ABSTRACT
Contrary to privatization theory, urban rail systems have relied largely on public funds, either in the form of grants and subsidies, or loans through state-owned or international (development) financial institutions. Furthermore, urban rail privatization is fraught with difficulties because railways and metro systems cannot generate the revenues from fares to cover the full costs of their infrastructure, train operations and investment, as well as provide a return on capital. This has necessitated substantial subsidies, partly also to limit (politically sensitive) fare increases, and to help finance capital expansion. As these subsidies will affect the structure of risks and incentives, privatization per se is unlikely to address issues of financing and efficiency.
