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Evaluating Rail Reform in Latin America

This study evaluates rail reform in Argentina, Brazil, and Mexico, focusing on performance, competition, and the results of the reforms. It provides insights and lessons learned from these experiences.

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Evaluating Rail Reform in Latin America

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  1. Evaluating Rail Reformin Latin America Javier CAMPOS Juan Luis JIMENEZ WorkGroup in Transport Economics (EIT) University of Las Palmas (Spain)

  2. Contents • Motivation • Why Latin America? • Rail reform: why, when and how? • Main features in Argentina, Brazil and Mexico • Evaluating the results • Performance & competition issues • Conclusions • What lessons can be learned? First Conference on Railroad Industry Structure, Competition and Investment

  3. Why Latin America? • Fact: since 1990 Latin America has been the world region with more extensivetransport restructuring experiences: • The World Bank transport projects database(1990-2001): Latin America (108) Asia (71) Europe (10) Africa (9) Private investment in transport projects: >40US$ billion! • Consequence: the region has become a natural lab to test new concepts in (transport) regulation and policy. • In railroads: large-scale concessioning experiences in Argentina, Brazil, Mexico; Bolivia, Peru,... First Conference on Railroad Industry Structure, Competition and Investment

  4. Rail reform: reasons • Until 1980, Latin America growth model was based on heavy government intervention:private sector not allowed in many transport services and infrastructures. • In the rail industry: • National monopolies subject to political interference • Lack of investment, excessive staff • Large ineficiencies • Change of this paradigm was forced by tough economic circumstances: lack of public funds to sustain the model. First Conference on Railroad Industry Structure, Competition and Investment

  5. Financial crisis1980s Fiscal restrictions Public investment in LAC (1980-1998) as a % of GDP First Conference on Railroad Industry Structure, Competition and Investment

  6. Rail reform: common features First Conference on Railroad Industry Structure, Competition and Investment

  7. Rail reform in Argentina (freight) First Conference on Railroad Industry Structure, Competition and Investment

  8. Rail reform in Argentina (passengers) First Conference on Railroad Industry Structure, Competition and Investment

  9. Rail reform in Brazil First Conference on Railroad Industry Structure, Competition and Investment

  10. Rail reform in Mexico First Conference on Railroad Industry Structure, Competition and Investment

  11. Evaluating micro-performance: problems • Recent government changes have favored critical internal reviews of the concessioning process... • Lack of enough data on concessionaires’ performances: • Argentina: political shock and ongoing renegotiation process. • Brazil: institutional conflic among regulatory agencies. • Mexico: rail reform completed only 3 years ago. • Since 2000, several studies published.... • Many of them have focused on productivity analysis (most reliable data). • Financial data contaminated by non-comparable accounting standards. • Regulatory information collection processes still very incomplete. What can be said about the concessionaires’ performance? First Conference on Railroad Industry Structure, Competition and Investment

  12. Efficiency and productivity (Argentina) Source: Estache et al. (2002) First Conference on Railroad Industry Structure, Competition and Investment

  13. Prices and quality of services (Brazil) Average values for freight concessionaires (1992-2001) Source: Campos (2002). Based on data provided by Brazilian Gov. First Conference on Railroad Industry Structure, Competition and Investment

  14. Investment commitments in Mexico Source: Campos (2001). Based on data provided by companies. (*) denotes actual investment values First Conference on Railroad Industry Structure, Competition and Investment

  15. Performance evaluation: mixed results • Increased labor productivity... • ....but costly labor redundancies as well. • Increase in quality (+ reliability & – accidents)... • ....but also increase in prices. • Most private investments below commitments • ....but larger amounts than during the 1980s. At the macrolevel: great improvement in public finances, but not always translated into better services for the poor. First Conference on Railroad Industry Structure, Competition and Investment

  16. What about competition? • Initially, (limited) competition for the market through open auctions... • But not many bidders in each case (Example 1). • No competition in the market: (time-limited) monopoly rights within each concession... • Unclear access rules to key areas (Example 2). • Strong competition between markets: road transport is a tough competitor...but not always. • Abuses of dominant position (Example 3) First Conference on Railroad Industry Structure, Competition and Investment

  17. Example 1: cross-ownership and collusion First Conference on Railroad Industry Structure, Competition and Investment

  18. Example 2: access rules in MexicoD.F. • Concession contracts favor negotiations among operators. • Alternative: internalization. In Mexico D.F. a separate company (TFVM) manages the system. • TFVM ownership: TFM (25%), FerroMex (25%), FerroSur (25%), Government (25%) • So far, TFVM working with profits,...but potential conflict: asymmetric owners with equal voting rights. In case of problems over access issues, concessionaires must first appeal to Government,then to the competition agency (another source ofconflict?) First Conference on Railroad Industry Structure, Competition and Investment

  19. Example 3: captive shippers • In areas where the railroad is the most cost-effective means of transport, concessionaires tend to abuse their exclusivity rights. • Example: captive shippers in Brazil • Users are required to carry out specific investments in order to be served • Discriminatory tariffs (between shareholder-users and normal users) • Quality of service is much lower for these customers • If this is viewed as a standard abuse of dominant position case, then it is a job for the competition agency. • However, in most countries the rules are not clear yet, since the problem affects to the concession contract terms. First Conference on Railroad Industry Structure, Competition and Investment

  20. Conclusions • Rail reform in Latin America can be evaluated as a moderate success in terms of: • Microeconomic performance: (productive) efficiency • Macroeconomic performance: fiscal impact • However: • Financial results are still unclear. • Redistributive impacts are very poor. • Several competition issues may jeopardize the long-term achievement of greater (economic) efficiency. Lessons for other countries? First Conference on Railroad Industry Structure, Competition and Investment

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