Session: Liberalisation of the railway markets. A challenge to finance railway systems

1. Session: Liberalisationof the railway markets. A challenge to finance railway systems “South East Europe Railways. Challenges for cooperation and exploitation of opportunities” Aristotelis Naniopoulos Professor AUTh, Transport Systems Research Group 8 – 9 October, 2013 Bucharest, Romania

2. Contents of the presentation • The geoeconomic context of South East Europe (SEE) • The “ADB Multiplatform” project • South East Europe Area and Railways Transport: current and future situation • Some evidence and remarks on the “Liberalisation of railway markets” in SEE • The case of Greece: towards Privatization of the Railway Operator • Conclusions, remarks and recommendations

3. The geoeconomiccontext of South East Europe (SEE)

4. Main Intermodal Challenges and opportunities for SEE area

5. Serving demand from-to Far East An alternative to the route via Suez Canal and Gilbratar An alternative to the route via North Sea (NSR) 7.300 nautical miles 20 days NSR itinerary Indian Ocean itinerary 11.200 nautical miles 33 days Source: www.ria.ru

6. Serving demand from-to Far East • *Time and distance depends on the following: • Port • Transport mode: BY RAIL or by road • Efficiency and performance of terminals • ** Example:It is estimated that via Port of Piraeus the time of freight transport to Central Europe (Czech Republic) will be reduced by approximately 8 days compared to the route via Gibraltar.

7. Serving demand from-to Far East The NEAR2 Project NEAR2proposes the creation of a Rail Research Network along the Trans-Eurasian land bridge, exploiting the structure and leveraging the achievements of the existing European Rail Research Network of Excellence (EURNEX), engaging this way all the existing research centres in a continuous and fruitful international cooperation. Four main rail routes are considered to cross SEE area according to NEAR2 project B3 via branch of the Trans-Siberian railway network – the Mongolian route C1.1 via the TRACECA – Turkmenbashi rail route (1) C1.2 via the TRACECA – Turkmenbashi rail route (2) E connection via the Trans-Asian railway route

8. Serving demand from-to Far East

9. Route characteristics from to Far East • In order to compete the main alternative routes, SEE must become attractive in terms of the parameters that affect total logistics cost, i.e. • the total time • reliability • safety • security • environmental impacts • Achieving the required benchmarks main key factors are: • Cooperation among all the involved stakeholders • Appropriate supervision of operations by technical means (ICT) and establishment of appropriate reaction mechanisms.

10. The “ADB Multiplatform” project

11. The ADB Project in brief (1/2) • Title: “Adriatic – Danube – Black Sea Multimodal platform”, funded via SEE Programme • Duration: 30 months (4 / 2012 - 9 / 2014) • Objective:Develop and promote environmentally friendly, multimodal transport solutionsfrom the ports in the SEE programme area (Black Sea, Aegean, Adriatic) to inland countries and regions along aselected pilot transnational network. This will be done by developing and establishing a“multimodal transportdevelopment platform”, which integrates different regions and stakeholders from the transport business • The ADB Project Work plan • WP3 - Nodes and infrastructure in Adriatic-Danube-Black Sea area • WP4 - The ICT backbone of ADB Multimodal Platform • WP5 - Multimodal Development Centres (MDC) • WP6 - ADB and Green Transport • WP7 - Pilot project implementation

12. The ADB Project in brief (2/2) N Number of partners Countries of Participating partners ERDF: European Regional Development Fund • PARTICIPATING COUNTRIES: 13 • 8 EU countries; 5 Non EU countries • PROJECT PARTNERS: 41 • 15 ERDF partners, 7 IPA partners, 16 ASP, 3 Observers 1 1 2 3 2 2 9 • Mixture of Stakeholders: a) Public Authorities; b) Business Associations, c) Freight operators, d) Transport Agencies, e) Research bodies 5 2 5 2 3 • The South-East Europe Programme area is the most diverse, heterogeneous and complex transnational cooperation area in Europe. • In the European transport network, South-East Europe is acting as a link between North, South, East and West Europe. 3

13. South East Europe Area and Railways Transport: current and future situation

14. Quality of Rail Infrastructure (2009-2010) EU and Report Countries – Total Traffic (2005=100) - Lack behind in infrastructure - Traffic is falling more sharply than EU-27 Source: Carolina Monsalve, Railway Reform in South East Europe and Turkey On the Right Track?, Transport Unit, Sustainable Development Europe and Central Asia Region, Report No. 60223-ECA, March 2011, Document, WORLD BANK.

15. Assessment of Rail Corridors Infrastructure • Railway Corridors (PECs) in SEETAC study area: 10.530km • 51,4% of the PECs (existing) railway lines are with double tracks. 83,7% of these lines are electrified. • 64,7% of PEC IV, 52,6% of PEC V and 50,7% of PEC VIII are double tracks. Source: SEETAC:, South East European Transport Axis Cooperation,2009-2012,Database on existing physical and operational characteristics/ Forecasts for 2020-2030

16. Available Forecast: EUNSTAT (2020) - Railways The EUN STAT (2005), regarding the SEE region, concluded that in year 2020 the freight traffic flows will be concentrated on the railway corridor between Bulgaria – Romania – Ukraine and Russia Source: “Scenarios, traffic forecasts and analysis of traffic flows including countries neighbouring the European Union: (EUN STAT).

17. Demand and supply relations: Railways • Biggest share of transport flows concentrated on the PECs IV, V and X • Saturation problems: • - on the Austrian network • - in Slovakia (Bratislava – Gyor) • - southwest of Ljubljana on PEC V • - on PEC IV (mainly Plovdiv - Haskovo) in Bulgaria Source: SEETAC:, South East European Transport Axis Cooperation,2009-2012,Database on existing physical and operational characteristics/ Forecasts for 2020-2030 Volume over Capacity ratio on SEETAC study Rail network – Existing situation (2010)

18. Available Forecast: SEETAC (2020 & 2030) Source: SEETAC: South East European Transport Axis Cooperation,2009-2012,Database on existing physical and operational characteristics/ Forecasts for 2020-2030 Volume over Capacity ratio on SEETAC study Rail network – Future situation (2020 left – 2030 right)

19. Available Forecast: ADB Multiplatform Rail trade flows between SEE countries in total (values in 1000t) S1) 2015 baseline S2) 2025 baseline S3) 2025 free trade agreements S4) 2035 baseline S5) 2035 free trade agreements Source: SEE/ADB project, WP3 – Act. 3.3, freight transport demand scenario at horizons 2015, 2025, 2035

20. Available Forecast: ADB Multiplatform Rail trade flows between each SEE country and the SEE countries (values in 1000t) Source: SEE/ADB project, WP3 – Act. 3.3, freight transport demand scenario at horizons 2015, 2025, 2035

21. Background & starting points for railways in SEE • The SEE rail corridors are vital for connecting parts of the EU as well as for connecting the EU with Turkey and the near East using the main transit routes for trans-continental Eurasian trade. • There are several new states in the SEE with a vast number of new borders. • Inadequate condition of railway assets, especially in Western Balkan countries. • Various hinders such as difficulties linked to the border crossing procedures, delays, limited reliability/predictability of rail transport services. • Rail transport sector is called to address the inefficiencies caused by fragmentation, lack of competition and transparency. • Increasing environmental concerns and energy efficiency enhance the role of rail transport. • Total debts of the railway companies must be reduced so that financial viability can be reached.

22. Some evidence and remarks on the “Liberalisation of railway markets” in SEE

23. “Rail Liberalisation Index” (rail freight and passenger transport) EU-countries of Wider Black Sea Area Austria Czech Slovakia Poland Romania Bulgaria Slovenia Hungary Lithuania Greece Latvia SEE SEE Source: IBM Global Business Services

24. Evidence from literature on rail competition and liberalisation • Increase competition in the rail transport market by eliminating technical, administrative and legal obstacles to market access. • The introduction of competition in the railway industry is expected to improve its efficiency for the benefit of users, producers and taxpayers. However, it should be mentioned that there are several academic positions against or for this statement. • Deepening liberalisation is expected to help the railway industry to recover traffic in those markets where it has a competitive advantage. • Intermodal competition appears to be crucialsince the intensity of competition at the route level among alternative modes is far more important than the number of railroads at the national levelfrom a shippers viewpoint. • Efficiency is associated with financial and managerial autonomy, competition and the gradual introduction of reforms, while subsidies contribute to inefficiency. Regarding vertical unbundling, the empirical evidence is inconclusive. • The report of The 2012 European Railway Performance Index (RPI) however suggests that a railway system’s overall performance generally correlates with the level of public cost (that is, subsidies and investments in the system), stating that no correlation between performance and the degree of market liberalization or the choice of governance model is found.

25. The case of Greece: towards Privatization of the Railway operator

26. The case of Greece: towards Privatization of the Railway operator It operates on a 2500 km rail network in Greece

27. The case of Greece: towards Privatization of the Railway operator OPPORTUNITIES FOR THE RAILWAY INDUSTRY IN GREECE • The completion of the Ikonion line that connects the national rail network to the Port of Piraeus and the Piraeus Container Terminal on March 2013. Up today most of containers were transshipped by feeder lines to other Ports • Rail service became available this year for the first time, enabling the Port to serve as remote hinterland destinations, such as Hungary, Slovakia, Czech, Poland, Balkans countries and the Black Sea Region. • If a critical mass of necessary shipments is attracted, Greek ports will expand their service area in the Balkan and Central Europe hinterland by the initiation of regular block trains or line services. • A promising cooperation among HP-COSCO-TRAINOSE/ Route’s parameters: 6 countries; 2200 km; 2000 km electrified; journey time: 5 days (target: 3.5 d) • The completion of the double line and electrification/signalization/telecomand (ETCS Level 3) on the axis Athens-Thessaloniki by 2016 (1st phase was completed, 2 are left) • Privatization in the upcoming few months is expected by main stakeholders of business industry in Greece to improve dramatically network’s efficiency. • TRAINOSE received the EU wide License as a Rail Operator, which allows it to enter the rail market of Central Europe through Bulgaria and Romania as well as Turkey.

28. The case of Greece: towards Privatization of the Railway operator RESTRUCTURING PLAN (2010 – 2013): • In 2010 an ambitious 2-year restructuring plan was designed and implemented • Transfer of approximately 800 employees from TRAINOSE to the Greek Government (45% of the workforce) from 1650 down to 860 • Suspension of loss making service and implementation of new train schedules (40% reduction in operating lines) • Renegotiated a new contract agreement with the Unions, rationalizing of the payroll cost by drastically reducing the secondary allowances • Revision of the organizational structure, to comply with the new company’s strategy (11 instead of 21 directorates) • Application of the new pricing policy: 40% increase in the suburban system, a yield management scheme for the intercity system and cost based system for freight tariffs with promotion of block trains. • Compensation for the provision of public services of passenger rail transportation, according to Law no. 3891/2010 and Regulation no. 1370/2007 • Outsourced all the non essential activities

29. Conclusions, remarks and recommendations

30. Conclusions, remarks and recommendations • Until the entering of all South East European countries to the EU the authorities from the region, the EU Commission and the inter-national financial institutions should ensure – by committing themselves – regional cooperation, implementation of EU regulatory framework and market opening. • Cooperation must ensure that technical standards, administrative procedures and conditions for rail transport operations will be gradually homogenous in order to: • preserve high levels of interoperability • minimize physical and regulatory fragmentation of the rail system and reduce the need for technical inspections at the border • streamline the border crossing process: return of investments on reducing the time needed for border operations is higher that the one on infrastructure • Several initiatives for the strategic development of the transport networks such as: South East European Transport Observatory (SEETO), Accessibility Axis of the SEE Cooperation Programmeetc., should further continue and expand. • Financial institutions and instruments, global and regional, (such as World Bank, European Union, Western Balkans Investment Framework, the European Investment Bank, the European Bank for Reconstruction and Development, the Development Bank of the Council of Europe, the Black Sea Trade and Development Bank, etc.), should be jointly exploited towards the establishment of an credit “vehicle” that will support regional Wider Black Sea Area railways investments.

31. Conclusions, remarks and recommendations • Promotion of multimodality and the connection of railways to port terminals of the SEE area is crucial in order to ensure that they will act efficiently as gates for the SEE hinterland as well as the central Europe and Russian market. • Focus should be given on resolving and facing soft issues affecting railway performance, attracting new traffic, ensuring interoperability, planning the developments after a thorough study for the needs of the whole area and developing in very short term small missing but crucial parts of rail network. • Competition will shape its own intermodal routes …..but close cooperation of stakeholders is required to make SEE area efficient, effective, attractive and promote Development for its citizens…. • Forecasts rarely meet reality – SEE area cooperating, step by step, may shape its future market appropriately and make it happen. • SEE area suffered and still suffers from conflicts and tensions among countries.

32. Conclusions, remarks and recommendations • EU and EU programmes offer an unique umbrella for bringing together stakeholders, fostering dialogue and active cooperation resulting in benefits far more important than economic efficiently. • Such a policy should continue more intensively. However, the new planned programmes for the area make a separation between “Danube” bordering countries and “Gate” South Mediterranean Sea bordering countries seems to move in the opposite direction. • Thus, it has to be ensured that close active cooperation among stakeholders of the whole SEE area should be possible particularly in transport infrastructure and procedures related projects. • The internalisation of external costs, although desirable, particularly for railways, meets various problems such as: • adoption on a pan-european level, • adoption of methods of calculation for all modes, • equal terms of competition with non EU operators. • Alternatively should be fostered the greening of logistics chains by various measures and incentives.

33. Thank you for your attention! Transport Systems Research Group/AUTh, Contact: naniopou@civil.auth.gr www.tsrg.gr ARISTOTLE UNIVERSITY OF THESSALONIKI TRANSPORT SYSTEMS RESEARCH GROUP