Libor Lochman Deputy Executive Director, CER Prague, 12 March 2009

1. Interoperability of the Railway Infrastructure Architecture of stable finance support of European railway sector as an important precondition for success of the interoperability implementation Libor Lochman Deputy Executive Director, CER Prague, 12 March 2009

2. CER – function and work Maximising efficiency of EU railway policy Main areas of CER work • Members: 72 railway operators & infrastructure companies • Geographically: entire European area (incl. Switzerland, Norway, EU accession states and EU aspirants) • Partnerships with railways beyond Europe Representing European rail sector in EU Pro-active shaping of EU agenda Own initiatives

3. Representing the EU rail sector towards the EUCER – working structure MEMBERS: 72 rail operators and infrastructure companies • COMPANIES • Freight • Passenger • High-speed • Infrastructure • Integrated • National associations Other railway organisations e.g. EIM, UIC, UNIFE, CIT, OSJD, OTIF, AAR, RŽD etc. and ETF Other internat. organisations World Bank, EIB, UNECE, UNIDROIT Commissioner for Transport TRAN Committee Council of Transport Ministers European Railway Agency (ERA) * European Commission European Parliament Council of the EU EUROPEAN INSTITUTIONS * The ERA’s main task is to draft proposals for the Commission on railway interoperability and safety

4. Pro-active shaping of EU agenda Problems are now acknowledged by European Commission: > insufficient compensation of public services > cross subsidies between freight and passenger prevail > freight track access charges are too high, government network contributions too low, networks deteriorate EXAMPLE Dramatic fin-ancial situa-tion in Central and Eastern European countries Total capital of rail sector in CEEC:1995: 28 bln EURO 2006: 4 bln EURO Debt of CEEC rail sector: 1995: 2,7 bln EURO 2006:10,5 bln EURO Source: CER/NERA Financial Database

5. Huge financial deficit • In contravention of Directive 2001/14 many rail and infrastructure companies are underfinanced. • Public sector contributions has been insufficient: • infrastructure managers cannot meet maintenance and renewal cost • rail operators are not sufficiently compensated for public service obligations. • As a result, IMs attempt to cover their costs: • track access charges are generally high in CEEC • the quality of the rail infrastructure network and rolling stock continues to deteriorate rapidly • rail transport in Central and Eastern Europe becomes less competitive Where we are?

6. Pro-active shaping of EU agenda Problems are now acknowledged by European Commission: > insufficient compensation of public services > cross subsidies between freight and passenger prevail > freight track access charges are too high, government network contributions too low, networks deteriorate EXAMPLE Dramatic fin-ancial situa-tion in Central and Eastern European countries Total capital of rail sector in CEEC:1995: 28 bln EURO 2006: 4 bln EURO Debt of CEEC rail sector: 1995: 2,7 bln EURO 2006:10,5 bln EURO Source: CER/NERA Financial Database

7. Adequate financing of infrastructure Based on agreed multi-annual contracts (MACs), infrastructure must be properly financed to allow safe, quality services to customers. The obligation for Member States to finance infrastructure is stated in Article 6 of Directive 2001/14, where it reads: ”[…] the accounts of an infrastructure manager shall at least balance income from infrastructure charges, surpluses from other commercial activities, and State funding on the one hand, and infrastructure expenditures on the other.”. Background

8. Pro-active shaping of EU agenda Problems are now acknowledged by European Commission: > insufficient compensation of public services > cross subsidies between freight and passenger prevail > freight track access charges are too high, government network contributions too low, networks deteriorate EXAMPLE Dramatic fin-ancial situa-tion in Central and Eastern European countries Total capital of rail sector in CEEC:1995: 28 bln EURO 2006: 4 bln EURO Debt of CEEC rail sector: 1995: 2,7 bln EURO 2006:10,5 bln EURO Source: CER/NERA Financial Database

9. Pro-active shaping of EU agenda Problems are now acknowledged by European Commission: > insufficient compensation of public services > cross subsidies between freight and passenger prevail > freight track access charges are too high, government network contributions too low, networks deteriorate EXAMPLE Dramatic fin-ancial situa-tion in Central and Eastern European countries Total capital of rail sector in CEEC:1995: 28 bln EURO 2006: 4 bln EURO Debt of CEEC rail sector: 1995: 2,7 bln EURO 2006:10,5 bln EURO Source: CER/NERA Financial Database

10. Adequate financing of infrastructure Alarming facts Average running expenditures per km track length almost 60% higher in EU15 than in EU12; Average investment in existing rail infrastructure (rehabilitation) almost 80% higher in EU15 than in EU12 Average investments in new infrastructure is about 53 times larger in EU 15 than in EU 12

11. Adequate financing of infrastructure • Application of high access charges to compensate for insufficient public support • Absence of medium & long-term planning • Delay compensations • Downward spiral of decline • - the lack of reliability and the declining quality of services • - the lack of liquidity forces infrastructure companies to finance their needs • Access to capital markets for renewal or new rail infrastructure investments difficult Issues of concern Lack of resources for modern interoperable subsystems

12. Adequate financing of infrastructure • Maintenance governments must: • carefully determine budget priorities • agree with infrastructure managers on the • level and scope of maintenance activities. • Resources for maintenance have to be balanced with money for new projects, such as interoperable TEN-T corridors. Solution? ! Fiscal capacity and indebtedness necessary to finance large projects

13. Adequate compensation of public service obligations Public service obligations must be properly compensated, including a reasonable profit. The obligation for public authorities to compensate public service requirements is clearly stated in Article 6 of Regulation 1191/69 (still in force) and reiterated in Regulation 1370/2007. Background

14. Adequate compensation of public service obligations • Compensation through commercial revenues • Quality implications • Modal shift • Competitiveness • Low availability of rolling stock Issues of concern Unavailability of resources to afford interoperable vehicles

15. Adequate compensation of public service obligations Solution? Number of measures should apply: Transposition of Public service regulation Long term contracts PPP & EU co-financing Innovative financing (leasing)

16. Conclusions Whilst basic EU legislation exists, an adequate financing is still lacking !!! The financial burden appears to be increasing in many railway undertakings and infrastructure managers throughout the EU Completion of a sustainable financial architecture is therefore a matter of supreme importance to create a competitive and interoperable European rail system What to do?

17. Thank you for your attention! www.cer.be