Regulation of sectors with public subsidy - CERRE Forum Dr Pierre MESSULAM Director for Rail Strategy and Regulation
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Regulation of sectors
with public subsidy
CERRE Forum
February, 24th 2011
Dr Pierre MESSULAM
Director for Rail Strategy and Regulation
(pierre.messulam@sncf.fr)
Place of the railroad within national preoccupations
Railroad industry was historically unable to sustain an approach based only on strengths of the
market.
Facing financial difficulties Railroad companies in the middle of the 20th century were poised to
pass under European States direct control to assure the perpetuity of the rail sector.
Indeed, public policies are concerned by Transportation for an array of issues :
Economic life of territories,
Well being of their inhabitants
National safety (and warfare)
Public subsidy is consequently part of the economic equation of the sector.
But what is today the role of the market? How could market give insights of opening process of
the rail sector defining best services to the best price for customers' largest number ?
By the way, who are the customers of the rail sector ?
These questions, with a strong political impact dealing with complex technical and financial
issues, demand a public policy and a regulation doctrine to implement it.
CERRE Forum - Dr Pierre MESSULAM 2 sur13
Whatever choice of public authorities, european railroad industry requires public subsidy
(ref 2008, 2009)
Sources of financing of railroad systems
100%
90%
80% 1,4
10,0 10,0
70% 8,6
1,8
5,4
60%
0,3
50%
40%
4,2 0,7
4,6
30%
0,0 1,7 0,5
20% 1,1
1,0 4,9
10%
4,8
3,0 1,1 0,4
0%
DBA G SNCF/RFF Sw eden Sw itzerland Great Britain Czech Republic
Public subsidy Md€ Debts Md€
Regional services sales Md€ Customer sales Md€
CERRE Forum - Dr Pierre MESSULAM 3 sur13
Various sources of financing the railroad system in Europe – Facts & Questions.
All the systems benefit from public subsidy
But in variable proportions
With a partition of the participants reflecting the choice of States
The market matches only part of the economic model
The largest customer’s profit is not affordable through sole regulation of the railroad
companies (never neglect weight of the public financing)
Regulation shall have leverage on public authorities.
CERRE Forum - Dr Pierre MESSULAM 4 sur134 big types of stakeholders interacting through economically non consistent equations. What is
Regulation dealing with ?
The 4 stakeholders are :
The railroad infrastructure manager (IM)
The Rail Station manager
The Harbour facilities manager
The Railway Undertaking (RU)
Their economic models and their performance levers are different
CERRE Forum - Dr Pierre MESSULAM 5 sur13Economic models are based on somewhat contradictory goals and means.
Revenues / Charges Ways & Means
+Sale of access track charges Maximise the revenue (yield)
- Maintenance of the network Creation of profitable new infrastructures
Rail Infrastructure
Manager (IM) - Investments (renewal, creation Eliminate superfluous infrastructures
new lines) R*D to lower the costs (limited lever)
+ Access fees Latent capital gain (increase in value) of
+ Valuation of spaces the property around the station
Rail Station Manager
(SM) - Maintenance
+ Volume of traffic Quality tracks for best connection with the
- Maintenance of access roads Hinterland
Harbour facility
Manager (HM) Improve efficiency harbour facilities
+ Sales to customer Combine efficiently the costs of production
- Distribution cost Develop products / services
Railway Undertaking
(RU) -- Cost of Infrastructure
The profitability of an RU is largely dependent on decisions of the IM (tolls and distribution of
capacities which has a direct impact on the rate of use of Train sets))
CERRE Forum - Dr Pierre MESSULAM 6 sur13The complex relations between the player
Interactions / need of each stakeholder. Railway Undertaking bundles all, while facing the customer.
Be
w
flo n Infrastructure Manager wit st co
rk tio h t nn
o he ect
w ma Hin ion
Distribution of capacities
n r ter op
t io nfo lan po
a i d rtu
r m er n itie
fo g s
t in sen
s s
Be r pa
fo
Harbour Manager
Station Manager
ig ht
Best f fr e
o
spot
wit Railway Undertaking a t ion
z
hin t
he S h r oni
tatio c
syn
n
n
Ac ime
st
ti o
Be
(t
cu tab
ce ma
ra le
tra for
te s
)
in & s
& in
Service schedule /
fo e
k e
rm rv
ac rat
Ticketing / billing / On
at ice
(tr cu
io s
time information / ETA -
Ac
n )
Estimated Time of Arrival
CUSTOMER
CERRE Forum - Dr Pierre MESSULAM 7 sur13All stakeholders are linked in a value chain
The railroad undertaking is the only one to know the final customer / the market, but it
depends on 3 other players and on their costs.
There are few player but they are bound and participate in the value created by the sector
The role of the regulatory body will thus be to :
define the rules of sharing of the created value. What will be the part for the RU ? What
will be the incentive for a new entrant (RU)?
Watch (garanty?) the economic viability of each of the players (generate a sufficient
profitability to attract the capital)
Build an economic and political frame in the long term which assures an optimal
allocation of the available resources according to the political vision of transport carried
by public authorities
Vitality of the economic exchanges
Environmental protection
Improvement of the well fare of the inhabitants
Conditions allowing the capital to turn to this sector
CERRE Forum - Dr Pierre MESSULAM 8 sur13Specificities of the railroad sector
Extremly low liquidity of assets: very difficult to redeploy or to sell or lease ? Premium of
the low liquidity / risk of overcapacity
Very long life cycle of assets
In spite of the public subsidy, a sector globally with negative outcome
A need of considerable investment for the renewal of railroad infrastructures but also of
the rolling stock
A lack of sources of funding (private as public)
New Constraints (externalities) which increase the costs
A necessity for the Regulatory body to act at once on the players of the market and the
political player
A necessity of defining well the part of the sector which reasonably must be opened to
the market and the one who has to recover from the political power
CERRE Forum - Dr Pierre MESSULAM 9 sur13The Regulatory Body carries both the role of a referee towards each stakeholder and the
role of global system consistency on short and long term.
The regulation can / should concern the following points
Rail Infrastructure Pricing of the infrastructure access
Manager (IM) Cycles of allocation of capacities
Stakes at micro economical level ( real costs)
Stakes at macro economical level (Share of added value between IM and RU)
Rail Station Manager Equity of treatment between RU
(SM) Sharing of value created by increase of the pole of exchange between SM, IM,
RU
Harbour facility Manager Carry vision on long term, in particular for structuring projects for HM and RU
(HM)
Railway Undertaking Fair treatment versus other RU
(RU) Harmonization of rules of competition, in particular for social matters
Need for stability in the conditions of access to the essential resources
(Infrastructures (tolls, slots), Stations
Need for stability of the technical standards (stopping excessive specification
(example ERTMS) to ensure capital costs.
Public authorities Global vision on long term (the issue of saturation and closure of lines)
CERRE Forum - Dr Pierre MESSULAM 10 sur13The role of the Regulatory Body in this complex system is crucial
The socio economic context, although favorable, is insufficient to create an economic
dynamics compatible with the political stakes without the stabilizing action of an active and
powerful regulatory body.
The opening of the market, the progressive dismantling of monopolies to tip over the sector
to a logic of market obliges to adress new ways on :
The global balance in the economy of the sector taken in general, if we cannot
count any more on same public subsidy
The economic frame allowing the RU to pay off invested capitals and cover risks
which they carry
The institutional or economic mechanisms which allow an adequacy of the
behavior of the RU with a vision of general interest carried by public authorities
CERRE Forum - Dr Pierre MESSULAM 11 sur13The role of the Regulator in this complex system is crucial
This requests to :
reexamine the political and economic regulation of the sector by public
authorities
define the rules of the game between Infrastructure Managers and the
Railway Undertakings
define the modalities of competition between operators
CERRE Forum - Dr Pierre MESSULAM 12 sur13Some questions for discussion
Do the statutory texts and the action range of the Regulatory body allow
to resolve the global equation ? If not, what should be added ?
Transport is to some extent a basic commodity for citizens’ daily life.
How is it possible to both open concurrence and regulate market
behaviours while ensuring global public interest ?
Public intervention seems to be doomed to go on in the industry : How
could we have it framed for the sake of a consistent European Policy ?
CERRE Forum - Dr Pierre MESSULAM 13 sur13You can also read
