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Sep 13, 2017

Is Daniel Andrews selling out public transport?

Victoria's Andrews Government has decided to continue with franchised management of Melbourne's trains and trams rather than bring them back under direct government control

The new contracts have some tougher targets

The Victorian Government yesterday announced new seven-year contracts with Metro Trains Melbourne (MTM) to run the city’s trains and Keolis Downer (KDR) to operate the trams. The Government is emphasising the tougher performance targets and performance penalties in the new contracts, including:

  • Trains will now need to be on time 92 per cent of the time per month, up from 88 per cent.
  • Trams will need be on time 82 per cent of the time, up from 77 per cent.
  • Metro will face fines of up to $700,000 if half the network shuts down, on top of performance penalties.
  • Restrictions on advertising — including a ban on wrap-around tram ads — will be put in place.

There’ll also be a 37% increase in maintenance and renewal expenditure to reduce the number of faults on the system including signalling failures, overhead wires and points failures.

The stronger targets are getting most of the attention, but an arguably more important issue is how the rail and tram systems are managed. The Andrews Government has firmly rejected recent calls to roll-back “privatisation” and “re-nationalise” the rail and tram systems. I looked at this issue earlier this year and it’s timely to return to that discussion (see Should public transport be “returned to the people”?).

As I pointed out then, these sorts of terms are wildly misleading in this case. Melbourne’s rail and tram systems have not been privatised. Indeed, the reason it’s in the news is because the current eight-year contracts expire later this year. What’s at issue here isn’t like the well-known and controversial asset sales of the 1990s e.g. Commonwealth Bank, Qantas, electricity infrastructure (that shouldn’t be surprising because it’s hard to sell an operation that doesn’t come remotely close to making a profit).

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.

What the Government’s doing is outsourcing the management of operations for a period of seven years; that’s similar in principle to what it does with myriad other public sector functions, like IT. The franchisees’ role is to manage operations, but even then the government plans and approves the introduction of new services and timetable changes.

Nevertheless, there are risks with the current approach. In theory the franchisees offer some advantages over public sector managers who at state government level are almost always under close political control. For example, private operators can be fined and must deal with the threat of termination. Further, labour must compete against investors to extract value from the operation.

But the experience of station-skipping in Melbourne shows that relinquishing direct control inevitably involves compromises that can make travellers worse off (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. Unfortunately, we don’t know whether, had management of trains and trams remained in public hands over 1999-2017:

  • The level of subsidy would have been significantly higher or lower.
  • The level of service – number, reliability, punctuality, stoppages – would have been significantly higher or lower.

In other words, do taxpayers and travellers benefit from outsourcing or are they 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.

While the tougher targets and rules are likely to go down well politically – and removing wrap-around tram ads by itself will delight many – the Government should make available to the public the evidence that supports its decision to continue with the franchise arrangement rather than using a fee-for-service model or returning operations to direct public sector management. It should also work harder at explaining to travellers why 92% on-time running for trains and 82% for trams are fair and reasonable targets.

Regrettably, the Government has ignored my plea to get rid of noisy video ads at stations (see Is loud advertising at railway stations going too bloody far?).

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3 thoughts on “Is Daniel Andrews selling out public transport?

  1. Chris

    Is the definition of “on time” still going to be 5 minutes and 59 seconds late? Kind of makes 92% punctuality seem a bit piss poor if it is.

  2. Chris

    I think you’ve missed the substance of this issue Alan. The debate is not between public vs private but between a coherent model of outsourcing like that used in a lot of other cities and the bastardized and horrendously complex “franchise” model which Melbourne follows.

    As I understand it planning (including scheduling), track maintenance (including the ability to extract rents from government funded upgrades) and day to day operations are all bundled into one contract in Melbourne. If I’m correct then that is absolute rubbish, Melbourne should have put together a properly staffed public authority to plan Melbourne’s public transport network (all modes). Work like track maintenance and operational concessions could then be subcontracted out as needed.

    Instead Melbourne will have another seven years of expensive crappy service.

  3. SEQ

    There are advantages to contracting out operations, for example, when you compare what Melbourne has to the disaster that is Queensland Rail in Queensland.

    – Labor Government agreed to “closed shop” hiring rules that mean $100k driver and guard jobs get passed around internally before opening it up externally. Not a surprise really – one side of the negotiation table are union members, and the other side of the table are elected union members.

    – Ex politicians got added to the operator’s board. Whether a private company would have done the same, one wonders. The Premier even overrode the choice of CEO against the independent CEO search and selection committee advice.

    – There are no fines, penalties or contract termination possibilities for the operator, they just get renewal no matter how badly the service is run. At one point, even bonuses were paid.

    – When the operator started to have trouble meeting its timetable targets, hundreds of services were simply deleted from the timetable – essentially shifting the goalposts – so that the on time and services run statistics looked great again.

    – The operator decided to cut services during school holiday periods – and decided to run non-clockface timetable, breaking bus connections to (low-frequency) trains across the entire region.

    Government operation in Queensland has meant weaker public accountability and transparency because the accountability that comes with fines and termination is not there.

    Quite a lot of noise is made about private operator “profits” but the simple reality is that payments to staff are about one order of magnitude higher than whatever profits are going to investors. If you genuinely wanted to save money, you would do what Perth has just announced – upgrade the signalling to automatic train control – which will allow for 100% driverless trains to operate in the future.

    Worst of all, Queensland Rail just get renewed, whether they meet contractual performance targets or not!