Privatization of Rail and Tram Services in Melbourne: What Went Wrong?

Abstract

Melbourne’s urban rail and tram systems were privatized in 1999 using a concessioning or franchising model similar to that employed for British Rail in the 1990s. The Melbourne franchise agreements promised improved services, increased patronage, reduced government subsidies and no real increase in fares. However, within 2 years, it became apparent that these predictions had been over optimistic, and subsequent negotiations saw the departure of one of the three franchisees and a renegotiation of agreements with the remaining two operators leading to substantial increases in subsidy levels. The paper reviews the Melbourne privatization experience to assess the extent to which it has produced benefits, the reasons the original predictions were not met and the extent to which the problems were avoidable. It concludes that although the Melbourne franchises were expressly designed legally to transfer revenue risk to the private operators, they failed to achieve this as a matter of practicality.