UNIFE investigations in the current economic crisis and its impact in the rail supply industry

1. UNIFE investigations in the current economic crisis and its impact in the rail supply industry Michael Clausecker UNIFE Director-General

2. Current downturn is exceptional Real GDP growth forecast Industrial production 2000-07 2008 2009 Decline Sep-Nov 08 vs. Jun-Aug 08(%) World 3,9% 3,4% 0,5% Adv. econ. 2,5% 1,0% -2,0% • -10 2,7% 1,1% -1,6% 2,2% -0,3% -2,6% • -15 2,2% 1,3% -2,5% 2,0% 0,8% -1,9% • -16 2,0% -0,6% -2,1% 3,6% 1,2% -1,7% • -20 2,7% 0,7% -2,8% Emerg. econ. 6,4% 6,3% 3,3% • -21 9,9% 9,0% 6,7% 7,1% 7,3% 5,1% • -25 7,0% 6,2% -0,7% Source: BCG, April 2009

3. Sharp volume decline in rail freight Example with selected rail freight operators • In January PKP Cargo delivered 37% less goods than last year • The current economic situation resolves competition between rail freight operators. Some small rail freight operators had to close down • 3 reasons account for volume decline in rail freight: - drastically declining volumes in market - a price decline combined with dumping prices of established competitors - termination of contract by an important partner. (Year-on-year volume development) Nov/Dec Dec Jan 2009 -10% -13% -15% -18% -19% -20% -22% -33% -37% -40% Source: BCG, 2009

4. Rail freight industry is in troubles • Hardly any new orders will be placed in 2009 by leasing companies for freight locomotives • New orders placed in 2009 for freight wagons are expected to be half of 2008 • Currently rail freight manufacturers are busy but customers are trying to postpone deliveries or even to cancel existing orders • Most options are not exercised • Some new projects are being discussed due to long lead times and despite strong demand slowdown • Newcomers in rail freight operation with small equity base are in danger of failure which may lead to a drawback in railway liberalisation

5. Passenger traffic also start to decline: CEECs more affected than Western Europe Central and Eastern Europe passenger development (passenger-km % growth compared to previous year) • Business travel more affected than leisure • However, city trips start to slowdown • Public transport traffic decreasing in some cities (e.g. London) Source: CER, April 2009

6. States have massively stepped in to cope with the crisis Source: BCG, 2009  Infrastructure will largely benefit from stimulus packages

7. USA, China and Western Europehave specific stimulus packages for rail industry USA Western Europe China Description • Stimulus package of $11Bn for rail: • ~30% for infrastructure over 5 years, mainly in VHS/ Mainline/Urban • ~50% of $11Bn for ROS, mainline starting in 2011, VHS starting in 2014 • ~20% for service, over next 3 years, dedicated to station upgrade and modernization • Overall ~€20Bn rail packages: • France: +€600M for RFF (infra), further spending in HST expected • Germany: +€11B • €2Bn for infra. expansion • €9Bn for network renovation • Italy: +€1,4B • €1Bn for regional services and new ROS • €0.4-0.5Bn for infrastructure • Spain: +€ 140M, mainly for maintenance/services • UK: +£1Bn to accelerate major transport projects in 2009 and an additional +£300M to buy 200DMUs • EU package: +€5Bn expected (€0,5Bn already decided) for • energy efficiency projects • implementation of ETCS/ERTMS • €85Bn anti-crisis package in China • Stimulus package to benefit mainly to local suppliers • Major segments concerned are mainline, urban and VHS Expected timeline • ~ 5 years • First investments to be carried out in in 2009-10 • Investment spread over 5-10 years • 50% already spent in 2008 • ~ 5 years • First investments to be carried out in Germany in 2009 Expected segment focus • ~$3-4Bn for infrastructures • ~$5-6Bn for ROS • ~$2Bn for service • €5-7Bn for infrastructures • €4-6Bn for ROS / rail control • €9-10Bn for Services and Maintenance • €25-30Bn for infrastructure • €55-60Bn for ROS

8. Some recovery plans are including a rail industry’s package… • Governmental plans to sustain activity and local employment generally include a package for rail industry but: • Attribution and final approvals of packages on-going, with an impact expected over the next 5-10 years • difficulty to perceive if stimulus packages will generate additional funds for rail infrastructure investments • or if they will just accelerate investment plans already in the pipeline • issue with governments "empty pockets", putting at risk overall market development perspectives in the long run • Increased implication of governments expected to come along with a slowdown of liberalization in the short-term

9. … however several uncertainties are subsisting • Several uncertainties subsist on the rail development perspectives • Effective implementation of the anti-crisis packages, e.g. development of high speed in the US • Further support from European Commission and member states (e.g. Germany, France) • Slippage vs. acceleration of modernization programs in Russia, depending on oil price development • Funding support in the rest of the world from local governments or international financing institutions (IMF, EBRD, World Bank...) • Differentiated impact by regions: • Confusing situation in Western Europe (investments likely to be affected in the short term, drop in demand in freight) • CEECs strongly hit in the short-term (project cancellation or delay, temporary closing down of existing freight lines in Poland)

10. PPP- type financing of infrastructure projects are at risk A complex equation: + reduced availability of loans to private investors and PPP projects + altered risk consideration of banks and investors =increased cost of loans + temporary slowing down of the transport demand growth = Higher costs for PPPs = Increased pressure on price and margins = Increased project selectivity = Dramatic effects in the short term if not supported by public budgets/ recovery programs = Temporary higher risk aversion as well as reduced bank funds and appetite for cross border financing

11. HSL Sud-Europe Atlantique: a PPP case through the economic crisis • PPP concession to build and maintain the 300 km Tours – Bordeaux high speed line, • Expected to reduce Paris – Bordeaux journeys to 2h by 2016 • One of four major railway projects identified by President Sarkozy as part of the French national economic stimulus package However: reduction in railway infrastructure expenditure in framework of French recovery plan announced in May  uncertainty on final structure of PPP Source: FIF, May 2009

12. UNIFE initiatives in response to the economic crisis (1/2) Monitoring and lobbying for rail investments • Early analysis of the credit crunch’s impact on the rail supply industry • Monitoring of EU and various national recovery programs regarding rail infrastructure investments • Raising European Commission’s awareness on rail sector’s challenges and needs (e.g. letters to Commissioners on the need for an increase and acceleration of rail investments) • Joint initiative with CER on concrete proposals for measures related to rail against the economic downturn (PT Tickets in exchange for car scrapping, tax incentives for long-distance train tickets, withdrawal of fuel taxes and VAT from rail…)

13. UNIFE initiatives in response to the economic crisis (2/2) Scenario perspectives for the rail industry in 2025 – Strategic project with the Boston Consulting Group Context of the project Objectives of the project • UNIFE has recently released a detailed market study of the rail industry • The Worldwide Rail Market Study 2008 provide projections till 2016, excluding effects of the crisis • Throughout 2008, the world has progressively entered an economic crisis, heightening even more the level of uncertainty, in all sectors of the economy • A high level review of possible impacts of the crisis considered as starting point • UNIFE wants to complete the market projections with a longer term perspective (2025-2030 horizon) to prepare its members to possible futures • Contrasted evolution possibilities, including key megatrends and disruptive effects • Scenarios on the evolution of the railway industry • Highlight potential short and mid-term impact and uncertainty resulting from the economic crisis • High level quantification of impact on market • Build scenarios on the evolution of the rail industry to develop a perspective beyond the 2008 market study • Screen trends relevant to the industry to identify key potential drivers and possible disruptions • Construct industry evolution / transformation scenarios, using BCG creativity methodology • Develop a shared vision and scenarios of the possible futures • Derive possible impact for the rail supply industry • Investigate effects on dynamics of railway industry and positions of key players • Identify possible business opportunities

14. Providing Competitive Railway Systems for Increased Rail Traffic www.unife.org