A Study on the Importance of Introducing Railway Organizational Structural Reforms in Sri Lanka: A Passenger Transport Perspective

Abstract

William Coase, introducing his theorem on cost efficiency in 1975, had explained that allowing free trade would result in the optimum outcome under any specific economic condition. Privatisation was the best solution that was presented over the world to cut the financial inefficiency that was created by the monopolies of state owned entities out. Even at that, structural reforms are encouraged over outright privatisation. ‘Regulatory Reforms’ is an on-going process that optimizes the regulatory performance of an economy. Many potential problem areas would occur, if we were to consider the long-term trial and-error process of introducing railway structural reforms; such as, (1) whether the structural reforms that will undertake will be appropriate for an industry as technically complex as railways, (2) whether a system of negotiated contracts will lead to lower transaction costs than a system of administered commands, (3) whether the vertical separation of infrastructure and operations will ignore the likelihood of pursuing the concepts of an integrated economy; such as investment planning and land-use planning at the strategic level, maintenance planning at the tactical level, and planning to recover from possible infrastructure failures at the operational level, (4) whether there will be practical problems, when determining the costs of regulating the infrastructure management, (5) whether there will be diseconomies of scope form jointly operating freight and passenger services, (6) whether a split into three or four operators will be more efficient than separating operations market into less than three or more than four competitors, (7) whether the franchising bid will not be competitive, (8) whether franchising contracts would be difficult to specify, award, enforce, and renew, even if there were some sort of a competition that system of administered commands, (3) whether the vertical separation of infrastructure and operations will ignore the likelihood of pursuing the concepts of an integrated economy; such as investment planning and land-use planning at the strategic level, maintenance planning at the tactical level, and planning to recover from possible infrastructure failures at the operational level, (4) whether there will be practical problems, when determining the costs of regulating the infrastructure management, (5) whether there will be diseconomies of scope form jointly operating freight and passenger services, (6) whether a split into three or four operators will be more efficient than separating operations market into less than three or more than four competitors, (7) whether the franchising bid will not be competitive, (8) whether franchising contracts would be difficult to specify, award, enforce, and renew, even if there were some sort of a competition that