Privatising Public Transport

Next year the Kennett Government will begin its most innovative reform -- the privatisation of the public transport system.

Over the last six years, the Government has achieve significant improvements in the operation of the public transport system.  However, as any frequent PTC customer knows, there remains huge scope for further improvements.  The system continues to require a subsidy from taxpayers of around $800 million per year -- in other words 70% of the average fare is paid by the taxpayer.  Service cancellations remain the highest amongst state public transport systems.  Service delays are running at about 10% of total services -- which is 25% higher than currently experienced in NSW.

Two years ago the government decided that the solution lay in getting the system into private hands.  However, it faced three major hurdles.  First, the system is and will continue to lose money, so no one would buy it without a continuing government subsidy.  Second, the rail network has monopolistic features -- these could allow an owner to mark-up prices.  Third, research has shown that any reform will be harshly dealt with by the electorate if service quality declines.

The Government's solution is not to sell the system out right but to split it up into five firms -- two urban train firms, two tram firms and one non-urban rail firm -- and to franchise these separately for a fixed period to private operators.  The tenders were announced earlier this year and contracts are expected to be signed early next year.

Under this system, the state will retain ownership of the rail networks.  The franchise will buy the rolling stock -- trams and trains -- with the state retaining the right to buy back the rolling stock.

Firms will bid on the basis of the required operating subsidy and, in some cases, on the amount of additional funds they are willing to invest in new rolling stock.

Judging from the response to date, and the experience in the UK with rail franchising, the competition will be intense and substantial reduction in the subsidy and higher investment can be expected.

The key is producing better service.  Here the Government has done five innovative things.

First, it has introduced a Passenger Charter -- the first in Australia -- which guarantees service standards in ten areas including no price rises above the inflation rate.  This charter will be enshrined in the franchise contracts.

Second, contracts will require franchisees to compensate passengers for poor punctuality and cancelled services.

Third, the contracts will include bonuses if franchisees achieve a performance above a set standard and will include penalties for contractors who fail to perform to set standards.

Fourth the franchisees will be able to keep extra revenue received and receive a bonus from the government as a inducement to attract more passengers to public transport.

Fifth, the government will invest much of the saving from lower subsidies, into capital improvements which will increase service levels and quality.

Although the reform has political risks, particularly in an election years, the potential gain are large.  Indeed, it might just allow public transport to regain ground lost to the car, particularly with the introduction of tolls in all major expressways to the city.

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