When National Express withdrew from its franchises in Melbourne last year, privatisation in the state of Victoria was called into question. John Kirk reviews what has happened and concludes that there are deep flaws in both state and federal policies

John Kirk is the former Executive Director of the Australasian Railway Association and lives in Melbourne.

ON ANZAC DAY, April 25 2003, one of Victoria's true railway pioneers passed away in Geelong. Gary McDonald was a director of Victoria's West Coast Railway and of the Tranz Scenic passenger business in New Zealand. McDonald was just 54, and his untimely death is perhaps symbolic of the current problems facing Victoria's rail system.

Victoria's Infrastructure Planning Council reported to government in 2002, predicting that rail will have captured a substantial share of the long-haul freight market by 2020. It is hard to argue with the sentiments in the Council's vision of a transport utopia (right), but it is important to ask whether the vision is achievable.

When tenders were called for the state's country rail passenger services in 1993, most people expected the Warrnambool service to go to bus operators, as in the rest of Victoria. It is now history that Gary McDonald and his business partner Don Gibson won the Warrnambool franchise and became one of the first private inter-city passenger operators in Australia. Gary and Don were visionaries who defied conventional wisdom by establishing a viable regional rail service completely integrated into local tourism and community activities.

By the end of 1997, the state gov-ernment had privatised the remaining regional passenger services, metropolitan trains and trams. Freight operations followed in mid-1999.

Network in crisis

Just over five years have passed since privatisation was launched, and the state's rail network is now in crisis. National Express, Victoria's biggest operator of trains, trams and buses, handed its three rail franchises back to the government in December last year, forfeiting many millions of dollars in the process. Since then the remaining suburban rail operator Connex and Yarra Trams have been discussing their future with the government. On May 9 the Victoria government confirmed it would enter dirtect negotiations with Connex to run a unified Melbourne suburban franchise, although it retains the right to re-tender the business if negotiations with the incumbent operator break down.

Freight Australia, the wholly-owned Rail America subsidiary that acquired V/Line Freight Corp for A$163m, has been in dispute with the state government over a range of issues almost since day one. The company holds a long-term lease on 4529 km of the state's rail infrastructure, on which other operators may run under an open access arrangement imposed by the government in July 2001. Rail America has made clear that it will concentrate on expanding its already substantial operations in other states unless the access regime is brought into line with the arrangements pertaining elsewhere in Australia. It also expects the state to fund investment in rail freight infrastructure and to consult more closely over issues such as the now-suspended gauge standardisation - plans announced in 2001 to convert 2000 km of 1600mm gauge routes to 1435mm were officially put on hold during April.

So why has the audacious privatisation experiment come so spectacularly unstuck?

The current Bracks labour government blames its conservative predecessor for a flawed privatisation process, and it has a point. Breaking up the urban and suburban rail networks into two train and two tram businesses under the pretext of competition has not worked - there could never be true competition for passengers because the businesses served discrete geographic areas. The 'competition' was about artificial performance measures put in place by the government.

More importantly, privatisation promised much, and the public believe that it has delivered very little - although significant investment has been made in new trains and trams. Alstom is supplying a fleet of 58 three-car EMUs to Connex, and Siemens is building 62 three-car units for the services previously worked by National Express under the M>Train brand. Similarly, Alstom is delivering 36 Citadis 202A trams and Siemens is supplying 59 Combino cars to replace part of the city's elderly fleet.

New rolling stock was to be accompanied by infrastructure upgrading and other investment, but these fell behind schedule and will now have to be taken on by the state government. Nonetheless, privatisation created unrealistic expectations about a cheaper, better, more reliable service and the process was underpinned by over-optimistic patronage targets that were always going to be difficult to meet.

To make revenue matters worse, fare evasion on public transport has become endemic in Melbourne since tram conductors were abolished in 1996-98. The recent introduction of an awareness campaign reinforced by uniformed roving inspectors is thought to have reduced the problem by half, from an estimated 30% of unpaid trips at the start of privatisation.

All this culminated recently with the government announcing that it had to find an additional A$200m each year for the next five years to fund a 'black hole' in public transport finances.

Federal obstacles

Not all of Victoria's urban rail woes can be blamed on privatisation.

The introduction of the New Tax System on July 1 1999 by the Howard federal government delivered a raft of disincentives for public transport use. They included a full 10% Goods & Services Tax on public transport fares; a 6% reduction in the price of new cars; a tax credit of 7 cents/litre for business use of fuel; a tax credit of 9% for new vehicles purchased for business costing taxpayers A$600m a year; the retention of the fringe benefits tax favouring salary-packaged cars over public transport tickets; a 1·5 cents/litre fuel excise reduction costing A$600m a year; and the cessation of fuel price indexation in 2001 with a staggering cost of A$2bn to 2005.

To these tax incentives, add an A$2bn federal subsidy to the car industry over five years to 2005 in readiness for tariff reductions from 15% to 10%; an increase in federal road funding of 40%; an ongoing federal and Victorian government commitment to around A$3bn of major road projects, and continued refusal by the Commonwealth to fund urban rail infrastructure projects.

Positive plans

Despite the negative tax and funding environment, it's not all doom and gloom in Victoria. The state government is pushing ahead with its plans for the future under the banner of its Linking Victoria programme and the Melbourne 2030 vision.

Linking Victoria is an A$5bn blueprint for revitalising the state's rail, road and port network in partnership with the private sector. Its ambitious targets include:

  • increasing the proportion of freight moved to ports by rail from 10% to 30% by 2010;
  • reducing rail travel times between Melbourne and the regional centres of Ballarat, Geelong, Bendigo and the Latrobe valley;
  • increasing public transport's share of travel in Melbourne from 9% to 20% by 2020.

To achieve this, the government has several strategies in hand. Plans call for reintroduction of high-quality rail services to Ararat and Bairnsdale by mid-2003, and to Mildura and South Gippsland by the end of 2004, once works on 700 km of track and other infrastructure have been completed. On all four lines, bus services will be reviewed and co-ordinated with rail.

On September 5 2000 the Victorian government announced the Regional Fast Rail Project to introduce fast services between Melbourne and Ballarat, Bendigo, Geelong and the Latrobe valley. It has allocated A$550m to cover the infrastructure upgrades, new trains and other costs. This is being hailed as the biggest upgrade of regional lines in 120 years.

The project aims to deliver more frequent, reliable and comfortable services using modern trains running at up to 160 km/h. Nine two-car DMUs have been ordered from Bombardier as an option to the 29 sets ordered by National Express in 1999. More than 500route-km, or around half the state's passenger rail network, will be upgraded, making 70% of the new track fit for 160 km/h.

Another important initiative is the A$300m redevelopment of Melbourne's Spencer Street station. The project will create a first-class public transport interchange, with good rail connections to regional centres and better facilities for rail, taxi and bus passengers.

The station and its precinct will be redeveloped over three years in a public-private partnership between the Victorian government and the Civic Nexus consortium comprising ABN Amro, Leighton Contractors, Daryl Jackson Architecture, Nicholas Grimshaw & Partners, Honeywell Ltd and Delaware North Australia.

Like many other governments faced with the political reality of budget surpluses, Victoria is looking to public-private partnerships to fund big-ticket infrastructure projects. But getting the private sector involved is proving to be problematic. The proposed Melbourne airport rail link scheme collapsed through a lack of private sector interest. Originally, the Regional Fast Rail project was proposed as an A$800m scheme with the private sector contributing A$250m. Again, the private sector was hard to convince and the project has been scaled back accordingly.

Freight Australia argues that it has demonstrated its commitment to rail in Victoria with an investment of more than A$300m to the end of 2001. It argued in its paper Victorian Rail at the Crossroads published in 2001 that elimination of the rail freight subsidy has freed valuable funds for the government to spend on schools, hospitals and policing.

But, like its predecessors, the 2003-04 budget offered little joy for Freight Australia. Transport Minister Peter Batchelor announced that the Bracks government would invest A$31·7m in initiatives mostly associated with ports to boost Victoria's freight industry and deliver more jobs to regional Victoria.

So, despite its rhetoric about partnerships, the Victorian government remains unmoved. It continues instead to provide subsidies to the road network with the already announced A$3bn of taxpayers' funds earmarked for freight roadways around Melbourne and the state.

In summary, the situation in Victoria is complex and often difficult to fathom, and it emphasises the importance of business and investors understanding local politics. The Bracks government opposed rail privatisation, but it is now acutely aware of the economic gulf between the promise and the reality. It has set itself on an ambitious course to woo people from their cars and to provide more accessible transport for all Victorians. But it will take time and political commitment before business and the community are convinced that the new rhetoric has any more substance than the old propaganda.

'In 2020, Victoria's public transport system will be critical for transporting Victorians in all their activities. Rail will have captured a substantial share of the long-haul freight market, servicing Victoria's ports, which will be among the most competitive ports in the world. Consequently, traffic congestion will be minimal, greenhouse emissions will be reduced and Victoria's transport system will be a source of competitive advantage.'

Infrastructure Planning Council 2002

  • CAPTION: Illustrating the complexity of rail operations in Victoria, CRT Group's Cargo-Sprinter hauls freight from northern Victoria to the Port of Melbourne on standard gauge track leased to Australian Rail Track Corp. The two 1 600 mm gauge tracks in the foreground are leased to Freight Australia
  • CAPTION: This three-car Alstom X'Trapolis set for Connex is undergoing trials before being introduced into revenue service in Melbourne
  • CAPTION: A Freight Australia standard gauge service from the border town of Wodonga is about to be overtaken by a broad gauge V/Line country passenger service (formerly run by National Express) at Broadford
  • CAPTION: Yarra Trams Citadis 3001 passes the famous white horse Box Hill landmark with a free shuttle service immediately after the official opening of the new Route 109 Extension to Box Hill on May 2