Intervention might be needed to prop up ailing rail

NTC says government intervention in rail might be needed, including offering generous handouts and restricting truck access and mass

Intervention might be needed to prop up ailing rail
Intervention might be needed to prop up ailing rail
By Brad Gardner | October 19, 2010

Government intervention to prop up an ailing rail freight sector might be needed, including offering generous financial handouts and restricting truck movements and payloads.

In a discussion paper released late yesterday, the National Transport Commission lists possible options for governments to pursue to restore rail’s share of the freight task.

Citing a significant drop in the sector’s performance over the last 30 years, the NTC says government can resort to direct intervention such as low or no interest loans, subsidies and concessions.

Indirect methods include tax exemptions and rebates, accelerated depreciation allowances and "preferential market access e.g. restrictions on heavy vehicle access and mass".

"In rail markets with low levels of competition, the benefit of using policy instruments to facilitate market entry may result in increasing levels of competition," the NTC paper says.

According to the paper, low or no interest loans and ongoing subsidies could make a rail project viable. The NTC says tax exemptions will stimulate business investment and allow the sector to recover costs.

However, the NTC lists potential risks government faces by intervening in the free market, including exposing itself to a high degree of risk if it guarantees loans.

"Whenever governments intervene in markets there is a risk that the intervention will result in a relatively worse outcome (called government failure)," the paper says.

The NTC warns tax exemptions and financial concessions can create long-term dependability on government and limit rail’s incentive to improve efficiency.

"Rail businesses may also seek government funding rather than risk their own capital…Rail operators may also overstate costs or threaten to exit a market to receive higher government funding," the paper says.

Imposing tight restrictions on truck movements and payloads might also have ripple effects, with the NTC saying it could distort freight prices and lead to inefficiencies which would otherwise not exist.

"Rail transport may become relatively more or less expensive compared with road transport so that consumers of freight transport do not choose the socially optimal mix of road and rail freight services," the NTC warns.

The paper was developed following a request from Australia’s transport ministers for the NTC to look at ways of improving the consistency and efficiency of governments’ approach to freight rail policy.

"Improving the clarity of government objectives – including social objectives such as regional development or job creation – will deliver long-term policy certainty for industry around rail freight planning and infrastructure investment," NTC CEO Nick Dimopoulos says.

The paper says early railways were not developed with a national network in mind and that rail has ceded market share due to declining infrastructure quality and poor cross-border links.

The NTC says freight customers cite reliability, service and transit times as key concerns hindering rail use. Rail providers refer to inefficient planning, infrastructure deficiencies and regulatory differences as issues affecting productivity.

The discussion paper will be open for comment until December 15. The NTC says it will release a draft policy in the first quarter of next year, followed by a final policy paper in the second quarter.

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