October 8, 2013 Bucarest Railway days

1. Liberalisation of the railway markets. A challenge to finance systems October 8, 2013 Bucarest Railway days What we learned already, how we face tomorrow challenges: SNCF perspectives Pierre MESSULAM, Strategy Innovation and Research and Regulation Director, director of ETCS program

2. Why did we choose to liberalize railways markets? What could be criteria of success? • End of 80’S: rail companies are loosing market shares facing other transport modes competition • Productivity was stagnating • Public subsidies were growing inexorably to unsustainable levels • Rail Industry was unable to grasp long distance traffic due to both economical models of national comapnies and lack of technical interoperability • In eastern europe economical changes opened quick and agressive competition with road both for passengers and freight , with a lasting and devastating impact on traffic levels • Basically criteria were thought to be • Increase of Market Share of transportation both in domestic and european traffic • Improving cost reduction and productivity • Reducing public fundings • Monitoting incumbent market share as a proof of liberalization • Ways considered • Ending national monopolies through an opening of competition: that goal triggered debates about assets property, regulation, prices control, competition , infrastructure management • Privatisation in some countries as the way to get rid of a heavy financial burden, and of difficult social legacies

3. Which are the challenges we faced and we will still face in future? Asset management is crucial • Reducing costs, in a very difficult period for asset management: most of european railways were rebuild in the 50’s after the war. Infratsructure assets last betwen 40 to 80 years, and we are now facing a huge investment gap just to renew assets. • What makes matter worse is that we lived for years without paying attention to the wearing out of the infratrstucture assets, basically for web just couldn’t afford it, facing sharp competition and productivity gaps • Financing shift of standards to enhance interoperability, and hoping to achieve cost reduction through euroepan standardisation: • In the Railways undertaking , • retrofitting passenger rolling stock with TSI systems and IT systems • retroffitting wagons with braking systems • Information systems to overhaul linked to TAP ans TAF issues • System issues: ETCS migration, energy reduction?

4. LE VIEILLISSEMENT DU RÉSEAU SE POURSUIT TANDIS QUE LES RALENTISSEMENTS S’ACCENTUENT % de longueur de voies « hors d’âge » par groupe UIC % de longueur de voies « hors d’âge » par groupe UIC En 2010 près de 5 000 km de voies dites « hors d’âge » (c'est-à-dire les voies dont les constituants ont atteint ou dépassé leur potentiel technique) sur les groupes UIC 2 à 6 4

5. Let’s be market minded: no solution fits for all! • Rail undustry is operating in markets with different business model, and different market power: • Urban Mass transit, is basically and shall remain a subsidized market: OSP model and franchise; competition is for the market; issue is on capital costs and operation effectiveness Question : who carries the assets? Rosco, Transport authority or RU? Answer to the question is just crucial fo the competition mood (if any)…. • Long distance Passenger is like airlines in an open access market, facing airling, coach, car sharing competition: • Long Distance Freight is an open access market, with a huge impact of infratrsucture management and specifications; it faces huge competition coming from shipping, trucks, and its future relies in part on genuine cooperation with harbours • Short Distance Freight is a matter of intermodal combination, environnement policy,and at the end of the day of taxes….. • In any case question should be: is the market big enough lo let several operators take the risk of illiquid assets and does it provide margin big enough to cover capital costs,

6. We need also to boost business! • Boosting business should focuss on adressable and rewarding markets: • Tailoring our proposals to our customer needs: for technical systems, keep it simple and our customers means: low cost is a strategic issue for our future in passenger business. • Think intermodal; rail is not the single solution, we may gain more turnover working on connections with coaches, and with efficient intermodal freight yards. • Implementing IT innovation to be effectively challenging other modes; track and trace, billing , ticketing • Which are our value drivers, • Transport and logistics, and freight forwarding • Rel estate or commercial centers extra value created by rail traffic or rail proximity • How could get a slice of it? • Internet giants could also make significant in roads ans make us sub suppliers in the value chain.

7. How could Private partners could help? • Crucial issue is just the gap between assets life cycle (40 to 80 years) and reliability of trafic forcast over 5 yeras…. • Risk on trafic Is the issue: Privat Partners would never carry it, beccause they just cannot! • Tin Infrastructure hey need a form of guarantee, which in a competition market may comme only from the state itself! Either guarantte on debt and:or on revenues, and/or on prolongtion of term of concessions. • Private Rosco ay sound attractive, but let’s have a second look on them, and just try to figure out their business model?

8. Conclusion • Liberalisation is no magic which could save by itself the industry future, Liberailsation is just forcing us and our States to face difficult but vital issues: Competition forces us to trim costs, to change organisations, to face difficult social issues, to be more customer focussed Liberalisation forces States to behave more consistently on public funding, stable regulation, and transport policy: rail companies cannot any longer operate with losses just for the sake of political imperatives: somebody has to foot the bill! Have always in mind that private partners or competitors would enter only if profits are attractive enough to balance risks; or if they shear size enables to carry risks through economies of scale, which could path the way to transnational oligolopoly, and a profound change in state and rail industry relationship.

9. Thank you • Thank you for your attention • Please , any question? pierre.messulam@sncf.fr