The Second Train-Tram Privatisation: 2003-04

The success of the franchises depended on the private operators achieving patronage growth of between 40% and 80%, much of it in the first few years of operation. However, it became clear that the operators were failing to ‘innovate’ in a way that actually encouraged more people to use their services. Patronage did jump in the first year by about 4%, likely as a result of the government-mandated Sunday service improvements, but State Budget figures show that from 2000 to 2004, patronage on Melbourne’s train system grew by just 7% and on the tram system by 6%. This was in fact slower than the prevailing rate of patronage growth between 1994 and 1999. It also trailed behind the rate of travel growth in general, so that public transport mode share actually declined over this period. Operators therefore not only had precious little extra revenue to offset declining subsidies; they also failed to qualify for patronage incentive payments.

The 1999 privatisation began to unravel in early 2002 when the three franchisees National Express, Connex and Yarra Trams all threatened to withdraw from Melbourne, citing their inability to grow patronage to match the forecasts. Transport Minister Peter Batchelor responded in February 2002 by granting the franchisees an additional $105 million subsidy for that year, and foreshadowed revisions to the contracts to ‘lock in’ future increases in subsidies.

Despite the promise of higher subsidies, in December 2002 National Express abandoned its three train and tram franchises. At the same time it became evident that National Express, Connex and the Office of the Director of Public Transport were collectively engaging in asset-stripping, sending much of the older Hitachi rolling stock to the scrapyard prematurely instead of retaining it to cater for the still-planned increase in patronage.

Half of the Hitachi trains were scrapped outright and the remainder sold to rail enthusiasts at the scrap-metal price of $2,600 per car. Connex would later claim that train shortages were preventing it from adding services to relieve overcrowding in peak hour, and the Department of Infrastructure would subsequently buy back some of these same trains for up to $20,000 per car.

After National Express withdrew, the State Government was in a position to resume control of the franchises, but instead placed them in the hands of commercial receivers and announced its intention to re-tender the metropolitan services.

In May 2003 the government passed its infamous ‘We must toll EastLink because we need $1 billion for public transport’ budget. The $1 billion over 5 years was required not to increase public transport services, but simply to cover additional subsidy payments to the private operators. A further step was taken in November 2003, when the government agreed to drop the prohibition on above-inflation fare rises. In the ensuing New Year fares were increased by 10 per cent: the largest annual increase in over a decade, and in absolute terms possibly the largest annual increase ever. This was compounded with the abolition of the popular Short Trip ticket, with no compensating reduction in Zone 1 fares.

The ‘second privatisation’ finally occurred in February 2004. Under the new contracts, the Bracks Government prudently abandoned the two-way split of the metropolitan franchises, but retained both the franchising model and the split by mode, thereby establishing two private modal monopolies. These were awarded to the two remaining private operators, Connex and Yarra Trams.

As part of the deal the operators were to be paid the Kennett subsidies plus an additional $2.3 billion over the 5 years to 2008, far more than anticipated in the budget. The patronage growth incentives were removed, and replaced with a simple ‘40–40–20’ formula for distributing revenue. PTUA recommendations to tighten the standard for late running and to expand quality control to include passenger comfort issues were ignored, as was our stance against establishing private monopolies who would be in a position to dictate franchise conditions (PTUA 2003).

The role of the Office of the Director of Public Transport did not greatly change through the second privatisation, as the intent throughout was to retain the franchising model but in a way that delivered financial security to the franchisees. Accordingly, while there was a public-relations change in language from ‘franchises’ to ‘partnerships’, there is no reason to believe that any greater expectation was placed on the Director to shift from a regulatory to a tactical planning role for trains and trams.

This is confirmed by the government’s own fact sheets, which defined the responsibilities of government as to:

  • regulate safety;
  • monitor operators’ performance;
  • regulate fares;
  • develop a new ticketing system;
  • carry out “long-term” (strategic) planning of the network;
  • integrate bus, train and tram services; and
  • pay the operators to run services.

Again, this agrees well with Vuchic’s definition of strategic planning. Absent from the list are the main ingredients of tactical planning such as setting timetables, reconfiguring existing routes, reviewing service frequencies, or applying new technology to operations. Though the government still, after a fashion, undertook these functions for buses (which remained under a quasi-nationalised model), in the case of trains and trams most tactical planning fell into the gap between the declared responsibilities of government and the declared responsibilities of the private operators. In practice this has subsequently meant that little tactical planning has occurred at all, except where initiated by an operator in its commercial self-interest, or by the government in response to political pressure.

At the same time or shortly after the second privatisation, a number of smaller statutory bodies were created to oversee particular public transport functions. These included a Public Transport Ombudsman to act on grievances with public transport operators (but not with ticket inspectors, which remain the most common source of passenger grievances), and a Transport Ticketing Authority to implement a new Smartcard ticketing system for Victoria. Although these agencies perform functions that would be undertaken by a planning agency in a Transport Community model, they are peripheral to the operation of the franchise model and the relationship of these agencies to the Office of the Director is unclear.

On the private side of the fence an umbrella body called Metlink was created, with a role written into the new franchise contracts to undertake marketing and branding exercises. There are now small Metlink logos on most public transport vehicles, signage and literature, which otherwise bear the livery of the private operator. This is an improvement on the complete lack of common branding that existed between 2000 and 2003, but is the exact reverse of former practice under The Met and current practice under Transperth and the ZVV, which is for the livery itself to reflect the common branding and for the operator to be identified less prominently, a practice which is considered to make the common branding more recognisable to passengers.

V/Line Passenger was not part of the second privatisation, and initially remained in the hands of the receivers. The government eventually announced its intention to retain V/Line in public ownership in order to see through the Regional Fast Rail project and the restoration of some regional passenger rail services axed under Kennett. This position was consolidated in early 2007 with the buy-back of the track lease held by Pacific National, giving the government control over not only passenger services but also the freight rail network (though not actual freight services). It is striking that while the government can see the value of public control and even public ownership in making improvements to country rail services, it fails to acknowledge any similar value in relation to Melbourne public transport services.

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