The study entitled "Rail Transport Regulation" says economic characteristicsof rail transport have implications for regulation.

Multi-product nature of activity like different types of freight andpassenger services creates problems of accounting, co-ordination ofdecisions and pose issues of integrated and differential management, anofficial press release said on Friday quoting the study.

It says structure and nature of rail costs have implications for costallocation and pricing policies. There are also difficult questions ofdetermining optimum size of railways, separation between infrastructure--characteristic of natural state monopoly and operations with scope ofmarket competition and access fee to the infrastructure.

Further, the study says indivisibility in creation of assets poses problemsof optimal price and service levels and of investment policies. Socialobligations lead to ticklish issues of finding price and service levelsbesides appreciation of Financial problems. Considerations of environmentfriendliness and safer mode have inter-modal and optimum price implications,it says.

Referring to the decline in inter-modal share of railways, a noticeabletrend the world over, the World Bank ascribed it to both exogenous andendogenous causes. The former comprises rapid development of alternativemodes of transport, especially road. The latter includes inability of thesector to adapt itself to the changing conditions of its environment. TheWorld Bank study says restructuring process in rail industry started in somecountries with replacement of Indian Railways with autonomous commercialbodies possessing independent and realistic balance sheets in which onlypublic service obligations could be explicitly subsidised by thegovernment.

Some other countries settled for multi-divisional structures defined bycompanies' different lines of business or service. Countries like NewZealand and Japan carried out the process of restructuring over severalyears whereas those like Britain and Argentina completed it quickly.

Generally, restructuring involved making companies attractive to privateinvestors and several arrangements for financing unprofitable train serviceswere put in place. Most of the restructuring experiences had positiveresults in checking industry's drain on state resources, raising of levelsof productivity and stabilisation of market shares of passengers andfreight, it says.

The process of privatisation depends on the basic objectives sought, saysthe study recognising that legacies from traditional mechanisms like highlevels of employment and debt must be avoided or settled before starting anyprivatisation policy.

The study also says there are two critical dimensions signifyingderegulation and restructuring, viz. Degree of separation betweeninfrastructure and services and the involvement of private management in thesector. In its extreme situation, vertical unbundling involving privateownership of facilities separated from operational functions would make railtransport akin to road transport in respect of infrastructure planning andtariff system.