Lessons learnt from railway deregulation and tendering in Sweden Dr. Gunnar Alexandersson Stockholm School of Economics Institute for Research Former head of Government Committee reviewing the organisation of the railway sector

Nordic Public Transport Conference NLTM Helsinki, 16 June 2016

Presentation outline • Background to liberalisation and evolution of reforms • Experience and effects • Current issues and conclusions

The evolution of reforms

Pre-history 1960s-1980s A period of decline and increasing financial problems for the Swedish State Railways (SJ)  line closures  operating subsidies introduced  additional state grants needed 1985

New Railway Law:  SJ to separate its accounts  track access charges introduced

1986

SJ in severe financial crisis

1988

New Transport Policy Act

Evolution of reforms (1) 1988

Vertical separation of track infrastructure (Banverket) from operations (SJ) Decentralisation of responsibility and resources to regional public transport authorities

1990

First tenders for regional passenger services

1993

First tenders for interregional (long-distance) passenger services

1996

Deregulation of freight services

2001

Separation and corporatisation of SJ’s divisions

2007

Market opening for night trains and chartered trains

2009

Swedish Transport Agency established, with multi-modal regulatory responsibilities

Evolution of reforms (2) 2009

Market opening for weekend traffic Market opening for international passenger services (to comply with EU directive)

2010

Banverket’s construction and maintenance unit is separated and corporatised (Infranord) Banverket is merged with the Road Administration to form the Swedish Transport Administration (a multi-modal infrastructure manager) Market opening for domestic passenger services, with full effect from December 2011

2012

New law on public transport (affecting interface between tendered services and commercial services)

Overview of changes in regulatory structure (market access)

Passengers

Freight

Swedish railway market 1988

Railway operation SJ

Rolling stock manufacturing ASEA

Swedish railway market 2016

Passengers

Freight

Infrastructure maintenance InfraNord Strukton NCC

Infrastructure management

VR Track Infratek

Planning and tendering of public transport Regional public transport authorities

Real estate management Jernhusen Train Alliance (A-train, in-house) (SL, in-house)

Licenses, safety, market monitoring

Swedish Transport Administration

Train operation SJ Transdev MTR Arriva A-train NSB/Tågk.

IBAB Green Cargo Hector Rail TÅGAB Rush Rail Real Rail

IT services Cleaning Rolling stock maintenance EuroMaint Rail Bombardier DSB Vedligehold Midwaggon

Mantena Alstom Motala Trains mgw Service

Swedish Transport Agency

Rolling stock management Transitio SL SJ NSB DSB TÅGAB

AlphaTrains Mitsui Railpool Hector Rail Green Cargo CargoNet

Financing Consultancy services

Rolling stock  refurbishment EuroMaint Rail Motala Trains MiTrans

Bombardier DSB Vedligehold

Rolling stock manufacturing Bombardier Alstom Stadler Siemens Ansaldo

Experience and effects

Experience and effects • Increased investments in rail infrastructure • Strong local and regional commitment to develop passenger services • Strong growth in demand • Improvements in (for example) productivity and safety • Innovations, new pricing models • In recent years, decrease in average speed of trains (mainly due to capacity constraints) • Punctuality problems a recurrent issue of concern • Appearance of several new entrants, reducing the market share of the incumbents • Tendering leading to reduced need for operating subsidies but also cases of strategic bidding

Rail infrastructure investments and maintenance

15,0

10,0

5,0

0,0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Expenditure (billion SEK, 2014 prices)

20,0

New investments Source: Trafikverket, and own calculations

Maintenance

Reinvestments

Development of demand

12.0 billion passenger km

180 170 160

Passenger transport

140 130 120

20.3 billion tonne km

110 100

Freight transport

90 80

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Index (1988=100)

150

Source: Jakob Wajsman, Trafikverket

Modal share of rail Share of passenger km – short distance – long distance

1988 6.1%

2014 8.4%

3.0% 15%

6.0% 15%

28%

24%

Share of tonne km – long distance

Safety 200 180 160 140 Accidents total

120

Derailments

100 80 60 40 20 0

Source: Trafikanalys

Ticket price development CPTA monthly travel card SJ 2000 highest price SJ night trains SJ IC/Regional normal price SJ 2000 discounted price SJ 2000 lowest price

Source: Nelldal & Wajsman (2015)

16

Speed of passenger trains Reshastighet all tågtrafik i Sverige

Average speed, km/h

150

125

100

Snabbaste tåg Fastest train

75

Alla All förbindelser connections

50

25

0

1990

1995

2000

Source: Nelldal et al (2013)

2005

2010

Punctuality (5 min. level) 100% Passenger services

90% 80%

Freight services

70% 60% 50% 40% 30% 20% 10% 0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: Trafikverket

Market entry in passenger services (1) Tendered services 1990 1995 1998

2000

2006 2007 2009 2016

BK Tåg new entrant for local/regional train services in Småland and Halland Sydtåg new entrant on single line in Skåne Linjebuss new operator on local line in Stockholm; French CGEA (later Connex, Veolia) new owner Break-through for new entrants (Citypendeln, BSM Järnväg, Tågkompaniet, Sydvästen) following several important tenders NSB new majority owner in Tågkompaniet Arriva new entrant for Pågatågen commuter trains in Skåne DSB First new operator for Öresundstågen (early exit in 2011) MTR expected new contractor for Stockholm commuter trains

Market entry in passenger services (2) Open access 2008

2010 2011

2013 2015

For a couple of months (June-October), Unionsexpressen runs daily services between Stockholm and Oslo Veolia starts daily services between Stockholm and Malmö (expansion of 2009 weekend service) Skandinaviska Jernbanor starts daily services Uppsala-Stockholm-Gothenburg Tågåkeriet starts new direct line between Gothenburg and Dalarna region Tågkompaniet starts weekend service LudvikaVästerås-Stockholm MTR Express starts frequent daily services between Stockholm and Gothenburg, with all-new vehicles

Train operating companies Freight Godstrafik

Passenger Persontrafik

Passenger and freight Person‐ o Godstrafik

Antal operatörer

35 30 25 20 15 10 5 0 1988

1992

1996

Source: Jakob Wajsman, Trafikverket

2000

2004

2008

2012

Market share development (passenger operators) SJ Ltd SJ AB

Other RUs Övriga järnvägsföretag

100 90 80

Andel (%)

70 60 50 40 30 20 10 0 1997

2000

2003

Source: Jakob Wajsman, Trafikverket

2006

2009

2012

Market share development (freight operators) GC Group GC-koncernen

Private företag RUs Privata

MTAB

100 90 80 Andel (%)

70 60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Jakob Wajsman, Trafikverket

Experience from competitive tendering (competition for the tracks) • In the early tenders, there were typically only 1 or 2 bidding train operating companies • Later common with 3 bidders or more (sometimes 5-6) • Contract periods have increased from 1-3 years to 5-8 years • Competitive tendering of train services has resulted in considerable reductions in costs / reduced need for subsidies (10-25%) • The cost reduction effect has typically been most evident the first time a certain traffic is tendered, followed by a diminishing effect in subsequent tenders and sometimes even higher costs • In several cases, unrealistic or strategic bids have been a matter of concern

Competition on the tracks Stockholm-Gothenburg

MTR Express

SJ

•

Ramping up services MarchAugust 2015 to 8 departures per day

•

18 departures per day

•

New non-tilting Flirt trains from Stadler

•

Old but refurbished tilting X2 trains from Bombardier

•

Travel time: 3h 30 min

•

Travel time: 3h 10 min

•

1 ticket class and 3 types of flexibility/service level Generally cheaper than SJ’s 2nd class

•

2 ticket classes and 3 types of flexibility

•

Punctuality

•

Punctuality

(5 min): 70% (15 min): 88%

(5 min): 57% (15 min): 77%

Current issues and possible directions of future reforms

Current issues • Capacity and path allocation problems  In 2015 three companies compete on the tracks StockholmGothenburg  Growth of tendered services at the expense of commercial services

• Backlog of track infrastructure maintenance • Early steps taken towards construction of high-speed lines • Division of roles and responsibilities; cooperation and coordination between actors • Access to real estate and related services Government Committee 2013-2015 looked into the current organisation and areas in need of improvement

3 reports + 1 volume of appendices

28

Selected conclusions and recommendations (1) • The step-wise evolution of regulatory reforms in the Swedish railway sector has been successful in several respects. • It has also spawned a number of issues that have not been handled properly, sometimes despite being identified early on. • Addressing issues such as the division of responsibilities and commitments of various actors will also provide the necessary foundation for improved and developed cooperation between the actors. • These and other proposals should then lead to a better functioning of the railways, both for the actors and their customers.

Selected conclusions and recommendations (2) • The upcoming investments in high-speed lines highlight the weaknesses of the mixed model for market access in Sweden (open access with competition on the tracks and competitive tendering for the tracks) – A number of uncertainties and risks may lower the willingness of operators to invest in high-speed trains – Difficult to achieve an optimum supply of high-speed services as well as fast regional services

• In the short term perspective, there is a need to strengthen the conditions for operators of commercial passenger train services in comparison to tendered services • In the long-term perspective (10-15 years), the Government should further investigate a change in the model for market access. The recommendation is a model in which access for all domestic long-distance passenger traffic is regulated by means of competitive tendering

Thank you!

Contact: [email protected]

Website of Government Committee: www.sou.gov.se/jarnvagensorg/in-english/ (with extended English summary of final report available for download)