Tuesday, May 10, 2016

Exciting prospects ahead for passenger rail

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SIGNIFICANT developments on both sides of the Atlantic Ocean are likely to have a profound effect on the future of passenger rail. Radical new funding models are emerging in North America, while in Europe the market pillar of the Fourth Railway Package (FRP) should sweep away many of the obstacles to greater involvement by the private sector heralding a reinvigoration of regional and inter-city passenger services.


Florida East Coast Railway (FEC) is the first private US railway to re-enter the passenger market since the launch of Amtrak in 1971 with its project to introduce an inter-city passenger service linking Miami, Fort Lauderdale, Orlando, with the first phase opening in mid-2017. If successful, the project could encourage other railways to reassess their antipathy to passenger rail, and act as spur to new entrants to the market.

Another significant development is the announcement on April 22 by Caisse de Dépôt et Placement du Québec (CDPQ), Quebec's huge public pension fund which acquired 30% of Bombardier's rail business last November, that it plans to build and operate a 67km automatic rail network in Montreal. CDPQ says it will provide 55% of the $C 5.5bn ($US 4.4bn) required to implement the project, with the balance coming from the Quebec and Canadian governments.

The scheme already has the backing of Montreal's mayor, and CDPQ says profits from passenger fares will feed into public pension payouts, making it a virtuous circle which should appeal to the two governments.

CDPQ is clearly confident about the financial soundness of its plans as it has set an ambitious timetable, with procurement and environment assessments starting soon to enable construction to begin next spring with completion scheduled for 2020.

Meanwhile, Canada's national passenger rail operator, Via Rail, is touting its $C 4bn project to upgrade the Montreal - Ottawa - Toronto line around pension fund investors to provide up to $C 3bn of the funding.

Canadian and Australian pension funds are the most active infrastructure investors. In 2010 the Ontario Teachers' Pension Plan together with Borealis Infrastructure agreed to pay the British government £2.1 billion for a 30-year concession to run the London - Channel Tunnel high-speed rail link.

Pension fund managers, dissatisfied with the vagaries of the stock market and abysmal bank deposit interest rates, are keen to find places to invest which offer steady and secure long-term returns. Railways are long-term investments by their very nature, so well planned and managed projects fit the bill.

In Europe, only part of the large passenger rail network is profitable and there is increasing pressure on railways to either eliminate loss-making services or find other ways to fund them. The concessioning model for regional services has succeeded in attracting private operators to run some services at lower cost, but not all governments see the benefits, while a handful of brave private companies have entered the long-distance passenger market despite opposition from incumbent national railways bent on their demise.

The informal agreement on the market pillar of the FRP reached on April 19 between the European Parliament and the Dutch presidency of the Council of the European Union (EU) is designed to open up domestic markets to competition, prevent conflicts of interest and increase transparency between operators and infrastructure mangers. Provided the agreement is approved by the EU Council and European Parliament and is ratified by member states, the direct award of public service contracts - currently the norm - should become the exception. Competition for concessions should lead to lower subsidies and better services for passengers.

But things are already changing. Both French National Railways (SNCF) and German Rail (DB) are trying to rid themselves of loss-making overnight services, and, in the case of SNCF, loss-making inter-city services. Neither railway understands the unique selling points of overnight services which enable passengers to avoid either an overnight stay in a hotel or rising from a deep sleep in the middle of the night in order to be in another city in time for a morning meeting. SNCF also undermined the viability of its overnight services by removing sleeping cars, where passengers pay much higher fares, to concentrate on high-density low-value couchette cars.

The news that the French government has extended the deadline for expressions of interest to operate all but two of SNCF's overnight services by nearly a month is welcome, while at the same the government has announced the transfer of five loss-making inter-city services in northern France to the Normandy regional government in the hope it can do a better job than SNCF. Other regions could follow soon.

Thankfully Austrian Federal Railways (ÖBB) has a completely different attitude to overnight services and is negotiating with DB to take over the operation of some of its services.

The railway industry now has the opportunity to reap the benefits of pension funds wishing to invest in either existing or new projects, private companies willing to risk their own capital to launch new services, and new legislation in Europe designed to open up the market. Let's grasp these opportunities now.

David Briginshaw

David Briginshaw joined IRJ in 1982 as associate editor, and was appointed editor-in-chief in 2001. He has travelled the world extensively interviewing many of the CEOs and senior managers of the world's railways and transit systems which has given him an in-depth knowledge of the global railway industry.