Tom Winsor, Partner (Rail Regulator and International Rail Regulator, Great Britain 1999-2004)
British Rail Franchising: Experience in Choppy Seas
ECMT – Paris – 12 January 2006 White & Case
Global law firm, headquartered in New York 1900 lawyers in 38 offices in 25 countries Largest European network of any law firm; significant London practice Major transport, infrastructure and finance practices Attractive because of reputation, global reach and freedom to build practice based on experience as Rail Regulator and International Rail Regulator: economics corporate finance & business admin asset stewardship & management law politics dealings with Government, Parliament, the civil service and European institutions
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WHITE & CASE LLP 2 White & Case around the world
North America Europe Asia Los Angeles Ankara Almaty Miami Berlin Bangkok New York Bratislava Beijing Palo Alto Brussels Ho Chi Minh City San Francisco Budapest Hong Kong Washington DC Dresden Jakarta Düsseldorf Mumbai Latin America Frankfurt Shanghai Mexico City Hamburg Singapore Mexico City Helsinki Tokyo (Monterrey) Istanbul São Paulo London Milan Middle East/Africa Moscow Johannesburg Paris Riyadh Prague Rome Stockholm Warsaw
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WHITE & CASE LLP 3 Ankara Subway US$42.2 billion - Ankara Metro Perpignon-Figueras Representation of the Network Rail Representation the Turkish Government of Turkey in Government in connection Representation of mandated connection with the Decision on 2004-09 with the financing, lead arrangers in the financing, construction and income of Network Rail for construction and operation financing of the Perpignon- operation on a BOT basis operation, maintenance of a subway system for Figuras high-speed rail link of the Ankara metro system and renewal of the national Ankara (US$520 million) rail network Turkey Spain/France Turkey UK
Berlin-Prague- Ferrocariles São Paulo Line 4 Vienna Connection Nacionales de Arlanda Airport Project Project Mexico Connection Representation of the IFC in Representation of the Representation of the Representation of Morgan connection with the São Paulo Swedish Government in financial advisors and the Stanley in connection with the Line 4 Mass Transit Project, a connection with the Czech Railways in provision of US$500m of senior proposed new subway line in financing, construction and restructuring the financing debt bank financing for the São Paulo with a total project operation of a rail connection for the high speed Berlin- US$1.3bn privatisation of the of US$2billion from Arlanda airport Prague-Vienna route Northeastern railway system Europe Mexico Mexico Sweden
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WHITE & CASE LLP 4 Polish State Florida High Speed Regulatory reform Jerusalem Light Railway Loan Rail Railway Representation of the Structural reform of the Representation of the consortium composed in a regulatory, contractual and Representation of the Polish Israeli Government in US$6 billion PPP with the financial regime for freight State Railway in connection connection with the Florida for the high speed and passenger services in with a loan from the EBRD Jerusalem light railway rail transportation system Great Britain BOT project
USA UK Poland Israel
Vienna, Ostrava Slovak Rail JFK Airport Light and Warsaw Tel Aviv Metro Corridor Representation of the Rail Bid arranger of a SK 6.1 billion Representation of a consortium Representation of Czech Representation of the syndicated financing for in the preparation and Railways, in the negotiation of Ministry of Finance and the Slovak Railways for submission of bid for a light rail the US$850 million financing Tel Aviv Municipality in the infrastructure improvement system from Jamaica, New of the high-speed railway construction and financing and the development of part York to John F. Kennedy corridor, linking Vienna, of the Tel Aviv Metro of a new corridor project Ostrava and Warsaw International Airport Europe Israel Slovakia USA
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WHITE & CASE LLP 5 Cameroon Railway West Coast main Taiwan High EU Directives line Speed Rail Representation of the lenders Implementation of EU in connection with the Representation of the £7.6 billion upgrade of project in connection with Directives on capacity privatisation of the Republic allocation, charging and of Cameroon State Railroad 367-mile principal rail provision of technical artery in the British rail assistance be Central other regulatory measures in network Japan Railway Co Great Britain
Cameroon UK Taiwan UK
Belgian National Alstom Nacco Swedish State Railway Railways Merger Representation of Alstom in General representation of Representation of CKD different jurisdictions in Nacco SA. French rail car Representation of a travel Praha Holding, a.s. in financings, litigation leasing company company with respect to connection the manufacture proceedings and general issues arising from a merger and supply of diesel railway corporate advice with the Swedish State locomotives to Belgian Railways national railway Sweden Belgium France France
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WHITE & CASE LLP 6 Metropolitan Transit ATAC (Rome HBOS Capacity Authority (New Metro) allocation Representation of the York) Representation of the collateral support provider Representation of lender and lenders in a lease-to-service Consensual and in connection with a collateral support provider in a contract for rolling stock for compulsory access to US$145 million lease US$295 million lease financing the Rome Metro networks and stations for financing of rail cars of rail transportation passenger and freight equipment services Italy UK France USA
MTR SNCF Network code SNCB Representation of the equity Representation of MTR Representation of the lender, Reform of the industry-wide payment undertaker and Corporation as lessee in a collateral support provider and network code for guarantor in connection with US$226 million lease-to- LC issuer in a US$2 billion timetabling, network and a US$230.3 million lease service contract financing of lease financing of rail vehicle change, local financing of railroad passenger rolling stock passenger information and accountability and changes transportation assets ticketing equipment to access rights
Hong Kong France UK Belgium
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WHITE & CASE LLP 7 Kowloon Canton Osterreichische OBB Lease SNCF Railway Bundesbahnen Corporation Representation of the equity Representation of the Representation of the equity support provider in equity payment Representation of the investor in connection with a connection with a US$27 undertaker in connection equity defeasance party US$246 million lease-to- million lease financing of with a US$122 million in a US$146.9 million service contract transaction railroad transportation assets lease financing of lease financing of railcars for electric railcars, transportation equipment in Austria locomotives and passenger coaches Austria France Austria Hong Kong
Metropolitan Czech Railways Tilt City of Cologne Competition Transit Authority Trains (City of New York) Representation of the equity Major cases in the Representation of ČKD payment undertaker in enforcement of domestic Representation of the MTA Holding, in the financing of the connection with the lease competition law in cases of in connection with a US$295 first Pendolinos tilt trains financings of rail cars in alleged monopoly abuse million lease financing of rail Germany (2002). and anti-competitive transportation equipment behaviour
USA Czech Republic Germany UK
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WHITE & CASE LLP 8 ČKD Vagonka, a.s. Arbitration Russian Loss of Swedish Rail Tunnel Representation of ČKD Vagonka, a Czech wagon Goods Serving as arbitrator in a Major arbitral appeals under producer, in the review of a dispute between a Swedish network code for freight and supply agreement with a Representation of a private company and a Swedish passenger services in Great Finnish railway company Swedish company re the government agency re failure Britain and the evaluation of liability of a Russian railroad to complete a railroad tunnel sanctions from a breach for damages from the loss of project of contract goods UK Czech Russia Sweden
City of Dresden RATP Rolling stock Santa Clara Valley Representation of the equity acceptance Representation of the Representation of the lender support provider in connection lenders, in a US$203 million and debt payment undertaker with a US$595.4 million lease Major reform to the regime lease financing of rail in a lease financing of rail financing of transportation for the vehicle and route transportation equipment transportation equipment equipment in France (2000) acceptance of new rolling stock for the British railway network Germany France UK USA
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WHITE & CASE LLP 9 Credentials
Rail Regulator and International Rail Regulator, Great Britain 1999-2004 Senior member of group of nine economic regulators of the UK (railways, energy, telecommunications, broadcasting, postal services, water, competition + Scotland and N Ireland) Senior member of the convention of European rail regulators Thirteen years in the UK railway industry – before that in energy and infrastructure generally From 5 July 2004, partner in White & Case, London Now practising in transport, infrastructure and regulation in UK, Europe and in other countries
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WHITE & CASE LLP 10 Jurisdiction of British Rail Regulator
Issue and enforcement of operating licences
register of condition, capacity and capability of assets + controls on disposal of land
sound and competent stewardship of network
independent reporters to check sufficiency + efficiency of activities
fair dealings with dependent persons Establishing and reviewing structure and levels of charges for use of infrastructure – setting the financial framework, including how much money infrastructure provider will receive for network OMR & E Control of the allocation of capacity of track, stations and depots Enforcement of competition law Certain functions as appeal tribunal – cases of timetabling, network & vehicle change and establishment, change & abolition of mandatory technical standards, veto overrides BUT franchising done by central government (formerly through agent called Strategic Rail Authority, now the Ministry of Transport)
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WHITE & CASE LLP 11 Independence of Rail Regulator
Statutory officer under Railways Act 1993 Appointed by the Secretary of State for Transport for five years Can only be removed from office on grounds of incapacity or misbehaviour Operates according to criteria (statutory duties) set down in Railways Act 1993 – non-political and require Regulator to take a long-term view of the railway Avoids arbitrary decisions according to short-term considerations Secretary of State cannot give orders to the Regulator Single-person Rail Regulator now replaced (from July 2004) with a seven-member board (part-time chairman, full-time chief executive + five non-executive directors) – follows all the other economic regulators – but jurisdiction and independence mainly undiminished
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WHITE & CASE LLP 12 Themes
Expectations of franchising of passenger services in 1994 High degrees of prescription in contracts Faults in the foundations of the franchising system Political intolerance Need for realism
Broader brush strokes than my colleagues
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WHITE & CASE LLP 13 Context
Privatisation of British Rail not an unmitigated disaster Agendas of different forces, political and pseudo-political Media who love trouble on the railways, especially policy punch-ups Major successes in: passenger traffic freight traffic rolling stock replacement infrastructure investment generally putting right the accumulated problems of the years of nationalisation
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WHITE & CASE LLP 14 BUT …
When governments decide on industry restructuring, corporatisation, privatisation, competitive tendering etc they must: be clear about what they want to achieve be honest about what can be achieved grant the necessary resources – in time, expertise and money establish sound & sustainable relationships respect and facilitate the roles of the public and private sector organisations involved This did not happen in the case of Great Britain
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WHITE & CASE LLP 15 Expectations & assumptions
Declining railway No appreciable new capacity (except CTRL) Competent and efficient network provider Empowered, efficient passenger train operators Declining need for public subsidy franchise bids accepted at some ludicrous prices no proper appreciation of network asset condition On-rail competition to thrive
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WHITE & CASE LLP 16 Politicians would not let go
Two Governments – very different philosophies Conservative Government 1992-97 restructure & privatise at breakneck speed many flaws in the matrix as a result – see later convinced on-rail competition would work Labour Government 1997-2009 (at least) opposed rail privatisation lacked the will to reverse it strong inclination towards high degrees of control failed to work with the established matrix & how it had been improved
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WHITE & CASE LLP 17 Essentials of success
Sound, sustainable framework of regulatory, economic and legal rights and obligations; so— Stability Predictability Sound incentives Sound, clear and sustainable risk allocation Protections from abuse of monopoly power and unwarranted political intervention Fair processes and fair treatment Clarity of responsibilities
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WHITE & CASE LLP 18 Matrix flaws
Restructure and franchise in haste, repent at leisure Major flaws in matrix of: financial regime – access charges : led to two major reforms (Oct 2000 and Dec 2003) licensing regime : unduly weak public accountability of network owner (Railtrack) – necessitated major strengthening (2000-2003) track-train interface design : required complete rewrite of access contracts and network code (2000-2004) franchises : the most restrictive contract imaginable – stifled most innovative flair TOCs might have had; now little more than complex management contracts
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WHITE & CASE LLP 19 Results of these flaws
Paralysing incompetence of Railtrack Monopoly abuse on a grand scale attitude that network access a privilege, not a right neglect of core assets, concentrating on big projects; doing them all badly hostility to customers TOCs uncertain, unempowered, unprotected Hatfield crash 17 Oct 2000 : led to massive disruption and financial pain for franchisees Government bail-outs mainly because of severity of network problem, lack of empowerment, interface design flaws Firestorm of pressure and unwarranted intervention from several sources
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WHITE & CASE LLP 20 Interface relations …
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WHITE & CASE LLP 21 Franchising - success
Successful in the face of these major external and internal shocks Government takes its share of the responsibility Review and reform – a perpetual cycle? Major improvements now being seen: track quality efficiency cost control performance interface virtual integration
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WHITE & CASE LLP 22 GB railway industry – from storm clouds …
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WHITE & CASE LLP 23 … to bright new dawn
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WHITE & CASE LLP 24 The British lion should not be ashamed
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WHITE & CASE LLP 25 Tom Winsor, Partner, White & Case (Rail Regulator and International Rail Regulator, Great Britain, 1999-2004)
[email protected] www.whitecase.com www.rail-reg.gov.uk (for period 4 July 1999 - 4 July 2004)
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