Separability



Vertical separation
A railway can also be divided into one or more entities that own and manage railway infrastructure (‘IMCs’) and one or more entities that operate train operating companies offering transport services ‘TOCs’).56 Or it can choose to allow vertically separated ’tenant’ train operating companies to use the infrastructure of a vertically integrated dominant or host railway.

Typically, governments undertake full separation to maintain ownership and control of the railway network while trying to encourage more contestability and private sector participation in train services. However, this option creates complexity and adds transaction costs and regulatory burdens. The challenge is to clarify allocations of responsibility and accountability between railway infrastructure managers and train services operators at the interfaces of railway technology, operations, safety, and economic concerns. Amongst countries that have introduced it there have been positive and negative experiences (as is also the case with integrated railways). Some governments have considered separation but rejected it as too complex or as putting at risk some of the possible benefits of integration such as single point performance responsibility, keeping infrastructure managers ‘closer’ to final customers, co-ordination of interdependent infrastructure and rolling stock investment decisions; and a unitary command and control structure to meet emergency situations (such as severe winter conditions).

For now, full separation is confined to some EU countries, and some of Australia’s interstate network. Nevertheless,many EU railways (including the largest, in Germany) are not institutionally separated; and in Australia, far more freight is carried on integrated railways than on vertically separated infrastructure.57. Indeed, about 98 percent of global railway traffic is carried on vertically integrated railways, including railways that compete through access by statutory right or commercial contract on lines controlled by a vertically integrated company. In the USA, more rail freight is carried under track access agreements on tracks of vertically integrated railways, than in the rest of the world put together. And the US national passenger train operator Amtrak is the world’s largest predominantly vertically separated passenger train operator.

In presenting restructuring frameworks below, it is assumed that governments would seek full vertical separation of infrastructure from rail operations only if they wanted to introduce private sector participation and competition into train operations. Independent research has so far failed to find any benefits to separating railway infrastructure from train operations without reforms in one or both.58 Box 5.4 summarizes this option.



    


56 Internal separation of an infrastructure division from train operating divisions within a railway company, or as companies within a holding structure, is not vertical separation but a means of managing vertical integration.
57 Countries with a vertically separated railway infrastructure manager are Finland, France, Spain, Denmark, Netherlands, Portugal, Sweden and Great Britain.
58 See for example G. Friebel, et al, Railway Deregulation: A European Efficiency Comparison (University of Toulouse, 2003).
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