Henry Posner's remarks at Int'l Railway Seminar, Moscow, 2000

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I would like to introduce a different perspective on railway restructuring. My impression is that the Former Soviet Union (FSU) has been looking to Europe for models on what to do with their railways. However the FSU should consider that there are other places than Europe where railways have been restructured and other models to be considered. In particular, a competing model to the European model of Open Access is the Exclusive Franchise model found in North and South America. Key points to be discussed are: (1) that the railway environment varies from continent to continent, especially at the institutional level as opposed to the technical level; (2) that railway restructurings have many origins – some political, some economic; and (3) that railway restructuring is ultimately driven by market forces, not politics.

Background on RDC - General

Railroad Development Corporation (RDC) is a railway investment and management company based in Pittsburgh, Pennsylvania (USA). In recent years though RDC has been focusing more on corridors and not just railways. In particular, projects involving ports, fiber optics and other businesses that come from railway businesses. RDC is a small company and does nothing on its own – each business is with joint venture partners. RDC is currently the only railway company from the private sector to invest in railways in Africa.

Background on RDC - Transactions

Our flagship in the USA is the Iowa Interstate Railroad (IAIS). IAIS is one of four railways in the Chicago/Omaha corridor, the most competitive in North America. The fact that it has survived in that market despite the competition from the Class Is – Union Pacific, Burlington Northern Santa Fe and Canadian National – is a testament to the efficiency of regional railways.

Joint Venture with Heartland Rail Corporation

RDC's main business since investing in IAIS has been a pioneering role in railway privatizations overseas. In particular, we got involved in the first railway privatization outside of the USA -- Argentina -- in 1991. RDC is one of the shareholders in the railway lines that run from the border with Brazil to the border with Chile – Buenos Aires al Pacifico and Ferrocarril Mesopotamico-General Urquiza. These form the backbone of the Mercosur common market railway system. The Mercosur common market is Brazil, Argentina, Chile, Uruguay and Paraguay.

Joint Venture with Garantia Partners (Brazil)

RDC is also involved in one of the most challenging projects attempted by the private sector, which is the restoration of service of a completely abandoned national railway. The railway in Guatemala runs from the Atlantic to the Pacific Oceans and from Mexico to El Salvador. It was abandoned in 1996 and Ferrovias Guatemala is now operational in the First Phase to the Atlantic Ocean.

Joint Venture with Guatemalan investors

In September of 1999, RDC got involved with the highest railway in the world – the railway in Peru now known as Ferrocarril Central Andino (FCCA). FCCA climbs 3 miles in the distance of 50 miles, employing dozens of switchbacks and 4.2% grades.

Joint Venture with Peruvian investors--Juan Olaechea & Co., Minas Buenaventura, Cemento Andino; and CDC (United Kingdom) and Mitsui (Japan)

In December of 1999, RDC participated in the first rail privatization in Africa – The Central East African Railways (CEAR) in Malawi. In 2001, in Mozambique, RDC will include the railway to Nacala and the port of Nacala as part of CEAR's railroad system. This is the first example of a private sector integration of general cargo ports with railways. This has some significance for the FSU, where ports compete with ports. For example, the railways in Estonia are highly dependent on competitive ports in order to generate traffic. This is one of the reasons that RDC was one of the bidders for the privatization of Estonian Railways.

Joint Venture with CFM (Mozambique); ERL (Bermuda); Tertir (Portugal); MANICA (South Africa); and Mozambican private investors

Top

The Railway Environment Varies from Continent to Continent...

The railway environment varies radically from continent to continent (Table A). The characteristics of European railways can be summarized as: short distances; fragmented traffic patterns; breaks of gauge; capacity constraints often driven by physical clearances; and an orientation toward passenger service. This is the exact opposite of the FSU and the USA.

In the FSU and the USA there are long distances, the same gauge throughout the networks, and generous clearances. These are primarily freight railways with passenger service. Thus, If the passenger trains stop running, it will not be nearly as bad for the economy as if the freight trains stop running.

Table A

	North America	South America	Europe	Southern Africa
DISTANCES	Long	Medium	Short	Medium
TRAFFIC PATTERNS	Concentrated	Concentrated	Fragmented	Concentrated
BREAK OF GAUGE	0	Many	1	0
CAPACITY CONSTRAINTS	Line Capacity	Ports	Clearances	Track
ORIENTATION	Freight	Freight	Passenger	Freight

...Especially at the Institutional Level

In Europe, at the institutional level there are many different languages and many different frontiers, which can be as much as barriers to a successful operation of railways as physical problems (Table B).

Table B

	North America	South America	Europe	Southern Africa
BUSINESS LANGUAGES	3	2	Many	2
FRONTIERS	2	Many	Many	Many
OWNERSHIP	Private	Private	Public	Public

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RAILWAY RESTRUCTURING IN THE AMERICAS - Implications for the Former Soviet Union International Railway Seminar Moscow, Russia October 2000	Henry Posner III Chairman