IUE e-chapter 12 : Rail restructuring, privatization and concessions


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Chapter 12 builds on the general theories outlined in Chapters 18 of the book, but applies them to rail restructuring, privatization and concessions around the world. In particular rail illustrates many of the concepts in the general theory of changing business environments and sunk costs of Chapters 3 and 4, and the problems of regulation and longer term concession design analysed in Chapter 8.

The Chapter begins by comparing major patterns of inter-modal transport demand between America, Europe, Japan, Russia and China; in broad terms Russia and America are fairly similar as befits huge land-based countries, while Europe and Japan make far greater use of the seas around them for transporting freight. Focusing on rail the US system dominated by freight is contrasted with that of a passenger-dominated system in a European country like the UK, and sources of revenue are contrasted. A general economic diagram of a rail system’s main components is also proposed. There is a brief summary of the history of rail development and regulation in the USA, beginning with Sunshine Regulation in the 1860s and ending with the Staggers Act’s final deregulation of rail in 1980. The main features of the USA’s current railroad system are described and the origins of its profitability briefly analysed.

Rail restructuring, privatization and concessions in Europe is examined first by looking at Swedish rail reforms of the 1980s through to the current issues. Sweden decided to break up some main components of the standard network in the general rail model and went some way to privatizing those parts that could sensibly be privatized. The section next analyses the UK’s more comprehensive rail restructuring and privatization program, which has required maintaining substantial subsidies under both public and private ownership despite a complete rupturing of track from operating and rolling stock companies. In Sweden, the UK, and the USA we note a very significant rise in passenger rail over the last twenty years, which is hypothesized to be due to road congestion, but this is still not sufficient to return the UK and Sweden to profitability.

The final section draws general conclusions from these experiences and derives a general product space map for Train Operators from the general model of utility concession design in Chapter 8. This diagram clearly illustrates some of the main features of high-level EU transport policy and some major challenges for rail concession design in the 21st century.

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