Re-nationalising British Rail

Vinayak Chatterjee looks at the stresses in public-private partnerships

“Britain’s failing train network to be brought under state control”, Prime Minister Boris Johnson recently announced, heralding a massive overhaul of what is generally perceived to be a crumbling railway network and reversing a controversial initiative in privatisation by the conservative governments in the 1980s and ’90s. It will see the creation of a new public body, the Great British Railways (GBR).

GBR will integrate the railway system — owning infrastructure, setting timetables and collecting fare revenue. It will also be in charge of planning and executing capital works on the network, and will subsume Network Rail, which currently manages rail infrastructure — track, signalling, and the biggest stations. It will also be responsible for issuing contracts to private train operators, whose role will be retained for operating most train services.

Announced on May 20, the proposals, known as the Williams-Shapps Plan, is considered the biggest shake-up of the UK railway industry in more than 25 years, bringing the railways back into government hands, albeit with a continuing but reformatted involvement of the private sector. The 30-year plan has been drafted by Transport Secretary Grant Shapps and Keith Williams (former British Airways chief executive). The plan is to be fully executed by 2023. “Years of fragmentation, confusion and over-complication has seen a vision fade, and passengers failed,” commented Mr Shapps, going on to add, “That complicated and broken system ends today.”

The mood was markedly different in 1979 when the Thatcher administration decided to privatise British Railway “to harness the management skills, flair and entrepreneurial spirit of the private sector to provide better services for the public.” Four years later, the 1993 Railways Act took effect. The Track Authority Model was adopted whereby passenger rail service was franchised to private companies. The fixed assets such as railway tracks, stations, tunnels, bridges, signaling and depot access of British Rail, the previous state-owned company, were all transferred to an independent company called Railtrack. In 1995, Railtrack began franchising the passenger rail service to private Passenger Train Operating Companies.

This franchising model has now been seen to be problematic with its extreme fragmentation of the network. It leaves the company running the franchise with little control on disruptions to operations leading to a debilitating “blame game” between train and track operations. It does also appear that British national pride has been hurt as one in two passenger journeys made in the UK are on trains operated by foreign firms such as Deutsche Bahn, SNCF of France and Trenitalia of Italy. 

From 2016, the debate started as to whether railways should once again be nationalised. And so it is to be. The broad thrust of the re-nationalisation plan has received a cautious welcome. Certain sections, notably the Unions, are not yet ready to believe that a right-leaning conservative government will actually dismantle existing arrangements and re-nationalise the railways. They say the “Devil will lie in the details.”

What then are the lessons for India? In networked infrastructure, state ownership of “carriage” (the fixed infra) as distinct from “content” (rolling stock) is clearly the right way to go. The fragmentation of the privatised rail network is being seen as the root cause of the British Rail privatisation failure. India needs to keep this in mind as it goes about monetising rail, oil and gas pipelines, and electricity transmission lines.

India would do well to note that very few developed countries have copied the British model of selling off whole utility networks to private entities. In Europe, the model has generally been to separate asset ownership from service provision and to grant private companies the right to operate concessions. That way, regularly needed capital expenditure is made by the sovereign, whilst private sector gets compensated by squeezing operational efficiencies.

India sorely lacks institutional capacity in conceiving and managing public-private partnerships (PPPs). Over 10 central ministries and 28 states and eight Union Territories deal with PPP formats in their own way without any formal sharing of knowledge. The UK has been at the forefront of PPP “best practices” since the concept was introduced in the 1990s and has developed a clutch of supporting institutions which have been copied worldwide and used as text-book examples of how to handle PPPs. These include the Private Finance Initiative, Private Finance Panel, The Infrastructure Finance Unit and Partnerships UK. Yet, with all these, the rail privatisation is being rolled back. Thus, India has to take “PPP Institutionalisation” seriously and set up 3P India, the PPP think-tank announced by Arun Jaitley in his maiden July 2014 budget.

The stress in India’s PPP programme has also largely been attributed to lack of “regulatory independence” where bold decisions are required —equidistant from the state, the private concessionaire, and consumers. The regulatory horse has to come before the PPP cart. Almost three decades later many in the UK believe that investors have run rings around the watchdogs set up by the UK government. The UK rail privatisation outcomes, along with outcomes in UK’s water privatisation, have shown that there is a fundamental contradiction that needs to be effectively bridged between the regulator’s duty to protect consumers and its overarching duty to ensure that the companies have enough money and motivation to deliver on capital works.

Finally, India’s own requirements are well captured in the November 2019 Kelkar Committee report on PPPs. Perhaps the biggest learning for India’s policy-makers is that even in the most mature market for PPPs in the world, viz. the UK, formats for involving private capital in infrastructure are still evolving and reshaping themselves based on the feedback loop of accumulated experience.

For this to be a virtuous cycle, high-quality institutional capacity needs to be in place.

The writer is chairman of Feedback Infra