Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
13. Encouraging Private Sector Participation
or transport charges for shippers that invest in rolling stock. The discount level is a
determining factor in shippers’ incentives to invest in rolling stock.
Equipment leasing is a natural extension of private equipment ownership. For
railways, equipment leasing is normally a short-term—between one and seven
years – exclusive-use agreement between equipment investors and customers.
Usually longer-term leases, referred to as ‘financial leases,’ are a mechanism to
finance rolling stock. With financial leases, international accounting standards
require that the equipment value is accounted for on the shippers’ books rather
than the investors’ books.
To grow and flourish, leasing requires a market ecosystem. Railway tariffs or
transport price discounts must be sufficient to provide investors and shippers
with incentives to purchase or lease rolling stock. Private owner-investors must
be able to spread equipment ownership risk across multiple potential customers—shippers,
rail operators or forwarders, or other railways – not just the stateowned
railway.
A private rail equipment market will flourish if each party to the transaction receives
benefits greater than their costs. This equation depends on three factors—
risk sharing, investment capacity, and higher equipment productivity. Equipment
leasing is not simply the transfer between parties of rents from rolling stock investments,
or financing costs – it is not a zero-sum transaction – but rather provides
benefits to each party to the transaction.
The railway benefits from private investment in equipment since it need not secure
financing for rolling stock. Privately owned equipment reduces the need for
railway rolling stock maintenance facilities, and all the cost and capital they require
to operate and renew. Privately owned equipment can yield more transport
volume for the railway because it tends to lock shippers to rail transport and private
equipment usually has higher utilization. Moreover, the equipment may be
newer, more reliable, and provide a better net: tare ratio and suitability for shipper
needs than railway-provided equipment, which is likely more generic.
Shippers benefit from private investment in equipment because the equipment
better suits their needs and its supply is more reliable. The equipment may reduce
their overall logistics costs – either because it is easier to load and unload,
or because it has higher capacity than generic railway equipment. Shippers may
also benefit from the ability to assemble enough equipment to ship entire train
loads in dedicated service. This not only improves equipment utilization but also
may make the shipper eligible for even more economical pricing.
Investors benefit from owning equipment by earning good returns. In a market of
multiple shipper/customers, investors can spread their risks. Moreover, higher
equipment productivity permits shippers to move higher volumes, which reduces
overall costs for equipment investment—compared to full railway pricing or to
equipment-lease payments.
Equipment leasing is feasible for passenger and freight markets, but for a market
to develop there must be sufficient numbers of potential leasing customers. In the
UK, several passenger operators use similar equipment so an equipment investor
The World Bank Page 203