Vertical separation of railways
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1 Vertical separation of railways Lunch meeting, Washington DC, 10 May Paul Amos: Transport Advisor, The World Bank 0
2 What is vertical separation?: The institutional separation of the entity (s) responsible for owning and managing railway infrastructure from the companies who operate trains upon it. internal separation of a railway company into separate divisions or subsidiaries for infrastructure and train operations does not constitute separation: it is a way of managing integration 1
3 Where is there real vertical separation?: Several (but not all) EU States (e.g. UK, Romania, Netherlands) Australian interstate lines operated by the Australian Rail Track Corporation (ARTC) a federally-owned infrastructure company on which run a small number of private freight companies and a passenger company ( a small proportion of total Australian rail traffic) New Zealand: since the private owner (Tranzrail) gave back to Government the rail network which it could not afford to maintain Nowhere in N & S America Nowhere in the developing world. 2
4 What sort of railways carry the world s rail traffic? More than 97 percent carried on networks owned by vertically integrated railways Around 2 percent of passenger-km and 40 percent of freight tonne-km carried by private railways (the latter heavily concentrated in N&S America) Around 6 percent in the EU More than 70 percent in developing countries (IBRD/IDA) 3
5 engineering, operational, safety and economic interfaces between rails and rollingstock need active management (in design, investment and operations) Separation Negatives with separation, these interfaces need to be legally re-allocated to create clear responsibility and accountability between entities: the administration and regulation of these interfaces is costly and can be cumbersome, and may not be as effective (jury still out) separation also creates unwelcome distance between the ultimate users (passengers and freight customers) and infrastructure managers 4
6 separation plus rational track access charges can help make more transparent the ultimate uses of budgetary subsidies Separation Positives separation plus access rights can help bring competition and private sector participation to rail freight markets while maintaining public control of the network separation plus a system of time-limited, train operating concessions can also help facilitate contestability for and private sector participation in rail passenger services private sector participation, competition and contestability are likely to increase efficiency and widen the role of railways 5
7 Some observations. Vertical separation on its own doesn t achieve anything Vertical separation may be desirable when governments wish to retain public ownership of rail networks, wish to attract private participation in transport services, but don t trust regulatory arrangements to provide fair access Separation is not essential for competition but may make such competition fairer Separation is complex, may be costly, and is not without safety risk (though that risk has been successfully managed in Europe) it requires significant administrative/regulatory capacity In countries with small railway markets, the costs of separation appear to be disproportionate to its potential benefits Separation of itself will do nothing to reduce rail deficits and may make them worse, because it makes Ramsey pricing more difficult to sustain. 6
8 There are many examples of track access rights that do not depend upon institutional vertical separation. Contractually agreed: specific access rights: USA (approx 25% of US network is subject to trackage rights ) Legally mandated: narrowly defined access rights Canada (30km beyond company boundaries) Mexico (specific lines to ports/cities to create competition) Legally mandated: general rights of access All EU States for freight, EU international passenger, Australian State-owned railways* *Australian interstate rail is carried on vertically separated infrastructure managed by the Australian Rail Track Corporation 7
9 World Bank position on separation Vertical separation in railways is not desirable as an end in itself but may have value as part of a wider package of reforms in particular circumstances. The Bank remains open-minded on the issue of separation and will support partner countries committed to achieving efficient and effective railway services under either integrated or separated models. World Bank Transport Strategy Update
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