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Rail privatisation fight explodes, but the evidence is not black-and-white

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An intense political fight has broken out over the impending privatisation of South Australia’s public train and tram operations, but evidence of its benefits or otherwise from interstate and overseas is mixed.

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Transport Minister Stephan Knoll today released a combined tender for Adelaide’s trams and one of the bus contracts, with an existing Adelaide bus contractor indicating it is interested in bidding to run the state’s light rail network.

Knoll argues that better services and savings will flow from the outsourcing, while Labor leader Peter Malinauskas is equally convinced that the process will inevitably lead to higher fares and poorer services.

Evidence from interstate and overseas shows a complex picture, which points to initial windfall savings for governments in the aftermath of outsourcing rail, but with potential downsides for customers unless the private contracts are carefully managed.

In a fiery exchange on ABC Radio Adelaide today during which both men accused each other of lying, Knoll pointed to the privatisation of Adelaide’s buses in 2000, which led to an initial leap in patronage, as well as international experience which he said showed more customer-friendly services.

“This is a model that has delivered better patronage outcomes for people right across many parts of the western world,” Knoll said.

Malinauskas seized upon a tiny logo from the London Underground on a Liberal social media post yesterday, promoting the privatisation agenda.

“The Underground has been a classic example of where privatisation has been a disaster, to the extent the tube in London is now back in control of public hands,” he said.

International and interstate experience

The London Underground was returned completely to public hands nearly a decade ago after a failed public-private sector partnership arrangement relating to maintenance

More broadly, research has found that costs rose in the UK after the rail services were outsourced.

Knoll argued today that many parts of the London public transport system – which includes buses, trams and surface rail – operated successfully under an outsourced model.

The long-term effect of another example of rail privatisation cited by Knoll, Victoria, is also contested.

As transport academic David Hensher has argued, the Victorian rail outsourcing – under the Kennett Government – had a rocky early start, with one operator handing back all of its contracts before completion.

Victorian public transport users have also complained about rising ticket costs and contractors “gaming” the incentive/penalty system by running short on tram routes, for example.

However, the privatisation did provide a windfall for the Victorian Government – a key argument used by Knoll, who says the savings of privatisation in South Australia will be ploughed back into public transport.

While it is contested, recent analysis prepared for a key federal agency has found that further outsourcing of public transport services could save state governments billions of dollars.

The 2017 report by Infrastructure Australia found that “customer focused franchising” – outsourcing, in other words – could save governments up to 32 per cent of their costs.

In the case of the South Australian Government, the model would save up to $890 million between 2017 and 2040 (2016 dollars, 7 per cent discount rate), the analysis found.

Transport Minister Stephan Knoll argues that savings from privatisation will be ploughed back into public transport services. Photo: Sam Wundke / AAP

Local experience

Retired State Government transport planner Tom Wilson, who is writing a history of the state’s public transport system, said that savings could definitely flow from the outsourcing of rail services, but the Government needed to heed the lessons from the bus privatisation in 2000.

He said the annual savings at the time were in the “many millions of dollars”.

“Most of that came from changes to wages but a lot came from changes to working conditions,” Wilson told InDaily. “This does, of course, mean job losses.

“Transport economists at the time thought that similar savings would be made on the rail network, and the government then had planned to contract out the rail operations, but Liberal minister Diana Laidlaw got cold feet about doing that.”

Wilson believed the potential savings from rail might be less now, due to increases in efficiencies on the network.

However, he stressed that bus privatisation did not lead to worsening services or undue rises in fares – at least at first.

“Fares would have gone up anyway (the government sets the fares).  The bus companies do not retain the fare revenue – that is all passed on to the government. The contractors are paid for operating the services – that is what they tender on.

“Bus services were substantially improved from 2000 so that between 2000 and 2010 bus patronage increased substantially. Contractors were paid an incentive for all extra passengers carried, so it was in their interest to improve services.”

The problems emerged, as InDaily has reported previously, in 2010-11 when the then Labor Government re-tendered the bus contracts and chose a “very cheap” operator to take over from the respected Torrens Transit.

That led to service problems and, eventually, the contracts were returned to Torrens Transit.

“Also from 2011 onward, the former incentive payment was dropped by the government, so there was little incentive for bus contractors to improve services. Due probably to these two factors (Light-City Buses and no incentive), bus patronage increases dropped right away between 2010 and 2018.”

Wilson said the lessons for the Marshall Government are clear.

“You can make savings by first contracting out to private companies,” he said. “Once contracted out, you won’t be able to make big savings when you call tenders again, unless you choose a very poor operator.”

The second key point is that “you need financial incentives to encourage contractors to improve services”.

One local bus operator, Keolis Downer, is considering a bid for the Adelaide rail contracts.

The company runs the huge Yarra Trams operation in Melbourne and the Southlink and Link SA bus networks in Adelaide.

Keolis Downer chief executive David Franks told the Australian Financial Review today that he was interested.

“We’ll certainly have a very good look at,” he told the newspaper.

Speaking about the release of the bus-tram tender today, Knoll said having one operator for the North-South bus contract area and the trams would allow the Government to better link public transport services, which he argued were the worst integrated in Australia.

He said savings would be found in “back office efficiency” that could be garnered by coupling together the bus and tram operations.

While he didn’t have a specific figure for workforce reductions in mind nor a savings target, he argued the tender gave the Government the opportunity to convert back-office savings into frontline service improvements.

As a result, he expected public transport services to increase.

Malinauskas reached back to the ETSA privatisation debate to argue that promises from the Liberals about costs should not be believed.

“Everywhere around the world where we’ve seen examples of privatisation of the trains and trams, we’ve seen higher fare prices, we’ve seen cuts to services and we’ve seen a diminished service for the people that rely upon it,” he told reporters.

He said Knoll’s own examples – London and Melbourne – showed that privatisation did not deliver better, cheaper services for commuters.

The Labor leader also pointed out that train services remained in public hands in other major Australian cities, including Perth, Sydney and Brisbane.

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