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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)