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Transport - general

Feb 8, 2017

Should public transport be “returned to the people”?

There are calls to bring management of Melbourne's train and tram systems back under government control. Might be a good idea, but first let's see the evidence

Yarra Trams proclaims it manages the world’s largest tram network (250 km of double track)

Writing in The Guardian yesterday, columnist Van Badham contended that since “privatisation of Victoria’s train and tram system has not delivered savings to the public”, it ought to be “re-nationalised” (see Daniel Andrews, please return public transport to the people).

Ms Badham says “re-nationalisation” of the public transport system, which she says was “sold off” in 1999, would be “more efficient and effective” than continuing the current arrangements. To dramatise the point, she starts off by telling us how a trip she took from London to Newcastle this week on Britain’s privatised rail system cost her A$213 whereas a ticket for the “same distance” on the “government-owned V-Line intercity service from Melbourne to Albury” costs only A$75.

Her main arguments for doing away with the current “privatised” arrangements in Victoria are:

  • The subsidy has “soared” e.g. from the “$651m paid to former franchisee Connex in 2007 to $1.18bn last year”.
  • A 2007 report by a transport adviser to former Premier Jeff Kennett, Richard Allsop, says “privatisation… produced no substantial savings for taxpayers”.
  • Customer satisfaction is “shockingly low, and unsurprisingly, the commercial squeeze on services has resulted in avoidable mistakes, service reductions and compromised safety standards”.
  • The franchisees’ profits – “$350 million over the last eight years” – are substantial and go offshore instead of into improving public transport.
  • Private owners don’t care about the public interest.
  • It would be good politics for the state government because “privatisation” is unpopular.

So, what’s the right call here? Continue with the current system or bring it all back within government?

***

Before we can address that question, it’s necessary to clarify a number of very important points Ms Badham gets  wrong.

First, the use of emotive terms like “re-nationalisation” and “privatisation” is incorrect and wildly misleading. Melbourne’s rail and tram systems have not been privatised; the management of operations has been outsourced like myriad other public sector functions. Indeed, the reason it’s in the news is because the current eight year contracts expire this year and are up for renewal!

The Victorian government still owns and is responsible for the tracks and the rolling stock; it’s the one who’s funding and building Melbourne Metro, the Mernda extension, level crossing removals, tram super-stops, and acquisition of new trains and trams. The franchisees’ role is to manage operations, but even then the government plans and approves the introduction of new services and timetable changes. The franchisees’ role is in principle little different from thousands of other contracts governments let every year for outsourcing services.

Second, Ms Badham is breathtakingly selective in the choice of the words she takes from the report by Richard Allsop, Assessing the results of privatisation. She chooses not to mention that his finding was that the first contract “can be judged as a reasonable success”. While his claims are arguable, Mr Allsop attributes to the new arrangements a 37% increase in train patronage over 1999-2007; a 25% increase in tram patronage; an 11% increase in service kilometres; and a big drop in strikes and stoppages. And while he concedes there were no substantial savings to taxpayers, he also claims “there has been no real increase in costs either”.

Third, Ms Badham cites the claim by the Rail, Tram and Bus Union that the two franchisees have together made $350 million in profit over the last seven years. An annual average profit of $50 million for managing operations doesn’t sound excessive for a combined train and tram workforce of around 5,500 (the Commonwealth Bank made $9.7 Billion profit last year!). What matters is whether or not the state is better off by outsourcing and whether it represents value for money.

Fourth, comparing the ticket price of a single train route in one country with a single route in another country means nothing. To then compound it by attributing all the difference to one factor – privatisation – is ludicrous. And anyway, at least get the facts right, they’re not the “same distance”; London-Newcastle is circa 400 km whereas Melbourne-Albury is around 260 km.

***

Despite the way Ms Badham frames her polemic, what’s at issue here isn’t much like the well-known and controversial asset sales of the 1990s e.g. Commonwealth Bank, Qantas, electricity infrastructure. That’s not surprising because public transport has been heavily subsidised for a long time. This isn’t “privatisation” so we should be a bit wary about jumping to a negative view on ideological grounds.

Nevertheless there are risks with the current approach. In theory the franchisees are better managers than government but relinquishing direct control inevitably involves compromises e.g. like station-skipping (see What’s better: a train that’s late or one that doesn’t get there at all?). The important thing is to be confident the inevitable trade-offs are worth it.

There are some important things taxpayers and travellers need to know before coming to a view on whether or not to support retention of the current arrangements. A key one is the answer to these questions: had management of trains and trams remained in public hands over 1999-2017:

  • Would the level of subsidy have been significantly different? Higher or lower?
  • Would the level of service – number, reliability, punctuality, stoppages – have been significantly different? Higher or lower?

In other words, have taxpayers and travellers benefitted from outsourcing or has it made them worse off? Unfortunately, I’ve not seen anything that comes close to providing an independent, reliable and trust-worthy answer. Lobby groups and ideologues are too politicised to take seriously – critics and advocates alike attribute any and every deterioration or improvement to the 1999 changes.

We need to be confident though that the government does the required research and carefully examines the evidence before it makes a decision later this year. Part of that process should involve putting the case for the various options before the public. And of course the government should do what’s best for taxpayers and travellers, not what’s politically convenient.

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12 thoughts on “Should public transport be “returned to the people”?

  1. P

    A lot of value would come from the PTUA campaigning to convert the contracts in Melbourne from franchises to fee-for-Service, which is what Perth, Brisbane, Gold Coast and Adelaide have for various modes (usually buses but ferry and light rail tram also). PTV would then retain all revenue, which would allow cross-subsidisation and (some) more services.

    Without the PTUA providing a list of tangible claims or grieveances about exactly what on the Metro Trains Melbourne network would be made “better” or “easier” by having public servants drive the trains it is rather difficult to be persuaded of the case.

    The case is actually stronger for buses – trains and trams are run on set tracks, while bus routes flexibility and diversity of frequencies requires greater co-ordination. Yet the campaign PTUA is supporting is all about trains and trams and is silent about buying out Melbourne’s many bus companies and placing them into public ownership.

    Improved accountability and transparency is claimed, but I cannot see what in the current setup is
    stopping people holding forums, making submissions, or meeting with planners. What attempts have been made to meet with Metro Trains Melbourne or Yarra Trams?

    Perhaps starting a regular public dialog with them would be a very good idea. Bring Metro Trains Melbourne staff and Yarra Trams staff into regular PTUA meetings and PTUA forums perhaps?
    If you can’t do it regularly, do it once a year, or even better do it at contract renewal time when different operators are making bids. Get a panel of PTUA members to publicly grill prospective train, tram, and bus operators on what they have to offer Melbourne and passengers. That’s definitely something PTUA could introduce.

    Much of this governance work is really Public Transport Victoria’s role, so what this has to do with PTUA supporting a campaign to discontinue Metro Trains Melbourne and Yarra Tram’s contract renewal and have public servants drive trains again isn’t clear. Wouldn’t it be better to focus on PTV?

    Metro Trains contract does not appear to have obstructed or delayed large changes to
    operations occuring on the rail network. Timetables have been reviewed regularly and extensively,
    new trains have been added, level crossings removed and more services added over time in Melbourne. It is not clear how any of these were made more difficult due to the fact Metro Trains Melbourne had a contract between itself and the Victorian Government.

    I understand that there are issues with Melbourne’s ageing infrastructure – but again
    how would that change by having public servants again drive the trains?

    Tony Morton made a comment about “enforcing passenger service standards.” In a public operator there are no financial consequences or threat of contract termination for the operator – contract extension is guaranteed and there are no investors to fine. So how are service standards going to be enforced?

    Perhaps enforcement would occur through threatening the government’s re-election. Running campaigns against the sitting party at election time. But this accountability is only possible if the Victorian Government isn’t a monopoly and MPs jobs are not guaranteed. And there you have a glimpse of the value of competitive contracting and how that ties in with accountability.

    The accountability that comes with our democracy does not come about through the fact that we can lobby our public officials or that they are taxpayer funded. It comes about precisely because if they refuse to listen to us, we can fire them from operating government.

    Even our democracy is competitively contracted through the holding of a regular cycle of elections and policy platform bids so the public may decide on whether to extend or terminate the current group’s social contract. If voters don’t like the performance of one political party, they get the competitor party to take over government operations.

    Just like we can fire Melbourne’s train and tram operators for bad performance.

    1. Tony Morton

      How do you ensure with a public operation that passenger service standards are met? The same way y0u, as an employer, ensure that your employees work in accordance with organisational policy. In most workplaces this happens as a matter of course – people go about their jobs without the constant threat of being fined or sacked. It’s the same with well-run public transport systems: passenger service is just part of the culture.

      It should be stressed the PTUA’s role in this campaign is not to belabour the public-private distinction, so much as the imperative to run things in the public interest. There are plenty of examples around the world where public transport caters for a high share of travel even where the operations – buses in particular – are contracted to private operators. These systems succeed because they share important features with the entirely publicly operated systems: most importantly a strong central planning authority with a high level of public engagement, and operating entities providing decent workplace conditions. (In the German-speaking world it’s called a ‘Verkehrsverbund’.)

      It’s rarer to find successful multimodal systems where rail operations are in the hands of private operators. This may be to do with the higher complexity of rail operations, or just the fact that in most places outside Australia, rail and urban transit are handled by different levels of government. The most salient example of franchised rail operations is the UK, and it’s difficult to find a single person outside officialdom there who thinks it’s a good thing. There appear to be some more successful examples in France, including by companies that are involved in our own private operations. Again, though, these systems feature strong central planning on the whole-system level.

      The PTUA has campaigned for a number of years on this kind of governance reform. Our current privatised arrangements are very much entangled with the governance problems that cause our current system to fail – hence the opportunity for change that we see with the expiry of the current contracts. It’s not simply a matter of whether we keep Metro Trains / Yarra Trams or not – we need to look at the whole management structure from PTV down and ensure it’s publicly responsive and given the expert resources it needs.

      1. P

        Well, it is a pity such a detailed and nuanced argument wasn’t the impression given by the RTBU campaign video, which is the same campaign the PTUA is supporting: https://www.youtube.com/watch?v=0t2CC1oZwIU

        See, the UK isn’t the only example of “privatised” railway operations – suburban trains in Auckland (TransDev), Wellington (TransDev) and Stockholm (MTR Nordic for both regional suburban and metro), Gold Coast Australia (Gold Coast Light Rail) are privately operated and work rather well. Sydney will also have a private train operator when the Sydney Metro opens, and in Newcastle NSW a private operator will work all transport modes within the region – trams, buses and ferry.

        Article: Transport For Newcastle: private operator to integrate city’s public transport
        http://www.abc.net.au/news/2015-11-05/transport-for-newcastle3a-private-operator-to-integrate-city2/6914358

        So the UK example only further reinforces the issue as being the franchising component (where operators keep revenue) and not the involvement of private operators per se.
        In privately operated railways where operators are paid “fee for service” things seem to work rather well. That’s what Melbourne should be aiming for – changing how the operators are compensated, and not dwelling on “privatised” ownership.

        Unfortunately the RBTU campaign video and associated material IS all about ownership.

        By lumping all private train and tram operators together as “privatisation” and then drawing conclusions about “privatisation” generally (i.e. Melbourne or the UK) in the absence of mentioning the different ways to compensate an operator and the very different outcomes this will ultimately have, the ordinary person who is uninitiated in the nuances of contracting or who is unaware of the existence of upstanding examples of private railway operation (i.e Auckland, Stockholm etc) for the public good will no doubt form the opinion that perhaps all private railway operators and private contracting are ‘bad’.

        And why wouldn’t they, it’s like “this is privatisation, here are some bad/disaster examples, by the way they are profiting, what do you think?”

        On Privatization Scares http://humantransit.org/2010/09/on-privatization-scares.html
        “There are many different ways to involve private enterprise in funding providing transit services, and these are so different that vague talk of “privatization” simply doesn’t illuminate what’s going on.”

        Privatized Transit and (or vs.) The Public Good
        http://humantransit.org/2010/02/privatized-transit-and-or-vs-the-public-good.html

        The United Kingdom isn’t the only example:

        Gold Coast Light Rail (Keolis) http://www.goldlinq.com.au/board.html
        TransDev Auckland, railway operator http://www.transdev.co.nz/
        TransDev Wellington, railway operator http://www.stuff.co.nz/business/industries/75208588/wellingtons-trains-to-be-run-by-french-company-transdev-after-kiwirail-loses-contract
        MTR Stockholm Regional http://www.railjournal.com/index.php/commuter-rail/mtr-begins-stockholm-commuter-rail-operations.html
        MTR Stockholm Metro https://www.mtr.com.hk/en/corporate/consultancy/stockholmmetro.html
        MTR Sydney Metro https://www.mtr.com.hk/en/corporate/consultancy/sydneynorthwest.html
        SMRT Singapore, railway operator https://en.wikipedia.org/wiki/SMRT_Corporation

  2. Peter

    I also want to tackle this claim:

    “The franchisees’ profits – “$350 million over the last eight years” – are substantial and go offshore instead of into improving public transport.”

    I am not aware of another country that uses Australian Dollars as currency, and presumably, that’s what the currency “profits sent offshore” are paid in – $AUD. There is this thing called ‘Currency Exchange’ that means any profits sent overseas must be exchanged into a foreign currency before being spent or useful overseas.

    The exchange process means that the Australian Dollars end up being given to people and tourists who are buying or returning to Australia. I think The Guardian article linked only illustrates the author’s rather poor understanding of finance and economics generally.

    As pointed out below, moving from a franchise scheme (operator keeps revenue) to a fee-for-services scheme (transit agency keeps all revenue) would be a large improvement.

    1. Tony Morton

      Actually Peter, I think you’ve got this exactly the wrong way round. Foreign exchange is raised from exports: it means people overseas need to obtain Australian dollars to pay for Australian goods and services, and in return the purveyors of Australian currency receive foreign currency that they can use to buy goods and services produced overseas.

      But profits shifted overseas are an import, not an export. We are paying overseas entities to provide a service here in Australia. We might pay them in AUD, but we don’t earn foreign exchange by doing so: what we give them are essentially IOUs that they then cash in for foreign currency.

  3. Peter

    I am really skeptical about the purported “benefits of public operation”.

    In particular, the transparency and accountability benefits that are being claimed have not been substantiated by way of any examples. A performance regime based around fines, penalties and contract terminations does not work with a monopoly public operator.

    Instead of fining investors, the government starts to fine itself. Can you imagine the government fining itself say $3 million for poor performance and then paying itself $3 million? It doesn’t make sense.

    The threat of contract termination is also removed as a public operator becomes a monopoly that cannot be removed no matter how poor its performance becomes. It is guaranteed contract extension no matter what. How is that an enhancement to accountability? It is not.

    So accountability is actually reduced, not increased.

    The other issue is that without investors to compete against for a return, it becomes easier to put through higher pay claims during enterprise bargaining – so it is highly unlikely that any of the “savings” found through elimination of the “profit” would actually make their way into more services. It would likely just go into higher pay.

    Opponents of private sector involvement say that it doesn’t have savings – but this is misleading as the Melbourne operations are franchises, not fee-for-service contracts. This is a very important point that is quietly omitted from the debate.

    It means that Yarra Trams and Metro Trains will get more $$ when passenger numbers increase as ticket revenue increases. This increase in revenue due to more passenger revenue being shared with operators is then portrayed as “a cost”. See the latest Victorian Auditor General’s report (December 2016) http://www.audit.vic.gov.au/publications/20161107-Rail-Franchisees/20161107-Rail-Franchisees.pdf

    There is of course, no reason why it has to always be set up this way under private arrangements. For example, you could pay operators based on the number of service kilometres travelled with the public transit agency keeping all revenue (including increases due to high patronage). This is what happens in Perth and Queensland I am informed. That surplus is used to cross-subsidise more services, just like Dr. Paul Mees describes in his books.

    If Melbourne moved away from franchising to a fee-for-services payment scheme, you could still have private operations, the accountability of a fines and penalties regime and likely lower “costs” as well.

    1. Tony Morton

      Thing is you can’t turn a poorly functioning public transport system into a well-functioning one just by fining operators until things improve: you actually have to plan it, and that’s the case whether it’s publicly or privately operated.
      Public operations can be easier to plan precisely because there’s no contract to renegotiate every time the plan changes: the planners just direct the operating staff to run to the new plan. But you can make this work with private operators as well, and fee-for-service contracts do make it easier.
      The accountability happens in this system by ensuring the public can engage directly with the planners. They can attend meetings, make submissions and participate in forums (I think they’re called ‘hackathons’ now). Preferably the senior planners and operators use the system themselves and so regularly experience it as a passenger.
      Virtually every well-run public transport system in the world functions in much this way. (Tokyo and Hong Kong might be exceptions, but they’re very much outliers – there’s little Australian cities can learn from there.)

      1. Peter

        Will the PTUA now campaign to abolish fines, penalties and contract terminations for METRO Trains given that fines, penalites, and contract terminations don’t improve things?

        My understanding was that it was relatively easy for the Victorian Government to fix things when Connex didn’t deliver – they just didn’t renew their contract!

        1. Tony Morton

          No Peter, you’re committing a false dilemma. Fines and other contract penalties are useful when managing private operators, but they should be a last resort – if operators are regularly being fined, it’s an indication that things aren’t working.

          The larger point is that before you look at fines it’s important to focus on the positive measures that assure a well-run system, chief among them being the role of the planning authority in coordinating the various operations and enforcing passenger service standards.

          1. Peter

            “Fines and other contract penalties are useful when managing private operators…”

            So in a public operator, there would be no fines, no penalties, no threat of contract termination?

  4. Daniel Bowen

    > Mr Allsop attributes to the new arrangements a 37% increase in train patronage over 1999-2007

    A dubious claim at best. New logos on the trams and trains didn’t result in a huge patronage spike, and that was the main difference visible to the travelling public. In fact, history shows the operators were largely powerless to do anything about the overcrowding during this period, since the provision of rolling stock was managed by the government.

    Rather, one should look to metropolitan population growth, and the resurgence of Melbourne’s CBD in particular for causes of strong public transport growth in that period.

    Other factors might have included network extensions (train to Sydenham, tram to Box Hill, Vermont South, and Docklands), new trams and trains increasing the proportion of the air-conditioned fleet, upgraded connecting feeder “Smartbus” services, and after-midnight services added in 2006. But these were all projects mandated by the Kennett government as part of privatisation, or upgrades funded by the Bracks government.

    > comparing the ticket price of a single train route

    The V/Line trip of course has a price regulated by government… but the fares of the private tram and train operators are also regulated by government.

  5. Tony Morton

    It’s complicated Alan – the PTUA is supporting the unions’ current campaign because we don’t believe current management practice or governance arrangements are suitable for protecting the public interest (and the Auditor-General seems to concur). The current ‘partnership’ arrangements – or whatever we call them – are too cosy and secretive, such that it’s impossible to tell whether the public is getting value for money, or whether planners at PTV/TfV are genuinely open to public submissions or dialogue. (We’ve seen far too many ‘consultations’ over the past 20 years where submissions are invited, to give the appearance of public engagement, but then simply ignored.)

    The issue is actually a lot broader than just the question of public or private operation. We’ve seen plenty of examples of both bad public operation and bad private operation over the decades. At the same time, when we look at operations overseas (more specifically rail operations), it’s a lot easier to find examples of well-run systems that are publicly owned and operated. We are led to believe from the evidence that while private operations can work well, it’s easier to assure both accountability and transparency to the public when proactive central planning is combined with operation by the public sector.

    If we’re to discuss privatisation in a way that avoids goalpost-shifting (and we think the term ‘privatisation’ is correct here, since that’s what all sides called it in the 1990s), we ought to start with the promises that were made in 1999 about what private operators would achieve. Is the system costing the taxpayer less than before? Have operators contributed ‘innovation’ to give passengers a better deal than in the 1990s? Has ‘risk’ been shifted from the public to the private sector? We’d be saying ‘no’ to all of these as you might expect, but Transport Ministers have also conceded ‘no’ on some of these in the past, and the Auditor-General appears to be saying ‘no’ as well.

    What we’re aiming to get with the expiry of the current contracts is a new set of arrangements that are more open to the public (financially, organisationally and with regard to public submissions and feedback) and that prioritise outcomes that matter most to passengers and can evolve with public expectations. That might all be achievable with private operators but it’ll take some really close attention to government planning and management either way.