The ‘main event’ in Victorian public transport privatisation occurred in 1999, when the nationalised train and tram systems in Victoria were privatised by the Kennett Government. This brought them under an above-rail franchising model modelled on that used (and by then widely disliked) for British Rail some years earlier, and even designed by many of the same people (Cole 2003). This similarity with the British Rail franchising model is acknowledged by architects and supporters of the privatisation (Greig 2002, Allsop 2007). Kennett Government officials gave as their reason for adopting the franchise model rather than a Transport Community model that the former would encourage ‘investment and innovation’ by private operators, while the latter would not (Mees 2005). The government also cited the benefit of transferring risk from the public to the private sector.
The original franchising created two Melbourne train operators (Bayside Trains and Hillside Trains), two Melbourne tram operators (Swanston Trams and Yarra Trams) and one regional train operator (V/Line Passenger), each in charge of a discrete set of routes. The Bayside Trains, Swanston Trams and V/Line Passenger franchises were sold to National Express, a British road coach operator. Hillside Trains was sold to Connex, a subsidiary of the French Veolia conglomerate that also operated train franchises in Britain. Yarra Trams was sold to a consortium led by Transfield Services and French company Transdev.
Officially, franchises were tendered competitively based on which tenderer would provide the service for the smallest initial subsidy. In practice the degree of competition present is debatable, given that there are very few companies worldwide in the business of operating fixed-rail public transport franchises, and only a handful that do so in more than one jurisdiction.
An important feature of the Kennett franchise contracts is that they provided subsides that progressively declined every year, so that over their envisaged 12–15 year lifetime, the Victorian taxpayer would save a total of $1.8 billion compared with a continuation of public operation. This forecast saving included provision by the government for the cost of service upgrades and new rolling stock, which were agreed as part of the franchising process: these included
- the improvement of Sunday daytime frequencies to Saturday levels,
- the improvement of daytime off-peak services operated by Yarra Trams to every 10 minutes,
- the rail electrification to Sydenham,
- the tram extension to Box Hill,
- the employment of additional staff, and
- the purchase of new trains and trams.
The contracts provided for declining subsidies because they assumed patronage on the new privatised services would dramatically increase over the franchise period: by 84% for Bayside Trains, 67% for Hillside Trains, 40% for Swanston Trams and an intermediate figure for Yarra Trams (Mees 2005, Allsop 2007). Much of this increase was forecast to occur in just the first year or two of operation (and before the arrival of new rolling stock), as a result of ‘innovations’ by the private operators.
To further ensure rapid patronage growth, the contracts included generous incentive payments for increasing patronage: a flawed mechanism, as this incentive could also operate perversely to reward one operator for diverting passengers from another operator’s services. An immediate effect of privatisation was indeed the loss of the old PTC’s remaining small gestures to service integration, with operators redesigning vehicles and infrastructure with their own livery, treating one another as rivals, and introducing their own single-mode tickets (the ‘Baysider’ and ‘Connector’) to undermine Melbourne’s successful multimodal fare system. At one stage Connex even produced maps showing only its half of the train system, as though people would never want to visit the other half of Melbourne because it’s served by the ‘wrong’ train operator. They even omitted the three City Loop stations that National Express managed!
The franchising process also established the Office of the Director of Public Transport within the Department of Infrastructure. The function of this office was to act as the legal party to the franchise contracts, and as the regulator that would oversee compliance of operators with the contract conditions. As a party to the contracts the Director was required to sign off on changes to timetables or routes, but in accordance with the franchise model there appears to have been no presumption that the Office of the Director would itself undertake any tactical service planning. The government’s stated intent was that service improvements would be driven by ‘innovation’ by private operators, not by central planning. However, the contracts themselves were initially treated as commercial-in-confidence and the public was not privy to their terms.
The privatisation of 1999 also promised there would be no real increase in fares under private operation. Accordingly, the government enacted a prohibition on above-inflation fare rises (except for a one-off 5% rise to account for the introduction of the GST in the following year).