INTRO: Privatisation of Australia’s railways looks set to bound forward this year. Mark Carter of Rail 2000 assesses the picture

ANY ASSESSMENT of current railway developments in Australia must conclude that 1998 is shaping up to be the ’year of the privatised railway’. Aspiring railway barons are likely to be spoilt for choice as several freight operators and Victoria’s passenger services come up for sale.

Apart from the sale of AN and outsourcing of maintenance activity, very little privatisation has taken place so far, although reorganisation and restructuring in numerous forms is taking place as a prelude to future sales. A glance at the diagrams on these pages gives some indication of the confusing structures that have been or are being set up, so the sales process will be neither rapid nor straightforward.

First on the auctioneer’s list of major sales this year is likely to be V/Line Freight, and expressions of interest are to be called shortly. The aim is to hand over to new owners by mid-year. While this is a shorter timeframe than that for the sale of Australian National - expressions of interest were called in February 1997 and the sale was completed by November - in many respects it is a cleaner sale than AN. There is no significant debt, nor are passenger or workshop businesses included.

V/Line Freight recorded a 19% increase in traffic in the 1996-97 financial year, carrying 8·2 million tonnes for revenue of A$118·3m. Victoria Transport Minister Robin Cooper told delegates to AusRail 97 that ’there is still plenty of scope to expand ... and I am sure that a smart private sector operator will be able to achieve continued productivity improvements.’ Potential bidders have yet to show their hand, but at least two of the parties that bid for AN may be interested. One of these, Australian Transport Network, has set up an office in Melbourne.

A clear format and timetable for the sale of V/Line Passenger, Met Train and Trams has yet to emerge. Given the complexities this is hardly surprising, but Cooper is still expecting the sales to go ahead ’some time during 1998’.

Several consortia are thought to be preparing business cases in anticipation, but only one, Melbourne Transport Enterprises, has so far been formed specifically to bid for Victoria’s public transport assets. This comprises CGEA Transport Asia Pacific Holdings, GEC Alsthom Australia and Banque Nationale de Paris. During a presentation at AusRail, Stagecoach Managing Director Brian Cox referred to the similarity of his company’s South West Trains passenger operation in Britain to The Met, and there are indications that British bus and rail operator National Express will also bid.

No definite structure for the sale of V/Line Passenger has emerged. While the preferred option is thought to be sale or franchising of its operations as a single package, the existence of two private operators already running country trains in Victoria, West Coast (to Warrnambool) and Hoys (to Shepparton), will create problems if they are isolated or swallowed up by a sale - unless of course they turn out to be the successful bidders.

There will also be some regulatory hurdles to overcome, such as the current bus contracts on previously rail operated routes and the possible desire of a new rail operator to reinstate rail services over some of the routes to destinations such as Mildura and Bairnsdale.

Met Train and Met Tram services have already been split into separate operating units, and the preferred privatisation model would see them operated on a franchise basis with the franchisee owning rolling stock and infrastructure being leased. It is likely that a state regulatory body will be set up to regulate fares and to ensure adequate service levels are maintained.

Slow progress in the west

The West Australian government has adopted a relatively low-key approach as it moves cautiously toward the possible privatisation of Westrail, which returned a profit of A$42m in 1996-97. Following changes to the terms of reference for an earlier call for consultants, bids for The Sale of Westrail - Scoping Study were re-advertised in mid-January. Tenders are due to close on February 14, and the study is to be completed by the end of June.

WA Transport Minister Eric Charlton said that ’following the sale of AN and the proposed sale of NRC by the Federal Government, it has become vital for us to understand precisely how Westrail fits into the future competitive rail environment. An independent assessment of Westrail will give us the proper basis on which to form future strategies and consider all options.’ After completion of the study, the matter would then go before cabinet for consideration of the next move. Industry and government sources suggest that while the revenue stream from Westrail is welcomed by the WA Government, on the other hand it feels that an aggressive private operator could develop the business further.

A scoping study for privatisation of National Rail was completed in September, and this is currently with the Federal Government. Advisers on the sale are likely to be appointed early this year, and expressions of interest could be called in the second quarter once the necessary changes to the shareholders’ agreement with Victoria and NSW have been made. The sale is expected to be complete by the end of the year.

Interstate network

At the meeting of the Australian Transport Council on November 14 transport ministers finally signed an agreement to establish a single management company for the interstate standard gauge network, to be known as the Australian Rail Track Corporation (ARTC). Formation of a national track authority, then known as Track Australia, was first announced almost three years ago. The agreement will operate from July 1998 to June 2003 and aims ’to significantly expand the rail industry, increase rail’s share of the interstate freight market and encourage investment and improve rail infrastructure.’

The structure of the new body is very much a compromise. ATRC will own and manage those Commonwealth-owned interstate track and related assets previously managed by AN and currently under the jurisdiction of the former AN Track Access unit. In addition, through a lease contract, the company will manage and control Victoria’s interstate track from Wolseley to Melbourne and Albury. Access over other parts of the interstate network will be through agreements brokered by ARTC with track owners, which means in Queensland, New South Wales and Western Australia, the so-called ’travel agency’ approach. ARTC will have an exclusive right to sell access on the interstate network, providing a one-stop shop for interstate operators.

The agreement calls for contracts between the ARTC and track owners to include performance obligations on both parties. Financial incentives and sanctions would be introduced as opportunities arise, with the aim of having most such provisions in place within two years.

For the time being intrastate tracks will remain the responsibility of the various state governments, except in South Australia where the new private freight operator Australian Southern Railroad controls them under a long-term lease. While there have been no government pronouncements as yet, there are suggestions within the industry that the sale of V/Line Freight may also be modified to include a similar lease arrangement for the intrastate tracks.

Maintenance backlog

Western Australia currently seems to be going the same way as Victoria in regard to track maintenance with over 15% of interstate track subject to severe speed restrictions. There are suggestions that the A$62m allocated for ARTC in its first year will not suffice to fix up sub-standard track in Victoria and WA.

A mechanism for funding ARTC beyond track access revenues has still to emerge. The agreement states that ARTC can source investment funds from: commercial borrowings; grants from the Commonwealth (although this may be no more than the A$250m already promised); internally generated profits from the private sector; grants from other states and their track authorities. Were it all so easy. No formula has yet gained acceptance that would facilitate private sector investment for shared infrastructure, even though there are funds available that the existing authorities are not taking up. As for receiving grants from the states for infrastructure upgrading, the current problems in WA and Victoria speak for themselves.

As an interesting aside, part of the agreement requires the NSW Government to increase available train paths through the Sydney metropolitan network by 5% prior to commencement of the agreement on July 1 1998 and by a further 5% in the following 12 months. It will also be required to work with the new company to increase capacity through Sydney by investing in improved infrastructure. The whole question of freight paths through the NSW capital is likely to attract further attention. At AusRail 97, Transport Minister Mark Vaile even hinted that a north-south freight avoiding line could be a suitable project for Federation Funding. o

CAPTION: On January 13 the WA Government re-advertised for consultants for the sale of Westrail

Photo: John Kirk