Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
9. Setting the Regulatory Framework
When a monopoly exists, price and service quality can be determined in several
ways. 80 Gomez-Ibanez suggests an array of options along a continuum (Figure
9.1) ranging from total dependence on markets to public provision of the service.
81 At one end of the continuum—the market extreme—customers contract directly
with the monopoly service provider. The next option is concession contracts,
which, like private contracts, use the courts to settle disputes but are more
suited to railways with many customers. Further along the continuum, government
would create a specialist body to carry out discretionary regulation, including
the power to set prices and services standards. The regulator would operate
within a clear and transparent framework set by legislation but broad enough to
allow the regulator to exercise substantial discretion. At the political extreme of
the continuum are the public enterprise options.
In practice, these options are more complex. Discretionary regulation can be
combined with concession contracts (discussed below) and public enterprises.
For example, in Europe, many state-owned infrastructure providers are subject to
discretionary regulation, irrespective of whether they are part of holding companies
or completely independent of any operator. Markets may have more or less
influence. State-owned infrastructure providers, for example, rarely depend entirely
on private markets to raise capital.
80 Rail’s natural monopoly element is its infrastructure. This is true for both vertically
integrated and vertically separated railways. Vertical separation reduces the scope of
the natural monopoly—rail operators have no choice, while end customers sometimes
do.
81 J. A. Gomez-Ibanez, Regulating Infrastructure: Monopoly, Contracts and Discretion,
(Cambridge, Mass. Harvard University Press, 2003).
The World Bank Page 130