1. Session 1: Management of Costs and Financing 1 st International Workshop to Push Forward Your Trolleybus System Presentation Salzburg, Austria 20 April 2006 Member of Arnulf Schuchmann, Managing Partner

2. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 2 Content Management of Costs and Financing Content:  General overview of financing regimes/principles  Cost structures and mechanisms  Differences between Trolley and Diesel-bus  Cost modelling and simulation  Summary and conclusion

3. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 3 General overview of financing principles/regimes  Subsidies from General Tax Revenues most common form of financing public transport infrastructure Germany: part of tax imposed on gasoline and oil products (in 2002 about 4%, 1,7 billion €), financing of up to 65% of investments, complementary subsidies from local governments Japan: "Railway Development Fund" since 1972, financing of about 36% of construction cost for railway infrastructure; central and local governments also provide a subsidy by reimbursing interest payments above 5% p.a.  Subsidies from earmarked Taxes dedicated to investments into public transport infrastructure and to finance operating costs Norway: money from toll systems for investments France: "Versement Transport" as a special charge on salaries (between 1% and 2,2%); imposition and assignment is managed locally Financing principles/regimes for more details consult for example the special edition of Regionale Schienen 2006/I

4. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 4 General overview of financing principles/regimes  Value Capturing, absorption of enhancement in value financial contribution of beneficiaries of public transport (particularly by increase of property value) Hongkong: extension of metro line 4 prerequisites are difficult to establish: identification of real beneficiaries, calculation of real enhancement in value, legal and administrative framework  Government property tax revenues for companies Seoul: traffic tax on owners of commercial entities that generate excessive commuting traffic Kobe: developers of land in station areas have to bear part of rail construction costs and to allocate land for rail use Tokyo: property owners share the costs for walkways connecting stations to nearby buildings Financing principles/regimes for more details consult for example the special edition of Regionale Schienen 2006/I

5. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 5 General overview of financing principles/regimes  Involvement of private investors (PPP) London: reinvestment and operations of metro infrastructure for 30 years by private consortia Rostock: BOT-model for Warnow-tunnel appropriate risk-sharing is essential for successful PPP-models Financing principles/regimes for more details consult for example the special edition of Regionale Schienen 2006/I

6. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 6 Aim: To objectify the discussions on the most cost effective bus-mode  Comparison of cost structure and mechanisms of trolleybus versus diesel-bus systems  Based on experiences from project work and real figures typically mixed systems (trolley- and diesel-bus) data from Austria, Germany and Switzerland in-depth analysis of cost and performance in order to -identify cost saving potentials -initiate restructuring processes -elaborate business strategies -carry out due diligences for M&A-processes -certify public subsidies as legally allowed Cost structures and mechanisms Cost model was developed to evaluate economic effectiveness to indicate differences between bus-modes

7. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 7 Costs are structured along the value chain Vehicles/Buses capital cost (depreciation, interest) traction energy/diesel, lubricants maintenance & daily services Driver driver costs training, education service clothing Traffic Management operational management, planning, driving school,... depot management, disposition traffic control Overhead commercial processes human resources management processes... Customer Management marketing & sales ticket inspection information & safety Infrastructure stations power supply & catenaries buildings and depots Management of subcontracted Driving Services subcontractor cost superior management of traffic internal labour external labour Cost structures and mechanisms

8. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 8 While most of cost elements are equal, some differ substantially Cost structures and mechanisms 0 20 40 60 80 100 Diesel-busTrolleybus Overhead Infrastructure Customer Management Traffic Management Vehicles/Buses Drivers Total cost index = 100% 26% 32% 1% 7%  detailed analysis of different cost elements  evaluation of trade-offs capital cost traction energy/ diesel maintenance & daily services

9. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 9 Trolleybuses should be used intensively in order to gain economic advantages Cost structures and mechanisms Capital cost of vehicles 0 50 100 150 Diesel-busTrolleybus body, interior engine, technology Investment index = 100% Capital cost Trolleybus Diesel-bus (lifetime=14 years) "long lifetime" [1.000 €] lifetime [years] Trolleybus Diesel-bus "heavy mileage" [€/km] accumulated mileage [mill km]

10. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 10 Depending on lifetimes trade-offs within vehicle cost are positive for trolleybuses Cost structures and mechanisms Vehicle cost - comparison Vehicle cost index = 100% 0 50 100 Diesel-busTrolleybus capital cost maintenance & daily services traction energy, diesel annual mileage [km] [1.000 €] Capital and traction energy cost Trolleybus Diesel-bus "intensive use"  the more intensive the use of trolleybuses the cheaper they are  advantage in traction energy dominates above threshold of approx. 55.000 km p.a.

11. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 11 Trolleybus systems profit from strong development of diesel-price Cost structures and mechanisms Diesel-price development year  the higher the diesel-price the better economic situation for trolleybuses  decreasing of diesel-price can not be expected in future 0 20 40 60 80 100 19901991199219931994199519961997199819992000200120022003200420052006 [€/hl]

12. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 12 Infrastructure investment has to be justified by intensive use, also Cost structures and mechanisms substation  infrastructure = predominantly fixed costs  vehicle and infra- structure cost are strongly correlated with the utilisation of the system Initial investment 250 K€ p. km 430 K€ p.unit overhead contact wire system Total annual cost 17,0 K€ p. km 23,6 K€ p. unit Share of capital 78% 82% 0 50 100 110 Diesel-busTrolleybus vehicles infrastructure index = 100% Trolleybus infrastructure

13. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 13 For vehicle maintenance the situation is still not clear Cost structures and mechanisms  specialized work forces for trolley- buses needed  since less than 100% of maintenance work depend on utilisation, intensive use of buses is meaningful 0 50 100 110 Diesel-busTrolleybus maintenance of vehicles index = 100% ?  According to a new script of VDV (881) the trolleybus needs more maintenance attention than a diesel-bus  Looking at the robust traction technology of trolleybuses this may amaze someone  Real project data draws no clear picture between diesel- and trolleybus

14. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 14 Looking at the cost mechanisms the do's and don'ts are getting obvious Cost structures and mechanisms [Mill. €] 0 5 10 15 20 25 30 020406080100120140 variable cost fixed cost 5,10 5,20 5,30 5,40 5,50 5,60 5,70 5,80 7580859095100105110115120125  trolleybus with higher proportion of fixed costs than diesel-bus  hence, stronger effect on fixed cost if services are increased  in case of tight schedule and short headways, a trolley-bus can realise its advantages  particularly with regard to fuel prices the economic situation gets better for trolleybuses service provided [index=100] total cost [€/km] "intensive use"

15. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 15 Summary and conclusion  Trolleybus systems are not necessarily more expensive than diesel-bus systems  A high utilisation in terms of services provided is essential for competitive unit cost (€/km)  By this the high proportion of fixed costs due to capital costs of vehicles and infrastructure are distributed  Cost advantage of a trolleybus system appears in traction energy in particular  This will continue to be an advantage in future if diesel- prices are increasing further  From ecological point of view the trolleybus is the clear favourite  Additionally experiences show that trolleybus systems generate more revenues due to higher ridership ("railway-bonus")  Do not use diesel-buses driving under an existing overhead wire system (trolleybus infrastructure), because total costs of services will increase Summary and conclusion

16. Management of Costs and Financing Presentation Salzburg, Austria 20 April 2006 P:/.../Contribution_Intern_Trolleybus_Salzburg_20042006_ Trolleybus Working Group © S2R Consulting 2006 Page 16 S2R Consulting GmbH & Co. KG Weidestrasse 120b D – 22083 Hamburg fon +49 (0)40 288 076 60 fax +49 (0)40 288 076 65 S2R Consulting GmbH Dreikoenigstrasse 31a CH – 8002 Zurich fon +41 (0)44 208 32 10 fax +41 (0)44 208 35 00 If you have any questions or if you would like to receive further information, please do not hesitate to contact us. schuchmann@s2r-consulting.com www.s2r-consulting.com