Transcript No Slide Title

The UK
Rail Industry
Ian Brooks
Assistant Director, PricewaterhouseCoopers
PwC
Agenda
UK Rail Privatisation
• Lesson learned
• The Industry structure
UK Rail - 5 Years on
• Industry statistics
• The passenger companies
• Lessons learned
• Railtrack
UK Rail Privatisation
Objectives of UK rail privatisation
• Innovation and efficiency through management freedom
and competition
• Minimising and regulating monopoly elements
• Maximising private sector involvement and investment
• Reducing government subsidy
• Preserving socially important services and network
benefits
• Maintaining safety
UK Rail Privatisation
Timetable
General
Election
General
Election
Decision to privatise made at party conference
White Paper: “New Opportunities for the Railways”
Rail Regulator appointed
Railways Act 1993
OPRAF established
Railtrack established - assets transfered
TOCs established as subsidiaries of BR - assets transfered
ROSCOs established as Government owned Cos
Railtrack Flotation on Stock Exchange
Freight businesses sold
ROSCOs sold
TOC Franchise Letting
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
UK Rail Privatisation
Who owns the assets?
• Lines
- Railtrack
• Stations
- Railtrack owns and leases to train operators
(except 14 major stations run by Railtrack)
• Depots
- Railtrack owns and leases to train operators
• Non operational
- remained with British Rail; sold separately
• Rolling stock - ROSCOs/others - lease to train operators
• Freight stock- Freight operators or financiers
• The train operators own few assets in order to facilitate handover
of the business at the end of a franchise
• Arrangements in place to ensure new operators can lease assets
UK Rail Privatisation
The industry structure
Strategic Rail
Authority
Grants
Rail
Regulatory
Franchise
Operating licence
and regulator access
charges
25 Passenger Train
Operating
Companies (TOCs)
Access charges
Maintain trains
Lease
trains
Rolling Stock Leasing
Companies (ROSCOs)
Supply
trains
Maintain
trains
Train
manufacturers and
mainteners
Freight
operating
companies
Supply
trains
Railtrack owns and
operates network
Maintain and renew
network
Infrastructure
maintenance and
renewal companies
UK Rail Privatisation
Subsidy savings from privatisation
•
Substantial reductions in costs due to RPI-x pricing
formula:
£m
Subsidy commitments
2500
•
2000
Railtrack
-
RPI - 15% over 7 years
Rolling stock
-
RPI - 23% over 7 years
Passenger operations:
1500
1000
500
0
1996/7
1997/8
1998/9
1999/00 2000/01 2001/02 2002/03
Subsidies
% of total revenue
The graph below shows the split between government subsidy and
operating revenue for 4 train operating companies.
100
90
80
70
60
50
40
30
20
10
0
-10
Intercity West
Coast
Subsidy
Thames Trains
Operating revenue
ThamesLink
Island Line
Payment to OPRAF
UK Rail Privatisation
Infrastructure access and charging
•
How do you recover the high fixed costs of infrastructure whilst
maintaining optimum utilisation of capacity?
•
Tariffs based on marginal costs (Sweden) and crude measures of
notional value (Germany) bear no relation to total infrastructure costs.
•
In Britain:
•
–
all operators (passenger and freight) pay short run marginal costs plus
incremental costs
–
passenger franchisees (subsidised) also pay a contribution to fixed costs
–
other operators also pay a negotiated element subject to regulation
Charging is complex and costly:
–
setting the initial structure and level of charges
–
charging for variable items, such as traction current and wear and tear
UK Rail Privatisation
Lessons learnt
• Highly complex - 11,000 contracts, 100 companies
• Need shadow running of reorganised industry
• Privatised businesses consolidate; investors make capital gains
• Cost savings and efficiency improvements available; loss-makers
can be privatised
• Encourage new entrants; recognise practical limitations to
competition
• Competition for track rather than on track
The Rail Industry - 5 years on
Passenger companies
• Franchises, awarded on lowest subsidy bid, encouraged aggressive
bids
• Franchise bids assumed revenue growth and cost reduction
– Growth- yes, except Regional
– Cost reduction- no
– costs broadly fixed
– wage inflation
– more intensive use of network
– increased maintenance
• Hatfield - impacted demand and put growth back at least 12 months
The Rail Industry - 5 years on
Passenger journeys
Total passenger journeys
1200
1000
Journeys - millions
800
600
400
200
0
1987
1988
1989
1990
1991
1992
1993
1994
Year ending
1995
1996
1997
1998
1999
2000
2001
The Rail Industry - 5 years on
Train kms
Timetabled Train Kms
500
450
Million kms
400
350
300
250
1998
1999
2000
Year ending
2001
The Rail Industry - 5 years on
Freight Lifted
Freight Lifted
160
Other
140
Coal
120
Million Tonnes
100
80
60
40
20
0
1987
1988
1989
1990
1991
1992
1993
1994
Year ending
1995
1996
1997
1998
1999
2000
2001
The Rail Industry - 5 years on
Investment in the Rail Industry
Investment in the Rail Industry
3000
2500
Other
Rolling stock
£ - millions
2000
1500
1000
500
0
1987
1988
1989
1990
1991
1992
1993
1994
Year ending
1995
1996
1997
1998
1999
2000
2001
The Rail Industry - 5 years on
Lessons learnt
• Infrastructure condition black hole
• Recovering passenger growth
• Financing and resourcing increased capacity
• Rolling stock delivery
• With subsidy fixed the role of the Strategic Rail Authority is to
ensure delivery of quality
• Clarity of policy and funding priorities
The Rail Industry - 5 years on
What went wrong for Railtrack
• Industry structure
• Management
–
–
–
–
knowledge of assets
management of maintenance and renewal
management of major projects
customer relationships
Conclusion
• Lots of change
• Lots of challenge requiring vision and proper
planning to ensure delivery of a strategy