23rd ERSA Summer School 2010

Productivity and Financing of Regional Infrastructure

Infrastructure charging and project financing in the railway sector in France

Federico ANTONIAZZI PhD candidate Sapienza Universit di Roma LET Lyon 2 - RFF

Presentation plan
1.

2. 3.

European view on railway infrastructure charging Railway infrastructure charging in France Project financing in the railway sector in France

European view on railway infrastructure charging

Directive 91/440/EEC on the development of the community's railways; Directive 95/19/EEC on the allocation of railway infrastructure capacity and the charging of infrastructure fees; Green Paper (1995) Towards fair and efficient pricing in transport "; White Paper (1998) Fair payment for infrastructure use: A phased approach to a common transport infrastructure charging framework in the EU"; White Paper (2001) "European transport policy for 2010: time to decide; Directive 2001/14/CE on the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification.

Directive 2001/14/EC

Article 6: [],the accounts of an IM shall at least balance income from infrastructure charges, surpluses from other commercial activities and State funding on the one hand, and infrastructure expenditure on the other. [], a Member State may require the IM to balance his accounts without State funding.

Article 7: [], the charges [] shall be set at the cost that is directly incurred as a result of operating train service.

Article 8: In order to obtain full recovery of the costs incurred by the IM a Member State may, if the market can bear this, levy mark-ups []The charging system shall respect the productivity increases achieved by RU. Any given IMs average and marginal charges for equivalent uses of his infrastructure are comparable and that comparable services in the same market segment are subject to the same charges.

Principles of charging

Marginal use cost: maximize optimum without externalities Marginal social cost: maximize optimum with externalities Long run marginal cost (LRMC) vs short run marginal cost (SRMC) Ramsey-Boiteux: maximize optimum subject to a constraint on public funds (yield management SNCF) Congestion charging: scarcity of capacity (train paths)

European comparison on railway infrastructure charging

Source: IMPRINT-NET

Railway network in France

Railway infrastructure charging in France

120 100 80 Other Regional 60 40 20 0 Traffic (train-km) Charges (M) Freight Intercity Suburban TGV

Cost recovery by traffic activity

Charges

Total Cost TC= Average Cost AC + Capital Cost K Average Cost AC = Fixed Cost (CF) + Marginal Cost (Cm) Capital cost K = Investment Paying off Subvention

Marginal cost estimation

1.

2.

Bottom-up approach: life cycle cost management; Top-down approach: econometric estimation, i.e.: ln C = ln T + CV = C C: maintenance cost T: traffic ,: regression parameters

Types of charges in railway sector

Public service charges; Competition charges; Subvention charges (shadow toll); Ramsey-Boiteux charges.

Public service charges

charges

Mark-up Variable part MC

Fix part

traffic

Competition charges
charges

Mark-up Fixed cost MC traffic

Subvention charges (freight trains)

receipt
Legenda:

Toll

A B
Subvention

A
B C T*

Toll

Shadow toll
Fixed costs compensation Traffic forecasting

C T*

traffic

Ramsey-Boiteux charging (TGV)

Cash flow

Charges

Equalization system

C
400 km

Travel distance

A : cash flow surplus B : cash flow deficit Equalization system: C : contribution proportional to cash flow surplus D: subvention to deficit service

PROJECT FINANCING IN THE RAILWAY SECTOR IN FRANCE

Main railway projects in France

Investments assessment indicators

Net present value (NPV) Internal rate of return (IRR)

Discount rate Opportunity cost Public-funding scarcity coefficient (1,3) WACC (7,7%)

Socio-economic (France) Financial (RFF)

4% (up to 30 years)

5-8% (20-60 years)

Project financing for new lines

160 140

120

Recepits Contributory capacity Cash flow surplus Charges Operation costs

100

80

60

40

20

Reference

Project without charges

Project with charges

Risk analysis in project appraisal

100 90

Discount rate 5%

80

70

Cumulative probability

60

50

40

Discount rate 8%
30

20

Risk bonus 1000 M

10

Investment (Meuro)

Demand function, user surplus and revenue

demand d0 Surplus Revenue

d=d0-p Smax=d02/2

Rmax=d02/4

pRmax=d0/2

pmax=d0/4

P Source: Bonnafous 2009

Social welfare variation and the public-funding scarcity coefficient

S,R U+C U+C (>1) U+C (=1)

pUmax

pRmax

P Source: Bonnafous 2009

Optimal pricing of financing

Source: Bonnafous 2009

Conclusion

When the minimum subsidy is at least equal to the maximum revenue, the optimal programming toll is zero. When a subsidy is necessary but lower than the maximum revenue, the optimal programming toll is positive but lower than the revenue-maximising toll. When the minimum revenue is sufficient to cover costs, the optimal programming toll hits the revenue-maximising toll.

Some references

Bonnafous A. Programming and Optimal Pricing of Infrastructure in PPPs International Transport Forum Paper 2009 Borras M.S., Pita A.L. Impact of rail infrastructure charges on the competitiveness of high speed services RTR 1/2010 Gaudry M.,Quinet E. Rail Track Wear-and-Tear Costs by Traffic Class in France Publication AJD-66, Agora Jules Dupuit, Universit de Montral 2003 Meunier D., Quinet E. Effect of imperfect competition on infrastructure charges European Transport, Issue n 43, December 2009, pp. 113-136 Nilsson J.E. Second-best problems in railway infrastructure pricing and investments Journal of Transport Economic and Policy september 1992 Savvides S.C. Risk Analysis in Investment Appraisal in Project Appraisal, Volume 9 Number 1, pages 3-18, March 1994 Thompson L.S. Railway access charges in the EU: current status and developments since 2004 in Charges for the Use Rail Infrastructure, International Transport Forum 2008 OECD. European research projects: CATRIN,DIFFERENT, IMPRINT-NET