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Financing regional passenger services 20. Feb © Financing regional rail passenger services in Europe Traditional and new solutions for ensuring sustainable development of regional rail passenger services
Financing regional passenger services 20. Feb © 2 Table of contents Money can be spent more efficiently by transferring the responsibilities for regional passenger services to regional institutions; a better output can be obtained in terms of number of trains and quality of the services. But there is not any solution permitting to renounce on public funding of regional rail services. After years of struggle, this has been accepted by almost all EU member countries. Traditional financing of regional passenger trains Separation 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 offer Financing of railway infrastructure
Financing regional passenger services 20. Feb © 3 Traditional financing of regional passenger trains (1) With few exceptions, regional trains cannot be operated profitably since the 1960s. This is a fact we all have to recognise, but it does not speak against an improvement of regional rail services. The basic reason is the competition with individual motor car traffic, which makes many rail customers turn away if trains do not run often enough. But if trains are running frequently, they only will be well occupied in the morning and in the evening. However, trains and infrastructure cannot be paid by three or four trains a day. 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. The railway companies did not have to provide a defined service against the money. Deficits of railway companies are simply covered by the states
Financing regional passenger services 20. Feb © 4 Traditional financing of regional passenger trains (1) With few exceptions, regional trains cannot be operated profitably since the 1960s. This is a fact we all have to recognise, but it does not speak against an improvement of regional rail services. The basic reason is the competition with individual motor car traffic, which makes many rail customers turn away if trains do not run often enough. But if trains are running frequently, they only will be well occupied in the morning and in the evening. However, trains and infrastructure cannot be paid by three or four trains a day. 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. The railway companies did not have to provide a defined service against the money. Deficits of railway companies are simply covered by the states
Financing regional passenger services 20. Feb © 5 Traditional financing of regional passenger trains (2) In fact, not too much intelligence was spent for developing concepts how to organise regional trains more efficiently or how to attract more customers. The only way to save money was seen in the closure of lines. 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 orange on 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 are 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
Financing regional passenger services 20. Feb © 6 Separation of responsibilities for financing, ordering and operation of regional rail passenger services (1) Clear distribution of tasks between the actors for more 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. The basic assumption is that if the railway companies need public money for operation of regional trains, the public authorities also have the right to determine the offer (timetable, connections, tariff, type of rolling stock). So instead of subsidising unprofitable activities of the railway companies, the public authorities would buy transport services for the citizens, like they also provide roads and other types of public services. But a second condition has to be fulfilled to enable optimal organisation of regional rail services: the state as financing partner should not directly decide how to use the money. Instead of this, rail services have to be defined on the regional level to make the process more transparent and protect rail services of short-sighted interventions of the government. In conclusion, regional institutions for definition of the rail transport offer have to be created. These order the services from the railway companies and coordinate the offer. Of course, this can only work if the national government guarantees an annual budget for financing of regional rail passenger services.
Financing regional passenger services 20. Feb © 7 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 body Part of governmental institutions / public authority or independent structure Regional transport organisation body Part of governmental institutions / public authority or independent structure National government Transport Ministry - Ministry of Finance - Parliament National government Transport Ministry - Ministry of Finance - Parliament Development objectives Dedicated budgetsInfrastructure needs Customer groups (optional) Deputies in regional parliament / elected representatives Trade unions (optional) Train operating companies (railways) Transport Ministry - Ministry of Finance - Parliament Train operating companies (railways) Transport Ministry - Ministry of Finance - Parliament Prices per train-km Timetables & connectionsQuality requirements Financing level Ordering level Performing level
Financing regional passenger services 20. Feb © 8 Options for design of the institutions on the 3 levels – Financing level On the financing level, only the general framework for regional passenger rail services should be decided. This concerns the following aspects: determination of the regional transport organisation bodies – how they have to be composed and how they have to work determination of the legal framework for relationships between the ordering level and the performing level, in particular in regard of competition – will invitations for tenders have to be issued or not ? setting standards to be observed by the regions, in order to maintain a certain coherence of transports on the national level (e.g. basic tariffs to be based on same principles; connections between trains to be established) The budget affected to regional rail passenger services should consist of two parts; a global annual amount fixed by law and a variable amount which is function of available resources. Based on suggestions coming from the regions, it has to be decided which railway lines shall be upgraded and which measures for improvement of the railway infrastructure shall be taken. The work on the ordering level (regional level) has to be supervised. Only a general framework has to be laid down, and regional action be supervised.
Financing regional passenger services 20. Feb © 9 Tariff & timetable cooperation body Regional transport organisation body Consultative body Director Planning department Marketing department Financial and juridical dept. Options for design of the institutions on the 3 levels – Ordering level (1) President informing about its work and suggesting decisions making strategic and financial decisions; general supervision Trade unions Consumer associations Passenger associations Municipalities, mayors Transport companies Train operating companies requirements on train offer transport development guidelines harmonisation of timetables & tariffs
Financing regional passenger services 20. Feb © 10 Options for design of the institutions on the 3 levels – Ordering level (2) The design of this level depends very much on the existing governmental institutions in the country and the degree of centralisation. In a country where few competencies have been assigned to the regions, how ever they are called, it might not be necessary to create new institutions as regional transport organisation bodies (e.g. France). In a country where complex governmental structures exist on the regional level, it is not efficient to assign the task of transport organisation to existing institutions (e.g. Germany). New and small institutions shall be founded. The ordering level needs an office with a number of fix employees and a director who makes the daily decisions. The director would have to report to a dedicated committee or the regional parliament. Here the strategic decisions would be made, based on suggestions elaborated by the office. It is possible to appoint rail user representatives, trade union representa- tives or local politicians as advisors of the ordering level. To support coherent decisions in line with a long-term development strategy, a regional transport development plan should be adopted. This also enables coordination with national and local public transport.
Financing regional passenger services 20. Feb © 11 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 concluding contracts defining rolling stock defining tariffs organising marketing defining marketing collecting fares distributing revenues financing rolling stock minimum tasks optional tasks minimum tasks tasks recommended
Financing regional passenger services 20. Feb © 12 Options for design of the institutions on the 3 levels – Performing level (1) The train operating companies should create a dedicated department for regional trains, in order to avoid that public money is used for intercity or freight operations. Costs for train operation have to be carefully analysed. In particular, a proper distinction between fix costs and variable costs has to be aimed at. Together with more efficient service rosters, this would allow to obtain more train-km for the simple price of energy and infrastructure access fees. For each type of rolling stock, the railway company has to calculated a price per train-km, based on a given daily performance of the stock (km /day). For example, a loco-hauled train with double-deck stock would of course be 3 or 4 times more expensive than a rail car. The price would have to cover the difference between receipts of ticket selling and operational costs. On this basis, the ordering level would suggest service contracts. These would define the exact performances to be delivered by the train operating companies – which timetable, which connections to other trains and buses, which rolling stock – for each single railway line. If the number of passengers develops positively, the train operating company would make a profit, which is good to motivate the staff. Exclusive use of the public money for regional train operations must be guaranteed
Financing regional passenger services 20. Feb © 13 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 train-km train frequency compensations revenues km-performance of trainsets train frequency dead times effective times train-km train frequency % of variable costs % of fix costs number of trainsets train frequency
Financing regional passenger services 20. Feb © 14 Financing of the regional transport offer: General principles It can be observed that certain basic rules have been adopted by all countries who have introduced the three-level-model introduced before. Train services: Ticket sales cover % of the cost according to the country. The rest of the money is always coming from the state government who has a dedicated budget for this purpose. Certain taxes can be declared as sources of the funds, e.g. the petroleum tax. Infrastructure (tracks, signals, level crossings): Operation and maintenance financed by infrastructure access fees paid by all trains. Upgrading and reconstruction co-financed by the state governments, and also by the regions if they have an own transport budget (e.g. by transfer of a part of the state 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 in which it is used and leased to the train operating companies commissioned with the train services; or financed by the companies themselves with resources of train services. Then a certain quota of new or refurbished rolling stock has to be fixed in the operation contract. Responsibilities for financing should be clearly distributed between regions and railways.
Financing regional passenger services 20. Feb © 15 Financing of train services: the French example Transfer of responsibilities for organising and financing regional rail transport to the regions by the law on solidarity and urban renewal (SRU) of Dec. 13 th, 2000, valid from Jan 1 st, Details are described in an application decree. The amounts of financial compensations granted by the state and requirements on consistency of rail services have been communicated to the regions by the end of Within the two following months, the regions could make comments on it. The compensations from the state are composed of three purpose-specific budgets; one for operation (75 %), one for compensation of social tariffs (12 %) and one for renewal of rolling stock (13 %). Proportions may vary. The annual evolution of the amounts is calculated based on an index. Money is distributed to the regions during the first quarter of each year. The regions are expected to negotiate operation contracts with the national railway company, SNCF. Up to the summer of 2002, all 20 regions had concluded such contracts. They have to run over 5 years as minimum. Operation contracts include the definition of aims in terms of number of travellers, receipts, performance and quality. Financial incentives like share of additional profits between region and SNCF or penalties in case of delays and perturbances have been applied in certain regions. Money is provided by the state but spent by the regions under own responsibility
Financing regional passenger services 20. Feb © 16 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. 27 th, 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 Milliards 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. However, a verification of the amount and of the evolution rate was prescribed for the year The money has to be spent in particular for regional passenger trains. The regions have adopted their regionalisation laws between May 1995 and January 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.
Financing regional passenger services 20. Feb © 17 Financing of train services: experiences It is important to limit the use of the compensations to rail passenger services by declaring them as purpose-specific. Otherwise, regions tend to use it for bus services, which they previously subsidised with own funds, or they spend the money in park & ride spaces or use it to compensate social tariffs imposed by the region. By making financing of regional train services transparent and by giving the region the status of customers of the railway companies (ordering level!), the subsidisation of rail transport officially ends: Instead of paying the losses of a deficient organisation which is not customer-oriented, the regions buy services with defined quality criteria. A solid institutional framework for financing regional train services motivates the train operating companies to do investments in rolling stock. In all countries having established a three-level-model for financing regional train services, it was possible to obtain a higher number of train-km for the same money previously spent for covering the railways deficits. By this success, politicians were encouraged to spend more money in regional rail transport as they saw that the money was more efficiently used than before, and that expenses were justified by the passengers demand. Competition, as introduced in most countries, is not a condition for successful regional rail services. More important are responsible politicians. Regions should assume the customers role in front of the rail- way companies.
Financing regional passenger services 20. Feb © 18 Financing of railway infrastructure: General principles EU legislation, e.g. directive , do not leave any doubt that infrastructure access fees should provide the main resource for financing operation of the infrastructure, including regular maintenance. However, if the railway infrastructure is in such a poor condition as in Poland, the access fees can never be sufficient to pay modernisation and upgrading. A national infrastructure improvement programme is needed. National railway companies tend to renounce on maintaining regional lines correctly, despite of their legal obligation to do so. Then the regions are asked for contributions to modernisation, to keep the lines operable. So the regions should carefully observe the railways practise and make an intervention at court before it gets too late. Often the idea has been discussed to transfer regional railway lines to the responsibility of the regions. But this never has been experienced on a larger level up to now, as it finally does not have a direct impact on cost. In countries where non-state owned railways exist, we have seen that they are able to operate infrastructure at lower costs by adapting technical standards to the real needs, whereas national railway companies tend to apply main line standards and the corresponding type of equipment. It can also be observed that smaller railways are more efficient in project management and save money in large reconstruction projects. Regional infra- structure is not well managed by the national rail- way companies.
Financing regional passenger services 20. Feb © 19 Financing of railway infrastructure: the French example France has created a state authority for financing and developing the railway infrastructure (RFF - Réseau Ferrée de France ). Thus, strategic decisions related to the infrastructure are not made by the national railway company any more, but cannot be made by RFF alone either. In France, the infrastructure access fees are far from covering the operation and maintenance costs – despite of a recent increase. Regional trains outside the Paris area only pay a symbolic access fee. Two thirds of the annual budget of the infrastructure manager RFF are spent in maintenance (1,7 Milliards of ) and one third is spent in modernisation (750 Mio. ). Railway investments on the regional level are the object of framework agreements between the national and the regional governments. These so- called contrats de plan also include other types of infrastructure investment and run for periods of 7 years. Short-term investment decisions are almost impossible unless a new agreement is about to be concluded. If a project has been included in the framework agreement, it is financed by the state, sometimes with regional contributions (which also come from compensations paid by the state). However, it is not guaranteed that the planned budgets will always be available on the time scale planned by the framework agreement. Investment decisions are made locally, but the state provides the budgets.
Financing regional passenger services 20. Feb © 20 Financing of railway infrastructure: the German example In Germany, financing and developing the national railway infrastructure is still a task of the national railway company, although this does not have the money to pay construction of new lines or upgrading of existing lines. Only the national railway company can suggest which projects to include in the Federal Transport Network Plan. Based on this plan, the railway projects become the object of a Federal Railway Development Act which is adopted by the parliament some time after completion of the plan. However, the budgets annually required for realisation of the defined projects are subject to government decisions. A coherent realisation of complex projects is not ensured, as the decisions refer to global budgets and not to individual projects. The Federal Transport Network Plan is focussed on main lines, agglomera- tion transport and new high speed lines. Due to the German federalism, which is not automatically efficient, the regions may decide on similar plans for regional railway lines. But here, the funding is even less secure. Local projects, in particular concerning smaller stations, can be financed via the Local Authority Traffic Financing Act, which is not railway-specific. Non-federal railway lines (i.e. the so-called private railways) cannot be financed with state money. The railway reform forgot this issue. Unequal financing conditions for the different categories of railway lines.
Financing regional passenger services 20. Feb © 21 Financing of railway infrastructure: Experiences It is a problem that new railway lines, paid with public money, get automatically in possession of German Rail, the national railway company which might be partially privatised according to the current political aims. As operator, German rail is automatically chosen without any call for tenders. If the national railway company drives the infrastructure development policies, those regions which foster competition in regional rail passenger services risk to be punished by not getting main lines and important stations modernised. Infrastructure development plans tend to become element of the governments PR instruments, which means that expenses are calculated based on very optimistic tax revenue estimations. In consequence, it is arbitrarily decided which projects are finally realised and which arent. Responsibilities for infrastructure financing should be clearly distributed between the political actors: if either state, railway company, region or municipality can finance an investment (e.g. a station improvement), it is almost impossible to get to a decision and no progress is being made. Money dedicated to regional projects should not be used to finance regional links to high speed lines or stations at high speed lines, because the money would be missing then for regional railway lines. Objectives must be realistic, and railway companies should be exclu- ded from strategic investment decisions
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