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Competitive Tendering of Regional and Interregional Rail Services in Sweden

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Competitive Tendering of Regional and Interregional Rail Services in Sweden ECMT Workshop on Competitive Tendering of Rail Passenger Services: Experience to Date Paris, France, January 12, 2006 COMPETITIVE TENDERING OF REGIONAL AND INTERREGIONAL RAIL SERVICES IN SWEDEN Gunnar Alexandersson and Staffan Hultén Stockholm School of Economics The Process of Swedish Railway Reforms Vertical separation of Swedish State Railways’ (SJ) track infrastructure department (forming Banverket in 1988-89) from other parts of the business administration SJ Decentralisation of regional services to County Public Transport Authorities (CPTAs); perform their first tenders in 1989 Decision to introduce tendering also in the state’s procurement of interregional passenger services; takes effect in 1992 Decision to deregulate all railway services from 1995; reversed after shift in Parliament Decision to deregulate railway freight services in 1996 and transfer more functions to Banverket. Extended possibilities for CPTAs to tender interregional services Transport Policy Decision in 1998, transferring even more functions to Banverket and aiming at improved conditions for neutral competition Separation and corporatisation of SJ from 2001, introducing competition in the vertical chain (rolling stock maintenance, cleaning and other supporting functions and services) Establishment of the Swedish Rail Agency and the creation of a new Railway Law in 2004 The Separation of the Business Administration SJ 1988-2001 Business Administration SJ Jernhusen Banverket SJ Ltd Royal Viking Hotel Green Cargo Scandlines EuroMaint ASG Traffic Restaurants Swebus SweMaint TraffiCare 1988 19951996 2000 2001 Unigrid The Railway System in 2005: Key Actors Banverket Jernhusen Swedish Rail Agency The CPTAs and Rikstrafiken Transitio and ASJ Euromaint and TraffiCare Passenger Train Operators SJ Ltd: 74% Long-distance: 88% Short-distance: 54% Others: 26% (Connex, Keolis, Tågkompaniet etc.) Freight Train Operators Green Cargo: 74% The State The Regulatory Structure of The Swedish Railway Sector in 1988 and 2005 Part of the market 1988 2005 Passenger services Regional (unprofitable) SJ has monopoly Competitive and receives tendering subsidies (competition for the tracks) Interregional (unprofitable) SJ has monopoly Competitive and receives tendering subsidies (competition for the tracks) Interregional (profitable) SJ has monopoly SJ has monopoly Freight services SJ has monopoly Open access on all lines Competitive Tendering of Swedish Rail Services Now the dominating procedure for all subsidised railway lines Competition “for the tracks” Two major types of contracts: Gross Cost Contracts (regional lines tendered by the CPTAs) Net Cost Contracts (interregional lines tendered by Rikstrafiken) Regional Services Procured by CPTAs Gross Cost Contracts: Operators bid for lowest amount of subsidy needed to cover costs (+ profit margin) CPTAs do planning and marketing, decide on ticket prices and take all revenues from fares Operators sometimes receive a share of the fares Systems of penalties for delays etc are commonly used Contract periods: 3-5 years (often possible to extend) Early procurement did not always involve tendering, rather negotiated contracts with SJ (some long-term contracts remain) Early tenders did not follow as strict rules as later tenders (influenced by Sweden joining the European Union) Interregional Services Procured by the State Net Cost Contracts: Rikstrafiken buys a minimum level of supply (number of departures) along the specified lines Operators have to project both costs and revenues, bidding for the minimum amount of subsidy needed to cover the deficit (+ profit margin) Requirements on quality, price levels etc Multiple evaluation criteria with pre-specified weights Contract periods: 5 years (sometimes possible to extend) Predecessors to Rikstrafiken more limited as to staff and powers Early tenders used to be performed annually (1-year-contracts) and were characterised by post-bid negotiations SJ was supposed to provide potential competitors with all kinds of resources, charging its internal prices – a common source of disagreement in the past The transfer of functions and resources to Banverket and other organisations gradually improved transparency It took several years for Rikstrafiken to become established and capable of performing tenders Market Entry Through Competitive Tenders Year Passenger services Passenger services procured by CPTAs procured by the state 1990 BK Tåg (exit in 2005) 1995 Sydtåg (exit in 1997) 1998 Linjebuss/Connex BSM Järnväg (exit in 2000) 1999 A-Train (Arlanda Express) 2000 Citypendeln Sydvästen (exit in 2000) Tågkompaniet Tågkompaniet BSM Järnväg (exit in 2000) 2003 Roslagståg Connex BK Tåg (exit in 2005) 2006 Stockholmståg The Number of Bids in Each Tender (1) Regional Lines Year of tender Line 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Lines procured by CPTAs Lidingöbanan 4 1 Saltsjöbanan 4 Nockebybanan 4 5 Roslagsbanan 4 2 T-bana blå 3 T-bana röd 2 T-bana grön 1 Pendeltågen 4 6 Upptåget 1 4 Länstågen Småland 3 2 3 2 Nässjö-Jönköping 2 Nässjö-Tranås 2 Österlenaren 2 1 Malmö-Ystad 2 Bohusbanan 2 Viskadalsbanan 2 Kinnekullebanan 2 2 3 Västerdalsbanan 2 2 4 Ludvika-Fagersta-Avesta 1 X-tåget 3 Number of tenders 3 0 3 3 3 2 3 2 3 3 3 0 1 2 1 0 1 Average number of bids 2,3 1,7 4,0 2,3 2,0 1,7 2,5 2,7 3,3 3,0 2,0 2,5 2,0 6,0 The Number of Bids in Each Tender (2) Interregional Lines Year of tender Line 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Lines procured by the state Vättertåg 2 2 1 2 2 Västtåg 2 Kust-till-Kust 2 2 1 1 1 1 Mora-Borlänge 3 2 Bergslagen 1 2 1 Tåg i Bergslagen 1 1 Västerås-Eskilstuna-K-holm 1 2 1 Östersund-Storlien 1 2 1 3 2 1 1 2 Norrlandstågen 1 1 2 2 1 1 2 1 2 2 Mittlinjen 3 2 2 2 1 2 Uddevalla-Herrrljunga-Västerås 1 1 1 1 1 Karlstad-Göteborg 2 1 1 Västkustbanan 3 Stångådals- och Tjustbanan 3 Number of tenders 0 0 0 8 6 2 3 0 9 4 10 6 4 3 0 0 1 Average number of bids 1,5 1,7 1,5 2,7 1,6 1,3 1,5 1,2 1,8 2,3 1,0 The Number of Bids in Each Tender (3) All Lines Year of tender All lines 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Number of tenders (total) 3 0 3 11 9 4 6 2 12 7 13 6 5 5 1 0 2 Average number of bids (total) 2,3 1,7 2,2 1,9 1,8 2,2 2,5 1,8 2,1 1,9 1,2 1,8 2,4 2,0 3,5 Frequency of different number of bids in passenger rail tenders 100% 80% 60% Frequency (%) 40% 20% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Year 1999 4-bids or more 3 bids 2000 2 bids 2001 1 bid 2002 2003 2004 2005 Examples of Cost Effects from Tenders Lines procured by CPTAs Tender Year Cost effect (regional lines) No. Network in county of Jönköping etc 1 1989 -21% 2 1993 -25% 3 1997 Minor increase Ystad-Simrishamn 1 1995 -18% 2 1998 -10% Herrljunga-Hallsberg 1 1994 -10% 2 1999 -3% 3 2002 Minor increase Borlänge-Malung 1 1991 n.a. 2 1994 -20% 3 1996 Minor Uppsala-Tierp 1 1991 n.a. 2 1999 -20% Stockholm, commuter trains 1 1998 -32% 2 2005 +10% Lines procured by the state Tender Year Cost effect (interregional lines) No. All lines 1-2 1992-93 -21% 3-6 1994-98 No increase 7 1999 -28% Northern trains 7 1999 -20% 10 2002 -42% Innovations New and/or improved trains: BK Tåg implementing bus technology A-Train (Arlanda Express) introducing high-speed airport link with direct in-step in all train coaches The Öresund train (multiple national standards) Regina (fast regional train with five seats in a row) X40 (fast double-decker) X60 (fast commuter train with direct in-step and coaches without dividing walls or doors) Management and organisation BK Tåg introducing new working routines and conditions Tågkompaniet exploring the possibilities of outsourcing SJ/Euromaint: Separation highlighting safety issues Other innovations Tågkompaniet: ticket pricing and booking system SJ: ticket price differentiation and yield management Assorted Problems (1) The scarcity of bidders High and low bids and non-fulfilment of contracts: Too optimistic (low) bids and predatory bids Very high bids Several cases of disrupted services Several cases of bankruptcies Bid price (index, average=100) 100 120 140 160 180 60 80 Swedish tenders of passenger train services Spread 1992-2003: of bids compared to bid average Lidingöbanan 1 T-bana röd Pendeltågen Bid (=100) average Lowest bid 2nd lowest bid 3rd lowest bid lowest4th bid Länstågen 2 Länstågen 3 Nässjö-Tranås Österlenaren 1 Bohusbanan Kinnekullebanan 2 Kinnekullebanan 3 Västerdalsbanan 2 Västerdalsbanan 3 Vättertåg 1 Vättertåg 2 Kust-till-kust 1 Kust-till-kust 2 Mora-Borlänge 1 Mora-Borlänge 2 Bergslagen 2 Västerås-Katrineholm 2 Norrlandstågen 4 etc. Norrlandstågen 7 Norrlandstågen 10 Sundsvall-Östersund 1 Sundsvall-Östersund 3 Sundsvall-Östersund 6 Stångådalsbanan etc. Assorted Problems (2) SJ’s monopolistic behaviour Strategic bids Unwillingness to coordinate ticket and booking systems Changed timetables, causing inferior connections for competitors Withdrawing lines from competitive tendering Rolling stock lock-in: Rikstrafiken forced to use ASJ rolling stock locked by long-term leasing agreements State grants directed to investments in new vehicles may influence willingness to modernise existing stock Commercial vs subsidised services Expansion of subsidised networks may hinder commercial lines Should we invest in completely new lines that presuppose subsidised railway services to get any traffic? Some Other Aspects of Swedish Railways Development Increased infrastructure investment 1990: 1 billion SEK/year Mid 1990’s: 3 billion SEK/year The years ahead: 10 billion SEK/year Strong growth in passenger train transportation
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