MEDIOS DE COMUNICACIÓN Y CONFLICTOS DE DERECHOS

The process of privatisation was complex due to the size and nature of the industry, but also because of the political ramifications. Various methods were debated through ‘think-tank’ papers and conferences prior to the event, including the following:

1. British Rail PLC – favoured by Bob Reid I.

2. Sector segmentation, which would maintain the benefits of OfQ but limit the possibilities of competition between services.

3. A route-based solution that would promote competition and rely on a pre-1921 structure where BR was vertically separated into a dozen companies and regulation would be reduced, thus enhancing entrepreneurship (Gritten, 1988).

4. A regionally based system such as previously implemented in Japan.

5. An infrastructure authority concept propounded by the Adam Smith Institute,

whereby the competition would lie in the operators competing to run services on the network (Irving, 1987).

Although a solution that faced significant challenges, the idea of an infrastructure authority was further developed using the auction of ‘slots or train paths’ (Starkie, 1984). Although the

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method preferred by BR was a complete sell-off in one whole piece, it appeared that this was not viable due to its size and the need for competition within the industry.

Franchising on an infrastructure authority-based model (based on the fifth option above) became the preferred method (Butler, 1985). The idea of franchising is a simple one: property rights that convey an element of market power; market power necessitates regulation; and franchising allows competition for monopoly. With franchising as a method of privatisation, the franchising authority can fix the prices charged and the nature of the services offered. The competitive bidding process then allocates the franchises to firms that can provide the

greatest value for money while meeting the objectives laid down by the franchising authority. However, it is equally plausible to sell franchises at unconstrained prices, thereby realising the monopoly rents to government, or to give the franchises away to companies that offer the greatest level of service at the lowest prices to customers (Helm, 2000). The wide-ranging reform plans set out in the 1992 White Paper were largely implemented by the Railways Act of 1993. It set out the provision for the following.

1. The establishment of a track authority that would own, and be responsible for, the maintenance of the infrastructure (including signalling, stations and depots). 2. The sale of freight and parcels to the private sector.

3. The franchising of passenger services with the private sector bidding to operate them. 4. The establishment of a franchising authority that would negotiate award and monitor

the franchises.

5. A regulatory body to oversee the track access, promote competition, prevent monopolies, and promote consumer benefits (Harris and Godward, 1997). The options considered all looked at the industry from an operational and organisational perspective. It is important to recognise a key feature of the rail sector—replicated perhaps only to the same extent in the airports sector among regulated utilities—that makes competition difficult, which is that rail cannot run more than one train along a track at any given time. The time at which a service is run is as important as the service itself.

The passenger rail industry was split up into 25 train operating companies (TOCs) 3 rolling stock companies (ROSCOs) and an infrastructure company: Railtrack (Preston et al., 2000). Apart from the ‘Island Line’ on the Isle of Wight which was vertically separated and had responsibility for the infrastructure as well as the operations (White, 1998), all other train operating companies were horizontally separated and paid access charges to Railtrack whilst

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leasing the rolling stock from the ROSCOs. The franchises were awarded by the Office of Passenger Franchising (OPRAF) who invited bids for subsidy required to run the services. The franchise length was initially set at 7 years with an option to extend dependent on specific investments being implemented. Bids tended to be successful if the subsidy amount was kept low and this has been seen as one of the main reasons that over half the original franchise awards failed within the first few years (Preston, 2000).

In addition to the 25 former BR service franchises the Channel Tunnel operations and infrastructure was divested and the Dockland Light Railway (DLR) was also placed under a form of franchise operation in 1997 (White, 1998). Most of the franchised services covered a mixture of regional and long distance services with the exception of the east and west coast long distance rail services. The roles are briefly highlighted in Table 2-1 whilst Appendix 1 gives the franchise ownership and dates of transfer to the operators.

Table 2-1 Roles and Responsibilities of the newly formed companies

Railtrack Infrastructure Owner

Train Operators (franchised) 25 Train Operating Companies (TOCs)

Unregulated Passenger Services Eurostar

Open Access Operators Heathrow express

Non Passenger Operations Freight – 7 Freight Operating Companies

Rolling Stock Leasing Companies 3 Rolling Stock Companies (ROSCOs)

Maintenance Contractors 7 Infrastructure Maintenance Units (IMUs), 6

Track Renewal Units (TRUs)

Franchising Director Office of Passenger Rail Franchising OPRAF

Regulator Office of the Rail Regulator ORR

Safety Regulator HM Railway Inspectorate

Local Authorities Passenger Transport Executives PTEs

Other Suppliers Rolling Stock, Signalling, Design, Cleaning

Services etc. Source: DfT 1996

The basis of the plan was to provide competitive bidding, which would lessen the Treasury burden; an un-geared Railtrack balance sheet that would provide the finance mechanism; and

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the introduction of competitive services over time to focus on costs and customer service, thus improving efficiency. However, due to the Labour threats of re-nationalisation if they won the next election, the risk to franchise bidders increased, and private investors into Railtrack were deterred (Gourvish, 2002a). As a result of this increased risk, the regulator, the Office of the Rail Regulator, after persuasion from the government, moderated competition to ease the burden. Privatisation now became the objective rather than a vehicle for achieving the original objectives. This, coupled with the new Labour Government’s attempts to integrate rail into one Transport Policy along with all other modes after 1997, rather than maintaining the ‘business model’ developed by the Conservatives, led to problems with both the industry structure and operations.

One of the key elements of this new privatised structure was the vertical separation of infrastructure-related tasks from operating tasks (Harris and Godward, 1997). Engineering, such as civil, power and signalling, was transferred to Railtrack. Although responsible for these areas, Railtrack subcontracted them to private companies, thereby potentially saving money. However, concerns emerged about the degree of monitoring of its contractors (Wheat and Smith, 2006), and its successor, Network Rail, has both taken some activities back in-house (maintenance) and comprehensively redesigned contractor performance monitoring (Gibson, 2005). Asset knowledge has also increased manifestly since Network Rail took over the infrastructure business, in part due to the obligation to provide and adhere to and asset management policy.

The remainder of the network was split into franchised passenger operators, of which there were originally 25 train operating companies (TOCs); unregulated operators such as the Eurostar; open access operators such as Heathrow Express; and non-passenger operators (ie, freight). The former BR was therefore restructured into one track authority (Railtrack), 25 passenger TOCs, seven freight train operating units and some 70 ancillary businesses beginning to trade as free-standing units on April 1st 1994 (Preston et al., 1999). Three rolling-stock leasing companies (ROSCOs) were also formed to buy and lease out passenger and freight trains.

The franchised companies operated the specific services but did not have ownership of the tracks, the stations, or the trains themselves. The three ROSCOs supplied the trains on a lease basis, but these trains were built and (in some cases) maintained by yet different companies. The track renewal units and maintenance units of the former BR became companies prior to privatisation and were sold as such. The administration side of the industry was set up as the

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Office of Passenger Rail Franchising (OPRAF), responsible for the franchising of the passenger services. The Office of Rail Regulator (ORR) was responsible for issuing the licences to run the services, approving the franchise agreements, and enforcing domestic competition law, and the railway inspectorate (HMRI) continued as before as an independent safety regulator affiliated to the Health and Safety Executive (Preston and Whelan, 1995). This now meant that financial responsibility for the different elements of the industry were split up, and rather than a straightforward budget being allocated, money came from a variety of sources including local authorities in the guise of Passenger Transport Executives (PTEs) (Harris and Godward, 1997).

The horizontal separation of BR’s passenger rail business into 25 train operating units corresponded broadly to the existing profit centres devised by OfQ. The competitive bidding for franchises was based on an auction for the subsidy required (Dnes, 1992). It was intended that this would bear down on the burden placed on HM Treasury by lessening the amount of subsidy needed to increase the service provision thereby ensuring value for money and increasing quality for a lower percentage of public funds. Most of Railtrack’s 2,500 stations were leased to the TOCs, but it retained the management of 14 major stations. TOCs obtained the right to use stations or depots either by leasing facilities from Railtrack, or by means of regulated access agreements with other TOCs which operate them, or, in the case of the 14 major stations, with Railtrack. Meanwhile, TOCs obtained the use of tracks by means of regulated track access agreements, involving submitting Railtrack to the UK’s traditional RPI-X regulation, whereby future track access agreements for the next five years are set at five- yearly periodic reviews. Rights of access were made available to private freight operators without a franchise.

The BR freight companies were privatised as follows. Trainload Freight, a specialist carrier of bulk raw materials, was sold to English, Welsh & Scottish Railways (EWS), a subsidiary of Wisconsin Central, in 1995. The domestic container business of Railfreight Distribution (Freightliner) was sold to MCB Ltd as a management buyout in 1996, while its European intermodal and automotive freight business was also sold to EWS. The express parcels service, Red Star, was sold in 1995 as a management buyout. Finally, EWS bought Rail Express Systems Ltd, the carrier of mail for Royal Mail, in 1995.

The intention was that rights of access for new passenger service operators would be

established immediately, in order to fulfil the third policy objective of improving the efficiency of the industry (Glaister, 2002). However, because of concerns surrounding the opposition

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Labour Party’s plans for a re-nationalisation of BR, the government decided that competition should be ‘moderated’, thus reducing the risk to investing in TOCs. Hence, open access was postponed until 20023. Nonetheless, there has been some significant competition between franchised operators conveying passengers along similar routes, most notably between Virgin West Coast and Chiltern between London and Birmingham; Gatwick Express, Southern, and Thameslink services between London and Gatwick; and GNER and WAGN between London and Peterborough. This competition has generated product differentiation, service frequency increases and selective fares cuts (Preston, 1999a). Figure 2-3 outlines the structure of the industry immediately after privatisation.

Figure 2-3 The Structure of the British Railway Industry after Privatisation

Source: (Thompson, 2004)

Although there were significant savings on operating costs in the first few years of

privatisation ((Smith and Wheat, 2007, Pollitt and Smith, 2002)) these abruptly came to an end with the Hatfield crash in October 2000. Hatfield became synonymous with the downfall of Railtrack due to the nature of the accident and the resulting infrastructure and

3 _{Open access has been instigated in small ways in certain parts of the network, but has not been}

initiated to the extent of the original plans. Lease Rolling Stock Provide Services Provide materials, haulage Franchising Director:

awards franchises and pays subsidies

Rail Regulator: grants and

enforces licences and approves access agreements

Passenger Train Operating Companies (TOCs): run passenger

services

Other passenger train operators: run

passenger services

Freight Operators: run

freight trains

Railtrack: owns the

railway infrastructure Other service providers (eg. Telecoms) Track renewal companies: renew track Infrastructure Maintenance Companies Heavy Maintenance Suppliers: maintain rolling stock

ROSCOs: own rolling

stock

PTE’s: provide

subsidies outside London

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maintenance inefficiencies that it uncovered. Maintenance and renewal were reappraised after the event and significant and sustained increases in funding were instigated. An important question arises from this increase: are post-Hatfield cost and productivity levels reasonable and should they be sustained? An important reason for the privatisation of the rail industry was the reduction in Treasury spending and the encouragement of competition in order to incite cost efficiency and high productivity. The increased costs of the railways have burdened the Treasury to levels unseen in the nationalised era. It has been argued that the need for increased funding is defensible as previous funding was inadequate, but in order to justify this increase it must first be found that a/ the inadequate funding requirements for infrastructure were directly responsible for the Hatfield Crash and b/ that the current levels of funding are comparable to other network infrastructure costs. Both these scenarios are difficult to prove and open to assumption. The main problem with the latter scenario is that until recently there are no other directly comparable infrastructure networks to compare with and therefore no methodology with which to employ. Smith (2008) addresses these issues in his research on costs and benchmarking Network Rail efficiency savings (Smith and Wheat, 2008) and recent benchmarks have been stipulated in the Control Period 4 operational plans for Network Rail.