The document discusses economic regulation and competition policies in the rail sector. It outlines the historical domination of large rail monopolies [S1] and the rationale for implementing economic regulation and competition policies to address market failures in railways [S2]. The effects of deregulating road transport and regulating railways through the introduction of competition are discussed [S3]. In conclusion, the document emphasizes that no single model of economic regulation exists and that regulation approaches need to be customized based on government objectives for the transport sector as a whole [S3].

1. ECONOMIC REGULATION AND COMPETITION IN
RAILWAYS
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Deputy Director-General: Transport
Ms. Kgomotso Modise
Transport Forum
01 October 2015

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Contents
 Rationale for Economic Regulation & Competition Policies
 General Policy trends across the globe
 Sector-specific regulation versus competition policy approach
 Policy decisions to address rail sector challenges
 Principles of sound economic regulation
 Key Lessons from European and American experience
 Future trends
 Conclusion

3.  Domination of large railways and monopolies
 Historically, networks industries (including railways industry) were national monopolies.
Lack of investment in railways to commensurate economic growth.
 Lack of innovations to respond to the dynamic logistics requirements
 Effects
 Inability of railways to remain competitive
 The investment curtailment and deregulation of road transport had major impact on the
performance of railways.
 Decline in railway’s market share on the national transport task.
 Two types of mechanisms at government’s disposal to deal with market failures:
 Economic Regulation
 Competition Policies (Antitrust Regulation)
Rationale for Economic Regulation & Competition Policies
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4. Competition Laws Sector-Specific Regulation
 Competition agencies apply an ex-post, harm based
approach.
 Enterprises face the risk to be penalized if their business
conduct is found to be an abuse of dominant position or
market power.
 competition agencies opt for structural remedies
addressed to specific conducts
 competition policy approach has the informational
advantage that it requires the authority to assess the
business conduct after the alleged abuse and only in
light of what is known at the time of the investigation.
 The regulatory approach relies on detailed ex-ante
prescriptive business conduct, for example price controls.
 Regulatory agencies have to take forward looking view of
different business conducts and place restrictions on
certain conducts.
 sector specific regulators impose and monitor detailed
conduct and behavioural remedies.
 The regulatory approach supposes much more
information than the one needed under the competition
approach
Economic Regulation versus Competition Policy

5.  Deregulation of road transport
 Regulation of railways
 Introduction of competition in railways
 Collaboration between:
 Road and railways
 Public and Private Sector
General Policy trends across the globe
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6.  Deregulation of road transport
 To deal with rail inefficiencies (level of service and price)
 Uneven allocation of national resources between railways and roads.
 Effects
 The road transport sector expanded significantly and competition intensified
 At the same time investments in railways reduced significantly due to various policy
decisions of the day.
 Railways lost many commodities (especially manufactured goods) over many routes
(especially shorter ones), and in some cases on the entire long haul routes
 This came at a cost: externalities (damages to the road networks, accidents, etc.)
 Infrastructure costs covered mainly by taxpayers while railways remained self-
funding
 Skewed operation costs & therefore prices between roads &railways
Deregulation of Road Transport
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7.  Introduction of competition on railways
 To remove barriers to entry and allow third party access to monopoly railway
infrastructure.
 Non-discriminatory rules for the allocation of paths and for access charges.
 Effects
 Low fares
 Additional services by utilisation of spare capacity
 Pressure on cost
But also
 Monopolies over single geographic corridors
 Reduced profitability
 Loss of economies of scale and density
 Loss of integration and coordination
Introduction of Competition in Railways
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8.  Regulation of Access, Access Charges, Haulage Prices, Levels of Service
 Entry and exit into different markets depended on profitability of markets
 Stability of prices vs profitability
 Value of service pricing & equalizing discrimination
 Effects
 Allocative and productive inefficiencies
 Distortion of rail costs and prices vs road cost and prices
 Licences for access in line with applicable policy
 Levels of service improve in line with price increases
Economic Regulation in Railways
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9.  Defining the goals and objectives of economic regulation and competition policy is a crucial
first step in developing and implementing policy reforms.
 Railway technical skills are very crucial in implementation of rail economic regulation to
ensure that decisions take into account rail industry realities.
 National transport strategies may differ, but broad government policy aims and principles for
transport should be coherent when applied to the sector as a whole, independent of mode.
 No single best model for economic regulation of railways exists. Instead, regulation should be
custom designed to achieve government objectives for the whole transport sector, taking
account of other aspects of railway reform.
 Government actions are always influential and often decisive in helping or hindering a
successful railway industry.
Conclusion
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