Getting Back On-Track or Going Off the Rails? An Assessment of Ownership and Organisational Reform of Railways in Western Europe

Abstract

This paper reports on work undertaken for the European Commission (EC) between 1996 and 1999. It is shown that despite reforms initiated by the EC Directive 91/440, the performance of 17 state owned western European rail operators is poor. Work using non-parametric index numbers indicates only modest productivity growth and mixed financial and commercial performance. Work using cost functions indicates that many railways appear to be of the wrong size and the wrong density to minimise costs. Work using demand functions indicates that there may be substantial scope for pricing up and for reconfiguring service levels. Modelling of cross border flows suggests that international services require increases in service levels and quality. It is argued that Europe s railways are in need of radical reform. A first phase of reform would build on the process already initiated by the EC and involve separate infrastructure authorities, continued commercialisation and privatisation of train operations, creation of rolling stock leasing companies, development of transparent infrastructure access and pricing, the promotion of off-track competition and of coach deregulation. However, it is possible that this first phase of reforms may not be sufficient to achieve the desired results. It is therefore likely that a second phase of reforms will be required including horizontal separation and re-agglomeration of train operations, vertical re-integration and network re-configuration. The scope for off-track competition for vertically integrated concessions might be considered in this second phase.