David Briginshaw, Editor-In-Chief

Has privatisation come full circle?

THE answer to this rather provocative question has to be “yes” in places such as Estonia and Guatemala, “no” in others, while some countries are still trying to decide what they want. The question has arisen again because of news this month that New Zealand is considering whether to nationalise rail operations while Argentina is trying to restructure the railway.

New Zealand was the first country to privatise its national railway as a single entity, while Argentina pioneered privatisation in South America by breaking up the national railway into regional units which were then offered to the private sector as long-term concessions.

The Argentine model, or variations of it, was adopted successfully by countries such as Brazil, Peru, and more recently Mexico, which all fall into the “yes” camp. In Brazil, freight operations are handled under 30-year concessions renewable for another 30 years. All long-distance passenger services on the former state-owned networks have been eliminated. This model has worked very well, as freight traffic has grown strongly and in some cases it is now double the level prior to privatisation, which began in earnest in 1996, when traffic was on a downward spiral.

In Argentina, freight traffic growth has been patchy, with some operators struggling while others are doing quite well. However, Argentina has tried to keep long-distance passenger services alive with a mixture of operators providing often highly-unreliable services using very old rolling stock.

The government seems to be serious about developing long-distance passenger services, but faces some difficult choices about how to fund infrastructure upgrades and new trains. In the meantime, Latin American Logistics (ALL), which operates freight trains in both Brazil and Argentina, has been criticised in Argentina for favouring heavy flows of grain traffic over the needs of smaller customers.

The Argentine government now plans to adopt the European model of separating infrastructure from operations. A new track authority (AIF) will take over the infrastructure, while all passenger operations - including Buenos Aires commuter services - will be transferred to ORF, which will also be able to rescue any failing freight operators. The big question is how much money and resources the Argentine government is willing to put into AIF to bring tracks and signalling up to modern passenger standards, and into ORF to enable it to function as a commercial passenger operator. This is on top of several ambitious rail projects including two high-speed lines, a new link to Chile, and a new tunnel on the Sarmiento Line in Buenos Aires.

The situation in New Zealand is also far from clear. Here, the government has already taken back the infrastructure from Toll Holdings, which still retains exclusive rights to operate freight and long-distance passenger services. While both freight and passenger traffic is increasing quite strongly, the government says Toll Holdings is paying too little in access charges, while Toll believes it is paying too much. The government is trying to buy Toll out, but Toll is resisting and says it wants twice what the government is offering.

This is an election year in New Zealand, and the ruling Labour Party faces the possibility of losing, so it is keen to offer voters the prospect of expanded rail services in the name of helping the environment. This could appeal to the electorate as there is a groundswell of opinion in New Zealand that too much essential infrastructure has been sold off. But would the money the government is offering Toll be better spent on paying grants or subsidies to Toll to introduce new services? Perhaps the government should try to renegotiate its contract with Toll, which at the moment gives it a virtual monopoly over the provision of rail services.

The problem with privatisation in some countries is that the government expects too much of the private sector, and then blames it when things go wrong. Private companies have to make a profit otherwise they go bust, unlike government departments which have no such constraints. For privatisation to succeed, governments need to set clear terms of reference in the contract and then rigorously monitor it to ensure the contractor is fulfilling its obligations. But the contract must be flexible enough to allow the private company to use its flair and imagination to develop the business and to enable the contract to evolve over time.

In Britain, for example, we have the worst of all worlds. The government is now controlling franchisees so strictly that all the innovation that arrived with privatisation has been squeezed out and the government now exercises far greater control over the passenger operators than was the case with state-owned British Rail. Don’t let us forget that privatisation in many countries has rescued rail transport from certain oblivion. For too long, governments failed to invest in their national railways while allowing them to struggle on with far too many staff, restrictive practices, and little or no commercial focus. We don’t want to return to that situation.