Buyer s Perspectives Michael Schabas, Rail entrepreneur Michael@Schabas.net Page 1
Why buy railways? Intellectually challenging and personally satisfying They are for sale Opportunity to make money Seemed like a good idea at the time (keep on farming) Is there a gulf between public and private expectations? Michael@Schabas.net Page 2
Origins of GB Railways 1994 UK Railways privatisation commences 1995 Formed GB Railways to acquire UK passenger franchises 1995 1997 Submitted 7 initial and 5 final bids 1997 Awarded Anglia franchise; passenger revenue 45m/yr. Floated on London Exchange (junior market); capitalisation 7m 1997 Led consortium that acquired Australia National (Passenger) for $16m Michael@Schabas.net Page 3
Acquired 1997 Doubled passenger volumes to 7m and revenues to 70m by 2004 Eliminated subsidy Many awards for passenger service Doubled service frequencies Invested 50m in new and refurbished trains and stations Increased staff from 550 to 1,000 Improved driver productivity 50% Michael@Schabas.net Page 4
Great Southern Government was going to shut it down Led consortium with Serco and Macquarie Extended services to improve margins Increased passenger volumes and revenues 50% Eliminated subsidy Secured new tourism business employing 300 persons Michael@Schabas.net Page 5
Exotic Adventures Malawi 1998 - basket case; submitted best bid; walked away as sale terms not acceped; now Henry s! Zimbabwe 1998 - vertical separation model for infrastructure, shortlisted; potentially big money; sale aborted (still owed $10,000 deposit) 1999 Peru vertically integrated, tourism and minerals (lost by 1/6% to Henry s consortium!) 1999 Edelaraudtee (Estonia) vertically integrated, but with inter-working - won; mixed traffic, subsidised. Lengthy process for tiny business. Unfortunately not in position to bid for Eesti Raudtee in 2001 due to UK problems (so won by Henry!) Michael@Schabas.net Page 6
Australian Stories Sydney Canberra ICE 1998 ($1 bn high speed rail project); lost to TGV consortium, which turned out to be non-viable and project aborted. Was our bid viable? 1998-9 Melbourne trams and trains (lengthy and expensive process; modelled somewhat on UK but with vertically integrated concessions requiring expensive consortia. $450m funding required; lost all 5; winning bids proved non-viable) 2000 Westrail (Western Australia freight). Vertically integrated but with open access; c$600m; lost to G&W Michael@Schabas.net Page 7
Launched new open access operator in 2000 Direct service linking depressed north-east England to London Increased passenger volumes and revenues 50%, without any subsidy Competitive challenge to East Coast franchise Now leasing new 125 mph trains costing 20m 10m turnover; Profitable Michael@Schabas.net Page 8
GB Railfreight Launched new entrant freight operator 2001 Highly motivated staff with flexible working practices Competitive challenge to dominant freight operator (EW&S) Brought traffic back on to rail Acquired 22 new locomotives 20m turnover; growth 30% pa Profitable (receives subsidy for some intermodal traffic) Michael@Schabas.net Page 9
All change 2003 GB Railways Group (with Hull, GBRf, Anglia) acquired for 25m by First Group Plc 2004 Lost Anglia Railways franchise on re-tendering, despite top service record. Required higher subsidy than compliant bid by another operator, promising to pay 500m premium over 10 years 2004 2006 First Group won two new franchises (Transpennine and Scotrail) and lost two others (Great Eastern and North Western) In UK rail, incumbents don t win the same franchise the second time around! Bidding costs and franchise transfer costs are substantial, suggesting market still not working efficiently Michael@Schabas.net Page 10
Boston Halifax N.E.W. sea route: N.E.W. main rail routes: Other stretches of railway: Incomplete rail connections: Rail connection under construction: Haparanda/Tornio Different railway gauge: Drüzhba Rail distribution: Iceland Faeroe Islands Orkney Islands Vainikkala Haparanda/Tornio Narvik Archangel Oulu St.Petersburg Moscow Yekatrinburg Astana Petropavlovsk and Presnogorkovskaya Drüzhba Ürümchi Lianyungang Lanzhou The Northern East West (N.E.W.) freight corridor Based in Narvik, 68 N First private operator in Norway Passengers and freight 11 locos; 50+ wagons and coaches Approx. 50 staff Licensed to operate in Norway and Sweden Competes with incumbent national freight operators (which may be privatised) Pays track access to state track authorities Substantial stake acquired by GB Consortium (not First Group). Michael@Schabas.net Page 11
What Next? Emerging competition in EU rail freight (e.g.rail4chem) All subsidised passenger services subject to competitive tendering What future for long distance passenger in face of low fares airline competition? Will the rest of the world follow Europe (and Australian) models? Michael@Schabas.net Page 12
Michael@Schabas.net Page 13
What Gulf? (1) Privatisation does deliver, at least as well as public sector UK rail usage up 30% to 50% and still climbing. Other EU networks stagnating Many different environments - different models suitable for different situations Difficult for public sector to specify innovation, quality improvements iterative process Futile search for elusive simple models No defence against a low bidder (viz. Anglia, Melbourne). Sometimes almost everyone loses Deregulation and competition best solution, where possible Michael@Schabas.net Page 14
What Gulf? (2) We don t (just) do it for fun we need to bring along investors so a return is required We all have better things to do with our time We are used to dealing with confused and changing processes but it costs money Michael@Schabas.net Page 15