Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

ARGENTINA: Privatisation of Trains Derailed

Marcela Valente

BUENOS AIRES, Jun 25 2004 (IPS) - The privatisation of Argentina’s railways was a slick business deal in the 1990s for the companies that began to run the train service with subsidies from the state.

But a decade later, the private management of the passenger and cargo railway services through concessions has turned out to be a fiasco for both passengers and the public sector, say experts.

The total network of railway lines shrank from 35,000 to 8,500 km, and the number of employees from 95,000 to 15,000.

Not even the state benefited from the privatisation. It now spends the same amount on subsidies to the private companies that it used to spend on maintaining the railway lines.

The government is now trying to find solutions for the worst problems by rescinding some contracts and issuing new public tenders.

The privatisation of the railways was recommended in the early 1990s by the World Bank, which granted the government of Carlos Menem (1989-1999) an 800 million dollar loan to cover severance pay for 80,000 public employees who lost their jobs.

The inter-urban lines that did not turn out to be profitable were dismantled, and a number of cities in the interior thus lost their rail connection to the capital, while railway links between provincial capitals, and with other countries, disappeared.

As a result, a number of villages became ghost towns, and regional economies sustained enormous damage.

A study by economists Daniel Azpiazu and Martín Schorr, at the Latin American Faculty of Social Sciences (FLACSO), says ”the privatisation of the railway system constitutes one of the biggest failures of the vast privatisation programme undertaken by Argentina in the 1990s.”

”The numerous breaches of contract since the private businesses began to operate the service merit the cancellation of the contracts with several concessionaires,” which should have been done even before the economic emergency broke out in 2002, say the authors in their book ‘Crónica de una sumisión anunciada’.

”Was the privatisation of the railways a failure? That depends on for whom,” engineer Elido Veschi, secretary general of the Association of Argentine Railway Managers, which provided the data on the negative results of the privatisation of the railways, responded to IPS.

In the early 1990s, amidst loud complaints that the railways ran on a deficit that forced the state to shell out 220 million dollars a year to maintain the 35,000-km network of rails, the Menem administration decided to turn the management of the railways over to the private sector, said Veschi.

The contracts involved 10-year concessions, and included government subsidies to the companies to make the deal more attractive, in exchange for payment of an annual concession fee and the maintenance of the rail system, which continues to be owned by the state.

”The public tender had two objectives: alleviate the deficit in the treasury and modernise the rail system. But neither was fulfilled, and now we have a much smaller, disintegrated system with trains that are 15 years older, and a huge transfer of funds from the state that is much bigger than the deficit,” said Veschi.

In the 1990s, Argentina was at the forefront of the privatisation policy promoted in the region by the World Bank. The state coffers took in nearly 23.85 billion dollars through the sale or concession of state assets in the 1990s, according to the Economy Ministry.

In the same period, the privatisation of public enterprises and services brought the Mexican state nearly 31.75 billion dollars and Brazil nearly 71.13 billion dollars, according to the World Bank Global Development Finance 2001 report.

Between 1990 and 1999, a total of 177.84 billion dollars flowed into Latin America and the Caribbean through the transfer of public enterprises and services to private hands.

By the time the Argentine peso crashed in January 2002, the cost of rail transport had risen nearly 200 percent since its privatisation, and the subsidies were costing the state 400 million dollars a year, said Veschi. ”The state covers .72 cents of each .75-cent passenger ticket,” he said.

The engineer also said the shrinking of the railway system had led to the closure of companies that were developing railway technology for the local market and for export, which left another 20,000 workers jobless.

Shortly after the privatisation, the state was forced to renegotiate the contracts, because the concessionaires wanted to raise ticket prices and fees, demanded that the state cover the necessary investments, were pushing for the elimination of the annual concession fee that they were charged, and refused to pay fines for breach of contract.

The successive renegotiations further strengthened the advantages enjoyed by the concessionaires. In some cases the annual usage fee was waived, the government subsidies were increased – to keep the companies from raising ticket prices – and the contracts were extended from 10 to 30 years.

Meanwhile, the trains continued their headlong rush towards deterioration.

In February 2003, the National Transportation Regulatory Commission, charged with overseeing the functioning of the railway system, presented a ”damning” report, according to its author, Rubén Yebra.

Although the report recognised that there were differences in the quality of services offered by the various companies, it stated that 70 percent of railway cars that were inspected had received write-ups, for problems with their brakes and coupling systems, for example.

Seven months later, the General Auditing Office presented another condemning report on flaws in the quality of the services offered. The study noted that the concessionaires were not making the necessary investments, owed the state annual usage fees and fines, and had increased transport prices even though they had pledged not to.

According to a March 2003 survey carried out by the Fundación Conurbano among passengers in the Roca railway line, which links various parts of the province of Buenos Aires with the capital, 61.5 percent of respondents described the service as ”bad” and 28.5 percent said it was ”mediocre”. Only 7.5 percent described it as ”good”.

In addition, just 0.4 percent of those surveyed said the railway cars were in good condition, and only 4.2 percent said the stations were clean.

However, there are lines that are in even worse condition than Roca, which is administered by the Metropolitano company.

By late 2003, a total of 389 passengers riding commuter trains in and around Buenos Aires had been killed in railroad accidents.

That did not include the number of commuters injured – many of whom lost limbs – while riding on the footboards of packed trains after waiting twice as long as they should have for their train, because the companies have failed to keep up the necessary frequencies or stick to the agreed-on schedules.

The Metropolitano company, which was criticised in the survey, also runs two other suburban passenger lines: San Martín and Belgrano Sur.

But the contract for the former was rescinded by the government on Wednesday due to ”grave breaches of contract” and lack of proper maintenance and repairs on the trains.

On Feb. 20, 2003, the courts had ordered the company to provide ”decent and efficient service”. Judge Angel Di Mateo also stated at the time that he had found the railway cars and stations in the Roca line ”in a calamitous state”, and the passengers travelling ”like cattle”.

The court ruling fined the company for every day that went by without solutions to the problems.

But the company neither improved the service nor paid the fines.

Sixteen months later, the government of Néstor Kirchner rescinded Metropolitano’s contract for the San Martín line. As of Thursday, it began to be administered by the rest of the companies that run suburban trains in Buenos Aires, until a new concessionaire is found.

The government has not ruled out the possibility of doing the same with the other two lines managed by Metropolitano.

And on Tuesday, it opened a bidding process for the Belgrano Cargas cargo line, operated since the 1990s by the Unión Ferroviaria trade union.

Although the Unión Ferroviaria was granted a 30-year concession, it reached an agreement with the government, and the private sector will bid on 79 percent of the shares while 20 percent will remain in the hands of the trade union and one percent will be held by the state.

The government thus hopes to restore that line, now in dreadful condition, which covers a route that is crucial to the transport of grains from different regions in the country’s interior and to neighbouring countries.

Belgrano Cargas covers a 6,762-km line that runs through 14 provinces, operates 120 locomotives and 3,500 railway cars, and employs 1,500 workers, whose jobs are guaranteed by the government. Last year, it transported nearly one million tons of merchandise.