1. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin Hans-Werner Franz 1

2. VBB Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin VBB.de EMTA General Meeting September 17th, 2012 Hans-Werner Franz CEO VBB GmbH President of EMTA The problem of vehicle procurement, funding and the task of organising competition

3. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 3 Competition goals ► More passengers Increases in passenger numbers by means of incentive systems ► More qualityNew or modernised trains on all networks ► More servicesIncrease in train-km possible for the same price ► Same or Cost reduction potentials reduced lie between 10% and 50 % financial requirement

4. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 4 Competition intensity in rail traffic 2012 EU-wide High Medium Low or not present  Freely accessible regional rail passenger transport (SPNV) market in Germany  Germany: high SPNV competition intensity  Consistently good competition experiences  Currently 30 SPNV companies active  Long-distance rail traffic: hardly any competition

5. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 5 Intensity of competition in rail traffic 2000-2012 by Federal State  Differing intensity of competition  Generally high dynamics  Expiry of "large-scale DB transport contracts"   Strong increase in number of contracts  70 out of a total of 640 million train-km tendered annually Currently, however, stagnating dynamics, causes:  too many procedures simultaneously  too few bidders  too few new or foreign bidders  lack of small and medium-sized companies  Challenge for ordering authorities High Medium Low

6. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 6 SPNV competition in Berlin and Brandenburg 2012 (not inc. S-Bahn) SPNV operators in Germany SPNV operators in the VBB More than 91 percent awarded in competition!

7. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 7 Organisation of competition in Berlin and Brandenburg  VBB awards services on behalf of the Federal States of Berlin and Brandenburg, in part with other ordering authorities ► High synergy effects thanks to size  Public tenders are the rule ► Most legally secure and fastest path to the objective  VO1370 applied since 3rd December 2009 ► Securing social standards for employees  In the future, a rolling award system is intended   one procedure per year ► Foresighted management ► Planning security

8. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 8 Regional traffic: good marks from customers in 2011 ! ! Marked improvement in the last ten years! No incentive for SPNV operators to improve their services in the absence of competition! Customer satisfaction in regional traffic (companies) Companies20102011 DB Regio AG, Contract12.062.00 DB Regio AG, Contract32.022.01 ODEG, Contract1 + 21.461.53 ODEG, Contract1 31.431.37 OLA (MR)1.421.38 PEG1.671.52 NEB, Contract1 11.421.32 NEB, Contract1 21.631.58 Total1.951.91 Basis: 3,836 regular users, weighted rating marks 1 – 6 (1 = very satisfied) Customer satisfaction in regional traffic (trains) Quality criterion20102011 Punctuality2.542.59 Cleanliness2.021.95 Furnishings1.62 Freedom from damages1.831.80 Safety from criminality1.801.81 Seating capacity2.132.04 Info in general1.651.60 Info on delays2.492.43 Friendliness/Expertise of train staff1.731.71 Options for purchasing tickets1.821.71 Total1.951.91 Basis: 3,836 regular users, weighted rating marks 1 – 6 (1 = very satisfied)

9. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin RU4 RU3 RU2 9 Recognisable trends since 2008  Permanently declining number bidders in tender procedures  Progressive bidder consolidation  Increasing risk due to DB monopoly on: network, stations and energy (infrastructure)  Increase in volume of services with ever larger size of networks  Problems with funding resources (vehicles, workshop) RU1RU2RU1 vs. + =

10. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 10 The problem area of international traffic – for example Poland Problems Different power systems Different control command Vehicle registration SPNV underfunded in Poland Although international traffic is a special challenge, it has considerable potential Wrocław Zielona Góra Poznań Szczecin Gorzów Wlkp.

11. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 11 The problem area of used vehicles  No existing market in Germany, one single provider  Diesel trains only.  Too much variety in vehicle requirements (entry height, interior fittings) for each Federal State and ordering authority.  High conversion costs for vehicles and new registration problems  Transport contract periods not harmonised  High downtime costs  No guarantee of vehicle acceptance Photos: Alpha Trains

12. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 12 The problem area of vehicles and workshops in general Vehicles  Considerable lead times and investment sums (effects of financial crisis)  Larger vehicle fleets due to larger tender networks  No vehicle requirement standardisation  Duration and problems of registration  Lack of a used vehicle market  DB Energy monopoly Workshops  Dealing with existing workshops  Depreciation period  Increasing problem with locations  Filling facilities

13. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 13 Problem area of SPNV vehicles Manufacturers' concentration on vehicle technology Diesel: Electric: Foreign manufacturers: observing the market delivering in 2014 first diesel vehicles for Netinera  a new impetus Existing DB framework contracts with CAF, Stadler and Alstom Leasing market: only one provider Registration duration: 44 months EU-wide registration not possible Japan Polan d Spain

14. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 14  Gross distortion of the market caused by the dominating role of DB in nearly all tending procedures  Interest in vehicle financing slowly on the increase again  However: most banks possess no understanding of the SPNV market, therefore a conservative approach The problem area of vehicle financing – market situation in 2012 DB's advantages Top rating and top credit-worthiness (Federal enterprise) plenty of transport contracts, low residual-value risks direct access to financial markets, more favourable credit conditions Intra-corporate financing strategy

15. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 15 Problem area: non-federally owned operator vehicle funding Payment default on part of PTO (public transport authority) during current contract  Demand for payment default protection Definitive use of vehicles during transport contract duration not ensured  Demand for guarantee of vehicle use Reuse/continued use of vehicles upon expiry of contract uncertain/not foreseeable  Demand for fixed reuse guarantee Financial solvency of small PTOs not sufficiently high for large-scale sums  Demand for high securities No financing sum > 50 million EUR  Bank consortium Formal guarantee through PTO not affordable  High risk premiums by financiers  PTO offer markedly more expensive Other protection possibilities necessary  Surety from parent group  Of limited use only (foreign parent group) Lengthy and arduous coordination  Tender period not sufficient Demands Reactions

16. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 16 Ordering authority funding possibilities and aid Ordering authority (PTA) vehicle pool (PTA vehicle ownership) Guarantee of re-use (PTO vehicle ownership) Undisputed assignment (PTO vehicle ownership) Rhine-Ruhr PTA (VRR) model (PTA vehicle ownership) Vehicle provision model (Pool operator vehicle ownership) Residual-value guarantee (PTO ownership vehicle, as appropriate for 2nd TC with PTA) Development bank model (PTO vehicle ownership) Re-registration assurance (PTO vehicle ownership) Operate Lease (Lessor vehicle ownership) Financial Leasing (PTO vehicle ownership) Loan/Capital market financing (PTO vehicle ownership) Purchase specification assurance (Lessor vehicle ownership) classical models hitherto practiced Pool models Mixed forms, moderate aid Refinancing aid via regional/development banks (PTO vehicle ownership)

17. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 17 Practical example 1: The LNVG (regional transport company) vehicle pool LNVG vehicle pool PTO Transport contract Infra- structure Energy Subcontract Practical Tasks Servicing and maintenance contract Contract Vehicle manufacturer Vehicle delivery contract No representation of the contractual relationships between LNVG, OHE (East Hanover Railway) and PTO for maintenance of double-decker trains in Uelzen plant

18. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 18 Practical example 2: The VRR model VRR PTO Transport contract Infra- structure Energy Vehicle delivery contract Leasing contract Framework contact Contract Vehicle manufacturer Vehicle delivery contract Bank Loan contract at local authority loan conditions Technical advisors Controlling Joint body

19. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 19 Practical example 3: Purchase specification assurance for vehicles in replacement contracts PTO Transport contract Purchase specification form in replacement contracts Quotation in tender Acceptance of quotation Lessor Leasing contract

20. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 20 Practical example 4: Guarantee of re-use Why guarantee of re-use?  Minimising residual and re-use risks  Equal, uniform distribution of the vehicle financing costs over a period of two transport contracts feasible  Ensuring the vehicle financing Basic structure of re-use guarantee  Optional use by the PTO  Assumption of residual-value risk by PTA  Binding vehicle specifications for successive tendering of services Transport contract I t Transport contract II

21. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 21 Application of ordering authority contiguous vehicle financing in Germany  Ordering authority contiguous financing is becoming increasingly popular in Germany  In this regard, all the models discussed are in use  Up to now a clear East-West gradient recognisable  Excepting Bavaria: so far successful tenders even without financial aid Source: KCW Vehicles owned by ordering authority Provisioning by third-party Guarantees Access to old vehicles 30-year contract (S-Bahn)

22. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 22 Dealing with alternative financing models  Ensuring vehicle financing essential through the ongoing financial crisis  Responsiveness of the PTAs to maintain or increase the number of bidders  Taking account of the differing credit-worthiness of the PTOs  Restricting the aid to sensible cases of application  Selecting the financial aid according to procedure and framework conditions Vehicle pool or re-use guarantee / re-registration undertaking + debt servicing guarantee -Large investment volume (size of fleet markedly in excess of average subnetwork size) -Special vehicles (not usable everywhere in Germany, e.g. S-Bahn at 90 cm standard, direct current or dual-voltage vehicles, tilting technology) Re-use guarantee / Re-registration undertaking -Medium investment volume with universal standard vehicles -Medium-term periods No guarantees or assistance -Smaller specifications with used and/or standard vehicles -Medium to short-term periods

23. VBB.de Verkehrsverbund Berlin-Brandenburg GmbH Hardenbergplatz 2 10623 Berlin EMTA General Meeting Berlin 23 Thank you!