Home' Future Building: The Australian Infrastructure Review : July 2011 Contents 68 futurebuilding
Volume 2 Number 1
While franchising rail operations in Sydney and
the state’s interurban network to the private sector
may seem radical to some, it has strong precedents
in other Australian and offshore jurisdictions. This
means that New South Wales is in the enviable
position of being able to learn from the successes
and mistakes of those who leapt before them. The
paper examines those experiences and establishes
a pathway for New South Wales to consider and
implement service delivery reform.
The paper argues that ‘in a context of low
customer satisfaction, constrained patronage growth
on rail, significant inefficiencies and a huge projected
growth in population, it is now appropriate to give real
consideration to alternative models that will deliver
better outcomes for commuters – and for taxpayers’.
This assertion is backed by evidence from domestic
and international case studies. The paper goes on to
say that ‘in broad terms, the Australian and global
experience of the private operation of public transport
has delivered significant benefits in terms of cost
certainty and cost efficiency to government – while
delivering much higher customer service levels’.
The key recommendation of the paper is that the
New South Wales Government undertake a special
commission of inquiry into the opportunities that
exist for competitive franchising on the rail system.
In exploring the opportunities for reform in New
South Wales, the paper reviews the experiences in a
number of jurisdictions, including:
• The United Kingdom (open access and tendered
• Sweden (tendered and network concessions)
• Victoria (tendered concessions) (1999).
In each of these cases, a full separation of
infrastructure management and service delivery
was instituted. Both Sweden and Victoria retained
infrastructure ownership and management in public
hands, while the United Kingdom initially privatised
this function but later resumed control because of a
range of factors.
The United Kingdom and Victorian approach
initially sought to transfer all operational and revenue
risk to the private sector and provide incentives for
franchisees to invest in rolling stock and infrastructure
upgrades. In both cases, this led to early service
issues and financial problems with some franchisees,
which caused each jurisdiction to revise these
Lessons were learned from both examples.
Current franchise contracts enable revenue sharing
between government and franchisees with incentives
for growth in patronage revenue (United Kingdom); or
incentives for infrastructure improvements (Victoria).
Fares are regulated in Victoria, and in the United
Kingdom fares are regulated for commuter routes
where customers have limited alternatives to rail.
In Victoria, the government has resumed control of
According to the paper, in both the United Kingdom
and Victoria, franchising has led to improvements in
service quality, customer satisfaction, punctuality and
volume of services, as well as significant investments
in new and refurbished rolling stock and infrastructure.
In both the United Kingdom and Victorian experience,
the operating subsidies did increase beyond what was
anticipated, but this was driven by a massive surge
in patronage post reform. And in Victoria’s case, cost
recovery levels achieved across Melbourne’s train and
tram network is now around double what is achieved
in New South Wales.
Sweden took an entirely different approach.
Concerned with the rising burden of subsidising
uncommercial local and regional rail lines, it
transferred responsibility for these to local government
and permitted them to franchise rail service operations
through competitive tendering. Meanwhile, the
central government chose to retain ownership of the
monopoly rail service provider that only operates
on profitable lines. Competition here has reportedly
reduced overall network operating costs by between
20 per cent and 40 per cent.
The paper argues that ‘there is now a clear
opportunity for New South Wales to undertake
major reforms in the way passenger rail services are
delivered through the introduction of competition
and contestability in the provision of public transport
Of course, privately operated public transport
services are not a new phenomenon, with private
entities already operating across much of the New
South Wales bus network, part (and soon all) of the
ferry network and the light rail system. Added to
this, the New South Wales Government has recently
announced that it will tender the rest of the Sydney
Ferries network. The paper argues that the improved
outcomes on these privately operated networks only
strengthen the call for reform to the state’s passenger
Getting New South Wales rail back on track
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