European Railways –Their Finances andState Funding
Transcript of European Railways –Their Finances andState Funding
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How Markets WorkSM
Transport Economists GroupWednesday 15 December 2004
European Railways Their Finances andState Funding
Emily Bulman and John Dodgsonwww.nera.com/transport
http://www.nera.com/transporthttp://www.nera.com/transport
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Background
n NERA Study : report published by European Commission
http://europa.eu.int/comm/transport/rail/research/studies_en.ht m
or follow links from www.nera.com/transpor t
n Scope : main state railway undertakings and infrastructure managers in European Union of 2001 (as well as private sector railways in Great
Britain) Norway, Switzerland !candidate countries " (including all EU new members with railways)
n Outpu ts : Analysis of railway finances and state funding (2001) Database of activities and finances, 1995 to 2001 (subsequently updated
by Community of European Railways) Profiles of the railways in each country
Views exp ressed are our o wn
http://europa.eu.int/comm/transport/rail/research/studies_en.htmhttp://www.nera.com/transporthttp://www.nera.com/transporthttp://europa.eu.int/comm/transport/rail/research/studies_en.htm
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Background
And rev iew pub l ic budge t con t r ibu t ions m ade to ra i lways
Study intended to helpEuropean Commission monitor
railways # progress in reducing debtand improving finances
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Order of Presentation
n General Developments Policy context Institutional restructuring Operating performance
n Railway Finances Financial restructuring Financial performance
n State Funding Forms of funding Contributions
n Conclusions
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General Developments
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General Developments- Policy context
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Policy Context
Rail demand
fell sharply in1980s
Governments delayed
restructuring and didnot increase
subsidies sufficiently
Debilitatinglevels of
railway debt
Rail demand
fell sharply in1980s
Governments delayed
restructuring and didnot increase
subsidies sufficiently
Debilitatinglevels of
railway debt
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European Commission Policy- Improving Rail Competitiveness
n Vision : to revitalise the rail sector, and increase its market share
n Mechanism : make railways operate on a commercial basis, therebyimproving their competitiveness
Ins t i tu t io nal reform s :
n Separation of infrastructure and operations
n Separation of passenger and freight services
n Harmonisation of standards; removal of barriers to entry
n Liberalisation of freight services in 2007
n Liberalisation of international passenger services
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European Commission Policy- Financial Reforms
One-off a l leviat ion of debt
n Member States should reduce indebtedness of publicly owned railways to alevel that does not impede sound financial management ( Directive 91/440/EEC)
State aid
n Permitted on an ongoing basis, BUT its purpose must be well defined and fitcertain criteria; move towards payment through contract
Transp arent presenta t ion of accoun ts
n Separation of accounts for infrastructure, passenger services, freight services(2001/12/EC)
n Definition of track access charges (2001/14/EC)
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General Developments- Institutional restructuring
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Institutional Restructuring Two Stages
n Major restructuring post 91/440
n Creation of infrastructurecompanies
n Relief of debt burden
n Further piecemealrestructuring
n Second-round restructuringin reformed railways (GB,NL, SE)
n First-round restructuring inSpain; changes planned inGreece
1990 19921991 1993 20011994 1995 1998 1999 20001996 1997 2002/3
GermanyBritain(1994 - 97)
Netherlands
Sweden
Austria
Finland
(Norway)
Denmark
France
Portugal
(Switzerland) Britain Netherlands
Sweden
Spain
Stage 1 Stage 2
Italy
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Institutional Restructuring Different Models
GB, SESeparate companyDK, FI, GB, NL,SE, PT (+ NO)
Separate companies
IE, GRNo separation
DE, DK, NLInternational company(Railion)
AT, FRHybrid structure
FI, (+NO)Holding companyDE, ITHolding company
AT, BE, ES, FR,IT, LU, PT (+ CH)
Separate divisionsBE, ES, GR, IE,LU (+ CH)
Separate divisions
Passenger vs. freightInfrastructure vs. train operations
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Institutional Restructuring Other Changes
n Unbundling of ancillary activities Separation and/or sale of peripheral businesses Outsourcing of overhead/operational support activities Private financing (equipment leasing, DB&M) Transfer of equipment development to manufacturers
n Managerial independence
n Competition Regional / local passenger tendering
International / domestic freight open access Support services
n Increased role of regional authorities (specification + funding)
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General Developments- Operating performance
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Operating Performance T raffic and Revenues
Note: revenues and yields in real prices
Change: 1990-95 1995-2001EU15 GB EU15 GB
Passenger km 5% -12% 13% 33%Freight tonne km 3% -22% 11% 55%
Traffic units
Total traffic units 4% -15% 12% 40%Passenger receipts 12% -5% 27% 32%Freight receipts -24% -50% -12% 26%
Commercialtrafficrevenue Total -5% -17% 13% 31%
Passenger 6% 8% 13% -1%Freight -26% -36% -20% -19%
Yield revenue pertraffic unit Overall yield -9% -3% 1% -7%
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Operating Performance Costs (EU15)
Change: 1990-95Total railway staff -9% -20%
Cost per employee +1% +1%
Total operating costs +6% -1%
Unit opera ting cost
(cost per traffic unit)
-2% -11%
Viability ratio (revenue /
operating costs)
+1% +16%
1995-2001
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0
0.2
0.4
0.6
0.8
1
1995 1996 1997 1998 1999 2000 2001
Candidate Countries Operating Performance
Traffic (train km)
n Train km declined by 12% from1995 to 2001
n Contrasts with EU railways, where
train km increased by 9 per cent
Candidate Countries
EU
Employment per "000 Train km
n Employment per unit output fell by17 per cent from 1995 to 2001
n But the fall was less than for theEU15 (29%); and ratio is three timeshigher than that for the EU15
Candidate Countries
EU
60%
80%
100%
120%
1995 1996 1997 1998 1999 2000 2001
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Railway Finances
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Railway Finances- Financial restructuring
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Railway Finances Types of Restructuring
n Refinancing separate infrastructure and train operating companies DK, FI, NL, SE, NO: infrastructure funded directly by government; train services operated
commercially France: majority of debt transferred to newly established infrastructure manager Britain: all entities, including infrastructure, as commercial companies Portugal: as other countries, but CP debt above commercial levels
n Creating special entities to finance infrastructure Austria (SCHIG), Belgium (Financi $ re TGV), Spain (GIF)
n Relieving railway of historic debt Germany, Italy, Luxembourg, France, Switzerland
è All actions reduced debt initially, but debt increased again in some countries asgovernment under-funded capital requirements
Austria, Belgium, France, Germany, Britain
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Railway Finances- Financial performance
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Railway Finances Increased Asset Intensity
Caused by:
n Catch-up of past under-investment
n Growth in passenger traffic
n New high-speed lines
n Increased safety / environmentalregulations
n Asset revaluation
1.9
2.9
3.3
3.5
0
1
2
3
4
1980 1990 1995 2001
Asset Intensity EU15(total assets ÷ operating costs)
è Required additional capital funding of # 23billion for 1995-2001, compared to $ steadystate %
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Railway Finances Debt and Interest Levels
0 .0
1 .0
2 .0
3 .0
1 9 8 0 1 9 9 0 1 9 9 3 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1
D e
b t / e q u
i t y r a
t i o
0 %
5 %
1 0 %D
e b t s er vi c
e a s a % of
o p er a
t i n g
c o s t s
Debt service(right-hand scale)
Debt/equity ratio(left-hand scale)
1995
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Railway Finances Debt Levels
n DK, FI, NL, SE - low throughout period
n IT, LU low after restructuring
n
AT, BE, DE
debt restructured but risen againn Also CH and NO
n GR (1.8), IE (4.5) no restructuring, debt rising
n FR (4.8), PT (1.8), GB (1.8) debt restructured but risen again
n ES (2.4) stable (GIF not included)
Low debt(< 0.5 debt/equity)
Medium debt(0.5 & 1.0 debt/equity)
High debt(>1.0 debt/equity)
Comm ercia l ly sus ta inable debt = 1 .0
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Candidate Countries Financial Indicators
1995 2001 1995 2001
Asset intensity 3.0 2.2 3.3 3.5
Debt: equityratio
0.1 1.2 1.1 0.9
Debt service 1% 3% 5% 5%
Candidate Countries EU15
è Altho ugh the ra ilways in cand idate cou ntr ies are less indebted thanin the EU, thei r debt levels h ave been r is ing sharply
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State Funding
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State Funding- Forms of Funding
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Permitted State Aid
n Pu b li c se rv i ce ob l igat i ons : passenger services paid by contract
n Infras t ructure : maintenance, renewals, enhancements
n Specif ic operat ing co sts : to compete on a level playing field withcommercial organisations
n One-off a l levia t ion of h is to r ic d ebt : (under Directive 91/440)
n Restructur ing : exceptional payments to reduce excess capacity
NOT:
Compensation for losses, freight, rolling stock, ' .(without prior approval)
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State Funding- Funding Received
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State Funding vs Public Budget Contributions
We were asked to consider
Public Budget Contributions :all forms of payment from government
to railways, including paymentsunder contract
(not necessarily state aid)
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Public Budget ContributionsForms of Contribution
Form of Payment # millions %
PSO - passenger services 11,541 30%
Freight / combined transport 275 1%Infrastructure maintenance and operations 8,689 23%Payments for capital investment 9,657 25%Staff and pension obligations 2,690 7%Debt service 1,617 4%Restructuring 1,036 3%Other 2,783 7%TOTAL 38,288 100%
EU15 2001
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Public Budget Contributions Trends for EU Railways
0
10
20
30
40
1996 1997 1998 1999 2000 2001
B i l l i o n
E u r o s
( 2 0 0 1 p r i c e s
)
Passenger servicesInfrastructure (capital and ops)
All public budget contributions
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Public Budget Contributions Payments for PSO
0.0
2.5
5.0
7.5
10.0
12.5
15.0
GR PT SE NL FI ES FR CH IT GB BE DE AT NO IE DK LU
T w o
s c a
l e s : (
( p a s s e n g e r
t r a
i n k m
)
/ c e n
t s ( p a s s e n g
e r
k m
) per passenger km( ( cents)
per passenger train
km ( (
)
Note: 2001 figures
GB 2003/04
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Public Budget ContributionsTotal PBC per Traffic Unit
Note: 2001 figures
0
5
10
15
20
25
30
PT FI SE ES GB FR DE AT CH IT BE DK NL NO IE LU GR
E u r o
C e n
t s
Financial andmiscellaneous paymentsPayments for investment.
Payments for services andmaintenance
GB 2003/04
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Public Budget Contributions Credit Ratings
Note: BB+ and below is non-investment grade debt
1100-1300B+/B/B-
Connex, small
US railroad
500-900BB+/BB/BB-
First, Stagecoach, largeUS railroad
120-220BBB+/BBB/BBB-
Angel90-170A+/A/A-
SNCB, NSB, DB, NS60-120AA+/AA/AA-
SNCF0AAA
Example railway entitiesDifference inbasis points
( 300 M170 bps(1.7%)
( 160 M90 bps(0.9%)
Equivalent annualPBC for SNCF
Difference ininterest rate
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Public Budget Contributions Return on Equity
- 2.9% Actual return achieved(EU 15, 1995-2001)
c. 8.5%Combined
10.0 12.5 %Train Operations (GB/NL)
7.4 - 8.2 %Infrastructure (Railtrack)
Estimated marketrequired return on
equity
Effective publicbudget contribution
è Two effects) Under-recording of PBCs) Distortion of competition in train
operations
Compared to:n Commercial Return
n Government-funded
businesses(required = 6-8%)
n Government cost ofequity
8.5% = ( 11 billion
7% = ( 9 billion
4% = ( 5 billion
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Conclusions
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Conclusions
Real progress has been made:
n More EU railways now have sound finances
n Public support is more clearly specified and transparent
n Operating performance has improved: revenues increased, costs stable
But problems remain:
n Persistence of large operating losses for some railways
n Continued increase in capital investment, placing increasing demands onfinances
n Institutional / financial difficulties in reformed railways (GB, NL, SE) Member states need to develop capabilities to manage new structures
n Large hidden support for state railways (credit support, no return on equity)
n Industry fragmentation makes future monitoring of EU railways more difficult
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Thank you for yourattention
Report available at:http://europa.eu.int/comm/transport/rail/research/studies_en.ht m
or www.nera.com/transpor t
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