Chapter 5: Governance

HSR will establish a new form of transportation in Ontario, distinct from any other mode of travel. It is essential for the Government to establish the right governance structure to ensure that HSR is delivered to meet the Province’s objectives. This section reviews international experience and sets out a recommended governance framework for HSR planning and operations in Ontario.

The function of governance is to ensure that an organization or partnership fulfils its overall purpose, achieves its intended outcomes and operates in an effective, efficient and ethical manner.1

Appropriate governance supported by relevant legislation will ensure that HSR is subject to proper oversight, is effectively and efficiently delivered, and meets the Province’s objectives.

Significant organizational capacity will be required to oversee the delivery of HSR. Due to their scale and complexity, international HSR projects are generally delivered and managed by public corporations with significant autonomy over business operations. As Ontario does not yet have governance and delivery systems in place for HSR, it is recommended that the Province create a new legislated entity to manage the implementation and operation of the service.

Aligning the mandates of provincial agencies, including this new HSR entity and Metrolinx, and ensuring that their roles and responsibilities are each clearly delineated will be critical, particularly with respect to the operation of services in the Kitchener corridor.

Current Passenger Rail Governance Systems in Ontario

Passenger rail services in Ontario are delivered by the publicly-owned corporations Metrolinx (provincial) and VIA Rail (federal). Reviewing the governance systems for each of these corporations provides context for considering potential models for HSR governance.

Metrolinx

Originally established in 2006 as the Greater Toronto Transportation Authority (GTTA) under the GTTA Act, Metrolinx is a Crown agency with authority now established through the Metrolinx Act.

The act defines the agency’s mandate and outlines responsibilities, reporting relationships and scope of operations. Metrolinx is overseen by a board appointed by order-in-council (OIC) by the Minister of Transportation and operates under the oversight of MTO.

A legislated mandate provides clear direction to both Metrolinx and MTO on their respective roles and responsibilities. This direction is further specified in a five-year Memorandum of Understanding (MOU) that governs the relationship.

The agency is responsible for providing leadership in the coordination, planning, financing and development of an integrated, multimodal transportation network in the GTHA. It also plays a lead role in the procurement of vehicles for local transit systems, equipment, technologies, facilities, and related supplies and services on behalf of Ontario municipalities.

While Metrolinx was originally established as a regional transit planning organization, in 2009 the province merged it with GO Transit. This provided Metrolinx with a significant transit operations role and brought provincially-operated bus and rail services under one umbrella.

Metrolinx currently oversees two rail services: GO Trains, which provide commuter services, and the UP Express, a dedicated rail link to Pearson Airport that also carries some commuters. Through the implementation of GO RER, Metrolinx is overseeing a significant expansion in its rail network with the eventual goal of offering frequent services along all of its rail corridors.

With the exception of a 14-kilometre stretch between Bramalea and Georgetown, Metrolinx owns the track between Toronto’s Union Station and Kitchener on the Kitchener corridor, and has the authority to charge track access fees and regulate the operations of rail services running on its tracks.

Key Features of the Metrolinx Model

As an integrated service provider, Metrolinx has the ability to align transit operations and provide an interconnected system. Through its operation of buses, trains, and its ownership of stations, railway, parking and ticketing services, Metrolinx provides commuters with an integrated solution that can cater to specific regional markets, and it can offer aligned service timetables, consistent service and predictable ticketing and fares. This system of operations is similar to European regional rail networks, especially those of France and Germany.

Metrolinx is provincially funded. Although rail services recoup a portion of their operational costs, all capital investments, rolling stock procurements and maintenance work is financed through annual and project-specific appropriations.

VIA Rail

VIA Rail was created in 1977 as a subsidiary of CN (then a Crown corporation) to provide intercity passenger service in Canada. VIA Rail’s shares were soon purchased by the Government of Canada, and it was established as a parent Crown corporation under the Financial Administration Act. VIA Rail is incorporated under the Canadian Business Corporations Act of 1985 with the Government of Canada as the sole shareholder. 

VIA Rail provides services across Canada, including through Ontario. Within the province it offers frequent intercity semi-express rail services from Toronto to Ottawa and beyond to Quebec, and limited semi-express service from Toronto to Southwestern Ontario. Close to 95% of VIA Rail’s passenger volume and 75% of its annual national revenues are based on the Quebec City-to-Windsor corridor.2

Key Features of VIA Rail Governance

VIA Rail does not have enabling legislation. The corporation’s governance, financing and mandate are determined by the federal cabinet and subject to change depending on government’s financial priorities.

Similar to other Crown corporations, VIA Rail is at arm’s-length to the federal government, with an independent board and Chief Executive Officer appointed by the Minister of Transport Canada. VIA Rail operates under a subsidy model. It receives an annual appropriation from the federal government and all net losses are covered through operating subsidies.

Unlike Metrolinx, VIA Rail does not have an MOU. Its operations are influenced by the Canada Transportation Act (CTA), which establishes the legislative framework for Canada’s transportation sector; however, the CTA does not make specific provisions for passenger rail operations.

VIA Rail’s strategic direction, which assumes a five-year timeframe, is detailed in its corporate plans, which are annually prepared and must be approved by Transport Canada.

Towards a Governance Model for HSR – International Experience

To inform recommendations for an appropriate approach to HSR governance in Ontario this study reviewed models used in Europe, the U.K., and Japan, which are each described in detail below. As a general observation, international experience provides three broad conclusions about the governance of HSR systems and similar large passenger rail operations:

  1. Dedicated governance: HSR systems around the world are primarily delivered and operated by dedicated, publicly-owned corporations. These are structured as arm’s-length bodies with clear legislative mandates and reporting relationships to their respective governments. The few privately-owned operations (e.g., HS1 in the U.K. and Japan Rail) operate under public oversight and regulation that sets clear requirements for service levels, fares, fees and maintenance.
  2. Separation of operations and infrastructure: In Europe and Japan, legislation requires a separation of railway infrastructure and operations. These functions are delivered by distinct entities with the objective of allowing open access to railway networks, fostering competition and ensuring that infrastructure is developed in a consistent manner. Indeed, this is the official policy of the European Union. The separation of railway operations and infrastructure in Ontario through regulation would require radical policy and legislative change in Ottawa that would force the freight railways to divest their infrastructure, with compensation. This is a very unlikely scenario and has never seriously been considered in Canada.
  3. Service delivery frameworks: In all cases HSR systems operate as distinct services separate from commuter or conventional intercity railway services. HSR is marketed separately, generally operates on dedicated infrastructure, and its fares may be set based on market demand. This is in contrast to commuter and conventional intercity services, which aim to maximize passenger volumes, have regulated fares, and serve a greater number of stops.

HSR would be a new intercity passenger rail service in Ontario. A single-purpose entity tasked with implementing and operating the project would be able to effectively manage the various stages of the project from preliminary design and engineering to financing and operations.

A service-delivery framework would help clarify the roles and responsibilities of all passenger rail operators on the corridor, help manage service levels, and ensure that all services are complementary. This model would, in effect, mirror the regulated systems observed in Europe.

Assessing International Experience

With a few exceptions HSR systems around the world are owned and operated by national governments and funded by the public sector:

Europe: Germany, France, Spain (Publicly-Owned Infrastructure and Operations)

The French, German and Spanish model of delivery and operations is based on highly-integrated, publicly-owned railway corporations that operate at arm’s-length but are publicly funded. These corporations also have oversight over all their countries’ railway services including regional and intercity passenger operations.

As a result of European Union (EU) competition directives, European railway companies are required to separate infrastructure ownership from operations to foster competition and ensure that all rail providers have fair access to the railway network.

In France, the Federal Ministry of Transportation established the Société Nationale des Chemins de Fer Français (SNCF) as the primary organization to deliver rail services. SNCF Group consists of three state-owned corporations, including SNCF Réseau (network) and SNCF Mobilités (passenger and freight operations).3

SNCF Réseau (formerly incorporated as the separate Réseau Ferré de France [RFF]) manages French rail infrastructure, including expansion of the network, infrastructure maintenance, allocation of capacity, and establishment of track access fees. Over half of SNCF Réseau’s revenue is derived from track access fees charged to SNCF Mobilités, which operates transit, commuter, regional, and HSR services and is fully funded by the French government.4

This dual structure has increased railway efficiency by fostering competition and simplifying management and reporting structures. Separating infrastructure from operations has ensured that all infrastructure works are undertaken consistently and based on clear standards and guidelines, maintenance schedules and procurement processes.

However, it has also led to challenges for government in ensuring a balance between the fees charged by SNCF Réseau to cover infrastructure maintenance and expansion costs and the fees paid by SNCF Mobilités to operate on the network. An increase in SNCF Réseau fees results in increases in SNCF Mobilités’ operating costs and therefore lower net revenues; this necessitates a greater government subsidy or higher fares and/or lower service levels on unprofitable routes.

The German and Spanish systems operate under similar governance structures. The German railway network is overseen by Deutsche Bahn (DB), a highly-integrated, publicly-owned corporation. DB operates a wide range of services from freight rail to HSR to regional rail and bus.5 The corporation’s integrated nature allows it to spread costs across a broad range of markets and business units, which reduces its operating risk.

Europe: United Kingdom (Publicly-Owned Infrastructure, Private Operations)

The United Kingdom has one of Europe’s oldest and largest intercity and commuter rail networks. Prior to 1993, the U.K.’s railways were owned, operated and controlled by a single public entity, British Rail. Policy reforms in 1993 and 2004 led to increasing privatization of railway operations; all intercity, regional, and passenger commuter services are currently operated as franchises by private companies.6

The U.K. has balanced private-sector ownership of rail operations with public-sector oversight and regulation over infrastructure, management, revenues and costs. Network Rail as a government agency owns and is responsible for maintaining and developing the railway network. The Department for Transport’s Office of Rail and Road provides oversight over the entire system, setting track access charges, fares, and customer service standards, granting licences to train operators, and monitoring the railway system.7

The U.K.’s current railway governance system has led to a significant expansion in rail use, greater service efficiencies and higher levels of competition. At the same time, government subsidies have been reduced while fares have significantly increased. This expansion has also placed a number of pressures on the rail network, necessitating greater public investment in building and upgrading railway infrastructure.

The scale and complexity of the U.K.’s commuter and HSR networks, which are governed separately, have meant greater government involvement in building HSR infrastructure, regulations and operations.

HS1 was the U.K.’s first experience with HSR. Initially envisioned as being delivered by a public-private consortium, the project’s development was challenged by escalating costs, which led to increased delivery risks and consequent concerns from private-sector partners about the project’s viability. To address these challenges, the government restructured the consortium and assumed a larger role in overseeing project delivery and funding.8

After completion, HS1 was operated by the government for ten years before its infrastructure and operations were tendered to a consortium of public-private interests. Currently, the Ontario Teachers’ Pension Plan (OTPP) and Borealis own HS1’s infrastructure and stations while SNCF, Caisse de dépôt et placement du Québec (CDPQ) and Hermes Infrastructure, a private equity fund, own the primary operator, Eurostar.9 It is interesting to note that Canadian pension funds became long-term investors in HSR once it established viability in a given market.

Figure 5.1 illustrates the U.K.’s HSR network. HS1 operates from London and connects to France via the Channel Tunnel. HS2 is a planned expansion to the HSR network that will provide connections to northern England and Scotland through Birmingham.

Figure 5.1: U.K. High Speed Rail Network

Map of U.K. High Speed Rail Network

Source: U.K. Department for Transport

The U.K.’s experience with HS1 has significantly influenced subsequent large rail infrastructure projects such as Crossrail and HS2. Overviews of their governance structures and key lessons are detailed in Tables 5.1 and 5.2.

Table 5.1: Case Study of Crossrail

Crossrail

Project Overview10

Crossrail is Europe’s largest infrastructure project, with a total cost of close to $30 billion. It covers 118 km of rail, including 42 km of tunnels, has 40 stations, and is being built by over 10,000 workers.

The project is aimed at increasing transit capacity, providing faster connections across London, supporting revitalization of neighbourhoods and balancing growth. Once complete, Crossrail will increase London’s transit capacity by 10% and bring an additional 1.5 million people to within 45 minutes of Central London.

95% of Crossrail procurement has been awarded to domestic firms, most of them small and medium-sized businesses.

Results

The first Crossrail trains will begin service in 2017 and the full network will be operational by 2019. The project is anticipated to be delivered on time and on budget.11

Governance Model

The U.K. National Audit Office has singled out Crossrail’s governance model as a template for other large infrastructure projects.12 Independent reviews of the project by KPMG and the U.K. government have also highlighted the critical role that governance has played in ensuring effective project delivery.13

Key elements of Crossrail’s governance:

  • Establishment of a new independent public corporation (Crossrail Limited) to oversee project delivery.
  • Clear agreements between all partners, including industry and public-sector sponsors (U.K. Department for Transport and Transport for London).
  • A checkpoint system which gradually allowed Crossrail Limited to assume an increasing level of decision-making authority.
  • Private-sector partnership to help finance station stops along the Crossrail network.

Key Lessons

  1. Develop a clear business case that fully accounts for total project costs.
  2. Create a new public or public-private corporation to oversee delivery.
  3. Involve project beneficiaries (e.g., airports, businesses close to stations, municipalities) in supporting financing and delivery.
  4. Ensure clear reporting relationships and mandates between the delivery agent and the government.
  5. Create milestones or checkpoints in transitioning authority from the government to the delivery agent.
  6. Dedicate a discrete function within the delivery agent to pursue the delivery of wider economic benefits.

Table 5.2: Case Study of HS2

High Speed Two Limited (HS2 Ltd.)

Project Overview

HS2 is a $93 billion CDN project to build a new HSR service from London to Manchester and Leeds via Birmingham. The project has three phases, with Phase 1 planned to open in 2026.14

Objectives for building HS2 include enabling economic growth by meeting existing and future rail demand, and improving connectivity between towns and cities. The U.K. Department for Transport is also seeking to increase investment and regeneration around station areas.15

HS2 Ltd. is the company established to develop, build, and maintain this new HSR line.

Results

Construction is set to begin in December 2016.

Results of HS2 Ltd.’s performance to date have been mixed:


  • In 2013, the U.K. National Audit Office reported on early HS2 project preparations, having reviewed its business case, program management, and estimated project costs; the report identified weaknesses in a number of areas. For example, it found that the HS2 business case lacked strategic context and did not adequately detail certain aspects, such as the scale of potential future capacity shortages on HS2’s rail lines.16
  • In June 2016, the National Audit Office reported that steps had been taken to address weaknesses identified in 2013 and found that timelines projecting Phase 1 to open by 2026 were at risk due to legislative and other delays. As a result, the Department for Transport has advised HS2 Ltd. to review its project schedule without increasing costs.17

Governance Model

Key elements of HS2’s governance:18

  • The establishment of a new independent public corporation, HS2 Ltd., as the project’s delivery agent.
  • HS2 Ltd. is wholly owned by the Department for Transport.
  • The Department for Transport and HS2 Ltd. entered into a development agreement, similar to an MOU, which acts as the principal mechanism for managing the governance and operational relationship between them.
  • The Department for Transport acts as the project’s funder and sponsor and HS2 Ltd. is the delivery agent, subject to periodic reviews, reporting annually to the department, and subject to progress reports from the National Audit Office.

Key Lessons

  1. Create a new public corporation to oversee project delivery.
  2. Ensure clear reporting relationships and mandates between the delivery agent and the funding sponsor through a mechanism such as a development agreement or MOU.
  3. Establish periodic reviews to measure the corporate body’s performance and efficiency. Appoint an independent government person or body to oversee these reviews, identify at-risk milestones and project weaknesses and track the governing body’s performance in addressing them.

Japan Rail (privately-owned operations and infrastructure)

Japan has the oldest and one of the most extensive and integrated HSR networks in the world. The popular system accounts for a mode share of over 80% for all intercity trips of between 320 kilometres and 600 kilometres in length.19 

Prior to 1987 the entire Japanese railway system was integrated under Japanese National Railways, a single, state-owned entity. Reforms in 1987 led to restructuring and privatization of the HSR network, which now comprises six single passenger railway entities roughly divided by region.20

The Japanese HSR network operates under a hybrid structure, whereby the government subsidizes services along low-volume and unprofitable routes but does not subsidize generally profitable lines on high-volume routes.

Railway reform also led to the creation of a dedicated entity, the Japan Railway Construction, Transport and Technology Agency (JRCTTA), to construct new HSR lines. JRCTTA owns the HSR infrastructure and leases it to the privatized HSR operators.21

Recommended Approach

Based on an assessment of the Toronto-Windsor corridor and best practices of large rail infrastructure projects around the world, it is evident that effective and timely delivery of such projects, especially HSR, is predicated on the presence of a clear governance structure.

HSR would be one of the largest infrastructure projects ever undertaken in Ontario. The Province would need to maintain an ongoing role in the project’s delivery due to its scale and complexity, and to ensure the Province’s objectives for HSR were achieved.

It is therefore recommended that the Province pursue the creation of a dedicated governance body.

Recommendation 25: HSR Governance

The Province should establish, at an early date, a new independent Crown corporation to oversee HSR (HSRCO).

  • The corporation would be a legislated entity with authority over the operations of HSR and all railway assets owned by the Province beyond Kitchener to Windsor.
  • HSRCO would be established in the near term as the EA process proceeds under MTO’s direction and would be in place prior to the start of HSR construction.
  • Its mandate would include:
    • Oversight of all aspects of the project from financing and delivery to operations.
    • Responsibility for ensuring value-for-money and wider benefits from HSR implementation and operations.
    • Coordination with VIA Rail and Metrolinx on service plans.
  • HSR operations from Toronto’s Union Station to Kitchener would be detailed in an MOU with Metrolinx.
  • A provincially-appointed board of directors would oversee the corporation.

HSRCO

For the purposes of this report, the proposed Crown corporation to oversee HSR will be called “High Speed Rail Corporation” (HSRCO).

The Province should carefully consider the U.K.’s Crossrail and HS2 as potential models for the new HSRCO. Both projects have similar opportunities and challenges to those facing the implementation of HSR in Ontario.

Time frames for the new HSRCO are subject to government decision-making on HSR; however, as noted in the recommendation above, the entity should be in place to oversee the project’s construction at an early stage in the project. MTO would continue to be responsible for the planning and analysis in support of the EA process before the establishment of HSRCO, and would lead robust consultation, studies and technical work.

A potential governance structure for HSRCO is illustrated in Figure 5.2 and described in the section below.

Figure 5.2: HSRCO Governance Structure

HSRCO Governance Structure

Legislated Entity

The new HSRCO would be created through legislation that would set the framework for the corporation’s mandate, responsibilities, reporting requirements and organizational structure.

HSRCO Organizational Structure

The relationship between HSRCO and MTO would be governed by an MOU that reflects the terms established in the legislation and details the responsibilities and requirements for reporting to the Minister of Transportation.

HSRCO would report to the Minister through a provincially-appointed board and would work closely with MTO on all matters related to HSR’s implementation and operations.

As mentioned earlier in the chapter, other jurisdictions often separate railway infrastructure and operations into distinct entities through legislation. HSRCO would not do this; however, there is value in managing the two in separate divisions within the same entity. This provides a clear mandate to the Infrastructure Division to have direct responsibility over construction, maintenance and capital financing of the assets while the Operations Division remains focused on running the service.

Additionally, Crossrail has had success with the implementation of a Wider Benefits division in their governance structure, which would also be an effective addition to the HSRCO structure. HSRCO would therefore comprise the following three primary divisions: 

Infrastructure Division

Once a preferred financing and delivery model for HSR is determined, HSRCO would oversee all construction and infrastructure assets, including the stations and right-of-way between Kitchener and Windsor. This division would act as the dedicated HSR asset manager. Responsibilities could include overseeing or administering construction and maintenance of track, signals, communications and electrification systems. Should the private sector be engaged to finance and deliver the entire system or components of the system, the Infrastructure Division could oversee the key functions of such a contract.

Operations Division

The Operations Division would manage aspects of operations, including customer-focused services such as marketing, and ticket services, as well as non-customer facing services such as operating the trains, safety, inspection, and rolling-stock (train) management. Should the private sector be engaged to operate any or all of these services, the Operations Division could be responsible for managing the concession and ensuring that key performance indicators are met, as set out in agreements between HSRCO and the private sector proponent.

Wider Benefits Division

The establishment of a dedicated “wider benefits” function was a key recommendation from the U.K. government’s evaluation of Crossrail. This division’s purpose would be to ensure that HSR implementation and operations generate economic benefits and have transformative impacts. This could include pursuing land and station development opportunities, working with communities on creating linkages to HSR stations, and acting as the main HSR liaison division for local and Indigenous communities.

Engagement and Partnership

A key factor behind Crossrail’s success was the strong financial support the U.K. government and Transport for London were able to elicit from the business community, which included securing financial contributions for future Crossrail stations and instituting a business levy to help pay for the infrastructure.

As detailed in Chapter 2, Connecting Communities, there is strong interest from stakeholders and partners along the Toronto-Windsor corridor for HSR. The Province should ensure that future work on the project, and ultimately HSRCO, continues to build on this engagement and cultivates partnerships with the business community as the project develops.

References

1 Office for Public Management Ltd. and The Chartered Institute of Public Finance and Accountancy (2004). The Good Governance Standard for Public Services. ISBN: 1 898531 86 2

4 Ibid.

6 Competition & Markets Authority (July 17, 2015). Competition in Passenger Rail Services in Great Britain.

7 Ibid.

8 National Audit Office (March 28, 2012). The Completion and Sale of High Speed 1. HC 1834 SESSION 2010–2012

9 Ontario Teachers’ Pension Plan (November 5, 2010). Borealis and Teachers’ agree to acquire HS1, UK’s only high-speed rail network; and Eurostar International Ltd. (2016). Behind the scenes.

10 Crossrail Ltd. (March 2016). Crossrail in Numbers.

12 Ibid.

13 Croft, Chris (August 2016). What have we learned from the governance arrangements for the UK’s Crossrail project? KPMG. “Foresight: A global infrastructure perspective, 44th edition.”.

15 Ibid.

16 National Audit Office (May 16, 2013). High Speed 2: A review of early programme preparation. HC 124 SESSION 2013‒14.

17 Ibid.

18  The Department for Transport in consultation with High Speed Two (HS2) Ltd. (December 2014). High Speed Two (HS2) Ltd. Framework Document.

20 Mizutani, Fumitoshi and Kiyoshi Nakamura (January 2004). The Japanese Experience with Railway Restructuring. NBER East Asia Seminar on Economics, Volume 12; and High Speed Rail. International High-Speed Rail System Summary: Japan.

21 Japan Railway Construction, Transport and Technology Agency. For the Future Transportation Networks.

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