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Draft proposal to be presented in the EC call FP6-2004-TREN-3

Development of a new infrastructure cost allocation model to improve European competition in the railway sector

Rome, 1 September 2004

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Project Title: / FP6-2004-TREN-3
Integrating and Strengthening the European Research Area
Sustainable development, global change and ecosystems
Sustainable surface transport
56 million €
3.4.1.Research to support the European Transport Policy - Improve infrastructure cost allocation methods
Specific Targeted Research Project
29 June 2004
8 December 2004
Developing a new infrastructure cost allocation model to improve European competition in the railway sector
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Editor : / Eutelis Italia Srl
Antonio D´AMICO,
Abstract:
The present document contains the presentation of the proposal draft realised by Eutelis to be presented in the EC call FP6-2004-TREN-3
All rights reserved.

The present situation in the European railways is characterised by the existence of different and fragmented methods of charging the infrastructure costs among the European countries and by the national public railway companies that use mechanisms of cross subsidisation between infrastructure costs and services costs, to hinder the competition and thus hamper the take up of a more efficient and competitive market.

This situation leads to a significant number of barriers to new market entries as well as the preservation of natural monopoly at the national levels, being actual cost allocation and access charges procedures not in favour of the competition among train operators.

A higher competition in the sector is a premise for increasing the railway mode of transport, which is a more sustainable way of transport in comparison to road and air transport.

Economic and policy requisites of cost allocation and charging models for infrastructures

Infrastructures are characterized by longevity, joint use, scale economies and indivisibilities.

As a consequence, the pricing of infrastructure is difficult both in conceptual and practical terms. In cases where a single entity provides both infrastructure and train services, the task is one of cost allocation. On the other hand, in cases where separate entities are involved, it is a matter of determining the charges to be levied by the entity responsible for infrastructure for access it.

According to the economic principles by the European Commission charging framework should have the following key characteristics:

  • Transparency – the structure should provide clear information to industry participants on the make-up of charges, and, hence, not confer undue advantage on particular industry participants, e.g. through information asymmetry.
  • Stability – charges should not fluctuate or alter in arbitrary or unpredictable ways, except where significant short-term cost changes are being signalled – if congestion (scarcity) pricing is introduced, shortrun prices could be unstable, but predictability about future average levels could be given in some cases by establishing a long-run avoidable (marginal) cost around which short-run prices might be expected to fluctuate;
  • Measurability, cost-effectiveness and objectivity – the data required to derive charges should be objectively measurable, cost-effective to collect and unambiguous to apply (for billing purposes).
  • Cost-reflectivity – in order to meet the objective of economic efficiency, charges will need to be cost-reflective.

In principle, the costs that underpin infrastructure charges should consist only of those elements which are relevant to the specific pricing, investment, or operating decisions under consideration. Relevant costs can, in general, be divided into variable costs which vary with output, such as maintenance, operations and replacement, and fixed costs, which are incurred whether more or less traffic is carried. Use of parts of the network by more than one user can result in costs that cannot be directly attributed to any one particular user, the ‘common cost problem’. A particular importance must be given to the recent research on the marginal infrastructure costs, to define the field where its application is reliable.

The Project Objective are:

Survey on European legislation in the field of railway transport and existing model of infrastructure charges

It will be focused on the review on the existing models of infrastructure charges in different Member States for the overall transport modes with particular focus on the review of the current cost allocation practices and criteria for charging costs infrastructure in railway sector in the light of the recent European legislation.

Analysis of the impact of the methods of cost allocation

It will be provided the analysis, on the basis of real cases history, of the impact of the most common models of cost allocation for the infrastructure, such as full cost, marginal costs, cost inclusive of externalities etc. on the effective market competition in the provision of services.

Proposal of more appropriate cost allocation models to stimulate competition

It will carried out definition and testing of new and more reliable cost allocation models, in particular for variable infrastructure costs, which at the same time combine efficiency and promote new entry into the market.

Development of a knowledge management cost allocation tool to support scenario simulation

It will be developed a knowledge management cost allocation tool using software simulator approach to elaborate criteria and key concepts of an econometric analysis, with the aim to identify the most suitable scenario (criteria and figures) for the liberalisation of this market. The analysis will rely on empirical data deriving from numerous and real world cases.

Testing the validity of the model for other sectors of transport and dissemination

The activities will be finalised to perform the following tasks:

  • To enlarge the validity, usability and exploitation of the model above defined trough a number of testing on other sectors of transport such as air transport, road transport, etc.
  • Dissemination activities

Contributions to identification of an European cost allocation model

It will be to addresses new policies and support new legislation adoption in the field of infrastructure transport, both regarding policies to stimulate competition and policies for the harmonisation of the methods for charging infrastructure costs, with particular focus on the railway and highway mode of transport.

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