Lessons learnt from railway deregulation and tendering in SwedenDr. Gunnar AlexanderssonStockholm School of Economics Institute for Research

Former head of Government Committee reviewing the organisation of the railway sector

Nordic Public Transport Conference NLTMHelsinki, 16 June 2016

Presentation outline• Background to liberalisation and evolution of

reforms• Experience and effects• Current issues and conclusions

The evolution of reforms

Pre-history1960s-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)

Rolling stock manufacturing

SJ ASEA

Railway operation

Swedish railway market 1988Pa

ssen

gers

Frei

ght

IT services

Passen

gers

Freigh

tSwedish railway market 2016

Real estate management

Rolling stock manufacturing

Rolling stock management

Licenses, safety, market

monitoring

Infrastructure management

EuroMaint RailBombardierDSB VedligeholdMidwaggon

JernhusenTrain Alliance(A-train, in-house)(SL, in-house)

SJTransdevMTRArrivaA-trainNSB/Tågk.

EuroMaint RailMotala TrainsMiTrans

BombardierAlstomStadlerSiemensAnsaldo

TransitioSLSJNSBDSBTÅGAB

Regionalpublictransportauthorities

IBABGreen CargoHector RailTÅGABRush RailReal Rail

AlphaTrainsMitsuiRailpoolHector RailGreen CargoCargoNet

InfraNord VR TrackStrukton InfratekNCC

Infrastructure maintenance

Planning and tendering of

public transportTrain operation

Swedish Transport Administration

Swedish Transport Agency

CleaningRolling stock maintenance

FinancingConsultancy services

Rolling stock refurbishment

MantenaAlstomMotala Trainsmgw Service

BombardierDSB Vedligehold

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

Experience and effects

Rail infrastructure investments and maintenance

Source: Trafikverket, and own calculations

0,0

5,0

10,0

15,0

20,0

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

Expe

nditu

re(billion SEK, 201

4 prices)

New investments Maintenance Reinvestments

Source: Jakob Wajsman, Trafikverket

Development of demand

80

90

100

110

120

130

140

150

160

170

180

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

Inde

x (1

988=

100)

Freight transport

Passenger transport

12.0 billion passenger km

20.3 billion tonne km

1988 2014Share of passenger km 6.1% 8.4%

– short distance 3.0% 6.0%– long distance 15% 15%

Share of tonne km– long distance 28% 24%

Modal share of rail

Source: Trafikanalys

Safety

0

20

40

60

80

100

120

140

160

180

200

Accidents total

Derailments

Source: Nelldal & Wajsman (2015)16

Ticket price developmentCPTA monthly travel card

SJ 2000 highest price

SJ IC/Regional normal price

SJ 2000 discounted price

SJ 2000 lowest price

SJ night trains

0

25

50

75

100

125

150

1990 1995 2000 2005 2010

Aver

age

spee

d, k

m/h

Reshastighet all tågtrafik i Sverige

Snabbaste tåg

Allaförbindelser

Fastest train

All connections

Source: Nelldal et al (2013)

Speed of passenger trains

Punctuality (5 min. level)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Trafikverket

Freight services

Passenger services

Market entry in passenger services (1)Tendered services

1990 BK Tåg new entrant for local/regional train services in Småland and Halland

1995 Sydtåg new entrant on single line in Skåne1998 Linjebuss new operator on local line in

Stockholm; French CGEA (later Connex, Veolia) new owner

2000 Break-through for new entrants (Citypendeln, BSM Järnväg, Tågkompaniet, Sydvästen) following several important tenders

2006 NSB new majority owner in Tågkompaniet2007 Arriva new entrant for Pågatågen commuter trains

in Skåne2009 DSB First new operator for Öresundstågen (early

exit in 2011)2016 MTR expected new contractor for Stockholm

commuter trains

Market entry in passenger services (2)Open access

2008 For a couple of months (June-October), Unionsexpressen runs daily services between Stockholm and Oslo

2010 Veolia starts daily services between Stockholm and Malmö (expansion of 2009 weekend service)

2011 Skandinaviska Jernbanor starts daily services Uppsala-Stockholm-GothenburgTågåkeriet starts new direct line between Gothenburg and Dalarna region

2013 Tågkompaniet starts weekend service Ludvika-Västerås-Stockholm

2015 MTR Express starts frequent daily services between Stockholm and Gothenburg, with all-new vehicles

Train operating companies

Source: Jakob Wajsman, Trafikverket

0

5

10

15

20

25

30

35

1988 1992 1996 2000 2004 2008 2012

Antal o

peratörer

Godstrafik Persontrafik Person‐ o GodstrafikFreight Passenger and freightPassenger

Source: Jakob Wajsman, Trafikverket

0102030405060708090

100

1997 2000 2003 2006 2009 2012

Ande

l (%

)

SJ AB Övriga järnvägsföretagOther RUs

Market share development (passenger operators)

SJ Ltd

0102030405060708090

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ande

l (%

)GC-koncernen Privata företag MTABPrivate RUsGC Group

Market share development (freight operators)

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

MTR Express• Ramping up services March-

August 2015 to 8 departures per day

• New non-tilting Flirt trains from Stadler

• Travel time: 3h 30 min

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

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

• 18 departures per day

• Old but refurbished tilting X2 trains from Bombardier

• Travel time: 3h 10 min

• 2 ticket classes and 3 types of flexibility

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

SJCompetition on the tracks Stockholm-Gothenburg

Current issues and possible directions of

future reforms

Current issues• Capacity and path allocation problems

In 2015 three companies compete on the tracks Stockholm-Gothenburg

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:gunnar.alexandersson@hhs.se

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