Clear the decks for action

 

Paleo-privatisation, the original 1992 version, had a simple financial structure based on competition and market forces. Privately-owned, Stock Exchange-listed infrastructure operator Railtrack received all its income from track access charges paid by the privately-owned franchise operators. Where passenger income was insufficient to cover costs, initially in every case, franchises were subsidised by Government.

Because the train operating companies (TOCs) were paying their monopoly piper it was assumed they would call the tune. If Railtrack underperformed, franchises would be compensated financially for delays under Schedule 8 of their track access agreements. This would hit Railtrack’s profits, the share price would fall and shareholders would apply pressure on the Board to do better.

Well, that was the Economics Module 1 theory.

Of course, for every stick there has to be a carrot. Also under Schedule 8, if Railtrack exceeded performance expectations, the money-go-round reversed and the franchise paid a premium.

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