Evaluating Rail Reform in Latin America

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Evaluating Rail Reformin Latin America

• Javier CAMPOS
• Juan Luis JIMENEZ
• WorkGroup in Transport Economics (EIT)
• University of Las Palmas (Spain)

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Contents

• Motivation
• Why Latin America?
• Rail reform why, when and how?
• Main features in Argentina, Brazil and Mexico
• Evaluating the results
• Performance competition issues
• Conclusions
• What lessons can be learned?

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Why Latin America?

• Fact since 1990 Latin America has been the world
  region with more extensive transport
  restructuring experiences
• The World Bank transport projects database
  (1990-2001)
• Latin America (108) Asia (71) Europe
  (10) Africa (9)
• Private investment in transport projects gt40US
  billion!
• Consequence the region has become a natural lab
  to test new concepts in (transport) regulation
  and policy.
• In railroads large-scale concessioning
  experiences in Argentina, Brazil, Mexico
  Bolivia, Peru,...

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Rail reform reasons

• Until 1980, Latin America growth model was based
  on heavy government intervention private sector
  not allowed in many transport services and
  infrastructures.
• In the rail industry
• National monopolies subject to political
  interference
• Lack of investment, excessive staff
• Large ineficiencies
• Change of this paradigm was forced by tough
  economic circumstances lack of public funds to
  sustain the model.

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Public investment in LAC (1980-1998)
as a of GDP
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Rail reform common features
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Rail reform in Argentina (freight)
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Rail reform in Argentina (passengers)
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Rail reform in Brazil
10
Rail reform in Mexico
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Evaluating micro-performance problems

• Recent government changes have favored critical
  internal reviews of the concessioning process...
• Lack of enough data on concessionaires
  performances
• Argentina political shock and ongoing
  renegotiation process.
• Brazil institutional conflic among regulatory
  agencies.
• Mexico rail reform completed only 3 years ago.
• Since 2000, several studies published....
• Many of them have focused on productivity
  analysis (most reliable data).
• Financial data contaminated by non-comparable
  accounting standards.
• Regulatory information collection processes still
  very incomplete.

What can be said about the concessionaires
performance?
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Efficiency and productivity (Argentina)
Source Estache et al. (2002)
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Prices and quality of services (Brazil)
Average values for freight concessionaires
(1992-2001)
Source Campos (2002). Based on data provided by
Brazilian Gov.
14
Investment commitments in Mexico
Source Campos (2001). Based on data provided by
companies. () denotes actual investment values
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Performance evaluation mixed results

• Increased labor productivity...
• ....but costly labor redundancies as well.
• Increase in quality ( reliability
  accidents)...
• ....but also increase in prices.
• Most private investments below commitments
• ....but larger amounts than during the 1980s.

At the macro level great improvement in public
finances, but not always translated into better
services for the poor.
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What about competition?

• Initially, (limited) competition for the market
  through open auctions...
• But not many bidders in each case (Example 1).
• No competition in the market (time-limited)
  monopoly rights within each concession...
• Unclear access rules to key areas (Example 2).
• Strong competition between markets road
  transport is a tough competitor...but not always.
• Abuses of dominant position (Example 3)

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Example 1 cross-ownership and collusion
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Example 2 access rules in Mexico D.F.

• Concession contracts favor negotiations among
  operators.
• Alternative internalization. In Mexico D.F. a
  separate company (TFVM) manages the system.
• TFVM ownership TFM (25), FerroMex (25),
  FerroSur (25), Government (25)
• So far, TFVM working with profits,...but
  potential conflict asymmetric owners with equal
  voting rights.

In case of problems over access issues,
concessionaires must first appeal to Government,
then to the competition agency (another source of
conflict?)
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Example 3 captive shippers

• In areas where the railroad is the most
  cost-effective means of transport,
  concessionaires tend to abuse their exclusivity
  rights.
• Example captive shippers in Brazil
• Users are required to carry out specific
  investments in order to be served
• Discriminatory tariffs (between shareholder-users
  and normal users)
• Quality of service is much lower for these
  customers
• If this is viewed as a standard abuse of dominant
  position case, then it is a job for the
  competition agency.
• However, in most countries the rules are not
  clear yet, since the problem affects to the
  concession contract terms.

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Conclusions

• Rail reform in Latin America can be evaluated as
  a moderate success in terms of
• Microeconomic performance (productive)
  efficiency
• Macroeconomic performance fiscal impact
• However
• Financial results are still unclear.
• Redistributive impacts are very poor.
• Several competition issues may jeopardize the
  long-term achievement of greater (economic)
  efficiency.

Lessons for other countries?