the new companies, especially the regained and lost again, in the course of passengers based on those offered by BR TOCs, would collaborate in ensuring various incidents, is not easy. just before privatization. consumer satisfaction. This was the Determining ultimate responsibility for The TOCs also commit themselves to motive behind creation of the delays is not easy either. Long, complex maintain regularity and punctuality Performance Regime prepared during transactions ensue in disputed cases, and (sanctioned by the bonus/penalty system), 1994 and 1995 and launched on 10 subsequent challenges or even legal and to follow the investment programme December 1995. The Regime principles recourse translate into high costs. determined in the contract. They cannot are as follows: Although the system was established with close a line or transfer traffic to a road. • Railtrack: Reference targets termed ambitious objectives, its application the Permitted Delay were determined depends on a very sophisticated computer The Public Performance for a group of services for a specific system and its administration depends on Measure accounting period (28 days). When people. It is this latter point that appears target values were achieved, there was to pose the most problems, primarily due The Public Performance Measure neither a bonus nor a penalty. When to the generated bureaucracy. introduced by the SRA provides for

Figure 3 Punctuality of UK InterCity Railways Figure 4 Subsidies to TOCs (£ million) (before and after Hatfield accident)

2000 1815 1809 90 1800 1712 87.1 87 80 83.6 84.3 1600 78.6 80 1429 70 1400

67.9 1194 1196 60 64.3 65 1200 57.9 1031 50 1000 902 926 849 796 40 800 755 40 637 30 600 551 479 26.4 20 400

10 200

0 0 Anglia Cr. Country GNER Gr. Western Midland MI WCML 85–86 86–87 87–88 88–89 89–90 90–91 91–92 92–93 93–94 94–95 95–96 96–97 97–98 98–99 99–2000

2000–2001 1999–2000

calculations that take into account the 1994 to 2000 (+36% in passenger-km and privatization year, service quality percentage of trains arriving less than 5 +42% in tonne-km). There was also an deteriorated considerably. Passenger minutes late (10 minutes late for busy average 34.5% growth in revenues from complaints in 1997–98 doubled over lines), as well as cancelled and partially passenger operations. Although traffic those in 1993–94 and tripled when cancelled trains, including authorized started growing before privatization compared to any year in the late 1980s. cancellations. To make up for such delays, (+4.5% from 1994 to 1995) and a good Most complaints centred around reduced certain stations are not served, although part of the growth can be explained by punctuality (Fig. 3) and overcrowding this is a cause of major disagreement. The external factors, it is true that the new during rush hour. RPC Rail Passenger Franchise operators played an important role in The price-quality ratio was judged harshly Replacement study of September 2000 expanding rail traffic. They did this by by 46% of all passengers. Here again, (before the widespread service disruptions introducing marketing operations that criticisms considerably exceeded the after the Hatfield accident) compared the were unequalled at the time, increasing average in the case of companies serving punctuality of BR trains during the year supply and adapting it to demand, London and the Southeast. before privatization with the performance modernizing stations, and improving With regard to this latter point, it should of the TOCs from 1996 to 2000. Eight customer treatment and staff behaviour. be noted that rail fares in Britain are the companies were making progress; the Railways in the UK have benefited from highest in Europe. Depending on services of 15 companies had their improved image. distance, they are double or even triple deteriorated—nine substantially; and The external factors favouring traffic the fares in France, which are about seven companies recorded more growth included sustained growth of average for continental Europe. A cancelled trains. GNP (+18%), full employment, a 22% comparison with other transport modes The performance regime led to a relative increase in household consumption; a indicates that rail fares in Britain are three balance between bonuses and penalties saturated road network; and high fuel times higher than the cost for a (for all companies). The net balance prices. However, this assessment should comparable journey by car, from 15% to (negative for TOCs) was £3.3 million for be put into perspective. Over a longer 35% higher than air travel, and five times fiscal 1999–2000. The Hatfield accident period (1970–2000), growth in rail traffic higher than travel on a long-distance bus. reversed the situation, increasing penalties was 29% in the UK and 71% in France. fourfold to £104 million and cutting The reference year of 1994 used in most No reduced subsidies—the first bonuses in half, making a net loss for the comparisons was a low point in British failure TOCs of £92.5 million. rail traffic after a fall of 16% between Although reduction of subsidies was a 1988 and 1994. There would probably main purpose of the reforms, subsidies to Was Privatization have been some recovery in the market the TOCs almost doubled in real terms Failure or Success? after any slight improvement in the during the 1994–97 period and exceeded economy. the pre-privatization levels (Fig. 4). The The answer is not simple. The commercial subsidies began declining significantly in figures are clear; Figures 1 and 2 show Mixed service quality 1998 in accordance with the original plan there was substantial growth in traffic from After immediate improvements during the but the average level of more than £0.05

8 per passenger-km is still much higher than 7 during the BR days. Above all, it appears that massive 6 investments are needed to modernize the 5 system and increase capacity. The White 4 Paper Transport 2010—The 10 Year Plan submitted in July 2000 sets out extremely 3 ambitious objectives (Table 2) for traffic 2 and services and proposes a colossal and unprecedented investment in the railways 1 totalling £63 billion, almost £29 billion 0 of which is in the form of subsidies. It 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 should be noted that the planning process Private investments Public investments Public subsidies was somewhat paradoxical in a country not really accustomed to this type of approach. work was still underway in late 2001 and process was complete, there would be Under the plan, the government Railtrack refused to fix a time limit. almost 100. This massive fragmentation undertakes to inject almost £3 billion per The results were lost time for passengers, was the primary cause for criticism by year into UK railways. This is three times and lost revenue for the companies. many leaders. Chris Green, Chief more than subsidies before privatization The official report into the Paddington Executive of Virgin Trains said, ‘The hurt (Fig. 5). accident cast doubt not only on Railtrack’s was the fragmentation, not the Still worse, the government was management of infrastructure and trains, privatization, and especially the artificial compelled to subsidize Railtrack to the but also on the TOCs and even the separation of the wheel from the rail.’ amount of £1.5 billion to allow it to solve administration in charge of controls. Professor Max Steiner at the London the most serious problems revealed during Former Railtrack Chief Executive Gerald School of Economics said, ‘Privatizing the inquiries into the Hatfield accident. This Corbett said in August 2001, ‘I am afraid railways was a ridiculous decision…but is the ultimate criticism, because reform there will be another train crash separating management of the rails from had been based on the principle that again…and then it will become an that of the trains was worse yet, because infrastructure subsidies ‘…were supposed absolute political imperative to do the two systems could only operate to disappear forever when Railtrack was something.’ The official Railway Safety profitably together.’ Railtrack Chief privatized in May 1996.’5 Report published in August 2001 likewise Executive Corbett said, ‘The British predicted ‘…an increase in the risk to rail railway system was torn apart by Safety—the second failure passengers, with train derailments at their privatization and its current structure is Four serious accidents have occurred highest level since 1993.’ not the proper one for assuring passenger since privatization. The accidents were Far from being resolved, the problem had safety, optimizing investment or managing dramatic in their human consequences severe consequences for the TOCS whose traffic growth.’ and exposed serious insufficiencies and losses could reach more than £1 billion. Prime Minister Blair said, ‘I think that the multiple problems in safety systems and For example, Virgin Trains has claimed privatization (of the railways) was a procedures, signalling equipment, and considerable compensation of £400 disaster, not only because they were traffic control. The Hatfield accident was million from Railtrack. The situation has privatized, but also because they were due to a broken rail that was subsequently also placed achievement of the Transport fragmented. …One of the great problems revealed to be in an awful condition. 2010 goals in doubt. is that there is no coordination between The Hatfield accidents led to a series of the various large railway sectors.’ investigations, unprecedented levels of The division of BR into almost 100 remedial construction, more than a How Did this Occur? independent entities, including 25 TOCs thousand track restrictions, etc. (see JRTR sharing a network of 16,000 km with just 33, pp. 32–40). Prime Minister Tony Blair In April 1994, John MacGregor 3000 to 4000 km of major lines, replaced himself said that Britain experienced announced BR would be split into no coordinated internal company relations ‘absolute hell’ and ‘chaos.’ Remedial fewer than 70 companies. When the with complex, formal, and costly

contractual relationships. In the final such a degree of complexity that even between these two factors are so strong analysis, the break-up resulted in a heavy, sales staff encounter difficulties. and their problems are so complex. inefficient bureaucracy, an opposition of Commercial interoperability still has a interests and objectives, and a weakening long way to go. Here, too, the interests of Lack of strategic vision of responsibilities among the many players TOCs would conflict with each other. Railtrack was supposed to provide who transfer blame and defer decisions leadership, defining a coherent strategy to someone else, leading inevitably to Separation of wheel from rail based on a long-term vision. It did not. expensive settlements and civil suits. Many criticize the separation of Perhaps such an entity, which manages During a meeting of shareholders on 24 operations from infrastructure, underlining only the infrastructure and is swayed by July 2001, John Robinson, the new the integrated character of a railway, its its own short- and medium-term interests, Railtrack Chief Executive, said, ‘I see a rolling stock, its track and its safety is simply incapable of assuming a railway not performing well. I see equipment. Sir Alastair Morton, Chairman leadership role. Railtrack likewise proved internally a lack of a clear structure in of the SRA, observed, ‘Railtrack was incapable of properly coordinating many areas and an extremely heavy getting a barrier between wheel and rail.’ operations with other players. More bureaucracy almost everywhere.’ Professor Bill Bradshaw of Oxford generally, the entire British rail industry Another consequence was an increasingly University said, ‘The separation of the has been characterized by pursuit of short- confusing fare structure. Passengers must infrastructure from the operations was a term profits, which has translated into deal with multiple service providers mistake.’ excessive staff reductions with a resulting offering a wide array of fares (more than Just one example of the problems was the decline loss of competency and less 90 categories), and often have difficulty inability to take delivery of new rolling acceptance of responsibility by personnel. finding the services and rates most suited stock because of a technical glitch. New There has always been a gap between the to their needs. The system has reached equipment, whether locomotives or aims of the 1993 Railway Act, the carriages, can tend to create disruptions regulations and the organizations involving safety infrastructure. In the expected to implement the reforms. In integrated BR, such problems were other words, the British railway system resolved quickly through internal lacks an overall strategic vision. coordination between the relevant The task of developing a long-term vision technical supervisors. After privatization, now falls on the SRA as envisioned by its Railtrack, the TOC, the ROSCO, the Strategic Agenda. According to the SRA, builder and the HMRI were sometimes the government still needs to specify the unable to agree on a solution and on who financial resources it intends to make should bear the cost. As a result, many available. carriages stood idle in builders’ yards while the TOCs faced under-capacity ‘It’s all about investment, because of increased traffic. investment, investment.’ More serious are the considerable delays This quote from SRA Chairman Sir Alistair in compensating victims of accidents Morton outlines how the British railway involving multiple litigants, including network has suffered from under- Railtrack, one or several TOCs, one or investment for decades (Fig. 6). Prime several ROSCOs, and even Minister Blair said, ‘Privatization was an subcontractors. important factor causing chaos in the We are forced to realize that the character railways, but the true reason was under- of the privatized UK railways is aberrant. investment.’ With the exception of Banverket in But the situation has grown even worse Sweden, private railway companies in the because of Railtrack—the least one can USA, Japan and elsewhere are all say is that Railtrack has not lived up to its characterized by a vertical structure responsibilities. The Regulator criticized integrating responsibility for infrastructure it severely for its lack of competency, its 1996–97 pamphlet of Chiltern Railways (EJRCF) and operations, because the interactions lackadaisical management of the network,

30 Japan Railway & Transport Review 34 • March 2003 Copyright © 2003 EJRCF. All rights reserved. its failure to recognize the actual state of Figure 6 UK Railway Investment 1999–2000 (£ million) the infrastructure and ways to remedy it, and its at times erratic actions when managing the post-Hatfield crisis. It 3000 remains to be seen whether the 2500 unprecedented financial ‘investment’ from the public purse (an amount 5.5 times 2000 greater than that of France and double that of Germany in terms of GNP) will be 1500 enough to return the situation to normal. 1000

A Private Monopoly 500 Responsible for National 0 3 5 9 49 51 53 55 57 59 61 6 6 67 6 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 – – – – – – – – – – – – – – – – – – – – – – – – – – Railway Infrastructure 0 2 6 0 2 6 70 72 74 76 78 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 19 19 19 19 19 198 198 1984 198 1988 199 199 1994 199 1998 The private monopoly factor is undoubtedly the most critical element in the privatization. When a private On 7 October 2001, Transport Secretary interests, and representatives of consumers, monopoly assumes responsibility for Stephen Byers announced, ‘The customers, travellers, shippers and chambers of infrastructure, allocation of time slots, and government has decided to put Railtrack commerce. the management of train traffic, it may find under administrative supervision.’ 2. Quoted in Designing a method of rail itself in the position of both judge and The placing of Railtrack under privatization, Jon Shaw [ed.], McGraw-Hill, litigant. The question is whether a private administrative supervision marks the end 2000. monopoly, which works to achieve its of this chapter of the story. It is impossible 3. Ed Burkhardt retired from EWS in July 1999 after own objectives under its own constraints, to say how the new entity called Network disagreeing with the Board who opposed his can manage a national rail network to the Rail will be organized and whether it will long-term ‘speculate to accumulate investment public good? The British case is unique succeed where Railtrack failed. What is strategy,’ judging it to be incompatible with the in Europe where railway infrastructure is certain is that the reform of UK railways interests of shareholders. generally the responsibility of a public is far from over. I 4. Objectives, Instructions and Guidances to the authority. The existence of a private OPRAF, March 1994 monopoly in possession of rail Notes: 5. Steve Bennett, International Railway Journal, infrastructure creates problems involving 1. The complete report of the study conducted by August 2001 its relationship with government. Gérard Mathieu for CSSPF can be obtained free- Railtrack finds itself in a position of power, of-charge from the head office of CSSPF. The able to demand and obtain public Council is a consultative body attached to the subsidies in order to finance operations Ministry of Transport. It is composed of Members that have little or no profitability (which, of Parliament, local elected representatives, trade unfortunately, is particularly the case with unionists, State representatives, the presidents of many safety investments). the SNCF and the RFF, qualified representatives But ultimately, Railtrack’s poor of the transport sector and European business management of the network and numerous accidents put its future into Gérard Mathieu question. The issues are complex and fraught with financial, technical and safety Mr Gérard has been a Transport Consultant since 1999 after retiring as Director High Speed at the concerns but, in the final analysis, no International Union of Railways. He held various posts including Executive Director of the High Speed Development Department at SNCF between 1987 and 1996 and has published extensively on high- government can ignore the proper speed rail in France and Japan. He has a DEES postgraduate degree from Sorbonne University. operation of its railways—even those that are privatized—and the safety of its citizens.