Japanese Experiences with Public and Private Sectors in Urban Railways

1. 9TH CONFERENCE ON COMPETITION AND OWNERSHIP IN LAND TRANSPORT Japanese Experiences with Public and Private Sectors in Urban Railways September 6th 2005 Ken’ichi Shoji Graduate School of Business Kobe University (kshoji@kobe-u.ac.jp)

2. INTRODUCTION • Private railway companies are common and play an important role in Japanese passenger transport, especially in urban areas. • They are financially independent and in most case their rail operation makes profits. • Given the “self-supporting” (or “full-cost principle”) principle, the national government set up several special subsidy programmes for special cases, mainly for the new line construction projects

3. Our Problems • The subsidy programmes has been not applicable for most efficient rail operators: private railways. • to get the funds from the governments, the local community have to employ the public (or semi-public) operator • it becomes more difficult to thrive the rail business even for the most efficient management under the self-support principle Þ need to think collective interests, though market is most powerful and efficient device in guiding provision • Lack of smart programmes which allow private railways to benefit from subsidization

4. New Schemes • to search the smart way of subsidy programmes which isapplicable for private (directly or indirectly) and dose not contaminate for the privates’ efficient management system. • A case of Kobe-Kosoku • New cases at Osaka area • Both attempts utilize • Public-private mixed company • Infrastructure-Operation Separation

5. A Sketch of Urban Rail Transport • Entry regulation • must acquire a rail license in Japan, subject to approval by the Ministry of Land Infrastructure and Transport • From 1987 : three kinds of railway licenses • Class 1 : Iintegrated provider (most common) • Class 2 : Operation provider • Class 3 : Infrastructure provider • There are 170 railways (which include tram, monorail and automated-guided-transit operation) operators providing passenger service. • Some of these companies are Class 3 operators.

6. Classification of Passenger Rail Operators in Japan Operators # of companies Ownership Service Type Main Service Areas Large private 15 Private Urban Large Metropolitan areas (in most cases) (e.g. Tokyo, Osaka, etc.) Medium private 6Private Urban Large Metropolitan areas (e.g. Tokyo, Osaka, etc.) Small private 70 Private Local From large to small urban and Urban areas and rural area Transformed 42 Public-Private Local From large to small urban Third Sector Railway areas and rural area JR 6 Public & Inter City six Regions in Japan Private and Urban TRTA 1 Public* Urban Tokyo Municipal 12 Public Urban Tokyo, Osaka, Nagoya (local government) and 6 other large cities Monorail 9 Public-Private Urban Large Metropolitan areas (partly private) and large urban area AGT 9 Public-Private Urban Large Metropolitan areas

7. Private railway companies play an important role • Fares • the Ministry approves “fare ceilings (maximum fare levels)” based on the full cost principle • yardstick competition scheme • Determination of the level and type of services offered • full responsibility for their decisions regarding networks, operating patterns, schedules, etc. • there are regulations of basic elements of service standards • Diversification • have long been permitted to operate non-rail businesses in addition to the rail business. • After many decades of experience in a multitude of services, the private railway companies of Japan have proven to be highly successful. • The focused, methodical, long-term strategy has given the transport providers a reliable base of ridership.

8. Modal Share of Motorized Transport in three large metropolitan area Note: *: Private also includes monorail and AGT 1) Motorized Transport dose not includes walking, bicycle and moped. 2) The Metropolitan Area includes most cities and towns lying within 50km(in the case of Nagoya: 40km) of the center of the each central city(Tokyo, Nagoya, and Osaka). 3)‘Osaka’ Metropolitan area also calls ‘Kansai’ or ‘Kei-Han-Shin ‘. Kei-Han-Shin stands for Kyoto-Osaka-Kobe Source: Unyu Keizai Center, Toshi Kotsu Nenpo, 2002

10. Financing Structure of Urban Railway in Japan Value capture includes subscription and other official arrangements. There is a example that private railway obtain part of construction money from private developer who have the plan to develop along the new line though pure business talks.

11. Just Remind: because Private Railways is financially independent • In general, the Ministry itself does not generate plans for railway projects, but acts more as a director to the actors on the stage. • the planning of a railway project is not done by the Ministry but by each individual rail enterprise. The Ministry assesses plan based on the opinions of Transport Policy Committees. • however, there are cases in which the public sector gets involved in railway network planning. • Shinkansen (High Speed Train) network • public underground networks, which are operated by local governments. • it is possible for the public sector to work together with the private sector, which occurs especially in railway projects in city and/or suburbs in large metropolitan areas

12. Table 5. Construction Subsidy Programmes and Eligible Operator *) From 1993, public-private mixed railway companies, which 50% or more the shares are owned by the public sector, also eligible to get this construction subsidy, though until 2001, the amount of subsidy is decreased in proportion to the public share of shares

13. Table 6.Truck Space and Subsidy Programme Note) “Insufficient” means .there is only nominal subsidy scheme for this case and “might be possible” means there is a movement to expand the coverage for this case. ‘Linier Metro’ is the underground which use linier induction motor driven system. u: Because of technical reasons, it is impossible to use this space. *: There are several cases which cover by the Underground Construction Scheme. But in all cases, Elevated section is a small part of Underground networks. **: From 2002, Infrastructure Construction Scheme also covers this case, though there is no achievement example.

14. Kobe Kosoku and Major Railways in Kobe

15. The Structure of Kobe Kosoku • Kobe Kosoku is not simply a rail infrastructure provider but is rather more like an integrated railway company, which purchases rail operations by contract = has a direct relationship with the consumer • the stock of Kobe Kosoku is jointly held by the original four railway companies (40%) whose services it connected, by the Kobe city government (40%), and by other private companies (20%) • Four private railways, Kobe Kosoku and City of Kobe made agreement to pay “connection benefit fee” from 1968 to 1973. The total amount of 6 years of four rail companies is 3 billion yen.: almost 30% of annual passengers revenue, at that time, annually.

16. Nishiosaka extension line & Nakanoshima new line • Private Rail Company benefit indirectly from subsidization • Extension plans of existing private railway line (in Osaka area) • Establish the infrastructure company • The stock is jointly held by the private rail company (about 33.35%), which will become Class 2 operator, by the Osaka city government (33.33%), by the Osaka prefecture government (16.67%), and by other private companies (about 16.65%) • stock is jointly held by the public and the private equally • the biggest share owned by the private railway company • this public-private mixed company gets full subsidy as public underground (municipal) • The costs of related investments on existing section, procurements of new rolling stocks and other related expenses are not included in the total truck construction costs

17. Table 7. Financing Scheme for Truck Construction (new Scheme) Note) In general, total amount of 'not eligible for subsidy' is 3 - 5%. Total construction costs dose not includes. rolling stocks, related investments on existing section, and other related expenses.

18. Possible Costs and Revenues Relationship Between Operation Companies and Infrastructure Company Infra Company Operation Company

19. Points or Keywords from Our Experiences • Private Railways in general • have full responsibility for their decisions regarding networks, operating patterns, schedules and fares. In short, they are autonomous commercial entities. • they can allow having a long-term commitmentto the community it serves • ‘self-supporting’ principle • few changes in the rules of the games • few political intervention • Private railways have achieved a high social status by offering not only impeccable transport services but also by diversifying and bringing forth quality services in their region. • the highly reliable, punctual and comfortable rail services without tax burden

20. Points or Keywords from Our Experiences • Kobe Kosoku Case • to avoid the conflict between operators and infrastructure, shares are held by operation companies so that the opinions of operation companies are reflected in railway decisions, and most involved usually behave with mutual benefits in mind • shares the revenue risk with operation companies • more like an integrated railway company, which purchases rail operations by contract • unlike a typical infrastructure company, which charges infrastructure fees regardless of the conditions of fare revenues • But • besides specializing in maintaining infrastructure, maintenance cost is no different from the costs of integrated systems • might be lack of ability to make large investments • (still) transaction costs

21. Points or Keywords from Our Experiences • Under New Scheme (for Hanshin and Keihan) • underground construction subsidy programme is applicable about 50% (or 60%) of truck construction costs which pre-determined by the Ministry with local governments and private operators • public sector involve in funding the construction phase and the construction • establish infrastructure company just for construction • stock is jointly held by the public sector and the private sector equally, the biggest share owned by the private railway company • thus, private operator have last to say for the projects • minimize the transaction costs

22. A Few Final Words • Essential keywords ? • autonomy, entrust, mutual benefits, long time commitment, and the ‘self-supporting’ principle • still OUR Problems • to subsidy other capital investment • need to to integrate rather fragmental national subsidy programmes • Transfer the powers and responsibility to local governments ? • We have experiences that the local government construct and/or adopt the plan to extend their own underground lines instead of utilising the existing private railway lines • to subsidy operation costs ? though most Japanese still tend to think un-remunerative services might mean that the community dose not support • Fare compensation issues • Fare levels which meet social goals

23. THANK YOU !!