The Privatisation of Victoria’s Public Transport Services

Early experiences and subsequent refranchising

Robert Macey, Director, Department of Transport, Planning and Local Infrastructure

Asset Privatisation Briefing Day, Sydney, December 2013

Overview

Prelude to Privatisation

Appetite for further reform

(Strikes of 1997)

Subsidy of $850 million per year too

high by world standards

UK rail privatisation encouraging precedent

PTC becomes corporatised businesses

(1998)

A Franchising Model

• Asset sale not feasible

• Financial support and Government oversight

• Re-tendering every 12 to 15 years

Privatisation Objectives

• Improvement in services

• Increase patronage

• Minimise costs to taxpayers

• Transfer risk • Ensure highest standards of safety

Key Features

Franchise term

Vertical integration

Competition by

comparison

Base contract payments

Variable revenue

allocation

Operational performance

regime

Private Operation – 29 August 1999

National Express

Extensive UK experience

Tram and a train franchise - M>Tram and M>Train

Yarra Trams

Joint venture between French public transport operator Transdev and Australian Transfield Services

Second tram franchise – Yarra Trams

Connex

Consortium led by French conglomerate Vivendi

Second train franchise - Connex

Performance (2000 - 2001)

• Early impressions 2000

• Highly visible improvements - low-profile trams and “superstops”; new services for sporting

and cultural events; new information displays

• Surveys showed punctuality of trains and trams up

2001

• Reliability generally improved; cancellations in less than 1% of services; bonus payments in a majority of quarters

• But serious issues were emerging – claims of higher than expected fare evasion – difficulties with ticketing system – revenue allocation - surveys not reflecting patronage growth achieved

Avoiding Operational Crisis

Financial trouble

• Assessments in early 2002 showed significant losses needing parent support

• Unrealistic assumptions of revenue growth and cost reduction

• Interim Operating Agreements

National Express withdraws

•Couldn’t agree IOAs and withdrew in December 2002

•Left Yarra and Connex having signed IOAs

Retender, Renationalise or

Renegotiate?

•Decision time

•Performance improvement (P&R 35%) and industrial peace

Foundations for 2003 Renegotiation

“One train one tram”

Metlink

Contract Length

Public Sector

Benchmark

Financial Sustainability

Different Approach to Risk

• Farebox Revenue Risk – cost risk more manageable than revenue risk

– risk sharing mechanism gave protection if farebox fell below threshold

• Profit Sharing Mechanism – limit excessive returns from a single source negotiation

• Revenue Allocation – scrapped variable quarterly allocation to 40/40/20 across operators and State

– reduce volatility and grow total pool

• Input Based Maintenance Regime – output based (flexibility and risk to franchisee) to input based (AMPs) to reflect

State as custodian

Next Stop: Patronage Growth

Foundations for 2007 Refranchising

Going to Market August

2007

Capacity Constraints

and Demand

Network Investment

and Partnering

Contract Term

A New Proposition

• Network Development Partnership – key planning forum

• Revenue Risk – 3 year reset to reduce volatility – allocation fixed at 1/3 each – New Ticketing System Guarantee

• Infrastructure Performance Regime – KPIs and reward for performance

• Customer Experience Performance Regime – security, information and cleanliness

• Project Delivery Regime – margin for project activity

Privatisation Journey - Success or

Failure?

• Success through evolution

• Government’s understanding of “risk transfer”

• Informed client

• Realities of a privatised environment