Public transport is seldom analysed with the same detachment seen with other service industries. Its shortcomings have a high public profile and capacity for disruption of ever day activities. Thus it was in Victoria where union militancy in the industry convinced the Kennett Government to include it within its privatisation agenda. This culminated in selling different elements of the train, tram and bus systems to three separate private operators. The buyer of the largest part of the system was National Express which has announced it will walk away from its tram and train operations.
Public transport privatisation added to the $30 billion raised by the Kennett Government's asset sales in gas and electricity, ports and gambling. The prices many of those assets realised reflected considerable over-optimism on the part of the buyers. At the same time the privatisation outcome virtually wiped out the State's debt. The Bracks Government inherited the benefits of this in terms of its budgetary position and much improved management of the State's infrastructure assets.
Transport was no exception to the over-exuberant bidding for Victorian government infrastructure services. As in most cities throughout the world, Melbourne's public transport does not pay its way. At privatisation 57 per cent of costs were borne by the taxpayer. This required an unconventional sales process. Under the sale agreement, the Government retains ownership of the assets and agreed to a gradually reducing level of subsidy. The Auditor-General estimated the deal with the three successful bidders was worth $3.4 billion compared to the costs that would have been incurred.
Estimating the worth of a loss-making enterprise is never easy. Moreover, with Melbourne's public transport it was made more difficult because actual measures of the patronage and losses are clouded by great uncertainties, especially due to fare evasion. This gave rise to on-going discussion about some details of the sale after the buyers' management was in place. In February of this year a settlement was negotiated under which the Government agreed to pay an additional $110 million to the businesses over the next twelve years. In return the businesses agreed to double their performance bonds to $210 (the National Express share was $135 million).
Hence, National Express will incur considerable penalties from the performance bonds and other sunk costs in, effectively, leaving its operations under government receivership.
In addition, the Government will see fewer cost savings.
Even so, the taxpayer and Melbourne public transport user has done well. The system is much improved. For the first time in fifty years, last year saw public transport increase its share of Melbourne's total transport market due to the improvements that have been brought about since privatisation. These include a 35 per cent reduction in delays and cancellations, considerable new investment in better vehicles, and an extension of the network.
Even though the Kennett Government had already considerably cut costs, National Express clearly saw means of making additional savings. Importantly, the system's bloated labour force had been trimmed from 19,000 workers in 1990 to 9,000 at privatisation.
Further cost savings would require some innovative working arrangements. Such arrangements would entail making greater use of split shifts and part time workers. National Express has such measures in the UK with considerable benefits to productivity, and in many cases to employee satisfaction. But in the UK 15 years of "Thatcherism" had extracted the teeth of union militancy by the time such measures were introduced. Although Victoria's private companies enjoy much better union relations than had been experienced under public ownership, they had little prospect of Victoria's unions acquiescing in such flexibility. This would be particularly so after the demise of the Kennett Government.
While the privatisation of the Victorian public transport system has brought considerable benefits it would be preferable to avoid the management instability that follows a forced sale or exit. One option on privatisation could have been to sell all the trains, all the buses and all the trams as three separate competing entities, rather than have businesses owning some but not all the trams and trains. The option of having three rival owneres, each with a separate mode of transport is an outcome that might in fact emerge from the National Express departure. Yarra Trams, owned 50/50 by Transfield and French owned Transdev, is certainly keen to buy National Express's M Tram business. National Express itself is not considering walking away from its bus operations. Another French company, the globally troubled Vivendi, owns the third (rail) business.
Whatever develops, the Victorian Government knows all about the shortcomings of government being the owner-manager of commercial enterprises. It will seek to re-divest itself of the National Express tram and train business at the earliest opportunity. It will do so recognising that the public transport system has made considerable economies and seen a new improved management introduced. In this respect, the original sale is best viewed as a transition to a different structure not a blind alley to be renavigated.
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