Many countries are investing vast sums in rail infrastructure and huge challenges are being overcome to put the new facilities in place. But that is only part of the story as a functioning railway involves more than the rail infrastructure. This article will look at some of the other issues to consider in establishing a working railway.
The corporate structure and the role of the parties
Operating a railway involves some or all of the following activities:
- Setting and implementing regional transport policy
- Operating the infrastructure
- Maintaining the infrastructure
- Procuring the rolling stock
- Operating the rolling stock
- Maintaining the rolling stock
- Regulating the railway
It will not always be necessary to discharge all of these functions and it is certainly possible to combine a number of them. Indeed, in significant parts of the world many of these functions are undertaken by the public sector with the private sector’s role confined to providing the rolling stock but in other parts of the world the private sector plays a greater part in operating the railway. Particularly where a new railway is being developed there can be merit in engaging the skill and expertise of the private sector to operate and maintain the railway. This would leave the public sector to set the policy, regulate the system and to ensure that the private sector complies with its contractual obligations.
Whether or not the function of operating and maintaining the railway systems is to be undertaken by the private sector, the public sector might see advantages in setting up a separate public transport authority for a particular region. This approach is generally viewed as advantageous as it allows the organisation to focus on transport without the distraction of delivering other policy objectives. If a transport authority is established, its remit would need to be considered. As a minimum it would have a delivery function in terms of either delivering transport services itself (by employing suitable staff and acquiring the necessary equipment) or procuring that others do so (by entering into contracts with service providers). In addition, it could have a role in setting transport policy. Ultimately, this is an issue for the local politicians to resolve but current thinking probably favours a system where the politicians set the strategy which is then implemented by the transport authority.
Where the private sector has a role in the provision of rail services there may be issues which require regulation, including:
- The granting of access to the track and other infrastructure
- Access charges and variations of those charges
- Passenger fares or freight charges and
How these issues are addressed will depend on the system and approach. If the system is entirely within state control there may be no need for any regulation of fares or freight charges. Where issues do need to be regulated the system of regulation can either be established contractually or by legislation. Contractual regulation is only appropriate where there is a contract which binds all affected parties. Otherwise, statutory regulation would be appropriate.
The two most obvious candidates to act as regulator are the transport authority itself and a separate standalone regulator. The latter approach would be prudent if the regulation could have a bearing on both the public and the private sector. The regulator’s powers and duties would need to be established by contract/statute and its decisions may be susceptible to appeal to a court.
Operation of the infrastructure
The next issue to consider is how the infrastructure is to be operated. What this involves will vary from one system to the next, but operating the railway could involve the following.
- Allocating access rights – the allocation of the track capacity should be done in a way which optimises the use of the infrastructure and possibly which avoids any particular train operator getting into a dominant position. In order that potential users understand the characteristics of the track, the access allocation body (which could be the infrastructure manager or a separate entity) could publish a Network Statement or tariff code setting out the rules relating to the allocation of access, the access charges and the process for gaining access
- Entering into access agreements – a private sector train operator would gain access to the track by entering into a track access agreement with the infrastructure manager. The access agreement will specify the rights granted (e.g. the number and approximate timing of the services, the first and last train and the journey times), the charging regime, the performance regime and industry arrangements such as the timetabling regime. If the infrastructure manager has the right to vary the charges periodically the parameters for doing so should be set out in the access agreements (or in regulation) with the process being overseen by the regulator
- Timetabling - the access rights granted in the access agreement could relate to particular paths and this would effectively define the timetable. It is more likely that the access rights would define the nature of the capacity granted and that the actual paths would be defined by a timetabling process. Timetabling involves an organisation (probably the infrastructure manager) establishing a timetable in response to bids received from train operators based on the access rights granted. The timetabling process is generally iterative
- Signalling - the infrastructure manager will typically take responsibility for operating the signals to ensure that train movements can be made safely and to give effect to the timetable. There may need to a protocol to follow to give effect to the purpose of the railway so that, for example, particular types of train take priority over other types of train.
- Managing performance - in order to incentivise good performance a performance regime is often put in place which gives rise to payments based on the delays and cancellations which are attributable to a particular train operator or the infrastructure manager
- Maintenance - the maintenance activities could be undertaken by the infrastructure manager or they could be subcontracted to a third party maintainer
- Other related activities - the infrastructure manager will have other functions to perform, such as a “command and control” function in the event of an incident
There are three types of train operator - open access (which run services with no public sector support), the public sector and train operators which operate under concession agreements with the Transport Authority. Concession agreements typically apply to passenger services which are not economically viable without public sector support. The concession agreement would specify the services the train operator is to provide, the payment the train operator is entitled to receive, the duration of the concession and the fares the train operator is entitled to charge (unless these are regulated separately).
Procuring the rolling stock
The principal ways of acquiring rolling stock are outright purchase, lease and PPP. In order to purchase the rolling stock outright the purchaser would need access to the necessary funds whereas a leasing or PPP arrangement would be financed by the lessor or other funders. The rolling stock will need to be maintained. If the rolling stock is purchased the purchaser would generally arrange maintenance separately. A leasing arrangement might include maintenance but maintenance generally would be encompassed within a PPP arrangement. A PPP would typically achieve the greatest degree of risk transfer to the private sector.
A depot might be required to maintain the rolling stock. These can be very specialist facilities. A depot (or siding) might also be required simply to get the trains off the track to allow for its maintenance.
If the train operator operates under a concession, it will have to hand over the rolling stock at the end of the concession to its successor. If the rolling stock is not owned by the public sector a transfer scheme may be required to facilitate this.
There will also need to be a stock of spare parts. This should be adequate without having over supply as this can be uneconomical. Depending on the location of the railway, there could be merit in developing a local spares manufacturing facility so that spares do not have to be obtained from distant locations.
Issues to incentivise include maintaining the infrastructure, operating the infrastructure and operating the train services. Incentivisation can generally be achieved through levying deductions for delays and cancellations, although this remedy may not always be adequate. Both the infrastructure manager and the train operator could be subject to and entitled to receive performance payments (but if there is only one train operator it would be normal to ignore delays and cancellations which it causes).
Where there are multiple train operators a “star model” may be adopted (where the infrastructure manager acts as the clearing house and receives payment from the train operator at fault and makes payment to the prejudiced operator). In addition to acting as a clearing house the infrastructure manager could have a role in determining the correct attribution for the cause of a delay. The level of deductions will need to be considered. Operators of high value trains (e.g. high speed passenger trains or freight trains carrying valuable goods) may be entitled to greater performance payments than low value freight trains. This could impose costs on the lower value services which they will struggle to bear.
Where a passenger operator operates under a concession agreement the public authority might also want to incentivise “softer” issues, such as cleanliness, the provision of information and general customer satisfaction. These issues are harder to measure (although it is not impossible to do so) and can be incentivised by various means, such as levying deductions, requiring the train operator to pay a “passenger dividend” (i.e. taking steps for the benefit of passengers as a whole) or, in extreme cases, shortening the concession.