This bit of news caught my eye a week or so back, although at the time we were a bit overrun with Unitary Plan matters. It seems that Veolia is doing quite well out of their Auckland rail contract:
Veolia Transport Auckland, which runs the city’s urban passenger trains, almost doubled its annual profit last year after it changed the way it does business.
Veolia, a unit of Paris-based Veolia Transdev, posted a profit of $1.99 million in the year ended December 31, up from $999,000 a year earlier, according to accounts filed with the Companies Office. The company’s gross profit margin jumped to 10.7 percent from 7.7 percent a year earlier.
Veolia provides the rail service under a contract with Auckland Transport, which receives subsidies from the New Zealand Transport Agency and the Auckland council. In 2012, Veolia negotiated a contract extension with Auckland Transport from a management fee to a ‘risk and reward’ agreement which incentivises performance and efficient management of the Auckland rail operation.
“We restructured the business and redeployed our workforce, achieving some great operational cost efficiencies with no redundancies in the process,” Veolia managing director Terry Scott said in an emailed statement. “Cost savings achieved in the 2012 year will be accounted for in the next year’s budget and so will be passed on to ratepayers.”
Veolia’s revenue rose 7.9 percent to $92.5 million last year, while costs advanced 4.4 percent to $82.6 million, according to the company accounts.
The New Zealand unit paid its Australian parent a $785,000 management fee, down 1.9 percent from the year earlier.
Veolia’s trains use infrastructure owned and managed by state-owned KiwiRail.
I have underlined the key excerpt from this release – highlighting that Veolia’s new contract is based on a risk and reward system, presumably meaning that when the rail system is performing well (i.e. growing patronage, low levels of delay etc.) then the operator gets rewarded. When the opposite is true then the operator gets a lower fee. There’s logic in this kind of approach.
So a doubling of Veolia’s profit must mean things are pretty great on the rail network right? Well, let’s have a look at the 12 month rolling patronage totals for rail since this contract was negotiated early in 2012.
It is good that they have found savings within the organisation and also positive that those savings are eventually being passed back to AT but it does raise the question of who should be operating PT services. The need for a private operator to make a profit of the operation of PT is a major issue when we are subsidising services to a significant extent. Is it time for Auckland Transport to start running these services directly?
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“The need for a private operator to make a profit of the operation of PT is a major issue when we are subsidising services to a significant extent. Is it time for Auckland Transport to start running these services directly?”
What about the bus contracts?
We don’t own the buses. We do own the trains.
Not the locomotives though. They are leased.
By AT, from Kiwirail.
I have always believed and stated many times Auckland does not need to use a 3rd party to operate the rail services. At a time when there is focus on costs, this is one which can immediately be reduced, unless AT are out of their league or incompetent?
I believe the private sector was involved in PT in order to manage human resources. From what I understand the combination of public governance and unionized staff has not (historically) led to very “efficient” outcomes (even if it was arguably more effective).
But I do agree that this may need to be re-visited; it seems to me that modern unions are more constructive and also that there are ways to manage the power balance, e.g. making PT an essential service (like firefighters) so that the right to strike is removed.
The only other thing that Veolia may bring is global expertise in management of rail services, an area in which I think it’s fair to say NZ does not sustain a particularly thick labour market.
Thoughts?
Standard economic dogma would say that the private sector should do it better, although it’s not really so much about whether it’s public or private as how the incentives are set up. If Auckland Transport spun off a division to operate the train network, and if that division had incentives to make sure the trains were run efficiently, on time etc, I can’t see there being a big issue with public ownership. No different than the other SOEs or CCOs really.
From memory the Board of AT extended the contract on an uncontested basis, with Veolia spinning the line that it would be high risk to change management with EMU and ticketing projects underway.. Wonder if they regret that now.
Isn’t there some rule barring AT from running its own services? Another of those little details that the privatisers sneak into everything while they’re in charge.
The Local Government reforms of the 1990s barred local councils from owning/operating public transport. I don’t know what it said about CCOs.
There is such a rule, however down in Christchurch, it has been worked around by ECAN owning the buses whist the city council contract the services. I am surprised that with the government lead takeover of ECAN, it has not been kicked to touch
Other way around, the city council own one of the bus companies and contract to ECAN who provide the services. I guess the big difference is that the council bus company has to compete commercially
I should add, while AT are probably not allowed to run bus or rail services themselves, Surely there is no reason one of the other CCO’s (probably the investment one) couldn’t own a bus company or buy out the Veolia contract providing it was continued to be treated as a separate commercial entity so it doesn’t get favourable contracting treatment.
AT can, they aren’t a local government.
Or we change the stupid rule. Who cares who it is, it’s ideological claptrap to say that private operators, with added margin, will always be more efficient. Especially when there is essentially capture of task by one operator through specialisation or incumbency. Real world says not so.
It doubled, from almost nothing. $1m is a small percentage of more than $80m in revenue. It could be the case that the efficiencies they put in place allowed them to gather more revenue and lower costs, just as the patronage started to decline.
Perhaps a better way of framing this would be: “Declining patronage makes it easier for Veolia to turn profit.”
Veolia’s financial year ended on 31st December. 2012 had 8 months above 10 and a half million boardings whereas 2011 only three months.
Therrefore the best way of framing this would be: “Increasing patronage makes it easier for Veolia to turn profit.”
Those figures are 12 month rolling totals not monthly totals.
yes I agree – the future of PT might seriously need to consider the profit model –
Though I recall the days of the yellow bus company which was council run and not for profit
if I understand correctly – and I don’t think that they had a sterling reputation for doing good job
But overall by the time you take the need to make a profit into account and try to
work out the complicated subsidy system etc it seems a lot of resources end up going out
of improving the PT system in the equation
The question is what Veolia does for there money. If they were replaced by a council body almost all the same staff would be in place.
Would be interesting to see how often they use their overseas expertise to actually run things better. Normally the expertise of these companies is sticking to the letter of the contract and improving KPI’s but failing at things that aren’t included in the contract.
Veolia don’t seem to be anywhere near best practice in obvious things like customer service or dwell times at stations so from that view they don’t seem to bring alot.
Of course Veolia actually don’t do much, apart from employ staff. Kiwirail still do most things, and I may be wrong on this but did hear the EMU depot would effectively be operated by CAF, as at the moment operated by Kiwirail.
Often more to do with management and employment/union laws rather than ownership being private or public. Seems to be a few publicly owned yet efficiently run operators overseas, such as in Germany and even in the USA.
Maybe an option is a majority council owned listed company to provide the services to meet any arms length operational requirement. Seems to work well for BOP Regional Council re the Port of Tauranga. If Infratil sells NZ Bus it could then be used to acquire that operation, with future dividends reinvested in public transport rather than the present situation of funds being “sucked out”. This would also provide some stability for future route planning.
As a side point find it strange that New Zealand uses an ideology for transport ownership similar to the UK, yet it has clearly failed there in terms of service levels/ticket pricing etc. Also ironic that two of few remaining council owned operators in that country (Lothian and Nottingham) are now leading providers.
agree
Absolutely – you only need to cross the Channel in Europe to see the disaster that privatisation was on PT. Some things (not many) dont work well on a private basis and public transport is one of them.
Isn’t AT the extra party here, rather than Veolia?
Wellington:
GWRC > Tranz Metro (the operator).
Auckland:
AC > AT > Veolia (the operator).
Or does Wellington have their own version of AT?
AC isn’t involved in the delivery of services in any way.
These thieving scum dropped me and about 15 others on the 0606 at Homai this morning so they could run express to Papakura.
How about a binding referendum on whether they should be dumped?
Ditch the passengers, run express to meet the KPI, get rewarded by AT, post profit on annual report…..
That was my point exactly, meet the KPI’s, but screw over the service in any other way possible.
Seems KPI’s are based on train delay, but don’t include actually stopping at stations!
Anyone know if they KPI’s are public at all?
If was under more direct control could potentially stop this sillyness, as AT could direct operator not to do that.
The very flawed system of private operators providing PT goes back to Maurice Williamson I believe as Minister for Transport in the 1990’s. Hence the Yellow Bus Co had to be sold. I never ever understood the rationale behind it apart from some warped “market knows best” mentality that National were into then and still are.
For each private operator to participate successfully they have to make a profit and share holders demand maximum return for minimal input. We ratepayers have to foot that bill that will never go back into PT. Yet if the council owned and operated buses and trains every cent in profit could go back into the system.
I think there is definitely an increasing case for AT to start thinking about some rail and bus services in-house. Surely this much profit being collected by Veolia out of AT’s pockets can’t be right?
As an aside with bus services would be great to see some more competition when routes come up. Go Bus has made big plays in different parts of the country in the last few years, took over most of the school bus services, picked up a bunch of routes in Dunedin, and last week they bought Leopard in Christchurch making them the biggest operator there. Would love to see them turn up here.
Also Urban Express is small player here, but they also run Hamilton’s buses and seem to be good at that, and of course run all of the rail buses, even bringing Hamilton buses up for that. Would hope with re-tendering as part of new network they would be able to bid for a bunch more services. Note they are part of Pavlovic, a big tour coach operator.
Pavlovich don’t operate all the rail buses. The current contract for western line rail replacements is held by Bayes – ‘a friendly, family-run business’ – who seem to have a default policy of broadcasting ‘easy listening’/right wing talkback radio over their pa systems. Makes an unpleasant journey even worse.
As others have said, any change to the model will be years away. The legislation enforces this kind of contract, it’s up to those involved to make it work the best they can. Anything different will require a change of government*, and so will happen in 2015 or 2018 at the earliest, and likely later (even if important, it’s unlikely to be at the top of the legislative list).
*The current Government could change the way it operates, but that seems highly unlikely and more distant by the day.
Are the KPIs in Veolia’s contract publicly available?
http://www.smh.com.au/nsw/minister-ditches-drivers-for-more-frequent-trains-20130606-2ntaw.html
Might be one way to cut operating costs in the future if Auckland ever gets the infrastructure sorted.