IRJ Blogs continued

The closure of a small stretch of railway line must never again lead to the chaos and wide-reaching economic damage of Rastatt, an incident which has directly exposed rail as the weak link within the integrated logistics chain. A strong transport supply system underpins vital trade relations between European countries and beyond, as well as local, national and European economies. Customer confidence in rail transport has also been damaged, jeopardising modal shift in the coming months and beyond. This must be rapidly restored if rail is to continue playing a key role in Europe’s sustainable transport system.

THE merger of Alstom and Siemens’ Mobility division on September 26 might be read as a reaction to another recent tie-up in this age of consolidation in the railway rolling stock supply market: the combination of Chinese state-owned companies, CSR and CNR, in June 2015.

SEPTEMBER 26 brought a double-dose of bad news for Bombardier, with the US Department of Commerce imposing punitive tariffs of 219% on the import of C Series aircraft and Alstom and Siemens announcing the combination of their mobility businesses in a “merger of equals” which will create the world’s second-largest supplier of rail equipment.

TECHNOLOGY is advancing at a faster rate than ever before, and the pace of change is impacting many areas of business and industry, with some of the innovators firmly intent on disrupting the status quo.

OVER the last 20 years the value of trade between Africa and the rest of the world has quadrupled, but trade between African nations remains extremely limited. According to the World Trade Organisation, intra-regional trade accounts for just 18% of Africa’s total trade volume. This compares with 50% for North America, 52% for Asia, and 70% for Europe.

THE closure of the north-south corridor in Rastatt, Germany, is a disaster for rail freight on perhaps the most heavily-used intermodal corridor in Europe. According to operators, only 15% of the normal 200 intermodal trains per day can operate on diversion routes.

FOR several years now governments around the world have been trying to attract private funding for rail projects as a way of bridging the gap between dwindling public resources and the need to expand urban and national transport networks. There has also been a growing readiness by both private investors and pension funds to invest in infrastructure, which is regarded as a relatively safe place to invest at a time when interest rates are at rock bottom.
The appetite for private investment in rail and innovative financing schemes has stepped up a gear in the last few months. The US Federal Transit Administration (FTA) recently unveiled its proposed Private Investment Project Procedure (Pipp) for public transport capital projects. This is designed to help the federal government develop more effective approaches to spurring private participation and investment in areas such as planning, finance, construction, maintenance, and operations by allowing recipients of federal funding for transit projects to identify specific FTA regulations or procedures that could impede the use of private investment in a project.

Across the border in Canada, the Canada Infrastructure Bank is being set up as part of the national Investing in Canada plan with the objective of attracting private and institutional investors to support infrastructure projects. Canada is no stranger to private funding, with several transit projects funded through public-private partnerships (PPP) such as Vancouver’s Canada Line.

There are also two innovative transit projects in Montreal and Toronto. The federal government announced in June that it will contribute $C 1.28bn ($US 960m) towards the $C 6.04bn’s 67km Metropolitan Electric Network (REM) light metro in Montreal, which means the project is now fully funded. CDPQ Infra, a subsidiary of pension fund Caisse de Dépôt et Placement du Québec, is contributing
$C 2.67bn, the province of Quebec $C 1.24bn, and Hydro Quebec $C 295m, while $C 512m is due from land value capture.

In Ottawa, a group of local companies known as the Moose Consortium are planning to introduce a privately-financed commuter rail service on a 400km network of existing lines based on a “property-powered rail open market development model”. Letters of intent have been exchanged with an investment consortium to assess the business model. The idea is that each station and its surrounding land would be developed independently by private entities. Moose would split the profits from any property value gains and collect a fee for providing the train service.

On August 16, the Indian government announced a new policy whereby it will only approve or fund metro projects after state governments have firmed up PPP agreements and last mile connectivity plans have been finalised. But only projects with a financial internal rate of return of 14% will be approved, compared with 8% at present. There will be three models: PPPs with central government assistance, government grants of up to 10%, and an equity sharing model split 50:50 between the central and state governments. All three models have a mandatory requirement for private-sector participation.

While this is all good news for the railway industry, it is important to note that private and independent public investors have expectations which may not always align with the objectives of the public sector. First and foremost, investors expect a return on their investment. This means that the cost of implementing the project is likely to be higher than with a straightforward publicly-funded scheme.

Private investors are also likely to be less risk averse than public bodies. For example, not only did the Canada Line in Vancouver cost more to build than the light metro’s other two lines, but a more conventional traction system was chosen for the Canada Line rather than the linear-induction system used on the rest of the network. This means Vancouver now has two incompatible train fleets at a time when it is short of rolling stock.

Capturing value from rising property prices or funding rail projects as part of a property development are often difficult to achieve because ideally the railway needs to be built first to ensure the viability of the property development. This means funding must be secured for the railway project ahead of the property development, and only very big developers have the resources to do this. Hong Kong is a world leader in funding metro extensions through property development, but the metro extension is always built and funded first and the investment is only repaid once the property development is completed.

Finally, the separation of infrastructure from operations in Europe makes PPPs more risky than elsewhere because of the difficulty in obtaining guarantees from train operators that they will provide the level of service required to give a return on the investment, as demonstrated by the failure of TP Ferro, which had a 50-year concession to build and operate the 44.3km high-speed line linking Perpignan, France, with Figueres, Spain. TP Ferro went into receivership in late 2015 after declaring debts of e560m because traffic was less than a third of that forecast by the company in 2003 when the concession was awarded.

Public authorities need to be fully aware of the risks associated with PPPs and other private funding models to avoid ending up with projects that are too expensive to maintain or operate.

THE deployment of the ETCS train control element of ERTMS in Europe has been painfully slow, with only 4500km of lines either equipped or in the process of being installed, and virtually no cross-border lines equipped at all. Conversely, the uptake of ETCS has been much greater outside Europe.

THIS month we report on a flurry of activity in the high-speed rail sector where three projects are coming to fruition in France, and French National Railways (SNCF) is starting to rebrand its iconic TGV. Across the Channel in Britain, construction is about to start on Britain’s second high-speed line, while in the Baltic states the three countries are putting aside their differences to push ahead with the Rail Baltica high-speed project. In Asia, the Kuala Lumpur - Singapore high-speed project is gaining momentum.

US president Donald Trump’s appalling decision to pull out of the Paris climate accord has rightly been met by a chorus of condemnation from all key European leaders, and a collective commitment to continue working towards the goals of this crucial international agreement. But while Trump’s proclamation dominated the headlines, another climate story on the other side of the Atlantic went almost unnoticed.

Page 2 of 21

Get the latest rail news

IRJ Rail Brief newsletter covers global railway news