PublicPrivate Partnerships in Railways

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Public-Private Partnerships in Railways

• Lou Thompson
• Moscow, March 3/4, 2005
• Thompson, Galenson and Associates
• 2804 Daniel Road
• Chevy Chase, MD 20815-3149
• Lthompson_at_alum.mit.edu
• 301 951-0874 phone [phone] fax

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The Challenges in Railways

• The railway monolith
• Resists change
• Has no relevant information
• Severely limits opportunities
• BUT, Russia is changing fast
• Lack of experience with private sector
• The bad image of privatization
• Privatization is one possible end, not the
  beginning many stages along the way

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Opening the Door to the Private Sector

• Spinning off social activities (hospitals,
  schools, universities, other). Is NOT
  privatization, but essential to separate
  government from business
• Spinning off the non-rail, non-core businesses
  (manufacturing, maintenance). IS privatization,
  but countries differ on who does it.
• Breaking the railway into the right lines of
  business (IAS based).
• Adjusting the legal environment for private
  property

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The Right Lines of Business

• Infrastructure access charges, ownership,
  funding, management, contract maintenance
• Freight companies ownership and tariffs
• Intercity passenger services ownership, tariffs
  and support
• Locally-focused passenger ownership, tariffs and
  support
• Regulation appropriate to the structure

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Attracting Private Capital to Finance the System

• Contracting for services or maintenance
• Wagon, coach and locomotive mortgaging
• WCL financial leasing to RZhD and others
• WCL performance leasing (power by the hour)
• WCL private ownership (with tariff adjustment)
• Construction, ownership and leasing of
  infrastructure (sale and leaseback)
• New manufacturing (capacity, quality and price)
• Critical issues legal/financial environment
  verifiable measures of use technical/safety
  standards

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Getting the Private Sector Involved in Operations

• Short Lines (sometimes industrial clients,
  sometimes local governments)
• Port and terminal facilities or ICDs
• Competition IN the market (freight) new entrants
  driven by access charges and freight tariffs.
  Not simple, and there are alternatives
• Competitions FOR the market (concessions or
  franchises). Can be freight (for new lines) or
  passenger services (esp. suburban/regional with
  competed subsidy, or for new lines)

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Dimensions of Concessions or Franchises

• Package size/division of responsibility
• Term
• Who owns or finances what
• Service specification (quantity, quality and
  price)
• Tariff authority
• Payments (to/from)
• Award criteria
• Renegotiation conditions

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Critical Issues

• Public/private role definition
• Allocation of risk
• Regulation (safety, economic, anti-monopoly)
• Environmental/social issues in construction
• For existing facilities
• Term vs. Investment objectives
• Surplus employees

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Concessioning or Franchising in Railways

• Government defines and grants rights
• Concession agreement states objectives and
  allocates risks
• Government retains or can receive ownership of
  infrastructure and equipment at end of term
• Concessionaire provides services, some
  facilities, and carries appropriate commercial/
  financial risk
• Concession has defined term (5 to 50 years)

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World Bank/IFC Roles

• Finance construction
• Repair/rehabilitate to assist transaction
• Human transitions
• Partial guarantees (risk or credit term)
• Technical assistance
• Packaging and preparing studies
• Marketing of opportunity
• Advice (economic, financial/legal)
• Process management and results delivery (IFC)
• Investment in operators (IFC)

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PPPs in Railways