SUSTAINABLE IN EUROPE PROJECT

Summary of key challenges and opportunities

September 11, 2018 - , KEY CHALLENGES AND WHY THEY EXIST

CROATIA HAS CHANGED AROUND THE RAILWAY

VALUE ADDED OF DIFFERENT SECTORS VALUE ADDED OF DIFFERENT SECTORS TO TO GDP (1995) Industry GDP (2017) (including Industry Services, construction), (including value added value added construction), (% of GDP) (% of GDP) value added 50% 23% (% of GDP) 27% Agriculture, forestry, and Agriculture, fishing, value forestry, and added (% of fishing, value GDP) added (% of 3% Services, GDP) value added 6% (% of GDP) Manufacturing Manufacturing 61% , value added , value added (% of GDP) (% of GDP) 13% 17%

Source: World Development Indicators, Accessed August 2018 DISPARITY IN QUALITY BETWEEN ROAD AND RAIL AFFECTS COMPETITIVENESS

Quality of Transport Infrastructure (overall) 7,0 6,5 Croatia 6,0 5,5 Denmark 5,0 4,5 France Quality of airport 4,0 3,5 Quality of roads infrastructure 3,0 2,5 2,0 Italy

Netherlands

Poland

Romania Quality of railways Quality of Ports infrastructure EU Avg.

Source: World Economic Form “World Competitiveness Report – Infrastructure Benchmarks RAILWAYS – FALLING PASSENGER DEMAND

PASSENGER STATISTICS (ROAD AND RAIL) 8.000 Total Railway as % of total Road as % of total 60% 7.000

50% Kms - 6.000 40% 5.000 4.000 30% 3.000 20% 2.000 10% by mode total of %

1.000 MillionPassenger - 0% 2010 2011 2012 2013 ҉ 2014 2015 2016 Source: Croatian Bureau of Statistics ROADS CAPTURING INCREMENTAL FREIGHT DEMAND

200.000 FREIGHT STATISTICS (ROAD AND RAIL) 10,0% 180.000 Total Railway as % of total Road as % of total 9,0%

160.000 8,0% km

140.000 7,0% -

120.000 6,0%

km carried km - 100.000 5,0% tonne

80.000 4,0% Tonne

60.000 3,0% (incl. maritime)(incl.

40.000 2,0% total of %

Million 20.000 1,0%

- 0,0% 2010 2011 2012 2013 ҉ 2014 2015 2016 Source: Croatian Bureau of Statistics CROATIA LAGS E.U. PEERS FOR RAILWAYS PASSENGER DEMAND (2015 DATA)

100 Passenger cars Motor coaches, buses and trolley buses Trains 90 80 70 60 50 40 30

20 % of total mode share mode totalof % 10

0

Italy

Spain

Malta

Latvia

France

Poland

Greece

Ireland

Cyprus

Croatia Austria

Estonia

Finland

Sweden

Norway

Portugal

Bulgaria

Belgium

Slovenia Slovakia

Romania

Germany… Denmark

Lithuania European…

Switzerland

Netherlands Luxembourg

Source: Eurostat Republic Czech United Kingdom United SHARE OF RAILWAYS FREIGHT SLIGHTLY HIGHER THAN E.U. PEERS (2016 DATA)

120 Roads Railways Inland waterways 100

80

60

40

20 % of total mode share mode totalof %

0

Italy

Spain

Malta

Latvia

France

Poland

Greece

Ireland

Cyprus

Croatia

Austria

Estonia

Finland

Sweden

Norway

Portugal

Bulgaria

Belgium

Slovenia Hungary Slovakia

Romania

Denmark

Lithuania

Switzerland

Netherlands

Luxembourg

Germany (until… Germany

Czech Republic Czech

European Union… European United Kingdom United Source: Eurostat SOME OF THE KEY CHALLENGES AND WHY THEY EXIST

1. Smaller scale and legacy network only recently being reintegrated

2. Old, slow infrastructure contributes to lack of competitiveness and inefficiency

3. Overly complex infra. designed for a different era no longer fit for purpose – this costs more to inspect, maintain, and operate

4. Governance frameworks remain under development but new Public Service Obligation is a positive step OPPORTUNITIES DEMAND FOR INTERNATIONAL PASSENGER TRANSPORT EXISTS

TOTAL PASSENGERS CROSSING CROATIA'S BORDERS BY ROAD 100.000.000 (2017, ENTRIES + EXITS) 81.059.943 80.000.000 entry + exit of passengers on road border crossing points 50.963.562 60.000.000 40.000.000

20.000.000 13.154.319

7.337.779 2.484.801

0

border

border

border

Croatian-Slovenian

Croatian-Hungarian

Herzegovinian border Herzegovinian

Croatian-Bosnian Croatian-Bosnian and

Croatian-Montenegrin Croatian-Serbian border Croatian-Serbian Source: Croatian Bureau of Statistics INCREASING ROLE OF PRIVATE SECTOR IN FREIGHT WITH COMPETITION

HŽ I TRACK ACCESS CHARGE REVENUE FROM PRIVATE OPERATORS (2013-2017) 12.000 Income from fees for access to railway 10.000 infrastructure (private co.s) 8.000

6.000

HRK '000 HRK 4.000

2.000

0 2013 ҉ 2014 2015 2016 2017

Source: HZI financial statements 2014-2017 DEMOGRAPHIC OPPORTUNITIES IN THE COMPANIES

600 2017 STAFF AGE PROFILE OF HŽPP 497 381 400 268 234 182 172 200 category 75 112 16 # of of by staff # age 0 less than 25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61 and older Age Group 2266 2500 2016 STAFF AGE PROFILE OF HŽI 2000 1514 1500 category 1000 670

# of of by staff # age 500 156 212 0 20-30 31-40 41-50 51-60 61-65 Source: HZI and HZPP company data Age Group GROWTH IN CONTAINERIZED TRAFFIC BENEFITTING BOTH PORTS AND RAILWAYS

INDEXED TRENDS IN CONTAINER TRAFFIC 1,75 (2010 - 2016) 1,65 1,55 1,45 1,35 1,25 1,15

Indexed Value (2010 = 1.00) = (2010 Value Indexed 1,05 0,95 2010 2011 2012 2013 2014 2015 2016 World Croatia Slovenia Italy Romania

Source: UNCTAD statistics KEY OPPORTUNITIES

1. Potential for “total line modernization” approach and infra. simplification

2. Developing market for freight services with enhanced competition and choice

3. Opportunities for suburban peri-urban service to develop further

4. Opportunities for international passenger transport along key corridors at higher speeds

5. Demographic opportunities in the companies to change course

6. Opportunity to develop Croatia’s key freight corridor (-Zagreb-) ANNEXES POPULATION TRENDS FOR OVER 50K PEOPLE

1,04 POPULATION TRENDS - CITIES OVER 50K PERSONS

1,02 Growth 1,00

0,98 Decline 0,96 0,94 0,92 0,90

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Populaiton Index (Yr. 2007=1.0) (Yr. IndexPopulaiton OF ZAGREB Split Rijeka - Pola POPULATION CENTERS

LOCATION OF CROATIA'S POPULATION (2016) CITY OF ZAGREB 803.647 19% Split 172.362 4% Rijeka 120.855 3% Osijek 104.638 3% Zadar 75.437 2% Velika Gorica 63.323 All other areas 2% 2.649.111 Pula - Pola 64% Karlovac Slavonski Brod 56.527 52.488 55.825 1% 1% 1% PORTS - RIJEKA CARGO TONNAGE BY TYPE (2011-2017)

14.000.000

12.000.000

10.000.000

8.000.000

6.000.000 Tonnes

4.000.000

2.000.000

0 2011 2012 2013 2014 2015 2016 2017

Dry cargo (general, bulk, timber) Container cargo Fuel cargo Total tonnage PORTS - RIJEKA CONTAINER TRAFFIC

300.000

250.000

200.000

150.000

Foot Equivalent Unit Equivalent Foot -

100.000 Twenty

50.000

0 2011 2012 2013 2014 2015 2016 2017

TEU ROADS – FATALITY RATES PER 100K POPULATION

12 2013 2014 2015 10

8

6

4

2 Fatality rate / 100k population 100k / rate Fatality 0 LOGISTICS PERFORMANCE INDEX – LOOKING BEYOND INFRASTRUCTURE

Bulgaria Ability to track and trace consignments (1=low to 5=high) 4 Croatia 4 4 Quality of trade and transport-related 3 Competence and quality of logistics services Greece infrastructure (1=low to 5=high) 3 (1=low to 5=high) 3 3 Hungary 3 2 2 Italy 2

Ease of arranging competitively priced Overall (1=low to 5=high) Latvia shipments (1=low to 5=high) Lithuania

Romania Frequency with which shipments reach Efficiency of customs clearance process consignee within scheduled or expected time (1=low to 5=high) Slovakia (1=low to 5=high)

Slovenia -

MOBILITY IS A COMPETITIVE AND COMPLEX BUSINESS

Or Or Or -

NOT JUST INFRASTRUCTURE - WHO WE ARE, WHERE WE GO, WITH WHOM, AND SERVICE MATTERS

ACTIVITY / LAND USE CHARACTERISTICS

TRIP MAKER CHARACTERISTICS

TRIP # D CHARACTERISTICS O

TRANSPORT SYSTEM CHARACTERISTICS