Australia’s deficit of investment in trade infrastructure

Time for Prime Minister Rudd (wee!) to get to work,

Australia has ratified the Kyoto Protocol. Prime Minister Kevin Rudd signed the instrument of ratification of the Kyoto Protocol in his first act after being sworn in this morning.

…

He said the Federal Government would do everything in its power to help Australia meet its Kyoto obligations, including setting a target to reduce emissions by 60 per cent on 2000 levels by 2050.

It also would establish a national emissions trading scheme by 2010 and set a 20 per cent target for renewable energy by 2020.

No no, not the feelgood-but-ultimately-incomplete Kyoto accords (although it is nice to leave the US to its pariah status, alone); the trading scheme is a better move, though.

No, I meant all that stuff we dig out of the ground, on which we’re struggling to make money because we can’t get it out of the bloody country in time.

Australia recorded its largest ever monthly trade deficit in October as supply bottlenecks choked off mining exports, while strong domestic demand sucked in imports.

…

Exports fell 3.4 percent compared to September, with metal ores and minerals down 20 percent, metals off 22 percent and coal falling 11 percent.

In contrast, imports climbed 2.3 percent with higher oil prices causing the biggest dent in the trade balance.

While the boom in commodity prices of recent years has greatly boosted Australia’s earnings from its resource exports, the country has struggled to boost output, in part due to rail and port bottlenecks.

A lingering drought has cut into farming shipments while a rising Australian dollar has hurt by making exports more expensive to foreign buyers, as many commodity goods are priced in a falling U.S. dollar.

That in turn was pressuring profit margins. A separate report from the government on Monday showed company profits fell 2.1 percent after tax in the third quarter, a surprise to analysts who had looked for a 2.0 percent increase.

Mining was again the main culprit with gross profits falling a steep 11.6 percent in the quarter, while manufacturing suffered a 4.5 percent drop.

Eco 1 students, pay attention:

Firms also added to inventories at a faster pace than expected, with a 1.3 percent increase to $113 billion. That was likely to add around 0.3 percentage point to gross domestic product (GDP) in the quarter, when most analysts had looked for a neutral impact. The GDP numbers are due on Wednesday.

“The strong growth in inventories will obviously push up GDP in the quarter,” said Rob Henderson, chief economist markets at nabCapital. “It looks like it has added to the view that we’re going to see strong GDP in the quarter.”

See how GDP can increase, based on things nobody has bought (yet)?

This is not the first time we’ve seen this problem hurt our balance of payments, either. Being prejudiced against the former (yay!) Prime Minister and his ultimately, proven, cowardly Treasurer, however, I can be optimistic that, perhaps, something can be done about this before the commodities boom is over. It would be no end of frustrating if, with hundreds of ships lined up outside our ports, we missed our boat.

So. Time for our more/actually aware and adaptive new Prime Minister (hooray!) to focus the attention of his government on Australia’s flagging productivity.

Londoners: walk

It would appear the mooted 72-hour strike (you read that correctly) is still on:

Millions of London underground passengers face travel chaos this evening after the RMT refused to join two fellow tube unions in calling off a three-day strike over jobs and pensions following the collapse of Metronet.

Passengers were warned of “severe disruption” to Tube services because of the strike and were urged to seek alternative routes from tonight.

London Underground said in a statement that trains would have to be back at depots before the 72-hour strike begins at 6pm tonight, right in the middle of rush hour.

Metronet, again, makes an appearance (do they not always show up when shit goes pear?)

Bob Crow, the RMT’s general secretary, blamed the situation on Metronet and its administrator for failing to give the “unequivocal guarantees” on jobs, transfers and pensions that the union was seeking.

A second 72-hour strike is scheduled to start at the same time next Monday, September 10.

Mr Crow said: “The efforts the mayor and Transport for London have put in to try to broker a deal have been welcome, but the problem for all of us remains that Metronet and its administrator are the employer, and the qualified assurances they have given cover only the period of administration.

“It is astonishing that the administrator can decide all sorts of things, including who will take over the PPP contracts, but is unable to give an unequivocal guarantee that the jobs of the people who will actually deliver the tube’s upgrades will be safe.”

But the RMT was isolated today after the other two tube unions, the Transport Salaried Staffs’ Association and Unite, abandoned strike action following written guarantees from Transport for London over jobs and pensions.

Unlike the RMT, Unite seemed satisfied with the assurances it has received.

As discussed the last time TfL and Metronet made a stage appearance together, the government is not supposed to be required, here – is that not the point of privatisation? Liberal Conservatism takes another blow.

Neat traffic congestion video

From the spectacular Streetsblog (who I used the last time I wrote about congestion, or the pricing thereof). Originally from the equally spectacular, being related, StreetFilms.org

The video is of an intersection in Jackson Heights, Queens (in New York), 6pm on a Saturday:

We put together the video because we wanted to show how visceral the problem is on a daily basis. The problem of traffic congestion has so many side effects that are difficult to communicate in words or still images. Also, most residents would cite noise as the main complaint, particularly horn honking.

I’m with them on the honking – they bloody love honking horns, here. They either are the world’s least patient, least understanding-of-the-physics-of-traffic-jams people in the world, or just plain love Jesus the most.

This is Queens, mind you – not (for those of you not familiar with the area) even on the island of Manhattan, where Mayor Bloomberg actually wants the congestion pricing. If you have a local variant of this, you should submit your own film to StreetFilms.org – they’re very interesting.

Streetsblog proper also has a very good post about Melbourne – I surely do miss Australia, at times (and I’m from Sydney! To be missing Melbourne is almost criminal).

Also, while I’m miles from economics: see the zombies?

Head over to read a great article about sharp commuters. I can’t blame them. Air in subway stations here is as bad as in any other comparable city. At least – Londoners – our trains have air-conditioning. You poor bastards.

London underground workers to strike; drivers to film everything.

Take that, Gertrude Stein: I love semi-colons!

I woke (late) this morning to discover a strange spike in activity on this blog (there are as yet relatively few readers, so). The spike consisted entirely of a pile of people reading this post about Metronet Rail vs. Transport for London in the Great GB1bn Cost Over-Run. With no explanation why. Nor was it linked from a source, to my knowledge. The searching appeared, in my blogstats, thus:

Very odd. It did remind me, however, that I had wanted to talk about a Tube-related story. As luck would have it, another came along a couple of days ago, also. That first: several days ago, now, a train on the Central Line of the Tube derailed. Two trains were stuck (it and the one behind) for a couple of hours (900 or so people), with 37 injured. So much for that. The story – at least in ‘headline’ form – placed the blame on “debris”. In fact,

The Rail Maritime and Transport Union, which represents drivers and station workers, said it warned London Underground in April about equipment left on the tracks by Metronet crews in the area of today’s derailment, according to an e-mailed statement.

Metronet maintains two-thirds of the London Underground, doing repairs at night when the railway is closed. The union opposed the private company taking over track maintenance.

…

It was the fourth incident of debris on the tracks in 18 months, and the city should fire Metronet “in the interests of public safety,” said Bob Crow, the union’s general secretary, in an e-mailed statement.

Metronet said “a bale of material became dislodged” from a storage area, and that it’s checking all storage sites on the nine London Underground lines it maintains.

Score! Take the Tube, you might smack right into stuff! This will surely not endear Metronet Rail to the referree, Chris Bolt, in their dispute with TfL.

Tube strike

So when I caught sight of news that Tube workers were calling for a strike over ‘safety concerns’, I figured this was it. Nope.

Tube staff to strike over safety

Tube workers have voted for a 24-hour strike on the Bakerloo line next week over fears for workers’ safety.

The Rail Maritime and Transport Union said it is in response to plans to make staff remove passengers from trains north of Queen’s Park station unaided.

The union insists two station staff and the driver should empty trains but managers say one member of station staff and the driver can do it safely.

The strike will begin at 2200 BST on Thursday 19 July.

No wonder the Rail, Maritime and Transport Union bills itself as England’s fastest-growing. It is also involved with strikes over pay on the Silverlink service, which runs up from London to the Midlands.

Back with the original derailment, though, little enough seems to have arisen, besides the Rail Accident Investigation Board having a look at it. According a statement on their website, there was “no evidence” that the driver, the condition of the train or the signalling system were at fault – not a good sign for Metronet, because that means everyone but them has a chair, now that the music has stopped.

The other response to this derailment that I found, I found to be the best – that of the Socialist Party. As well as the article’s headline (“Kick out the dangerous profiteers!”, they cried), they also noted that Balfour Beatty, a sub-contracting unit of Metronet, has this job – not Metronet themselves. Ah, sub-contracting.

On, then, to the story I’d wanted to discuss.

YouTube shows Tube driver journey

You read correctly. Tube drivers are filming their journeys! I think it’s great. Check YouTube for “train drivers view” (no punctuation required – this is web 2.0, after all). Here are a couple to save you the time.

I think it’s fascinating, but, then, I’m not a passenger (that’s for Harold Ross). Passengers don’t seem all that pleased. Safety-wise, I can see their point, up to a point of its own. What if the drivers are using tripods? Surely if police cars can be operated safely with a pre-set camera facing out the windshield, so too can trains? Sure, if my Tube train passed into the station with an operator driving with one hand and filming with the other I’d worry – but then most of the motorists I see here in New York do the same with mobile phones, without punishment. I still have to cross the road.

So enjoy the Tube films while they’re there. They’re still enjoyable to watch.

RailCorp: the buck stops at the mechanic.

Compare these two stories:

1) Hamilton caught cold by lack of chassis savvy

Lewis Hamilton demonstrated a style reminiscent of Michael Schumacher by calmly coming to terms with his disappointment at failing to win Sunday’s British grand prix at Silverstone, shrugging aside the fact that he could manage no better than third place at the chequered flag. There was no rancour or obvious frustration about his post-race reaction.

Instead, displaying his instinctive feel for the situation and considerable common sense, he blamed himself for any shortfall in his performance, taking a leaf out of the seven-times world champion’s book by making it clear that little or no responsibility could be attached to his team.

2) It’s a train wreck

The boss of Sydney’s rail network has condemned his own organisation’s ability to maintain trains properly – and says the workers who look after the fleet are partly to blame.

A week after another breakdown on the Harbour Bridge left the transport system in chaos, Vince Graham delivered a withering assessment of the state of the rail system. Frustrated by revelations it was a routine maintenance job that crippled the network, Mr Graham hit out at the lack of a proper “maintenance culture” that was undermining RailCorp.

One being identifiably a good sport (if in a dumb sport – or rather, game. I think one can gamble on motor-racing), while the other is being identifiably a dickhead. To be fair, I am disinclined to favourable views of RailCorp, but Vince Graham is a dick.

One need not be Harry Truman to understand that it is the job of superiors, progressively all the way to Graham himself, to ensure that adequate maintenance is undertaken. Contracts are won and promise are won at the executive level, after all. It is his responsibility to ensure his promises are kept. Trying to make scapegoats out of workers (and their managers and unions) at a time when they are no doubt under enough pressure and suffering low-enough morale already, is not the behaviour Sydney deserves or should accept from the man responsible for their mass transit:

The president of the Rail Tram and Bus Union, Nick Lewocki, said: “It is a disgraceful exhibition for him to be pointing the finger at the workforce when the real problem is his management style.

“Morale is at an all-time low. The relationship between front-line staff and management is the worst I have ever seen.”

Another couple of pieces of this story that stood out for me were, first:

From this week quality inspectors will audit the maintenance work undertaken by both RailCorp’s in-house teams as well as the private companies that manage heavy maintenance.

From this week? So while blaming his workers, the head of RailCorp has only now taken the initiative to ensure their maintenance work was, in fact, adequate? Secondly,

Mr Graham said the wide-ranging review would include recommendations about whether to privatise all of RailCorp’s maintenance. Private companies already do 70 per cent of the work.

Ah. Privatisation and sub-contracting. Something else we’ve seen on these pages previously. One wonders how many degrees of separation currently exist between the head office and the back work-rooms of RailCorps, and when that little aspect of governance will be addressed.

Another post about trains

This is yesterday’s news. I went out for a while and lost interest in posting about it, but the CityRail story started me up again. This is England, specifically the London Underground. Click for a full-size version.

Our map is far prettier. TfL’s is so messy.

The news is that Metronet Rail, owner/operator of the Underground, is trying to get back some costs. Metronet got the undergound in a Public-Private Partnership with Transport for London. This is part of Blair’s third way thinking. Essentially in a PPP the government entity is supposed to use public money for the capital, and a private entity deals with the operations (this is unlike the Private Finance Initiatives, where the capital money is private, and they work out a scheme with the government). This sort of thing began with Major’s government, but really took off under New Labour.

Anyone wanting to know my personal perspective on these, if you didn’t get it from the CityRail post, should read Monbiot’s book Captive State.

Back to the story. Compared to this, CityRail’s problems are reasonably minor. Metronet is trying to recover about GBP1bn. Of the 3 contracts to upgrade the London Underground, Metronet has 2, and has overspent nigh-on GBP1bn doing so. And it wants TfL to pay for some of it.

“During the first four years of the contract, the costs have been considerably higher than was anticipated by London Underground and Metronet at the time the contract was awarded,” said the company. The year-long review will be carried out by Chris Bolt, the rail industry regulator and PPP contract referee.

Metronet argues that TfL, a publicly owned body, should pay for a significant part of the overspend because it has been forced to carry out work not specified in the contracts.

Needless to say Mayor Ken Livingstone disagrees, blaming incompetent management at Metronet. They will probably go to a referee for the contract, who will review the matter and decide – a PPP Family Court, if you like.

The early indications are not good for Metronet. An initial report by Mr Bolt found that Metronet is responsible for much of the overspend because it has not met the benchmarks of performing in an “economic and efficient” manner.

It gets better:

The prospect of a bill for more than £1bn will increase the pressure on Metronet. Its main lenders have blocked access to a loan and its shareholders could walk away from the contract if the review orders the company to pay all of the extra costs. Metronet’s five shareholders are liable for their initial investment – £350m – and no more. This means that the company could be rendered insolvent if it is ordered to meet all of the overspend.

This probably won’t affect the decision by Chris Bolt, I shouldn’t think. Livingstone has said already this could bring down Metronet. In which case TfL would re-takeover, either spending London’s money or getting some neat loan from Prime Minister Gordon Brown. They might try to sign a new contract with a new operator, but this new contract would be far more unfavourable to London. Like most PFI contracts, it would probably screw Londoners over.

Again, Sydney-siders who’ve seen the mess the government made of the cross-city tunnel will understand this. Most Brits will as well – having seen it all over the country for the last decade, covering every PFI contract from hospitals to toll-ways.

The reasons why I think PFI and PPP approaches to infrastructure-heavy services are a bad idea are pretty standard. Low bids always win, costs are always underestimated, efficiency gains never materialise, ordinary taxpayers always end up footing a higher bill.

Commuters face higher fares

This is going to be a laugh! For those of you not from Sydney (or NSW), news that rail fares will increase is not going to be taken well. At all.

Sydney commuters are facing rail fare rises, following an application by RailCorp to the NSW pricing body for increases of up to $3 for a weekly ticket.

In its submission to the Independent Pricing and Regulatory Tribunal (IPART), RailCorp is seeking an increase of between 20 cents and $1 for a single ticket and between $2 and $3 for a weekly ticket.

There are 2 things going on here. One,

NSW Transport Minister John Watkins said RailCorp had a reasonable case for a fare rise with record investments including new and upgraded infrastructure and new trains to extend the network, increase capacity and improve passenger comfort.

“Currently, CityRail customers only pay a quarter of CityRail’s $2.1 billion annual operating costs,” Mr Watkins said.

Our rail system is privatised – kind of. CityRail is a part of RailCorp. CityRail is the metropolitan part of the state’s rail network.

Beautiful, isn’t it?

A relatively recent ministerial report was not all that laudatory:

According to an inquiry report, “The interaction of metropolitan, suburban, intercity and freight lines and services has resulted in an overly complex system.” This complexity has contributed in part to the organisation being widely criticised for poor reliability and safety. CityRail is also enormously expensive. RailCorp requires a government subsidy of close to $1.8 billion a year—approximately 5% of the state budget and more than three times what it collects in fares.

“There is an overwhelming sense,” the report concluded, “that CityRail does not promote a real commitment to quality, customer focus and a service culture.”

Those are the 2 key points: (i) our state government subsidises the private system like mad, (ii) commuters, travellers and newspaper readers will never be convinced that CityRail is more than a jobs-for-the-boys clusterfuck of privatisation and government corruption. So the argument that a lot has been spent on infrastructure (which actually has just meant trackwork and mass inconvenience since I was an undegraduate (1997-2000), so we don’t have a great perspective on the matter), and needs to be compensated won’t work. Why? It’s a bloody train network. It’s expensive to own and operate, which is why the government had it in the first place. We don’t appreciate privatisation for exactly this reason (more on that in a later post, possibly).

The second argument is ‘fairness’ and equity. Mr Watkins:

“The vast majority of CityRail’s operating expenses are funded by all taxpayers, who don’t necessarily access the service.

“With the rest of the community paying around 70 per cent of costs, and that share is increasing, there’s a strong case for commuters to pay a slightly higher percentage of the services they rely on.”

Not to be Socratic about it (because look at what they did to him), but is the Transport Minister suggesting a user-pays approach to Fire, Ambulance, etc. services? We find it hard to believe the government who gave us the execrable cross-city tunnel is going to start lecturing us on who should pay for a transit service.

Moreover Sydney is, geographical, enormous, and highly suburbanised. If the Transport Minister wants everyone to hit the Motorways in disgust at the train service, he’s going the right way about it (those are privately-run, also). And that really will be a nightmare.

The economics of this are reasonably straight-forward. The costs, fixed and variable, of owning and operating a train network this extensive are very high (which RailCorp knew going in, and which the state government knew going in, which is why the idea that consumers and residents are the ones making the mistake now is so insulting).

Again, from my current undergraduate economics textbook:

The Natural Monopoly: high costs of production, with market power. In an unregulated market the firm would charge the price P_M, supplying only Q_M, which would maximise profit. The Allocatively Efficient price (the amount of quantity and price optimal for society as a whole) would be P_E with the greater quantity Q_E. In this case a lower ticket price, and more people taking the train, but less profit for RailCorp. So much less that they lose money (the intersection of Marginal Cost MC and Average Revenue – the demand curve – is below Average Total Cost, meaning RailCorp loses money. This is what I mean by very large fixed/infrastructure costs).

The Productively Efficieny price and quantity, meanwhile, is the intersection of Marginal Cost and Averate Total Cost – technical efficiency, or minimum cost production, exists outside the demand curve. In the case of CityRail I think the optima are farther out, but the principle still applies. The regulated price and quantity P_R, Q_R give the producer a little bit of profit – keeping them in the market – while getting quantity as high as it can, benefitting consumers (or in this case, commuters)

Today’s announced price increases with take P_R a little higher, and Q_R are a little to the left (or a lot – it depends on the slope of the dark blue line for rail travellers in Sydney). The argument we’re given is that the dark orange ATC curve has moved up, because of all the investment paid in by RailCorp. Economically this makes sense. The missing piece of the puzzle is that the market for CityRail doesn’t actually look like this. P_R is still loss-making to the tune of nearly AUD2bn per year. Essentially for CityRail the ATC curve is higher than the AR/demand curve at nearly every point. Meaning they will never make a profit, because to do so would mean charging higher prices than any of us will pay, and we won’t ever take the train.

Which is exactly why the Transport Minister is wrong. Taxpayers will always subsidise train travel by CityRail customers. Moreover, the marginal impact of that subsidisation per state taxpayer is insignificant, far less than the marginal impact of lumping the price hike on commuters, who are much smaller in number.

Which is also exactly why train networks like this don’t work when privatised. If the Average Revenue lies below the Average Cost, there isn’t a profit to be made – unless you can bid low and take the state government itself for the ride. Which is pretty much what is happening. People will and do say private equals more efficient. With different operators of different networks, profit-making at every level of improvement in infrastructure, and the need for independent regulation and oversight? I disagree. And I reckon every one taking a CityRail train today will agree with me.