Rail 731: Korea on wrong track to privatisation

Jumping on a high speed train at Seoul station a couple of weeks ago was strangely familiar. The doors were operated by handles you flick across, the lay-out of the coaches only provided tables, which folded in half to allow you onto the seat, for the middle two groups of fours and the toilets were extremely cramped, though the controls were not quite as unfathomable as those on Eurostar (those buttons one pushes which give hot air rather than water!).

Of course, the familiarity was a result of the fact that the trains were none other than slight altered French TGV stock, built for when Korea’s high speed line opened in 2004. The train was well used, a lunchtime departure for the 500km journey from the capital to Busan, the country’s main port and the second largest city after Seoul, although by no means full. Prices are very reasonable. South Korea is a relatively prosperous country, modern and in the middle income bracket of the world’s nations, and so the £30 one way fare is certainly within the reach of most of its citizens. The on board service, a trolley full of both exotic sweets and instant Korean lunches as well as familiar products like the ubiquitous Coca Cola, was excellent, too.

Korea is very proud of its use of technology and the conductor went through the train checking the passengers – who all have to book – electronically, without having to ask for tickets. The catchment area of the high speed line, known as KTX, encompasses nearly three quarters of the country’s population of 50 million and expectations were high when the line first opened with estimates of daily usage of 200,000, rising to around 300,000 by now. In fact, despite the cheapness of the tickets and the fact that the railways have managed to take much of the market share from aviation, numbers are running at around half the predicted levels.

The finances of the high speed line are somewhat opaque. The initial assessment of the cost, in 1988 prices was around £3bn but now the estimate for the whole 255 mile line has increased to £12bn at current prices. The increase is, as ever, the result of various factors including greater than expected difficulties with geological conditions, concerns over the environment particularly of a tunnel through wetlands which led to delays, repeated protests by a Buddhist nun who went on repeated hunger strikes and the usual technical changes.

KTX is now the major part of the Korean railway. It brings in revenues of around £1bn annually, three times the income of the conventional lines. And that appears to be the basis of why the Korean government is anxious to break up the railways and part privatised them. I was invited out to Korea to speak at a trade union conference on privatisation which was a response to a very complex and opaque attempt at fragmentation and privatisation. Although the recently elected ruling Saenuri party which is a conservative amalgam of various other parties, had promised during the hustings that it would not privatise the railways, it has now put forward plans to break them up in what looks like a move towards privatisation.

Korea has a small railway of just over 2,000 route miles, forcibly isolated from the rest of Eurasia’s network by North Korea – formerly, there were connections through to China and Russia. Just as in the UK it was for a time seen as a declining industry, but is now seen as a vital part of the nation’s economy.  The risks of breaking up railways was highlighted, in fact, just a couple of days after I returned to the UK when there was a train crash further down the very line on which I had travelled.

Talk of privatisation was first mooted following the 1997 Asian foreign exchange crisis but but opposition from the public and, in particular, the trade unions resulted in moves towards the sale of the railway being dropped. Instead, in 2005, the government split up the railways to the Korean Rail Network Authority to build new lines, and the Korea Railroad Corporation (Korail), to run the trains, which now, in turn, is itself being split up. The government is proposing the creation of a new structure which is a kind of mishmash of various railway systems across Europe. This involves the creation of a holding company with a series of subsidiaries covering freight, rolling stock, the infrastructure and passenger transport which is, in fact, split with KTX, along with the airport line, being in a different company than the rest of the network. The government denies this is preparation for privatisation, but there seems little other motive than to prepare the industry for sale. All this, remember, is in a railway that is very small compared with major European networks.

A particular concern of the unions is the way that the KTX services, which represent such a large proportion of the railway revenues, are being separated from conventional services which are heavily loss-making. There are understandable fears that without the direct cross subsidy, these minor lines will be slated for closure.

At the conference I attended, several times fears about safety were expressed. While one has to be extremely careful about such allegations, there is no doubt that the rail privatisation process caused such upheaval in Britain’s railways that it contributed to all the four major crashes in its aftermath – Southall, Ladbroke Grove, Hatfield and Potter’s Bar – and it is no coincidence that the subsequent changes have led to a much safer railway. So it was rather shocking to hear, just two days after returning from Korea, that there had been an accident on the very line on which I had travelled involving a collision between a KTX train and a regional service.

The KTX trains share the tracks with conventional services for part of the time and the crash seems to have been caused by the regional service crew misreading a red signal, perhaps because the lay out was confusing – reminiscent of Ladbroke Grove. The unions afterwards suggested in a statement that the fragmentation of the railways contributed to the accident: ‘The separation of operations and infrastructure has caused a lack of clarity about who is responsible for measures to ensure safety and created a fundamentally inadequate safety system’.

The motive behind the government plan is ostensibly to bring in private capital. Already Korea has, though, had a bad experience with a privately built railway. The airport express (fare, incidentally, just £3 for the 80km hour long ride on a new train) was built privately but after demands from the private operator for extra subsidy, it was nationalised, though oddly the government is now seeking to reprivatise it. This shows that private investors need to be rewarded and their involvement is likely to make the railway more expensive to operate and therefore more loss making overall. As in Britain, the hidden agenda may well be to break up the unions but the Korean workers, who are quite used to being dismissed or even thrown in gaol for their union activity, are a hardy and canny bunch who will strongly resist these changes.

All this backs up my central point rooted in my scepticism about privatisation. Just as in the UK, the Korean plans for rail privatisation have no basis either in railway history and are not at the core of a plan to make services better for passengers and freight carriers. Instead, they seem to be rooted in an ideological fervour with the same old tired arguments that private is better than public. And there is no doubt, too, that just as in the UK, one of the motives is to smash the trade unions, though, again, that is unstated. Being in Korea was, therefore, rather like going back in time to the UK in 1992 when the privatisation plans were first set out in a White Paper and, remember, there were no immediate plans for the sale of Railtrack. We all know what happened next, which rather justifies the concerns of the Korean trade unionists


Railways not weaned from subsidy



The recent figures released by the Office of Rail Regulation on the railway’s finances, ably analysed by Steve Broadbent in the previous issue, show how difficult it is for government ever to free themselves of the burden of subsidising the railways. This shows that in a reversal of recent trends, overall subsidy has increased to £5bn in the most recent financial year, a rise of nearly half a billion since 2011/2.

This is despite the fact that franchisees now pay a premium overall to government of £420m, rather than being in receipt of subsidy but actually this is only notional since it does not take account of the huge grant made directly to Network Rail of £3.8bn. This is supposed to cover investment but, in fact, includes aspects of renewal and maintenance, making the economics of the railway rather opaque, a perennial complaint in this column. Maintenance, renewal and enhancement are not easy to distinguish on the railways.

The subsidy figure reflects the government’s huge investment programme in the railways but leaves the railways vulnerable.  However, the key point is that despite the McNulty report which wanted a clampdown on excessive costs and despite the shift from subsidy to fares income which means passengers now pay more than 2/3rds the cost of the railway, government support is still rising. The good news is that this demonstrates continued government support for the railways and, perhaps, an understanding of their overall importance to the economy. The bad news is that in these austere times, this massive investment programme in the railways will be vulnerable to cutbacks and there will be continued pressure to increase fares.


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