Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
13. Encouraging Private Sector Participation
Often, governments choose contract management because they cannot or are not
able to face difficult staffing and investment choices associated with greater private
sector involvement. But, many service contracts limit redundancies, prohibit
significant reductions in service, and sometimes commit the government to renewal
investments as a part of the contract. Such contracts are typically shortterm
and as a result do not activate much private capital but become “cost-plus”
management contracts. A sample contract is included in Annex 5.
Private sector management can achieve efficient railway operations, but most
service contracts limit managers’ ability to make significant long-term improvements.
A more fundamental way to involve private sector operators and private
capital is through a longer-term concession or franchising contracts.
13.2.3 Rail concessions and franchises
Rail concessions and franchises are effective ways to increase private sector participation.
Concessions and franchises are contracts between a government
owner and private parties to provide some agreed rail related services. The contracts
can be for infrastructure, operations, or both. The terms are often used interchangeably
and may be interpreted differently in different jurisdictions. Here,
concessions and franchises are distinguished by the length of the contract – a
concession typically lasts longer and requires a more significant investment from
the private sector.
Concession contracts
In most cases concessions involve a contract for vertically integrated train services.
Under a typical concession contract the state maintains ownership of the
land under the railway while transferring most other infrastructure and rolling
stock assets and the right to operate rail services to a private company during the
contract period. Concessions are usually longer-term arrangements that can take
advantage of private sector investment and commercial management practices.
Railway concessioning can encompass the whole enterprise or specific enterprise
components – freight operations, commuter services, or long-distance passenger
services. Concessioning has been used in Europe, Latin America Africa, and in
many other parts of the world, with generally positive results. 124
Concession contracts that include rail infrastructure are typically 25 to 40 years to
allow the concession operator to invest in long-term assets to improve its performance.
A concession contract can include government investment in assets, such as
infrastructure or passenger rolling stock. Infrastructure concessions are exclusive –
the concession operator has the exclusive right to invest, maintain, and operate the
infrastructure. Sometimes concessions can also allow operating exclusivity, or they
can require the concession operator to provide access to other train operators providing
specific transport services (passenger, freight, or both).
Typically, in concession arrangements, state-owners are financially responsible
for workforce redundancies, existing environmental conditions, and often include
124 For a discussion on concessioning, see Section 9.4.3, the toolkit case studies. A proforma
concession contract is included in Annex 4.
The World Bank Page 200