EU bets on railway infrastructure financing

Interview with Libor Lochman, Executive Director of the Community of European Railway and Infrastructure Companies (CER)

Over the next decades, railway infrastructure investment granting in Europe has to overrun funds invested in road projects. This is one of the most important conditions for economic growth, competitiveness and a significant reduction of emissions. Central and East European countries are currently characterised by the lack of investment granting for railway projects and consequently, they have to pay particular attention to this transport mode to reshape the development of the economy, the quality of life and that of the environment.
For a better understanding of the role of railway transport in the economy and society of a state, in solving problems of financing from states and from the EU, and for picturing the means and instruments of attracting railway infrastructure investments, we have discussed the matter with the Executive Director of the Community of European Railway and Infrastructure Companies (CER) who has presented its opinion included in the following pages of our magazine.

If you don’t have a promising infrastructure, you cannot expect a competitiveness growth, let alone a traffic shift from road to rail. CEE countries invest more in road infrastructure than in railways compared to those in Western Europe. For example, in 2009, the CEE area directed 13% of total infrastructure investments to railways, while Western Europe directed 32% of total infrastructure investments to railways”, declared Libor Lochman, CER’s Executive Director, at the event “Club Feroviar Conferences – Railway infrastructure development – policies, projects and technologies”, held on 22-23 February, 2012 in Sibiu (Romania) and organised by Club Feroviar and the Romanian Railway Industry Association (AIF).
The investments in railways in Central and East European countries are insufficient compared to western countries and this reflects in the quality of freight and passenger transport whose market share has known constant drops.
The situation is critical in Poland, Bulgaria and Romania since road infrastructure investments overrun rail investments. Countries where “things are a little better include Hungary, the Czech Republic and Slovakia. Overall, this situation is difficult and the gap between the railway and the road sector will grow deeper if these trends continue”, said Lochman.
If we were to compare infrastructure investments along the years, in EU15, the length of road infrastructure has tripled, while that of railway infrastructure has shrunk. Therefore, “it is absolutely imperative to invest in projects aimed at reducing congestion and at improving cross-border railway sections and also to improve connections between transport modes – ports, airports, logistics platforms which need better connections”, said Lochman.
However, EU’s objectives are very optimistic: a growth of 80% in freight traffic and of 50% in  passenger traffic are expected by 2050, while emissions would drop by 60%. However, this traffic growth can be achieved only if investments are directed to railway infrastructure projects and authorities are aware of the railway transport importance.
One of the instruments to have a major importance in improving and developing the network is the “Connecting Europe” Facility. Financing of EUR 21.7 Billion will be granted for the central network with 101 projects being already identified, 72 of which in the railway sector. Also, 28 projects on cross-border connections/easing traffic have also been identified, 27 of which in the railway sector. In addition, EUR 10 Billion from the Cohesion Fund will be allocated to projects on central corridors and ERTMS (financing directed for 80-85%), while other infrastructure projects will receive 15-20% of financing.
For encouraging railway infrastructure investments, CER has submitted a new draft law on the European Regional Development Fund which cannot be used for transport projects in many developed regions. The draft law consists in extending the role of the Fund in many developed and under development regions. According to CER, around 80% of the ERDF financing is directed to projects outside the transport sector. “The ERDF is another opportunity for infrastructure financing. It is regrettable that the financial instrument cannot be currently used for transport projects in more developed regions and for this CER proposes the extension of the ERDF’s scope to several developed and transition regions”, declared Lochman.

Railway Pro: What should CEE countries do for the next budgetary period 2014-2020 in order to enhance performance in rail investments?
Libor Lochman: First of all, Central and East European Countries must allocate a reasonable part of their budgets for transport infrastructure in general. Moreover, a long-term-strategy for infrastructure investments is needed. One option, which was not only discussed among the CER members but also with the European Commission, is the creation of a national infrastructure transport fund and maybe a European fund in the future. The transport infrastructure funds can provide better stability for the financing of projects at national level, allowing the infrastructure not to be entirely dependent on national budgets which are usually planned rather short-term, while the time horizon for infrastructure funding is 5-10 years. There should be an adequate balance of investments between road and rail infrastructure. And finally, it is important to proceed towards a full and mandatory internalisation of external costs to level the playing field between transport modes, as recognised by the European Commission Transport White Paper.

Railway Pro: You spoke about technical barriers on the EU network. To remove them the states need investments, but you said that in CEE countries the shares of investments are disastrous, compared to West European countries. How can countries and industry completely remove investments barriers?
Libor Lochman: CER and a number of other stakeholders are supporting the European agenda in the direction towards a progressive implementation of interoperable technology. The European Commission is certainly a great promoter. However, the Commission’s legislative proposals for a more binding commitment to invest in a fully interoperable network have always to face at some point the opinion of the Member States in the EU Council of Ministers. Experience shows that member states tend to prioritise national investments instead of funding EU-wide plans enabling seamless European interoperable network. I fear that the EU institutional architecture is too weak when it comes to force Member States to this kind of spending.

Railway Pro: For 2050, the European Union wants to increase the share of rail freight to 80%. For this, EC wants to propose longer trains and axle loads of 22.5 tonnes. How can this measure contribute to rising the share of rail freight transport compared to road?
Libor Lochman: Longer trains and increased axle loads are only part of the solution. These measures must go together with sound investments aimed at removing network bottlenecks, at increasing network capacity and interoperability. Investments in interoperability (and in general all investments in technology) are as such able to increase the capacity of the network, without having to put additional tracks on the ground. A TSI-compliant infrastructure allowing for 750 m long trains and 22.5 axle load is a prerequisite for more efficient train services. And then of course even longer trains can improve the productivity of the network even more. But we have to pursue the three goals all together!

Railway Pro: As  new regulation proposal, CER suggests to broaden the scope of European Regional Development Fund  (ERDF) in more developed and transition regions, because this fund cannot be used for transport projects in more developed regions. What will this mean for the infrastructure of European countries?
Libor Lochman: According to the current legislative proposal, the ERDF cannot be used for transport projects in more developed regions. For the transition regions, the ERDF will work as follows: whereas transport infrastructure projects will be financed via the Connecting Europe Facility (CEF) and the Cohesion Fund, at least 80% of the ERDF envelope for these regions will be dedicated to non-transport projects. This means that maximum 20% of the ERDF will be available to be used in transition regions for transport projects. That’s why CER suggests broadening the scope of the ERDF. The ERDF can particularly be useful in financing rail infrastructure connecting major projects, traffic feeders and other important portions of regional networks. The inclusion of transport among the ERDF’s spending priorities in more developed regions as well as in transition regions is essential in order to develop a regional network able to feed the TEN-T core network, promote environmental sustainability at regional level, and reduce congestion on the existing network.

Railway Pro: And what about the treatment of revenue-generating operations also in the context of the EC proposals?
Libor Lochman: The accounting principles applied to current projects financed by the EU cohesion and structural funds provide that, for investments in infrastructure, the eligible expenditure on revenue-generating projects shall not exceed the current value of the investment cost and be the current value of the net revenue from the investment over a specific reference period.
This means that heavily subsidized infrastructure projects which do not levy charges and thus do not generate revenues, e.g. non-tolled motorways, have a bigger funding gap than non-subsidized revenue-gene-rating operations of comparable size. Therefore the same co-financing rate will result in a higher absolute funding for the former, and in a lower absolute funding for the latter. It is therefore necessary to modulate the co-financing rates of the cohesion and structural funds so that revenue-generating projects (such as rail infrastructure projects or tolled motorways) are not discriminated against projects that do not generate re-venue (i.e. non-tolled road infrastructure).Adequately modulated co-financing rates would then create incentives to invest more in revenue-generating projects. This would lead to a smaller impact on public budgets, it would implement the user-pays principle, and it would make it easier to implement the polluter-pays principle over a larger share of infrastructure, thus avoiding further distortions between different types of infrastructure.

Railway Pro: CER sets new proposals for the growth of railways. How will you support this and how will member states be determined to implement them?
Libor Lochman: We promote a European legislation that contributes to the targets of the European Commission’s Transport White Paper. In particular, we will be closely working with all relevant stakeholders to create a political environment supporting the following three pillars:
• Improving the policy of infrastructure funding;
• Improving infrastructure capacity;
• And setting a level playing field between different modes of transport.
European legislation should provide the framework to create fair competition between different modes of transport, in particular road and rail. If these pillars work, we will have the right perspective for the future – these are also conditions for what we call the stable financial architecture of railways.

Railway Pro: In what concerns the “Connecting Europe Facility”, in your opinion, what does this program mean for the railway system at European level?
Libor Lochman: The Connecting Europe Facility is a proposal that, among others, paves the way towards the Single European Rail Area. It is an essential financial contribution of the European Commission. Moreover, in the Connecting Europe Facility proposal, the European Commission strictly favours cross border projects. It’s about how to connect different regions and member states. I personally think that this is the right way to go. However, it is not easy to convince member states to go for it, in particular member states that have significant problems with their national budgets. All in all, the money available via the Connecting Europe Facility has to go hand in hand with the financial means made available through structural funds. The former shall be dedicated to international routes, whereas the latter shall be dedicated to the creation of efficient regional networks.

Railway Pro: What can you tell us about the role of the Fourth Railway Package in the Single European Rail Area?
Libor Lochman: CER published position papers on all four components of the fourth railway package regarding the liberalization of the domestic passenger market, the issue of the European regulatory body, the structural separation and the enhanced role of ERA. These issues are connected and they all contribute to improving the competitiveness of the rail sector by removing administrative barriers that obstruct transport operations across Europe. The proposals, expected to be published by the European Commission at the end of this year, also aim to improve the access of new entrants to the rail business. Thus, in our opinion, the legislative package should focus on two essential elements: improving the conditions for market access and removing the administrative barriers for the operation of trains.

[ by Pamela Luică ]


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