Privatisation of Indian Railways – Part 4: International Experience of Rail Privatisation

The study of rail privatisation in various countries of the world shows that the only gainers have been capitalist monopolies. People have lost heavily. (See Boxes on Britain, Japan, Malaysia, Latin America, Argentina, Brazil and Mexico). Rail privatisation enabled these monopolies to access the vast infrastructure, built with public money. The international experience also shows that capitalists run private rail services only as long as they are able to reap maximum profits. If rail operations do not fetch the expected rate of profit, the capitalists get their government to bail them out. The experience of so many countries show that after privatisation, the private owners make little investment in creating new rail infrastructure.

Privatisation of railways has led to sharp increases in rail fares despite the payment of subsidies by the respective governments to private operators. It has led to the closure of non-profitable routes. Private operators further increased their profits by resorting to dynamic fares, which means highest fares are charged during peak hours, when most working people need to travel to places of work or return home. In most cases, soon after privatisation, less profitable routes were stopped, leading to severe deterioration in services. Most of the curtailment was done with passenger services. Goods services also got reduced when a large number of low traffic rail routes were closed.

Immediately after privatisation, the numbers of workers were sharply reduced and large use of contract and untrained workers were resorted to, in order to cut costs.

Deterioration in safety was observed as maintenance was neglected, to cut costs. Old infrastructure was not replaced in time, to avoid having to spend on new investment. Workers were over-worked, affecting safety. After privatisation of railways in Argentina, a series of accidents, resulting in loss of dozens of lives, led to mass protests by people. This forced the renationalisation of railways in that country.

British Rail too saw increase in accidents after privatisation. Many untrained workers were employed on temporary contract, to save money.

Corporatisation of state-owned railways was justified by claiming that the government would not be required to financially support them. The experience of France and Switzerland shows that this is not true. (See box about Government Support after Corporatisation). Governments acceded to the demand from private companies that they are assured a guaranteed return on investment. While fares may not have been raised, pockets of capitalists were filled with public money.

Whenever private operators were in crisis and started making losses, they raised their hands and governments were forced to bail them out, by extending financial help or by renationalising them. For the private owners of rail companies, losses are to be borne by governments while profit belongs only to them!

A myth is created that state owned enterprises cannot provide efficient, high quality rail services to people. The Government-owned Swiss Federal Railways (SBB) is considered to be one of the best in the world. Two of the world’s largest railways in Russia and China continue to be state owned. Most of the railways in Europe remain predominantly government owned despite their corporatisation.

The world-famous Moscow Metro and its stations, built in the 1920s-30s by the then socialist USSR, continue to be state-owned and are still considered one of the best in the world. Railways played a vital role in the construction of the socialist Soviet Union in 1930s and 1940s. (See Box on Railways in Soviet Union)

In sum, the claims of benefits of privatisation/corporatisation for users and for society have not been realised. On the contrary, users are worse off after privatisation. Workers have suffered immensely in every case of rail privatisation. In many cases, the government’s budget to support railways increased after privatisation. Once in private hands, railways, which is a public good, ceases to serve the public interest of providing safe affordable transport to the public. It begins to be geared to fulfil monopoly capitalist greed for maximum profits.

Failed Privatisation of British Rail

The privatisation of British Rail was carried out through the Railways Act of 1993 with promises of a better, cheaper service for rail users. British Rail was broken up into dozens of companies and privatised. Around 25 private companies operated passenger trains and six companies ran freight trains across the country. Railway infrastructure such as tracks, signalling and stations was maintained by another private company, Railtrack.

Railtrack did not reinvest profits in the railway infrastructure, leading to deterioration of the tracks and, as a consequence, accidents. Railtrack started facing major financial problems in 2001 and a new government-owned company, Network Rail took over maintenance and renewal in 2004.

After 25 years, rail services in England have effectively been renationalised. When the number of passengers reduced due to the pandemic in 2020 and losses increased, the government took over the losses of all the private rail companies from 1 April 2020. Rail companies are now considered ‘public non-financial corporations’ in government records.

Even before the pandemic broke out in 2020, private companies had refused to continue their operations on many routes and forced the government to take them back.

The British government had to set up a group in June 2020 to review the future of British Railways as a large number of people have been asking for renationalisation. A recent opinion poll in Britain showed that 75% of the people were in favour of re-nationalisation of British Rail.

The UK government has released a White Paper recently, on 20th May 2021, containing a plan for the Railways based on the review. The plan unbundles the privatised railway system of the 90s and once again brings track, trains, fares and ticketing under a single public body that will come into being in 2023. It is expected that private operators will be contracted to operate trains. The new model will be like an operation contract, where operator will get a fee and with some sharing of revenue to incentivize them to attract more passengers.

The Minister for Rail Privatisation had declared in 1993, “I see no reasons fares should increase faster under privatisation. In many cases they will be more flexible and will be reduced.” On the contrary, rail services in Britain became more expensive after privatisation. Between 1995 and 2015, passenger fares increased by an average of 117%, with increases of over 200% on many routes.

Chart_Monthly_pass
Cost of monthly passes in some countries of Europe

The monthly season tickets in Britain cost five times more than those in France and Italy and three times more than in Germany. Rail travel in Britain, instead of being more comfortable and efficient, is slower and more overcrowded than the predominantly publicly owned rail services in Germany, France, Italy and Spain.

 

Private companies have invested very little fresh capital. Over 90 per cent of new investment in recent years has come from taxpayer funding or government guaranteed borrowing.

Capitalists continued to receive financial support from the British state. The contracts required private operators to be compensated for various reasons. For example, if a train got delayed, the government-owned Network Rail had to compensate the private company. If the government asked a new train to be run and the traffic was below a specified level, the government had to pay for the loss.

Rail subsidy actually increased from £2.7 billion in 1992–93 to £7.3 billion in 2018–19. In 2013–14, the government gave £3.8 billion to the private rail companies. The UK government subsidised National Rail to the tune of £4.2 billion in 2016-2017, and gave £5.7 billion in loans to Network Rail, the public body that manages the United Kingdom’s rail infrastructure.

Between 2007 and 2011, just five companies received almost £3 billion from the government. This allowed them to declare operating profits of £504 million and over 90 per cent (£466 million) of it was paid to shareholders. So, the entire profit and income of capitalists came from British people as dividend.

 Govt_subsidy
Government subsidy for railways

People of Britain have paid a heavy price for the privatisation of British Rail, both directly and indirectly. They pay much higher fares for much worse quality of service. Public money is paid to capitalists every year to ensure their profit. Whenever private rail companies suffer losses, they force the renationalisation of their rail service; losses incurred by private companies have to be absorbed by the British government. The cycle of privatisation, renationalisation and reprivatisation has been repeated for the benefit of capitalists a number of times for some of the routes. The cost of this cycle to people keeps mounting, while capitalists keep getting richer.

 

Japan

Privatisation of railways in Japan, carried out in 1987, is referred to by champions of privatisation as a model for its benefits. Japan National Railway was broken into six regional rail companies and one freight company. After privatization, private rail operators were allowed to enter commercial and real estate businesses. Today, non-transportation revenues for some of the private operators make up 30% to 60% of their total revenue! Railway companies operate shopping centres, restaurants, and hotels.

Champions of privatisation hide the fact that people of Japan continue to pay a price for rail privatisation even today. Japan National Railway first built a modern rail infrastructure using public money, particularly after the Second World War, before handing it over to private companies. This included completely new rail lines as well as signalling & communication system for running its famous Shinkansen (bullet trains). Huge loans were taken by the government to build the modern infrastructure but the responsibility for repaying loans stayed with the Japanese government after privatisation!

Even after over 30 years of privatisation, rail lines for new Shinkansen routes are being built with government money and then handed over for use to private companies!!

So, the so-called successful rail privatisation in Japan is based on the continued use of public money to build modern infrastructure and then handing it over to capitalists for earning private profit.

 

Renationalisation in Malaysia

In Kuala Lumpur, the capital of Malaysia, the first light rail transit (LRT) line, STAR LRT was built by a private company and commissioned in 1998. The contract to build and operate the second LRT was also given at the same time to another private company, PUTRA. When the financial crisis hit Malaysia in 1997-98, both the private companies stopped repaying loans and stopped the construction work. Both the companies declared themselves bankrupt, forcing the government to take them over.

The experience of Malaysia again showed that capitalists run railways only as long as they are profitable. When they face losses, they stop honouring their commitment and force the state to nationalise railways. 

 

Experience of Rail Privatisation in Latin America

Eight Latin American countries – Argentina, Bolivia, Brazil, Chile, Costa Rica, Guatemala, Mexico and Peru – privatised railways to one extent or another in the 1990s, with the support and push of the World Bank.

The International Transport Workers Federation (ITF) carried out a study in 2001 to evaluate the impact of privatisation. Their findings showed the following:

  1. Within less than a decade of privatisation, as profits were not as per their expectation, most of the private operators asked the contracts to be revised even though contracts were for long durations.
  2. Rail fares increased for most urban commuter services. In general, privatised passenger service concessions required subsidies to be paid by the state.
  3. Loss-making services were closed down even if they were socially necessary. This is what happened with inter-city passenger services in Latin America.
  4. Private companies reduced cost mainly by cutting jobs, which occurred on a very large scale. Direct railway employment was typically reduced by 75 per cent, and the World Bank financed private companies to carry out reduction. Some new jobs were created, but they were mainly through contractors and sub-contractors.

A detailed look at the experience of three large countries of Latin America – Brazil, Argentina, and Mexico confirm that rail privatisation is anti-worker and anti- social and meant to fulfil the greed of capitalists.

 

Reversal of Rail Privatisation in Argentina

 Argentina’s rail network was broken up into three parts – freight, intercity passenger and metropolitan commuter rail (in Buenos Aires, the capital of Argentina). The freight services were further divided into six regional companies, similar to the old private structure before nationalization in 1948. They were privatised on lease of 30 years in 1996. The state remained owner of the fixed assets – track and stations – and rolling stock, which were leased to private companies as part of the contracts. Contracts included subsidy to be paid for passenger services.

Argentina had a rail network of 47,000 km (India’s rail network length is about 68,000 km) before its privatisation in 1993. Soon after privatisation, the railway network was quickly reduced to one fourth of its capacity. By 1998 some 793 railway stations had been closed.

The closing of much of the rail system also led to the emptying of many rural towns dependent on the railways, creating ghost towns and therefore to a dismantling of the development that had taken place there since the arrival of trains. Argentinian agriculture found itself in the difficult position of shipping its goods less efficiently using road transport, which cost around 70% more than state-owned rail services.

The number of workers was drastically reduced from 94,800 in 1989 to approximately 17,000 in 1997.

Private companies did not make the investment n locomotives and rolling stock which were required to increase capacity, and thus service quality and passenger numbers declined.

Within a few years, private operators asked for an increase in the subsidy to cover operating expenses and some investment.

Under privatisation, substantial government subsidies continued in order to keep the system from collapsing. The capitalists received subsidy of nearly 700 million dollars in just one year in 2011. Over the years, government subsidies to the private companies increased to levels similar to the losses incurred under the state management of the railways, while the rail service was much more limited and infrastructure had deteriorated.

Private operators increased fares by between 40% and 60% within five years. In addition, they were granted further fare increases of 80 per cent on average – between 50 and 100 per cent depending on the operator — spread over four years. Argentina’s metropolitan passengers were paying around three times more for the same journey within ten years of privatisation compared to what they paid before. Privatisation shifted the burden of costs from the government to the passengers.

Overcrowding and lack of safety, lighting and hygiene became common complaints of passengers.

The safety of passengers suffered the most. Two major accidents within a span of six months in 2011 and 2012 in the capital city of Buenos Aires led to the death of more than 60 people. That brought people to the streets, demanding re-nationalisation. This demand could not be ignored any more. Privatisation was ultimately reversed in Argentina in 2015, with the creation of a new public sector rail company which took over the entire rail system.

The experience of rail privatisation in Argentina is very relevant for India. The large-scale closure of routes and tracks, increase in fares, as well as neglect of safety there can be expected in India, too, on privatisation of Indian Railways.

 

Brazil

The restructuring and privatisation of the state-owned rail lines began in 1993 as a part of the Brazilian government’s general privatisation programme. Brazil Railways, RFFSA was restructured into six regional railways, and they were privatised by the end of 1997. The operational assets were leased for 30 years while RFFSA retained ownership of the infrastructure, but the private companies were responsible for running services and maintaining and renewing the infrastructure.

Passenger kilometres declined by more than half from 1995 to 1999.

Safety suffered. The accident rate on one of the lines increased by around 50 per cent in the year after the privatisation as compared to the worst year in the six years before that. The accident rate on another line increased by around 20 per cent. Even after three years after privatisation began, the government had failed to deliver on its promise that privatisation would lead to a reduction in accidents.

The impact of the privatisation on workers was huge. Within three years, the number of workers was reduced roughly to half.

No significant new track was built after privatisation. Most of the capital for investment was mobilised through the state-owned investment bank. Private operators refused to honour their contract to invest to build a new line.

Like in Argentina, private companies in Brazil asked for renegotiation of the contracts within a few years as they did not find them profitable enough.

As in many other countries private rail companies in Brazil too have asked the government to reimburse them for the losses due to fall in traffic consequent to the Covid pandemic.

Rail privatisation in Brazil too led to anti-people outcomes – closure of loss-making routes, neglect of safety, big loss of jobs, no new investments – and whenever capitalists suffered losses, the state was asked to bear them. 

 

Mexico

In Mexico too, railways were split into three regional companies, plus a fourth company serving the capital, and a few shorter lines. Each of the three regional companies predominantly carry freight, and all were privatised by 1998 on leases of 50 years.

The major driving force of privatisation in Mexico was to facilitate cross-border goods traffic (to the USA) at reduced cost after the North American Free Trade Agreement (NAFTA) was signed.

After privatisation, unprofitable services, both passenger and freight were abandoned. All ‘less than full wagon-load’ freight services were eliminated, as were entire routes with low volumes. Passenger numbers fell by 80 per cent in the first year. The priority of the private companies was to provide transport services to profitable large industrial customers.

Rail privatisation was clearly driven by the needs of US and Mexican capitalists, who wanted to maximise their profit out of the newly created free trade zone.

 

France – Continued Government Support after Corporatisation

The French National Railway, SNCF, a company since the nationalization of railways in 1938, regularly receives financial help from the government. In 2016, SNCF received 14 billion euros in subsidies from the government and still had 47 billion euros of debt in 2017. The government decided to absorb most of the debt.

Further, SNCF was given 2.3 billion euros for renewal of main rail lines and another 1.5 billion euros for renewing bridges and structures.

 

Switzerland

The Swiss Railway, SBB, turned into government-owned corporation in 1999, receives state funding every year. In 2018, it received CHF 3.5 billion of public funding, without which it would have been in loss.

The government promised to give additional support of CHF800 million to partly make up for losses due to the pandemic. 

 

Railways in Soviet Union

 Komsomolskaya-Metro-Station
Komsomolskaya Metro Station, USSR

Soviet Union gave special attention to the development of railways from its first five-year plan of 1928 onwards to achieve its goals of industrialization, development of far-flung regions of the country and building a socialist society. During the First World War and the civil war after the Great October Revolution, more than 60% of the Russian railway network of about 80,000 kilometres and more than 80% of the carriages and locomotives were destroyed.

Within the next twenty years the socialist state and its workers not only rebuilt the destroyed railway but expanded the network by one third from pre-revolution level to 106,000 kilometres. Being the most energy efficient and economical mode of transport, rail transport was given the highest priority as a result of which 85% of freight (tonne-km) and a 92% of intercity passenger (passenger-km) transport was carried out through railways by 1940.

During the Great Patriotic War (Second World War), railways played a key role in defeating the fascist forces. Besides transporting military personnel, equipment and goods to war fronts, it helped in evacuating entire towns and factories from European regions to safer regions of Soviet Union. After the War, the rail network was further extended by 40% to 145,000 km, to make it the largest network in the world.

 Railroad-freight-tonne-km-USA-vs-USSR

Railroad freight tonne-km USA vs USSR

The difference in emphasis on rail transport given in Soviet Union in comparison with the United States of America can be seen from the following graph.

One of the major achievements of railways in Soviet Union was the construction of the Moscow Metro in the 1930s. Metro stations were conceived and built as luxurious “palaces for the people”. They depicted the life in the socialist state and paid tribute to workers and peasants for their contribution in building the socialist state. The grandeur, architecture and beauty of Moscow Metro stations, built in 1930 and 1940s has not been achieved by any other country in the world.

 

 

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