Getting Back On-Track or Going Off the Rails? An Assessment of Ownership and Organisational Reform of Railways in Western Europe

This paper reports on work undertaken for the European Commission (EC) between 1996and 1999. It is shown that despite reforms initiated by the EC Directive 91/440, theperformance of 17 state owned western European rail operators is poor. Work usingnon-parametric index numbers indicates only modest productivity growth and mixedfinancial and commercial performance. Work using cost functions indicates that manyrailways appear to be of the wrong size and the wrong density to minimise costs. Workusing demand functions indicates that there may be substantial scope for pricing up andfor reconfiguring service levels. Modelling of cross border flows suggests thatinternational services require increases in service levels and quality.It is argued that Europe s railways are in need of radical reform. A first phase of reformwould build on the process already initiated by the EC and involve separate infrastructureauthorities, continued commercialisation and privatisation of train operations, creation ofrolling stock leasing companies, development of transparent infrastructure access andpricing, the promotion of off-track competition and of coach deregulation. However, it ispossible that this first phase of reforms may not be sufficient to achieve the desiredresults. It is therefore likely that a second phase of reforms will be required includinghorizontal separation and re-agglomeration of train operations, vertical re-integration andnetwork re-configuration. The scope for off-track competition for vertically integratedconcessions might be considered in this second phase.