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Infrastructure Charging

Policy Objectives and Implementation

by Mr J. Sluijter

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EU Framework for IM

The Infrastructure Package:• Directive 2001/12 (amended 91/440) on

Development of Community Railways; Separation Infra, Cargo, Passengers)

 • Directive 2001/13 (amended 95/18) on Licensing

of Railway Undertakings • Directive 2001/14 (ex 95/19) on Infrastructure

Charging, Allocation and Safety Certificates

Focus on International Freight

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Main amendments on structure

Former 91/440-95/19:

• Required separation of accounts infra and operations

• Required separation RU and State

2001/14:

• Requires in addition separation of accounts of FREIGHT and PAX

• No cross-subsidy F/P

• Essential functions IM performed separately from RU’s; IM is independent from RU’s

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Consequences structure changes

• Open (freight) transport market: in principle no subsidy (but favouring measures possible, e.g. temporary subsidies, intermodal investments)

• International passengers: no subsidy, but large investments in corridors are made.

• Domestic long distance: in general no subsidy, but policy choices in charging, investments, etc.

• Regional: always subsidisable; concessions in which charges influence subsidy.

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Structure changes

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F P-IC P-reg

Open AccessConcessions?Exclusivity?

Concessions & Subsidies

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Main amendments related to charging

Former 91/440-95/19:• Member states lay down

rules

• No discrimination in charging; provision of all fee information by IM

2001/14:• IM proposes and collects

charges; State may allow IM to balance accounts (if rail remains competitive, the State may even require to balance accounts without state funding).

• If IM is not independent, charging is performed by other independent body

• While maintaining safety IM’s shall be provided with incentives to cut costs and level of charges

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Why are charges needed?

• EU: No (international) differentation between modes; all transport modes will have to pay charges to avoid false price signals to demanders that ignore the real economic value (Open Access), and thus to...

• Optimise the utilisation, cost-effectiveness and quality of the complete transport network (i.e. with the right price signals) through economic mechanisms.

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Intentions EC

• Member states responsible for infrastructure

• Imposing charges for all modes is obligatory, but EC sets principles, not the charging levels

• The EC does not want to raise the general level of charges, but scale them differently

• The EC does not penalise any mode in particular, but wants to increase efficiency in the transport sector

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Main issues for Government

• A principle choice needs to be made by the Government concerning the subsidy flows in rail market (cost coverage level, objective)

• Cost backlog in maintenance: difficult/unfair to charge to (new) operators (EU subsidy?)

• A Government has various options to organise the financial flows within railway market (IM, RU’s)

Most EU countries opted for the subsidisation of the IM in combination with subsidisation of a specific part of the rail operations, particularly regional transport.

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Organising and balancing financial flows…

OC

I

C R

F

OC

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T

T/S?

C R

P-IC

TCI

S?

C R

IM

I

I

OC

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T

C R

P-reg

S?

T?

…requires sector business plan with fair cost levels.

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2001/14Scope:

Infrastructure for domestic and international rail transport, but Member States may exclude:

1. Stand alone local/regional networks for pax (e.g. “isolated” tram, light rail, etc.)

2. Networks for (sub)urban pax transport only (e.g. metro, tram)

3. Regional freight networks used by one RU solely, until capacity requested by other RU

4. Privately owned infra for own use solely

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Objectives charge system design

Strategic: Improve position (internat. freight) rail transport

• Cost recovery• Better utilisation of network• Guidance for investment choices• Increase market share of rail• Reduction of costs (funding)/increase of

productivity• Improvement of quality of services

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Charging system

EU/ECMT:• Gradual harmonisation of charging

principles applied in all forms of commercial transport

• It should optimise network utilisation• Charges related to marginal social

costs, which may include network operating cost, cost of worn-out infra, congestion (capacity expanding), accidents and environmental damage

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Introduction user charge systems

• Up to 2004: Introduction of (various) user charge systems in Member States

• 2004: Review and further harmonisation

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The Infrastructure Manager

• 100% State-dependent• Is fully independent from transport

undertakings• Proposes charges and rules to State• Collects the charges• Needs incentives (quality and cost reduction)• Will be monitored by the Regulator Body

and/or competition authority • Has a difficult job!

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Main conclusions on Directives

• Comparison with other modes is crucial• Implementation requires sector and IM business plan• Government has to make principle choice on subsidy

flows in the rail market (cost recovery level) and related financing options (to IM or RU)

• The Directives do not offer one single methodology to define infra charges

• Valuation of national and international interests and conditions will make it difficult to reach complete harmonisation of charging regimes.

• Harmonisation of charging regimes is a complex and long-term process

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2001/14

Network Statement – Purpose:

• Transparency for all RU’s and interested parties• Non-discrimination between RU’s• Based on consultation of all interested parties

IM is responsible for Statement, Government, being shareholder, financer (subsidies, investments) and policy maker, approves.

Workshop

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2001/14

Network Statement – Content (“Annex I”):

• Describes functional and technical characteristics of infrastructure available to RU’s, and the access conditions (technical, policy priorities, existing concession contracts, etc.)

• Charges: Principles, tariffs, methodology, rules, “Annex II-charges” and future changes

• Capacity allocation: principles, criteria, procedures and deadlines

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27.6.2000 EN C 178/43 Official Journal of the European Communities Annex IContents of the Network Statement

The network statement referred to in Article 3 shall contain the following information.1. A section setting out the nature of the infrastructure which is available to railway

undertakings and the conditions for access to it.2. A section on charging principles and tariffs. This shall contain appropriate details of

the charging scheme as well as sufficient information on charges that apply to the services.

3. A section on the principles and criteria of capacity allocation. This shall set out the general capacity characteristics of the infrastructure which is available to railway undertakings and any restrictions relating to its use, including likely capacity requirements or maintenance. (a) the procedures according to which applicants may request capacity (b) the requirements governing applicants;(c) the schedule of the application and allocation processes;(d) the principles governing the co-ordination process;(f ) details of restrictions on the use of infrastructure;(g) any conditions by which account is taken of previous levels of utilisation of

capacity, adequate treatment of freight services, international services and requests subject to the ad hoc procedure.

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Basic charging principles (ECMT)

• Short-run marginal (incremental) cost approach

• Congestion charge to spread traffic or to finance additional capacity (i.e. long-run marginal costs; could be a fixed charge)

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2001/14 on charging principles:

• Non-discriminatory charges, published in Network Statement

• IM respects commercial confidentiality• RU is entitled to minimum access

package• Marginal cost pricing • Charge may include a congestion fee• Taking account of environmental cost (in

relation to charging other modes!)

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Exceptions on principles:

• Full cost recovery mark-ups may be used under efficient and transparent conditions, if market can bear. (e.g. Ramsey-Boiteux pricing)

• Higher charges possible for specific investment projects, if they increase efficiency/cost-effectiveness (making >5-year framework contracts possible)

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Other components charging regime

• Time-limited discounts (e.g. off-peak paths)

• Compensation schemes for unpaid (ext.) costs in competing modes

• Methodology and calculation publicly available

• Performance scheme for both RU’s and IM (bonus/penalty)

• Reservation charges

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Aims of charging system (1)

Microeconomic• Fully or partly coverage of cost of

maintaining and operating the network• Possibility to differentiate the charges to

specific criteria to work with actual value of usage

• Non-discrimination to allow access to third, new parties (competition)

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Aims of charging system (2)

Macroeconomic• To make the user cover the cost of using

resources• To improve the market position of rail transport

in general (in particular for freight) to promote the entry of new operators (competition) and hence to promote keener pricing, quality and innovation

For pax service the concession tender is essential as well to reach these aims (ref. proposal 2000/0212 to replace 1191/69-1993/91)

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Issues affecting charging regime (1)

• A principle choice needs to be made by the Government concerning subsidy flows in rail market (cost coverage level, objective)

• Cost backlog in maintenance: difficult/unfair to charge to (new) operators (EU subsidy?)

• A Government has various options to organise the financial flows within railway market (IM, RU’s)

• Most EU countries opted for the subsidisation of the IM in combination with subsidisation of a specific part of the rail operations, particularly regional transport.

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Organising and balancing financial flows

TCI

S?

OC

I

OC

I

T

T/S?

OC

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T

C R C R C R C R

IM C P-IC P-reg

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IS

T?

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Issues affecting charging regime (2)

• IM needs to work within Government legal framework• Cost recovery level is set by Government• Minimum level = short-run marginal costs• If more costs have to be covered: Mostly charging

according to ability to pay (market pricing); also recovery of capacity expansion (scarcity pricing)

• Fixed costs charging is not advised, as it hinders the aimed economic mechanisms

• Contract duration (5, possibly 10, for PS exceptionally 15 yrs)

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Business Plan for IM

The Infrastructure Company:

• State is only shareholder• Owns tracks, yards, platforms, transfer

facilities and access roads• Income: charges, state operational

subsidies, state investments, EU subsidies• Costs of operating, maintaining and building• State investment = new shares for State or

direct subsidy (new assets at “0”)

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Main Issues Business Plan IM

• Future markets and network size• Planning of work and staff• Financial plan• Definition subsidy flows and level of charging• What happens if State wants 100% cost

coverage?• Formulas and rules for charging• Calculate budget forecasts• What to be achieved with charging system?

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IM’s cost coverage

Marginalcosts (wear

& tear)

Scarcitycosts

Fixed costs

State reimbursement

State reimbursement

Fixed fee

Marginalcosts

pricing

Scarcity pricing(opportunity-

to-recover persection)

Market pricing(opportunity-

to-recover perRU

IM’s costs to berecovered

Pricing elements

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C 178/44 EN 27.6.2000 Official Journal o the European Communities ANNEX II

 SERVICES TO BE SUPPLIED TO THE RAILWAY UNDERTAKINGS 1. The minimum access package shall comprise:(a) handling of requests or infrastructure capacity;(b) the right to utilise capacity which is granted;(c) use of running-track points and junctions;(d) train control including signalling, regulation, dispatching and the communication

and provision of information on train movement;(e) all other information required to implement or operate the service for which

capacity has been granted. 2. Track access to services facilities and supply of services shall comprise:(a) use of electrical-supply equipment or traction current, where available;(b) refuelling facilities;(c) passenger stations, their buildings and other facilities;(d) freight terminals;(e) marshalling yards;(f ) train- formation facilities;(g) storage sidings;(h) maintenance and other technical facilities. 

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C 178/44 EN 27.6.2000 Official Journal o the European Communities ANNEX II

 SERVICES TO BE SUPPLIED TO THE RAILWAY UNDERTAKINGS

  3. Additional services may comprise:(a) traction current;(b) pre-heating of passenger trains;(c) supply of fuel, shunting, and all other services provided at the access service

facilities mentioned above;(d) tailor-made contracts for:

- control of transport of dangerous goods;- assistance in running abnormal trains.

4. Ancillary services may comprise:(a) access to telecommunication network;(b) provision of supplementary information;(c) technical inspection of rolling stock.

Note: Mandatory services as regards safety control

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Determining charges

Components (ref. “Annex II”):

1. Minimum access package:

– Direct (incremental) costs– Congestion/scarcity fee– Environmental costs (?)– Mark-ups (?)

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Determining charges

2. Basic track services (stations, terminals, maintenance, equipment, etc.)

– Price related to competitive position rail– Access obligatory (non-discrimination),

not necessarily provided by IM (depends on ownership)

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Determining charges

3. Additional services (shunting, pre-heating, traction current, etc.)

– Access is obligatory (non-discrimination), not necessarily provided by IM

– Price = cost, if single supplier– Price = market price, if other suppliers

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Determining charges

4. Ancillary services (technical inspection RS, suppl. information, etc.)

– Optional, not necessarily provided by IM

– Price = cost, if single supplier– Price = market Price, if other

suppliers

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Formula example

Charge = Pkm * Z * Qkm * F + ∑(ASi * Qi) + (Pel * Qel)  

Pkm = price per train-km Z = parameter dependent of type of train and track

Qkm = purchased no. of train-km F = factor for special demands of RUAS = additional and/or ancillary servicesQ = quantity of AS (e.g. no. of coaches pre-heated)

Pel = price electricity (kWh)

Qel = quantity electricity used

Base package Add./anc. service Electricity

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Applied approaches

1. Short-Run Marginal Cost (SRMC)

• Comparison with other modes• Generally low variable and some low

fixed costs• Difference rev/exp = state contribution• Applied by many European countries

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Applied approaches

2. Adjusted Average Cost (AVC)

• Tries to raise a total target amount• Mainly variable charges• In general no shortages on planned costs• State contribution firstly defined, based

on wider policy objectives• Applied in a/o France, Germany,

Netherlands and Austria

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Cost-based charges

• Short-run average costs• Long-run average cost• Short-run marginal costs• Long-run marginal cost

• Average/marginal long-run would recover all costs, but difficult because of changes in demand and slow changes in supply

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How to recover total cost?

1. Government subsidy • As short-term compensation of unpaid

external cost in road sector• Non-transport objectives (e.g.

environment) (also investments)• In general: Subsidy to operators instead of

IM preferred to allow IM to balance accounts based on economic mechanisms

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How to recover total costs?

2. Multi-part tariffs

• Fixed mark-ups• May not deter operators• Government may subsidise on

social grounds

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How to recover total costs?

3. Ramsey-pricing

• Mark-ups for least demand elastic segments (≈“What the market can bear” ; less social loss)

P

Q

P

Q

Segment A Segment B

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Problems high cost coverage

• Railway undertakings have different abilities to pay (markets/segments)

• To achieve (almost) 100% cost coverage, one need to use the differentiation factor (the modulating parameter) in an optimal way (e.g. Ramsey-pricing)

• Requires in-depth knowledge about what the different rail markets can bear (ability to pay) and demand elasticities (based on ‘fair’ oper. cost prices!)

• This kind of knowledge is probably not available• A low ability to pay in all markets (?); subsidy directly

to IM instead of TOC’s?

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Conclusions charging options

• Different approaches distort competition between Member States, between modes and within modes

• Many exceptions, not much is obligatory• Complex charging systems confuse the

operation of the market;• Common charging principles would

create a level playing field (between modes and countries)

• Marginal cost approach results in deficit

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Incentives good IM behaviour

• The RU expects to receive a train path which complies with the quality required for a specific service. The IM should have a financial incentive to deliver the required quality and/or to improve this quality:

• Introduce an improvement plan for the IM which includes targets with regard to e.g. the number of speed restrictions. If the targets are not achieved, those operators which are harmed obtain a reduction on the total amount of infra charges to be paid.

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What has to be done? (1)• Establish working-group (Finance, Infra, MoT)• Prepare mid-/long-term BUSINESS PLAN for IM:

– Realistic forecast development of rail markets (O/D)– Network size– Maintenance (backlog?) and renewal demand plan– Long term timetable planning (no. of

trains/day/line)– Planning new investments– Work plan – Government policy (funding, objectives, etc.)– Cost, budget/subsidy forecast

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What has to be done? (2)

• Define approach on cost coverage policy• Demand groups to estimate willingness to pay• Define consequences and aims of policy on

state subsidy and external costs (harmonisation in relation to other modes!)

• Establish (remaining) cost recovery system (mark-ups, state funding?)

• Define incentives, not only for RU, but also for IM! (bonus/penalty system)

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What has to be done? (3)• Define basic line and train categorisation, a/o:

– rail installations attributed to the track– congested stretches to fix peak-charges

• Determine (incremental) infrastructure costs per line category and per train type

• Determine additional charges for higher/lower speeds based on stretch-specific optimal train speeds

• Take specific user (capacity) demands into account (type of traffic, timetable requirements)

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What has to be done? (4)

• Development pricing system for use of stations, yards and sidings

• Establish differentiation in charges (P/F, high-performance/regional, scarcity, etc.)

• Iterative testing of alternatives/scenario’s

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Examples charging systems

• Germany• Netherlands• Denmark• France• UK• Sweden

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Germany• Modular system to calculate train path price• Based on (almost) full cost coverage; no capital

costs, no backlog costs, but overhaul included• Base price per line category (+ util. factor)• Additional product factors (type of service)• Additional special factors• Path prices reflect infra requirements and

competitive situation per market segment• Base price 1.70 – 2.75 euro• Product factors 1.00 – 1.80 (pax)

Transparent system(separate overview)

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The Netherlands• Only short-term variable (marginal) charges (per

train-km); overhaul cost not included• No difference freight-/passenger-trains• No differentiation weight/speed/technology• No marginal social costs included (yet?)• Regional (decentralised) services exempted• Additional charges for use of stations (2 cat.)• Gradual introduction (pax 2005/freight 2007)• Full charges: 0.95 euro/train-km and• 2.95/0.65 euro per station stop

Simple and robust for future changes, low charges

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Denmark• Only variable (marginal) charges (exceptional

fixed charges for freight)

• Charging system contains:* access charge (for freight only sections)

* train-km charge (differentiated P/F and density)* access charges for use Great Belt Link/Oresund Link

• Indications charges:Main link (b-to-b): 5.50€/P-train-km and 2.86€/F-train-

kmOther sections: 0.45€/P-train-km and 0.23€/F-train-km

Note: Charges GBL (860€) and Oresund Link (135€)

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France• Fixed amount of government funding (high)• Two-tier charge • Access fee (right to use) is fixed (for special sections)

• Variable charges for reservation and actual use• Variable charge for use are not differentiated• Indications total charges per train-km:

Passenger-trains: 1.75€ (IC) to 10.77€ (!, local)Freight trains: 0.98€/train-kmHST: 8.00€/train-km

Transition phase?

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United Kingdom

• Railtrack WAS only commercial IM in Europe• Changes? Former system:• Rail-route related contracts between TOC

and Railtrack• Charges based on negotiation/special terms• TOC mostly regional monopolies with own

requirements• Total charges cover “total” cost plus profit• Subsidies received only by TOC’s

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Sweden• Charging policy not only means to cover cost, but to

achieve transport, environmental and other policy objectives

• Creating similar conditions all modes (rel. low charges)

• Charges should reflect w-and-t (SRMC) ánd ext. costs• Charges:

– Wear-and-tear: 0.29€ per 1000 GTKM– Marshalling: 0.40€/wagon– Accidents: 0.11€/P-train-km and 0.05€/F-train-km– Emissions: 0.30€/litre diesel €/1000 GTKM P-trains– Oresund Bridge mark-up: 0.58€/1000 GTKM P-trains

System needs further specification, probably with higher charges

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Recommendations

• Make business plan for whole sector (and then for IM)

• Study current (developing) charging systems and related subsidy flows

• Start simple

• Keep it simple!