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Financing Regional Rail Passenger
Services in Europe
Traditional and new solutions for ensuring sustainable development of regional rail passenger services
Kurt Bauer
Senior Consultant
RailisticsBucharest, 18 October 2006
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Table of contents
Traditional financing of regional passenger trainsSeparation of responsibilities for financing, ordering and operation of regional rail passenger services
Options for design of the institutions on the 3 levels – Financing level - ordering level – performing level
Financing of the regional transport offerFinancing of railway infrastructure
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Traditional financing of regional passenger trains (1)
With few exceptions, regional trains cannot be operated profitably since the 1960‘s for several well known reasons.
In order to maintain an offer of regional trains as service to the citizens and to limit road congestion, the governments accepted to cover the deficits of their national railway companies.
Usually, the national railway company announced a certain deficit for a business year, and then political discussion on how to solve the problem always started again.
Finally, the deficit of the railway company was financed by the government, without looking for a suitable long-term solution. This was simple subsidisation, without a defined service provided against the money.
In fact, few efforts were made to organise regional trains more efficiently or to attract more customers. The only way to save money was seen in the closure of lines.
Deficits of railway companies are simply covered by the states
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Traditional financing of regional passenger trains (2)
This traditional way of financing is still practised in many European countries. Instead of covering the deficits, global amounts of money are now negotiated between regional governments and railway companies(countries marked in orangeon the map besides).
The inconveniencies of this system are obvious:
- no defined service is provided against the money of the state- it is not transparent what exactly is done with the money- timetables still determined by the railway companies - no coherent offer- public authorities cannot influence the quality of the services
No defined service is provided for all the money paid
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Separation of responsibilities for financing, ordering and operation of regional rail passenger services (1)
Clear distribution of tasks between the actors for more transparency
Transparency - In order to establish transparent financial flows and to ensure that the spent money is used in the best way, clear structures are required.
Public money – define offer - The basic assumption is that if railway companies need public money for regional trains, public authorities also have the right to determine the offer (timetable, connections, tariff, type of rolling stock). So instead of subsidising unprofitable activities, the public authorities would buy transport services for the citizens, like they also provide roads and other types of public services.
Regional level - But a second condition has to be fulfilled for optimal organisation of regional rail services: they have to be defined on the regional level to make the process more transparent and protect rail services of short-sighted interventions of the central government.
Secured funding - Of course, this can only work if the national government guarantees an annual budget for financing of regional rail passenger services.
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Separation of responsibilities for financing, ordering and operation of regional rail passenger services (2)
A generic model for organisation of regional passenger services can be identified, based on the solutions adopted in Germany, France, the Netherlands and some Nordic countries.
Legal framework on the National level
Regional transport organisation bodyPart of governmental institutions / public authority or independent structure
Regional transport organisation bodyPart of governmental institutions / public authority or independent structure
National governmentTransport Ministry - Ministry of Finance - Parliament
National governmentTransport Ministry - Ministry of Finance - Parliament
Development objectives Dedicated budgets Infrastructure needs
Train operating companies (railways)Transport Ministry - Ministry of Finance - Parliament
Train operating companies (railways)Transport Ministry - Ministry of Finance - Parliament
Prices per train-kmTimetables & connectionsQuality requirements
Financinglevel
Orderinglevel
Performinglevel
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Options for design of the institutions on the 3 levels –Financing level
General Framework
determination of the regional transport organisation bodies
determination of the legal framework
setting standards
Budget – variable and fixed amount
Railway infrastructure
Supervision of the ordering level
Only a general framework has to be laid down, and regional action be supervised.
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Tariff & timetable cooperation body
Regional transport organisation body
Consultative body
Director
Planning department
Marketingdepartment
Financial and juridical dept.
Options for design of the institutions on the 3 levels –Ordering level (1)
President
informing about its workand suggesting decisions
making strategic and financialdecisions; general supervision
Trade unions
Consumer associations
Passenger associations
Municipalities, mayors
Transportcompanies
Train operatingcompanies
requirementson train offer
transport development guidelines harmonisation of timetables & tariffs
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Options for design of the institutions on the 3 levels –Ordering level (2)
For fulfilment of the global political goal of providing attractive regional rail services, the tasks of the ordering level have to be well defined. There are minimum and optional tasks:
defining
train
frequencies
defining
connections
defining timetable
schemes
defining quality standards
financing services
concludingcontracts
defining rolling stock
defining tariffs
organising
marketing
defining
marketing
collec
ting
fares
distributing
revenuesfina
ncing
rolling
stock
minimum tasks
optional tasks optional tasks
minimum tasks
tasks
recommended
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Options for design of the institutions on the 3 levels –Performing level (1)
Dedicated department for regional trains
Distinction between fix costs and variable costs
Calculation of price per train-km
Difference between operational costs (determined by service level) and fare box revenues covered by price per train km invoiced by TOC
Exclusive use of the public money for regional train operations must be guaranteed
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Options for design of the institutions on the 3 levels –Performing level (2)
Regional train operations need public funding – but increased train frequencies permit effective use of money
cost
per
tra
in-k
m
train frequency
compensations
revenues
km-p
erfo
rman
ce o
f tr
ains
ets
train frequency
dead times
effective times
trai
n-km
train frequency
% of variable costs
% of fix costs
num
ber
of t
rain
sets
train frequency
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Financing of the regional transport offer: General principles
Train services: Ticket sales cover 30-45 % of the cost
Infrastructure (tracks, signals, level crossings): financed by infrastructure access (Upgrading and reconstruction co-financed by the state governments, and also by the regions if they have an own transport budget)
Passenger stations: Financed similar as the infrastructure. Small stations co-financed by local or regional bodies; public-private partnership models adopted if shops can be established in the station building
Rolling stock: Bought by the regions or financed by the companies themselves
Competition: In average 20% of costs can be saved due to tendering of services
Responsibilities for financing should be clearly distributed between regions and railways.
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Financing of train services: the German example
Transfer of responsibilities for organising and financing regional rail transport to the regions (Länder) by the Regionalisation Act of Dec. 27th, 1993. These were charged to transpose the contents into regional law.
The Regionalisation Act specifies a global amount of money the state annually distributes to the regions (ca. 6 Billion € from 1997 on). This money is taken from the petroleum tax. It is also said how much money each region gets.
The global amount of money evolutes according to the value added tax receipts. However, a verification of the amount and of the evolution rate was prescribed for the year 2001.
The money has to be spent “in particular for regional passenger trains”.
The regions have adopted their regionalisation laws between May 1995 and January 1996. Different structures have been developed to organise regional rail services.
In most regions, a central regional transport authority has been established; in some regions, several of them were created (between 2 and 8). These regional transport authorities have the task to organise regional rail passenger services and to order trains at the railways.
A law defines the amount of money each region gets year by year.
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Financing of railway infrastructure: General principles
Access Fees - EU legislation, e.g. directive 2001-14, do not leave any doubt that infrastructure access fees should provide the main resource for financing operation of the infrastructure, including regular maintenance.
National investment plan - Access fees can never be sufficient to pay modernisation and upgrading. A national infrastructure improvement programme is needed.
Under-investment in regional lines - National railway companies tend to under-invest in regional lines, despite of their legal obligation to do so. Then the regions are asked for contributions to modernisation, to keep the lines operable.
Transfer - Often the idea has been discussed to transfer regional railway lines to the responsibility of the regions (Regionlanetz and RegioNetz)
Regional infra-structure is not well managed by the national rail-way companies.
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Financing of railway infrastructure: lessons learned in Germany
Complete ownership by DB
Financed by access charges and government budget
Main focus on main lines and high speed lines
Non-federal railway lines (i.e. the so-called private railways) cannot be financed with state money
Risk of discrimination in case of service tenders
Responsibilities for infrastructure financing should be clearly distributed between the political actors.
Unequal financing conditions for the different categories of railway lines.
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Conclusion
3 Step Model has proven to be successful in all countries which have implemented the system
Institutional changes are required
Increased transparency
Better services / reduced costs
The devil is in the details (e.g. financing of private rail infrastructure)