WITHOUT European Union (EU) Structural Funds, railways and rail infrastructure development in Central and Eastern European countries (CEE) would struggle to maintain their current momentum. Although the Fourth Railway Package promises to introduce better rail passenger services by enhancing competition, the correlation between EU funding and improvements in quality and efficiency of many national and regional networks throughout the region is clear.
While strong political preferences still exist for road projects, investment in railway infrastructure is becoming more important for many national and regional authorities. Indeed OECD figures show that rail investment is growing. For instance, when compared with the period 2007-2013, the financial framework in 2014-2020 for rail-oriented funds will grow in CEE from €23.4bn to €29.9bn, including the transfer of €11.3bn from the Cohesion Fund to the Connecting Europe Facility (CEF).
CEE railways receive a greater proportion of the financing available because there would be little or no progress at all on some key projects without the EU Structural Funds and the Cohesion Fund. Indeed EU cohesion policy-related financing, and emerging financial instruments offered by the EU, are the main source of funding for rail infrastructure investments in the region, from track modernisation and railway electrification, to ERTMS and signalling projects, as well as for purchasing new rolling stock.
Traditionally key railway infrastructure development projects on core networks have been implemented under the Trans-European Transport Network (Ten-T) guidelines and respective financing instruments, including €24bn from CEF for the period 2014-2020. The CEF instrument focuses on Ten-T projects which complete key railway transport links, particularly cross-border routes and eliminate bottlenecks. Under the CEF 2015 call, more than €7.6bn is available for transport investments, mainly rail infrastructure, but also ERTMS deployment.
In this context, €6.5bn is earmarked for countries with Cohesion Fund eligibility which are mainly situated in Central and Eastern Europe, where the rate of co-financing will remain at 85% for most projects. As a result a general envelope of €1.1bn is still available to all 28 EU Member States, yet the Cohesion countries are still encouraged to tap into this dedicated budget. It's worth mentioning that around 70% of the CEF envelope will be dedicated for rail investments and once properly allocated, this might finally address the rail infrastructure funding gap that CEE governments across the region have been struggling with for decades.
The new European Fund for Strategic Investment (EFSI) and loans available through the European Investment Bank (EIB) complete the picture of the EU-driven financial support for CEE's railway upgrades. But how are these funds used in practice?
Poland is the largest and the most important CEE rail passenger market and is currently engaged in several projects to modernise existing rail infrastructure as well as to upgrade rolling stock. In the latter case, state-owned operator PKP Intercity purchased 20 new Alstom Pendolino trains worth €665m, which entered service in December 2014, and 20 Pesa Dart trains worth €323m, which entered service at the end of 2015, deals which were both co-financed by up to 70% by the EU.
The scale of projects are no surprise given that EU financial assistance for Poland in 2014-2020 will reach a record high €82.5bn, which is nearly €15bn more than in 2007-2013. The rail sector in Poland has been allocated €5bn, compared with €2.3bn for public transport and urban mobility and €12.4bn for roads and highways.
Under the €5bn Priority Axis V of the Operational Programme Infrastructure and Environment (POIiS) and the National Rail Programme (KPK) 2023, financing is prioritised for projects which reduce journey times between main cities, increase safety across 13,600km of track by installing ERTMS, and increase urban rail's modal share from 167 trips per passenger in 2011 to 227 trips by 2020.
Under the latest CEF call, railway infrastructure manager PKP PLK proposed six projects worth €2.5bn, while additional plans include the reconstruction and modernisation of 522km of lines and the acquisition of 167 new passenger vehicles. Finally, local and regional authorities, many of which own regional or urban railways, will have greater access to EU funds included in the 2014-2020 financial framework than ever before. While in 2007-2013 local policymakers could decide on the allocation of 25% of all available EU funds, this rate has now gone up to 40%.
Indeed, urban networks are a major beneficiary of Polish rail investments in recent years. Since 2014, new suburban rail systems are serving two major cities: the Lodz Agglomeration Railway (LKA) and Pomeranian Metropolitan Railway (PKM) in Gdansk. The 18km and fully ERTMS Level 2-equipped PKM is a particularly interesting case study as part of the line was built and financed entirely by the voivodeship (province) using EU funds with no state support.
Moreover, ridership on urban networks is increasing as their attractiveness for customers improves. Around Warsaw, SKM and Mazowieckie Railways (KM) serve around 30% of the total passenger traffic. Inspired by their success, a number of other Polish voivodships are commissioning feasibility studies for new regional railways specifically in Rzeszów (PKM), Szczecin (SKM) and Poznan (PKM) in a strategy to link key regional towns and cities into a modern, rail-based mobility backbone.
Yet while the very investment process in the rail sector has substantially accelerated, experts point out that in the period from 2007-2013 Poland absorbed only 62% of available rail-related EU funds, with 45% of all rail projects moved to the 2014-2020 framework. Many, therefore, rightly question whether stakeholders will be in a position to effectively utilise all of KPK's planned €15.4bn for Polish rail projects by 2023, the final year of accountancy for the EU 2014-2020 financial programme.
Of course key rail investments are not limited to Poland. In Hungary, ETCS Level 2 deployment and a number of rehabilitation and construction projects on key rail corridors are at the centre of Hungary's National Infrastructure Development Company's (NIF) strategy and are supported by EU funds.
Lines earmarked for upgrade include the Budapest - Esztergom, Budapest - Miskolc, Budapest - Lokösháza, Szajol - Püspökladány, Gyoma - Békéscsaba and Budapest - Székesfehérvar routes, which will increase line speeds and capacity for both passenger and freight trains as well as improve safety levels and enhance intermodal transport. In addition, the government recently announced its plans to invest around €3bn in rail infrastructure by 2020. EIB is also supporting national carrier MÁV-Start with €36m to acquire 42 EMUs for €252m, with a request for proposals for the contract issued in January.
In Latvia, the Commission is co-financing €2.8bn-worth of projects devoted to rail electrification on the east-west axis, one of the Ten-T and Rail Baltica corridors connecting Daugavpils and Rezekne with Riga, Jelgava and Tukums. Also, Latvian Railways (LDZ) has just completed a major IT system modernisation project on its data transmission network for the east-west corridor. The EU provided €8.8m towards this €14.2m project. Infrastructure-wise, improvement works are underway on the Skriveri - Krustpils line and on the Rail Baltica corridor, with both projects worth €136.8m. Rail Baltica is set to receive €442.2m under the latest CEF call.
EIB is also active in Lithuania, where it is supporting Lithuanian Railways' key rail infrastructure upgrade projects across the country, predominately on the Ten-T network. The total cost of the projects is €420m, with the EIB providing €68m.
In Estonia, national passenger operator Elron (formerly Elektriraudtee) is set to invest €30m in new trains for the Tallinn - Tartu express service, which will enter service by 2018. It is worth noting that in 2014 the company completed a deal with Stadler for 38 Flirt EMUs and DMUs. This, together with a €15m-worth station modernisation project, is a qualitative part of the national transport strategy to double the share of rail transport in Estonia, based on the current 4.4 million annual passengers.
In the Czech Republic, Czech Railways (CD) is investing €274m in new rolling stock. In turn, one of the key priorities on the infrastructure front is the development of the Kolín - Nymburk - Decín line and the deployment of ETCS.
In Bulgaria, the government will receive up to €134m for rail projects under CEF, including the modernisation of the Sofia - Voluyak and Sofia - Elin Pelin lines with 73-85% of co-financing coming from the EU. There are also plans to build an intermodal terminal in Sofia, procure 30 EMUs by 2020 and modernise the Vidin - Sofia line in a project estimated at €320m. This and other investments are much needed in the country which is experiencing serious rail infrastructure deterioration. Traffic has fallen 70% since the mid-1990s and heavily-subsidised national carrier BDZ is far from ready to successfully compete once the Fourth Railway Package is in place.
In Croatia, state operator HZ is already enjoying 10 brand new regional EMUs delivered by Koncar which it purchased as part of a record €213m order for 44 new EMUs. Deliveries are set to conclude in 2017.
Finally, in Romania the situation is more complex. Although the Romanian General Transport Master Plan (GTMP) includes a number of high-profile infrastructure upgrades, it also envisages closing up to 40% of railway infrastructure in what is a growing concern for the European transport community. The GTMP includes very ambitious investments, and the government has announced plans worth an astonishing €19bn to modernise, electrify and repair 4350km of line. However, with only €1.2bn allocated under the CEF facility, it is difficult to see how many of these projects will secure the funding they require. From current EU-funded projects, one of the key sections undergoing modernisation is the €797m Brasov - Sighisoara line which is part of the Rhine-Danube Ten-T corridor. In 2016 the national operator CFR Calatori also plans to spend €22m on new EMUs.
In sum, these continuing and planned investments show that rail is becoming an increasingly important factor in national and regional mobility in CEE. Yet they demand serious financial resources which couldn't be found without structural assistance from the EU. Notwithstanding the inherited infrastructural gap and the current needs, EU money for rail infrastructure projects across the region is an excellent example of the economic benefits of investing in a means that will further unify the continent and gradually overcome the artificial east-west