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Competitive Tendering of Rail Services EUROPEAN CONFERENCE of MINISTERS of TRANSPORT (ECMT)

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Competitive EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT Tendering of Rail Competitive tendering Services provides a way to introduce Competitive competition to railways whilst preserving an integrated network of services. It has been used for freight Tendering railways in some countries but is particularly attractive for passenger networks when subsidised services make competition of Rail between trains serving the same routes difficult or impossible to organise. Services Governments promote competition in railways to Competitive Tendering reduce costs, not least to the tax payer, and to improve levels of service to customers. Concessions are also designed to bring much needed private capital into the rail industry. The success of competitive tendering in achieving these outcomes depends critically on the way risks are assigned between the government and private train operators. It also depends on the transparency and durability of the regulatory framework established to protect both the public interest and the interests of concession holders, and on the incentives created by franchise agreements. This report examines experience to date from around the world in competitively tendering rail services. It seeks to draw lessons for effective design of concessions and regulation from both of the successful and less successful cases examined. The work RailServices is based on detailed examinations by leading experts of the experience of passenger rail concessions in the United Kingdom, Australia, Germany, Sweden and the Netherlands. It also draws on examples of freight rail concessions in Latin America. www.oecd.org/publishing -:HSTCSC=VUVYX]: (75 2007 04 1 P1) ISBN 978-92-821-0143-8 2007 RRailCompetitiveailCompetitive GB.inddGB.indd 1 113/09/073/09/07 99:14:20:14:20 Cover_f.fm Page 1 Wednesday, April 7, 2004 11:00 AM EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT Competitive Tendering of Rail Services EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT (ECMT) The European Conference of Ministers of Transport (ECMT) is an inter-governmental organisation established by a Protocol signed in Brussels on 17 October 1953. It comprises the Ministers of Transport of 44 full Member countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, FRY Macedonia, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine and the United Kingdom. There are seven Associate member countries (Australia, Canada, Japan, Korea, Mexico, New Zealand and the United States) and one Observer country (Morocco). The ECMT is a forum in which Ministers responsible for transport, and more specifically inland transport, can co-operate on policy. Within this forum, Ministers can openly discuss current problems and agree upon joint approaches aimed at improving the use and ensuring the rational development of European transport systems. At present, ECMT has a dual role. On one hand it helps to create an integrated transport system throughout the enlarged Europe that is economically efficient and meets environmental and safety standards. In order to achieve this, ECMT assists in building bridges between the European Union and the rest of the European continent at a political level. On the other hand, ECMT also develops reflections on long-term trends in the transport sector and, more specifically, studies the implications of globalisation on transport. In January 2004, the ECMT and the Organisation for Economic Co-operation and Development (OECD) brought together their transport research capabilities by establishing the Joint Transport Research Centre. The Centre conducts co-operative research programmes that address all modes of inland transport and their intermodal linkages to support policy-making throughout Member countries. Ministers at their Dublin Council in May 2006 agreed a major reform of ECMT designed to transform the organisation into a more global body covering all modes of transport. This new international transport Forum will aim to attract greater attention to transport policy issues, and will hold one major annual event involving Ministers and key sectoral actors on themes of strategic importance. 2007 is a transitional year for the setting up of the Forum. The new structure will be fully operational as of 2008. Also available in French under the title: L’adjudication par appels d’offres des services ferroviaires Further information about the ECMT is available on Internet at the following address: www.cemt.org © ECMT 2007 – ECMT Publications are distributed by: OECD Publishing 2, rue André-Pascal, 75775 PARIS CEDEX 16, France FOREWORD – 3 FOREWORD AND ACKNOWLEDGEMENTS Competitive tendering has been used successfully for procurement of a wide range of services by governments. It holds particular attractions as a way of organising rail services because it can be used introduce competition whilst preserving network integrity and avoiding the difficulties of open access competition when passenger services are subsidized. There have been some very successful cases of competitive tendering, especially with freight railways in Latin America. There have also been some notable failures of some passenger franchises in some OECD countries. Getting the regulatory and contractual frameworks right is a far from trivial task. The purpose of this report is to identify the key factors for successful tendering and examine the risks revealed by experience to date with franchises in the countries that have made the greatest use of competitive tendering for railways. The ECMT is indebted to the experts that prepared the papers for this report (see table of contents) and to the participants (see annex) at the workshop organised at the beginning of the project to review early versions of the papers. The workshop presentations can be consulted on the web at www.cemt.org/topics/rail/Paris06/index.htm. The discussions, chaired by Fabio Croccolo of the Italian Ministry of Transport, provided invaluable input and stimulation for deepening analysis of the key issues. Special thanks go to a core group of the experts – Peter Kain, Chris Nash and Lou Thompson – that devoted much time and energy to designing the project and ensuring that the concluding paper is consistent with the experience reviewed. COMPETITIVE TENDERING OF RAIL SERVICES – ISBN 978-92-821-0143-8 – © ECMT 2007 TABLE OF CONTENTS - 5 TABLE OF CONTENTS ABBREVIATIONS ................................................................................................................................ 6 1. PASSENGER RAIL FRANCHISING – BRITISH EXPERIENCE Chris NASH and Andrew SMITH.....................................................................................................7 2. BRITISH RAIL FRANCHISING: AN EXPERIENCE IN CHOPPY SEAS Tom WINSOR................................................................................................................................. 35 3. THE PITFALLS IN COMPETITIVE TENDERING: ADDRESSING THE RISKS REVEALED BY EXPERIENCE IN AUSTRALIA AND BRITAIN Peter KAIN...................................................................................................................................... 43 4. TENDERING AND DECENTRALIZATION OF REGIONAL RAIL PASSENGER SERVICES IN THE NETHERLANDS (1997 - 2005) Hans van DIJK .............................................................................................................................. 127 5. EXPERIENCE WITH COMPETITIVE TENDERING IN GERMANY Andreas BRENCK and Benedikt PETER ..................................................................................... 139 6. COMPETITIVE TENDERING OF REGIONAL AND INTERREGIONAL RAIL SERVICES IN SWEDEN Gunnar ALEXANDERSSON and Staffan HULTÉN ................................................................... 165 7. CENTRAL AND EASTERN EUROPE: A SPECIAL SITUATION Ad TOET....................................................................................................................................... 189 8. CONCLUSIONS: COMPETITIVE TENDERING IN RAILWAYS – WHAT CAN WE LEARN FROM EXPERIENCE? Lou S. THOMPSON ..................................................................................................................... 195 COMPETITIVE TENDERING OF RAIL SERVICES – ISBN 978-92-821-0143-8 – © ECMT 2007 6 – ABBREVIATIONS ABBREVIATIONS AFI Annual Financial Improvement BOT Build, Own and Transfer BR British Rail CEO Chief Executive Officer CER Community of European Railway and Infrastructure Companies CN Canadian National Railway Company CPTA County Public Transport Authorities CUP Capacity Utilisation Policy DB AG Deutsche Bahn AG (German Railways) DfT Department for Transports DOI Department of Infrastructure DSB Danish State Railways EWS English Welsh and Scottish Railway (freight operating company) GDP Gross Domestic Product GNER Great North Eastern Railway GOVIA Partnership of Go-Ahead and Keolis (train operator) ITC Independent Television Commission MBO Management Buy Out MTL Rail subsidiary of MTL Holding (operator of Merseyrail services) NAO National Audit Office NEG National Express Group NERA National Economic Research Associates NPV Net Present Value NR Network Rail NS Dutch National Carrier OPRAF Office of Passenger Rail Franchising PSR Passenger Service Requirement PTC Public Transport Commission
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