Business Organization



Privately-owned company
A joint-stock company owned by private shareholders is the most commercial structure for delivery of rail transport services in competitive markets. Private companies have much stronger incentives to improve commercial performance than SOEs or SOCs, and much stronger alignment between managers and shareholders on improving the bottom line.

Conversely, though private companies will deliver social benefits if they happen to coincide with their commercial goals, they have no inherent interest in using rail transport to achieve social outcomes, except as a public relations strategy. Therefore if governments wish to capitalize on the strengths of privatized railway entities and protect or pursue other public interests, they must adopt contractual and/or regulatory mechanisms that specifically align company interests with targeted public interests.

Globally, public ownership (in various corporate forms) is the dominant model in national railways in terms of total traffic carried,52 though this result is influenced by the huge traffic flows of the three mega-public railways of China, India and Russia. About 63 percent of all rail freight ton-kms on national networks 53 and nearly 90 percent of passenger-kms are carried by state-owned entities, including public authorities, SOEs, and SOCs. Nevertheless, there are over 500 private rail-freight companies internationally, concentrated in North America, South America, sub-Saharan Africa, and Australia, but an increasing number are operating in Europe. Private inter-city passengerrail services are concentrated in Japan and the UK; privatized passenger concessions for urban and regional rail services are common throughout the EU, particularly in Germany, Sweden and the UK. Some freight rail concession operators in Latin America and Africa also run residual passenger services as a concession condition, sometimes with government financial compensation.

Almost all private operation of previously state-owned railway services has improved market and commercial performance, particularly freight railways. Private rail freight companies have been better able to compete in the arduous, low-margin business of moving goods. Success often depends upon cutting operating costs to the bone, and outmaneuvering a highly decentralized and entrepreneurial road haulage industry that faces relatively few constraints on entry, movement, management, or pricing.

Railway network privatization or concessions have proven more daunting and less attractive as a public policy choice in countries where national railways have a strong passenger base. In nearly all cases of freight privatization referred to above, rail infrastructure was taken under private management (after remaining under public ownership through long-term concession structures). But in Canada (Canadian National), Great Britain, New Zealand, and parts of Australia, some or all main-line railway infrastructure was transferred to full private ownership. Since then, Britain and New Zealand have essentially brought railway infrastructure back into public ownership, although train operations are still in the hands of private companies.

Public policy on railway network ownership and control has a critical influence on restructuring options. Many governments are as uncomfortable with the notion of full private ownership or free-market operation of railway networks as they are with full private ownership of other transport networks—roads, inland waterways, shipping lanes, or air traffic routes.

Governments cite several issues: (i) the inherent monopoly in railway infrastructure; (ii) the difficulty of full cost recovery for rail infrastructure from user charges; (iii) the ‘lumpy,’ long-term, immovable and therefore risky nature of transport infrastructure that can render it unattractive to private investors; and (iv) the concept that ‘common user’ transport infrastructure is inherently public patrimony that should be run for the public good rather than private profit.

A government policy positionopposed to railway network private ownership or management through concession limits available structural choices, but does not rule out separability options, greater competition, and private participation in train operations.

Box 5.2 summarizes the merits of a private company as corporate form.



    


52 Paul Amos and Lou Thompson, Railways in Development: Global Round-up 1996-2005, World Bank Transport Note TRN-36, (World Bank, 2007).
53 Excluding own-account mineral railways and industrial railways.
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