Competition for the rail market
Three circumstances militate against competition in rail transport services delivery.
- Micro markets. Railways are a niche transport mode and railways are most competitive where they can achieve high-level capital utilization—infrastructure that carries substantial flows of well-loaded trains and well-utilized locomotives, coaches, and/or wagons. But many railways in developing and transition countries have inherently low freight and passenger flows, which means that railway managers face the unenviable choice of running longer cost-efficient trains at an unappealingly low frequency, or offering more attractive service frequency for shorter, high-cost trains. Hence, it is often said that rail services that succeed in thin markets do so because they run on ‘the smell of an oily rag’; introducing competition—a second operator—would mean running on the smell of half an oily rag.
- Subsidized passenger rail services Most rail passenger services in most countries are subsidized by taxpayers because fares are inadequate to cover operating costs. Introducing competition would reduce the fares, thereby undermining the operators and increasing the drain on the public purse.
- Long-term investment in public railway infrastructure Sometimes governments offer exclusive concessions as incentives for railway services providers to make long-term investments in infrastructure. African railway concessions, in particular, are based on this justification.
Exclusivity is not incompatible with contestability. In the three circumstances described above, governments can adopt a transparent and competitive bidding process for granting exclusive rights, and for any associated public funding.
Alternative paths to competition
The main policy alternatives are summarized in Figure 5.2 below. The assumption is that if governments favor greater competition in segments of core railway services, they will accept private sector delivery, therefore, competition in the market or for the market would include at least one private participant.
In some countries, two railways owned by the same government (or owned by a state and a local government) compete for traffic, but competition is nearly always at the margin of operations as a by-product of other policies, rarely the central policy intent. There are good reasons for this.
First, national governments may fear that two commonly-owned competitors will lapse into a comfortable duopoly with stable market shares, thereby neutering competition. However, the opposite scenario is equally undesirable—each state-owned competitor might attempt to pursue an aggressive price-cutting strategy at the expense of the public purse (whether in the guise of lower shareholder value or higher budgetary support).51
<< Previous | Next >>
51 This is to be distinguished from the situation such as in the EU where state-owned railways of different countries compete for traffic on some routes.
PDF Print Version