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EX POST EVALUATION OF INVESTMENT PROJECTS CO-FINANCED BY THE EUROPEAN REGIONAL DEVELOPMENT FUND (ERDF) OR COHESION FUND (CF) IN THE PERIOD 1994-1999

THE MEDITERRANEAN CORRIDOR

PREPARED BY: CENIT, CENTRE FOR INNOVATION IN TRANSPORT, IN PARTNERSHIP WITH CSIL, CENTRE FOR INDUSTRIAL STUDIES,

PREPARED FOR: EUROPEAN COMMISSION DIRECTORATE-GENERAL REGIONAL POLICY POLICY DEVELOPMENT EVALUATION

BARCELONA, SEPTEMBER 5, 2012

This study is carried out by a team selected by the Evaluation Unit, DG Regional Policy, European Commission, through a call for tenders by open procedure no 2010.CE.16.B.AT.036.

The consortium selected comprises CSIL – Centre for Industrial Studies (lead partner – Milan) and DKM Economic Consultants ().

The Core Team comprises: - Scientific Director: Massimo Florio, CSIL and University of Milan; - Project Coordinators: Silvia Vignetti and Julie Pellegrin, CSIL; - External experts: Ginés de Rus (University of Las Palmas, ), Per-Olov Johansson ( School of Economics, Sweden) and Eduardo Ley (World Bank, Washington); - Senior experts: Ugo Finzi, Mario Genco, Annette Hughes and Marcello Martinez; - Task managers: John Lawlor, Julie Pellegrin and Davide Sartori; - Project analysts: Emanuela Sirtori, Gelsomina Catalano and Rory Mc Monagle.

A network of country experts provides the geographical coverage for the field analysis: Roland Blomeyer, Fernando Santos (Blomeyer and Sanz – Guadalajara), Andrea Moroni (CSIL – Milano), Antonis Moussios, Panos Liveris (Eurotec - Thessaloniki), Marta Sánchez-Borràs, Mateu Turró (CENIT – Barcelona), Ernestine Woelger (DKM – Dublin).

This report is based on extensive research inputs and an earlier draft by the country experts Mateu Turró and Marta Sánchez-Borràs (CENIT), while Emanuela Sirtori and Davide Sartori (CSIL) are responsible for the final version, and for any remaining errors and omissions.

The authors are grateful for the very helpful comments from the EC staff and particularly to Veronica Gaffey, José-Luís Calvo de Celis and Kai Stryczynski. They also express their gratitude to all stakeholders who agreed to respond to the team’s questions and contributed to the realisation of the case study. Quotation is authorised as long as the source is acknowledged.

Cover: in Sitges, picture by Javier López (April 2008).

TABLE OF CONTENTS EXECUTIVE SUMMARY ...... 1 1 PROJECT DESCRIPTION ...... 7

1.1 CONTEXT AND SCOPE OF THE EVALUATION ...... 7 1.2 MEDCORR POTENTIAL USERS ...... 11 1.3 CURRENT STATE OF THE MEDCORR ...... 14 1.4 ALTERNATIVE TRANSPORT MODES ...... 19 2 ORIGIN AND HISTORY ...... 25

2.1 MAIN STAKEHOLDERS ...... 25 2.2 BACKGROUND ...... 26 2.3 PROJECT DESIGN AND IMPLEMENTATION ...... 31 2.4 FUTURE DEVELOPMENT ...... 36 3 LONG-TERM DEVELOPMENT EFFECTS ...... 41

3.1 KEY FINDINGS ...... 41 3.2 DIRECT ECONOMIC GROWTH ...... 43 3.3 ENDOGENOUS DYNAMICS ...... 48 3.4 SOCIAL COHESION ...... 49 3.5 ENVIRONMENTAL EFFECTS ...... 49 3.6 TERRITORIAL COHESION ...... 50 3.7 SOCIAL HAPPINESS ...... 51 3.8 INSTITUTIONAL QUALITY ...... 53 4 DETERMINANTS OF PROJECT OUTCOMES ...... 55

4.1 KEY FINDINGS ...... 55 4.2 APPROPRIATENESS TO THE CONTEXT ...... 56 4.3 FORECASTING CAPACITY ...... 57 4.4 PROJECT DESIGN ...... 58 4.5 MANAGERIAL RESPONSE ...... 60 4.6 PROJECT GOVERNANCE ...... 62 5 CONCLUSIONS ...... 65 ANNEX I. METHODOLOGY OF EVALUATION ...... 67 ANNEX II. COST-BENEFIT ANALYSIS ...... 73 ANNEX III. MAP OF STAKEHOLDERS ...... 105 ANNEX IV. LIST OF INTERVIEWEES ...... 107 ANNEX V. REFERENCES ...... 109

LIST OF ABBREVIATIONS

ADIF Railway Infrastructure Administrator (Administrador de Infraestructuras Ferroviarias)

ADT Average Daily Traffic

AENA Spanish airports and air navigation (Aeropuertos Españoles y Navegación Aérea)

CBA Cost-Benefit Analysis

CETMO Centre of Transport Studies for the West (Mediterranean Centre d'Etudes des Transports pour la Méditerranée Occidentale)

CF Cohesion Fund

CITRAME Interregional Committee for Transport in the Mediterranean (Comisión Interregional para el Transporte en el Mediterráneo)

DG Regio Directorate General for Regional Policies

DGF Railways General Directorate (Dirección General de Ferrocarriles)

EC European Commission

EIB European Investment Bank

ENPV Economic Net Present Value

ERR Economic Rate of Return

ERTMS European Rail Traffic Management System

EU

EUR Euro

EURAM Euro region of the Mediterranean (Euroregió de l’Arc Mediterrani)

GDP Gross Domestic Product

HSL High Speed Line

MEDCORR Mediterranean Corridor

NPV Net Present Value

PTF Plan of Rail Tranport (Plan de Transporte Ferroviario)

R&D Research and Development

RENFE National Network of Spanish Railways (Red Nacional de Ferrocarriles Españoles)

TEN-T Trans-European Transport Network

TEU Twenty-foot Equivalent Unit

UIC International Union of Railways

VTTS Value of Travel Time Saving

EXECUTIVE SUMMARY

This case study illustrates the story of a set of rail investments in the Mediterranean Corridor, a major infrastructure investment co-financed by the European Union (EU) over the period 1993-2002. More specifically, this is an ex-post evaluation assessing the long-term effects produced by the project and interpreting the key determinants of the observed performance. It is an innovative evaluation exercise given the long-run perspective (30 years), which extends into both the past and the future, and requires a mix of retrospective and prospective analysis.

The analysis draws from an ex-post Cost-Benefit Analysis (CBA) and from an extensive set of qualitative evidence, both secondary (technical reports, official reports, press articles, books and research papers) and primary (interviews with key stakeholders and experts have been carried out1). The overall approach and methodology followed is briefly recalled in the Box below and in Annex I.

OVERALL APPROACH AND METHODOLOGY The Conceptual Framework delivered in the First Intermediate Report has been developed from the evaluation questions included in the ToR2, and further specified and organised in accordance with the study team’s understanding. In particular, the Team identified three relevant dimensions of analysis: a. The object of the evaluation (the ‘WHAT’): this relates to the typologies of long-term contributions that can be observed. Starting from the typologies identified in the ToR (socio-economic development and quality of life) the Team developed the following classification of long-term effects: ‘Economic development’ (including effects on GDP growth and endogenous dynamics) and ‘Quality of life’, taken here to be synonymous with additional social wellbeing, i.e. including effects that are not captured by the economic variables. ‘Quality of life’, in turn, has been divided into: social cohesion, territorial cohesion, institutional learning, environmental effects and social happiness. b. The timing of the long-term effects (the ‘WHEN’): this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilise (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here. c. The determinants of the project’s performance (the ‘HOW’): the assumption here is that five aspects of project’s implementation and their interplay are crucial for the project’s final performance. These aspects are: project design, forecasting capacity, governance, context and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects. On the basis of this conceptualisation, a set of detailed evaluation questions are developed, which aim to guide the entire study and to support the provision of conclusions and recommendations. The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (interviews, surveys, searches of government and

1 See Annex IV. 2 They are the following: What kind of long-term contributions can be identified for different types of investment in the field of environment and transport infrastructure? How are these long-term contributions generated for different types of investment in the field of environment and transport infrastructure, i.e., what is the causal chain between certain short-term socio-economic returns and long-term returns from investment? What is the minimum and average time needed for a given long-term contribution to materialise and stabilise? What are these time spans for different types of investment in the field of environment and transport infrastructure? What are the existing evaluation methods to capture a given long-term contribution for different types of investment in the field of environment and transport infrastructure?

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newspaper archives, etc.) techniques, integrated in such a way as to produce ten project histories. CBA is an appropriate analytical approach for the ex-post evaluation because it can provide quantification of or indications of some of the long-term effects produced by the project. However, the most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome. Qualitative analysis on the other had is more focussed on understanding the underlying causes and courses of action of the delivery process. On the basis of the findings of the ten case studies, the Final Report will draw lessons along the key dimensions identified of ‘what’, ‘when’ and ‘how’. Source: CSIL Milano

The Mediterranean Corridor (MEDCORR) is a railway line from /Sevilla to the Eastern French border. It runs across four densely populated regions of Spain: Andalusía, Región de , Comunidad Valenciana and Cataluña. In 1995, at the time of the project, the regions included in the MEDCORR area accounted for 44% of Spanish GDP and 37% of the country’s population. The scope of this case study is not the whole MEDCORR, but only the works carried out in the section from Valencia to Sant Vicenç de Calders, closed to Barcelona3. The project envisaged the provision of double-, the electrification of the line, the installation of new signalling and civil works to replace a number of level crossing by over or underpasses.

The Railway Transport Plan of 1987 was the first Spanish plan to highlight the necessity to improve the rail infrastructure between Valencia and Barcelona. The main arguments in the Plan were capacity problems and the poor quality of the rail services offered, which were responsible for the low transport market share for rail for both long-distance passengers and freight. This intervention was embedded in a broader-level vision promoted since the 1980s by different organisations, both at local and international level (e.g. CITRAME - the Interregional Committee for transport in the Mediterranean), with the purpose of enhancing European competitiveness through the development of a rail line linking the North of Africa with Northern along the Mediterranean coast.

In spite of some stakeholders’ pressures, requesting a qualitative step-up of the Valencia- Barcelona railway, through the creation of an additional high-speed line network (above 250 km/h), which would have left the existing conventional line open to regional and metropolitan passengers traffic and freight traffic, in the 1987 Plan the Spanish Ministry of Public Works opted for the improvement of the existing line to high performance service (speeds up to 200- 220 km/h).

In 1993 financial assistance was requested from the Cohesion Fund (CF) and in 1994 the grant was approved without major modifications to the initial requests. During the appraisal phase, the Commission asked the opinion of the European Investment Bank, which was involved in co-financing other investment projects included in the Railway Transport Plan. The Bank indicated that the study undertaken by the Spanish institutions on the Valencia-Barcelona upgrading was insufficient as a basis for determining whether actions proposed were

3 Respectively located in the two regions of Comunidad Valenciana and Cataluña.

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appropriate, and warned that the global perspective of the line should be analysed, in order to assess the justification of the proposed intervention4.

The project was structured in three stages in order to limit the impact on the existing track, which had to remain operational, as well as to spread the high investment costs over several years. Project implementation, which started in 1993 and was expected to be completed by 2000, in fact has not yet been completed5. Delays and cost overruns occurred in the delivery process, as changes to the route were decided during the implementation phase. Moreover, the planning uncertainties concerning the connection design of the Corridor to the - Barcelona high speed railway line severely delayed the completion of works at the – Vandellós section (45 km), where a single-track still exists. This has become a bottleneck for the entire line. The original project, as subsequently modified, is expected to be completed by 2013, 20 years after its start.

The total investment costs considered in the analysis amount to EUR 759 million (2011 prices), undertaken between 1993 and 2002 and co-financed through the Cohesion Fund and national public resources.

OVERVIEW OF INVESTMENT COSTS AND SOURCES OF FINANCING Financing period 1993-2002 First year of operation 1997 Total investment costs (2011 prices) EUR 759 million 100% Sources of financing and co-funding rates over the total investment costs Cohesion Fund EUR 531 million 70% European Regional Development Fund EUR 0 0% European Investment Bank EUR 0 0% National-regional-local public contribution EUR 228 million 30% Private capital EUR 0 0% Note: according to the EC financing decisions, the Cohesion Fund was supposed to co-finance 85% of programmed investment cost. However, due to cost overruns covered by national resources, the share of CF resources allocated over the total investment cost reduced to approximately 70%.

In 1997, new high-performance services between Barcelona and Valencia (called ‘Euromed’) were inaugurated. Whilst the improved interregional traffic attracted new long-distance passengers to rail, neither regional nor suburban rail services were significantly affected by the investment: actually, no travel time savings were recorded for short-distance and most of medium-distance passengers. The project did not increase freight transport either: actually, freight are constrained by lack of proper connections with the ports, by the priority

4 “The schemes [for which co-financing was asked] are part of the works necessary to complete the upgrading of the Barcelona- Valencia line. Although some of the projects taken in isolation can be justified, their global interest can only be assessed in the context of the possible alternatives for the improvement of rail services in the Corridor. This global study has not been provided and therefore the correctness of the adopted solution cannot be established” (EIB, 1994) 5 This report has been written in June 2012.

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assigned to passenger trains along the line, and by the infrastructure restrictions on the trains’ length, which is limited by the 450-500 metre sidings on the network6.

Despite these problems, the project brought some socio-economic benefits. The improvement in travel time for rail passengers between Tarragona and Valencia, which reduced from three hours and 38 minutes (in 1992) to the current two hours and 55 minutes, has facilitated to some extent business and leisure trips. Both road and rail users have benefitted from the improvements in the rail line. Besides the reduction in journey times, rail passengers have benefitted from greater reliability and also safety, as a consequence of the removal of several level crossings on the line. The producer surplus, i.e. the benefit resulting from increased revenues thanks to higher demand and unit tariffs net of operating costs, is particularly significant, accounting for about 47% of the value of total benefits. These revenues entirely cover the operating costs of the line, thus guaranteeing the financial sustainability of the project in the operational phase.

The direct effects on economic growth through increased efficiency have been, however, minor since they have not led to lower logistics costs supported by improved along the Corridor. Indeed, although freight transport potential demand along the line is high, it has not been captured by the project. Additionally, as far as passenger demand is concerned, it has to be stressed that after an initial increase in demand between 1993 and 2001, demand growth remained stagnant until 2008 and since 2009 has slowed down, returning to 2000 levels. The reason for the recent demand contraction is the economic crisis. However, in more general terms, demand increase was constrained by the saturation of the line, which does not have enough capacity to also stimulate an increase in short/medium- distance passengers and freight traffic.

The Cost-Benefit Analysis indicates that the economic profitability of the project is negative (with an Economic Net Present Value of -6.87 EUR million and an Internal Rate of Return of 4.9%) and the probability for the project to generate a positive return to society is limited (41%)7. Measurable social benefits achieved in terms of travel time savings or reduced vehicle operating costs are outweighed by the high investment costs of the project, confirming that the benefits of the works carried out are modest. If a wider perspective is adopted and the overall traffic demand of the MEDCORR line is considered, it is plausible that benefits for long- distance passengers, going beyond the Barcelona and Valencia stations to other rail sections which are outside the scope of this analysis, are higher: in particular, travel time savings in this case may be higher compared to road transport as may be the induced demand. In addition, as shown by the sensitivity analysis, CBA results are strongly dependent upon traffic volume: if demand returns to the pre-crisis level, the Economic Net Present value would turn positive.

Although it is evident that the project co-financed by the Cohesion Fund was risky and not profitable from an economic view point, nevertheless, some other non-quantifiable effects

6 Rail sidings are sections of track which run parallel to a line and connected to it at both ends by switches. Sidings allow fast or high priority trains to pass slower or lower priority trains going the same direction. 7 As estimated in the risk analysis (Annex II).

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should be considered. In particular, improved infrastructure and modern traffic control systems brought new know-how on rail technology which favoured endogenous dynamics of growth. The contribution of this major investment in the MEDCORR Valencia-Barcelona section to territorial cohesion is high, thanks to the improvement of transport connection along the Mediterranean coastline, which in turn supported the development and strengthening of new linkages within the Spanish territory and a more polycentric pattern of development for the entire country. The project also generated some side effects in terms of social cohesion, thanks to the user-friendly design of the new rail stations and , addressing the needs of people with disabilities, and the provision of a mode of transport for people who do not own a car.

Positive effects that stemmed from the project were the modal shift from road and air transport to a cleaner and more energy-efficient means of transport, which strengthens synergies between environmental protection and growth. Moreover, some of the works, in particular the underground by-pass of Castellón, have reduced the barrier effect and the noise pollution of trains crossing the city.

While the overall public perception of the project impact on their quality of life has been positive, social happiness has been constrained by delays and deadlocks in the line, which have generated widespread feelings of frustration and loss of confidence about the future of the Corridor among local people. Inhabitants’ dissatisfaction was also perceived in some minor towns where, as a result of a new layout, their rail stations were left out of the Corridor: this decision was felt to having caused negative impacts on the economic development of the towns.

The project’s influence on national, regional and local institutional quality is negligible. On the contrary, it contributed to generate and feed hostility and friction among different stakeholders, including: municipalities, asking for changes in the rail route and additional stops by the new rail services at their stations; local and international lobbies promoting the port system’s competitiveness and interested in making the MEDCORR the main high-speed rail gateway to central Europe, demanding more interventions to address freight transport demand; and the national authorities, which are instead in favour of implementing high-speed connections within Spain mainly in a radial direction from Madrid to the provincial capitals.

The analysis of the determinant mechanisms of project performance highlights that project governance and inadequate forecasting capacity were the critical factors. Lack of coordination of all stakeholders’ particular interests and the inaccurate ex-ante demand analysis (also recognised by the European Investment Bank8) prevented from developing a comprehensive long-term strategy for the rail line.

From the appropriateness to the context perspective, while it is true that upgrading the Valencia-Barcelona line ensured territorial and social cohesion, improved the quality of services and produced some travel time savings for long-distance passengers, higher impacts

8 EIB, 1994.

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could have been achieved if a wider perspective view had been taken from the initial stage of project design and, particularly, if the potentiality of freight demand had been also take into account. Similarly, the project’s performance was hindered by poor design: links with the high speed lines could have been envisaged from the origin, as well as proper infrastructure and connections with the ports, so as to produce cost and time saving for freight transport also. Moreover, some inaccuracies and mistakes made in the design phase, admitted by the Spanish government9, caused delays to the completion of works and additional costs.

Finally, managerial response had an overall not particularly significant effect on project outcomes. In order to accommodate local pressures, the rail route was changed at different points, for example in order to preserve the landscape in a place of historical relevance in one case and not to divide an industrial area in another one. Other requests (such as those from a municipality asking for more trains to stop) were not met: this resulted in negative effects on social happiness, but was justified in view of the objective of maintaining higher speed along the entire line.

The completion of the Vandellós-Tarragona section and its connection to the Madrid- Barcelona-French border High-Speed Line (HSL) on the one hand (expected by 2013), and the construction of the High-Speed Line between Castellón and Valencia, to be linked to the already operational Valencia-Madrid HSL, on the other hand (expected by the end of 2014) may affect future demand along the Corridor’s section under assessment. Long-distance passengers will benefit from additional travel time savings and the new HSL will generate spare capacity along the existing line which could be exploited by freight traffic. The actual increase in freight rail transport, however, will depend on the implementation of additional interventions aimed at adapting the existing lines (such as the extension of rail sidings). These may be financed by the Spanish government and the European Commission during the 2014- 2020 period, as a consequence of the recent inclusion of the whole Mediterranean Corridor in the list of TEN-T priority projects for the next European programming period.

As far as the European Commission is concerned, in past years its role in the project has been significant in that it co-financed a very high share of the investment cost (70%). On the other hand, the Commission’s contribution to project design was limited. Its degree of involvement may increase in the future if the Mediterranean Corridor is confirmed as a EU priority project.

9 “In the following [paragraphs] the reasons why this request of modification was submitted are presented, by distinguishing among: omissions, errors and deficiencies of the proposed project, requests from the body involved in the project’s implementation [i.e. Renfe] and [other] adaptations of the project made necessary by the modifications resulting from the previous reasons” (Ministry of Economy and Finance, 1998).

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1 PROJECT DESCRIPTION

1.1 CONTEXT AND SCOPE OF THE EVALUATION The Mediterranean Corridor (MEDCORR) is a rail line connecting the South of Spain (Algeciras/) to the Eastern French border through Valencia and Barcelona (Figure 1.1). A large set of interventions has been financed by the Spanish Government and other sources of financing since the end of the Eighties, all aimed at upgrading the infrastructure and at increasing the MEDCORR’s competitiveness with respect to other modes of transport, particularly road transport.

Figure 1.1 THE MEDITERRANEAN CORRIDOR

Source: Authors

The MEDCORR is one of the major transport routes of the . It connects four Spanish Autonomous Communities: Andalusía, Región de Murcia, Comunidad Valenciana and Cataluña. Economic links are particularly robust especially between Comunidad Valenciana and Cataluña10, which together represent almost 30% of Spanish Gross Domestic Product (GDP)11, a share that has remained fairly constant since the Nineties. In terms both of GDP per inhabitant and the rate of employment12, Cataluña performs better than the other regions considered, with higher values than the Spanish average (as illustrated in Figure 1.2 and 1.3).

10As recognised, for instance, by Boira (2011). 11 Source: National Statistics Institute – INE, 2011. 12 The employment rate represents the employed persons as a percentage of the population.

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Figure 1.2 SHARE OF GDP PER INHABITANT (PURCHASING POWER STANDARD) IN THE MEDCORR REGIONS COMPARED WITH THE SPANISH AVERAGE (=100)

Source: Authors’ elaboration based on Eurostat data

Figure 1.3 RATE OF EMPLOYMENT IN THE MEDCORR REGIONS

Source: Authors’ elaboration based on Eurostat data

Table 1.1 sets out the population, the surface area and GDP of the regions through which the MEDCORR passes, and their share with regard to the total for Spain.

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Table 1.1 CHARACTERISTICS OF THE REGIONS IN THE MEDCORR AREA Autonomous region Province Population (2010) Surface (km2) GDP (EUR million) Cataluña Barcelona 5,511,147 7,728 146,368 Tarragona 808,420 6,303 20,179 Girona 753,046 5,910 19,188 Castellón 604,274 6,632 13,855 Valencia Valencia 2,581,147 10,806 53,365 Alicant 1,926,285 5,817 35,353 Murcia Murcia 1,461,979 11,313 26,995 Almeria 695,560 8,775 13,871 918,072 12,647 15,045 1,609,557 7,308 27,383 Cadiz 1,236,739 7,436 22,069

Total MEDCORR area 17,353,180 84,765 374,483 Total Spain 47,021,031 504,644 1,052,730 MEDCORR area as percentage of Spain 36.9% 16.8% 35.6% Note: The Table considers only the provinces through which the MEDCORR passes; therefore, not all the provinces of the four regions are included. Source: INECO (2011)

In Cataluña and in some parts of Valencia region, the industrial sector is well developed and it is primarily associated with small and medium-sized companies13. In 2009 there were approximately one million companies registered in the MEDCORR area, producing textiles, shoes, toys, furniture, tiles and ceramics14. Modern agriculture is another important engine of economic activity, in particular along the coast in Andalusía, Murcia and Communidad Valenciana.

The economy of the area served by the MEDCORR is strongly oriented towards exports, both in agricultural and industrial products: in 2009 the value of exports and imports amounted respectively to EUR 70 and 91 billion in the area, both corresponding to about 44% of national trade15. Trade activity is favoured, in particular, by the presence of a large number of ports along the Southern coast of Spain (including Barcelona, Tarragona, Valencia, Cartagena and Algeciras), which link Span to the rest of the Mediterranean countries and the world.

Tourism is another important generator of wealth in all four regions, which account for approximately half of the tourists visiting Spain each year. Actually, Cataluña, Comunidad Valenciana and Andalusía are amongst the five most visited regions in Spain (Table 1.2).

13 In 2000 the Gross Value Added of the Valencian and Catalan industrial sector represented, respectively, 10.36% and 26.14% of the Spanish Gross Value Added (source: Baró Tomàs and Villafaña Muñoz, 2009). 14 http://interreg-minieurope.com/the-regions/valencia-region/ 15 Source: Cambra Oficial de Comerç, Indústria i Navegació de Barcelona and Cámara Oficial de Comercio, Industria y Navegación de Valencia (2010).

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Table 1.2 NUMBER OF FOREIGN VISITORS TO SPAIN AND TO THE REGIONS OF THE MEDCORR (THOUSAND) Region 2001 2003 2005 2007 2009 Variation 2001-2009 Andalusía 7,592 7,908 8,352 8,43 7,465 -1.67% Cataluña 9,683 11,373 14,029 15,234 12,705 31.21% Comunidad Valenciana 4,388 4,747 5,402 5,713 5,096 16.13% Región de Murcia 398 493 496 717 842 111.56% Total MEDCORR area 22,061 24,521 28,278 30,093 26,108 18.34% Total Spain 48,565 50,854 55,914 58,666 52,178 7.44% MEDCORR area as a percentage of Spain 45.4% 48.2% 50.6% 51% 50% Source: Authors processing INE’s (2011) data

The location of the MEDCORR, stretching from West to East of Spain and crossing some of its most highly populated and developed regions, makes it a potentially important multimodal axis to connect Spain to the rest of Europe through the Pyrenees and the world via the numerous ports (see Figure 1.4). In particular, Algeciras and Valencia are two of the most competitive ports for Western Mediterranean traffic. As a matter of fact, however, the multimodal potentiality of the Mediterranean Corridor is currently not fully exploited, as discussed in detail in the following Sections of this report.

Figure 1.4 THE MEDCORR IN THE EUROPEAN INTERMODAL NETWORK

Source: http://www.realestatepress.es/MostrarNoticia.asp?M=0&Id=17085

For the purpose of this case study, the unit of analysis considered is not the MEDCORR as a whole (almost 1,500 km long), but only the works carried out in the section between Valencia and Sant Vicenç de Calders - close to Barcelona – (370 km) between 1993 and 2002 and co- financed by the Cohesion Fund (CF). The project’s objective was to improve the speed, reliability and safety of the rail service, so as to reduce the travel time along this route.

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However, mention will be made also of the developments already occurred and planned on the rest of the line, as they affect the history and performance of the project under assessment.

1.2 MEDCORR POTENTIAL USERS Three main types of users of the MEDCORR line can be identified:

i. inhabitants of and visitors to the areas along the MEDCORR: among these, it is possible to distinguish16 between short-distance passengers, who use suburban services, medium-distance passengers, using regional services, and long-distance passengers, who may use high-speed (with a speed up to 350 km/h), high-performance (up to 220 km/h) or conventional services (with slower maximum speed);

ii. companies located in the Mediterranean regions, with transport needs that can be satisfied by rail freight services;

iii. seaports linked to the Corridor, which may use railway to transfer goods to/from other European countries.

Currently, the MEDCORR line is more focused on providing services for passengers, particularly on short and medium-distance, while freight traffic represents a minor share (as further discussed in the following Section). Besides tourists, passengers include commuting students and workers.

Figure 1.5 THOUSANDS OF COMMUTING WORKERS IN THE MEDCORR’S REGIONS PER YEAR

Source: Authors’ elaboration of Eurostat series ‘Employment and commuting by NUTS 2 regions’, gathered from the EU Labour Force Survey.

16 According to the definitions provided by Observatorio del Ferrocarril en Espana, 2010.

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As far as the latter are concerned, the number of commuting workers in the same region prevails over those commuting to other regions (see Figure 1.5 above): over the last decade commuting has undergone a steady increase, interrupted only in 2008 by the economic crisis. The largest number of commuting workers in the same region are in Cataluña (around 3.1 million in 201017). The number of inhabitants of Andalusía and Comunidad Valenciana which commute to other regions is larger than those in Cataluña and Murcia18.

Regarding freight transport, it is important to stress the potential of the region’s ports to attract traffic between the Far East and Southern . In fact, a substantial amount of goods imported from the Far East currently reach their destination in Southern European countries by a longer route through Northern seaports and, subsequently, rail and road to the destination point. Southern EU ports could also attract more traffic from the North of Africa, which is both growing and increasingly containerised. The modal share of freight rail transport on the Corridor depends mainly on the geographic area of destination, because rail competitiveness is directly related to travel distance, but also on the connections available between the port and the rail network.

There are eleven ports belonging to Puertos del Estado, the public organisation in charge of Spanish ports, in the Mediterranean Corridor area (Figure 1.6). All of them, with the exception of and Almería (in Andalusia), have rail access, while in another two, Castellón and Sagunt (in the Communidad Valenciana, within the project’s target area), the access exists but is not currently operating.

17 Representing 45% of the Catalan population. In Communidad Valenciana and Murcia the share of commuters in the same region are 38%, while in Andalusía they are 34%. 18 However, in 2010 Murcia is characterised by the largest share of commuters to other regions over the regional population (0.7%), followed by Communidad Valenciana (0.54%), Andalusía (0.26%) and Cataluña (0.05%).

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Figure 1.6 PORTS AND AIRPORTS IN THE MEDITERRANEAN CORRIDOR

Source: INECO (2011).

MEDCORR commercial ports handle yearly a total of 92 million tonnes19. With regard to international transport, ports located on the Mediterranean coast altogether represent around 48% of Spain’s maritime container traffic (Figure 1.7) and, if we consider also Algeciras, where the Mediterranean Corridor ends, this share reaches 74%.

Figure 1.7 YEARLY CONTAINER TRAFFIC IN THE MAIN PORTS OF THE MEDITERRANEAN (SPAIN)

16.000.000

14.000.000

12.000.000

10.000.000 rest of Spain U E 8.000.000 T Valencia 6.000.000 Tarragona 4.000.000 Castelló

2.000.000 Barcelona

0 2005 2006 2007 2008 2009 Year Source: Authors using Puertos del Estado data (2011)

19 2007 figures, INECO (2011)

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1.3 CURRENT STATE OF THE MEDCORR The MEDCORR section between Valencia and Barcelona (approximately 370 km) is currently served by a double track high-performance line between Valencia and Vandellós (230 km). The section Vandellós - Tarragona (47 km) is a single-track line and represents a bottleneck on the Corridor. The Tarragona - Sant Vicenç de Calders (32 km) section has a double-track, after which two separate double-track lines can be used to reach Barcelona (60 km). The rail infrastructure is of a high-performance type (terms used to distinguish it from the High-Speed Lines and conventional lines, as explained in the Box below) and it allows for a maximum speed of 220 km/h.

Box 1.1 TYPES OF RAILWAY LINES IN SPAIN In Spain railway lines can be broadly classified in the following typologies: • High-Speed Lines equipped for speeds generally equal to or greater than 250 km/h. These lines are suitable for trains which allow for speeds up to 300 km/h. • High-performance lines equipped for speeds of about 200-220 km/h. • Conventional lines, those in which the maximum speed is less than 200 km/h and the average speed is below 100 km/h. According to this classification the Valencia-Barcelona railway line is a high-performance line. Source: authors based on the Spanish Ministry of Public Work classification20

Figure 1.8 presents the current situation of the rail corridor infrastructure. The new double track sections were built with a double-gauge sleeper so that the infrastructure currently used by trains with Iberian gauge could easily have the tracks adapted for use by trains with international gauge (see Box 1.2 for technical details on the types of gauge and Section 4.4 on project design).

20 Available at: http://www.fomento.gob.es/MFOM/LANG_CASTELLANO/DIRECCIONES_GENERALES/FERROCARRILES/GEN_RED_FERROVIARIA/inf raestructura-linea.htm

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Figure 1.8 CURRENT STATE OF THE MEDCORR RAIL INFRASTRUCTURE IN THE REGIONS OF CATALUÑA AND COMMUNIDAD VALENCIANA

Legend

Source: Ecomovilidad.net, 2011 (http://ecomovilidad.net/barcelona/es/el-corredor-mediterrani-de-la- frustraci%C3%B3-a-la-desmesura)

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Box 1.2 TYPES OF GAUGE IN THE RAIL NETWORK The is the nominal distance between the inner faces of the rails, measured in millimetres (mm). Specifically, it is the distance between the two inner sides of the rail heads, measured at a height of 14.5 mm (± 0.5 mm) below the running surface of the track 21. Conventionally, in the world three types of gauge are used: broad gauge, standard (or UIC) gauge and narrow gauge. The standard gauge is 1,435 mm, while broad and narrow gauges refer to any gauges which are, respectively, wider and smaller than the standard one. Narrow-gauge railways are cheaper to build and can support sharper curves while broad-gauge railways give greater stability and permit higher speeds. Historically, the choice of the gauge was partly a decision of the national authorities and partly due to local conditions. Sometimes railway companies chose their own gauge, other times, government required railways to use a particular gauge. As a result, different gauges have been used in different places around the world, for instance: • Spain and Portugal: 1,668 mm for the traditional lines, 1,435 mm (standard) for high-speed lines; • Ireland, Brazil and Australia: 1,600 mm; • Finland: 1,524 mm; • Russia and former USSR States: 1,520 mm; • Western and Central Europe: mainly 1,435 mm, but also 1,000 mm, 950 mm and 750 mm. The 1,435 mm gauge was chosen by the British engineer George Stephenson in 1820 for the Liverpool- Manchester railway line. In 1846 the Parliament of the approved the Gauge Act, which required the new railways in the UK to be built according to the Stephenson’s gauge. This was later adopted as the standard gauge railways also by all the countries of central Europe, probably because many of them were using British locomotives, suited to use standard gauge22. The ratio behind the decision to have an international standard gauge is to avoid the occurring when a railway line of one gauge meets a line of another gauge. If trains are not suitable to use both the types of gauge, passengers and freight need to be transferred to different wagons and locomotives, with additional costs (different rolling stock and higher travel time). In order to allow trains to pass from a track with one gauge to another one, some changeover systems have been developed (see picture to the left). They usually encompass fixed installations called “changers” and special wheel set systems in the vehicles. Another way to manage the problem is to convert different gauge to railways, which have three rails so that trains of different gauges are allowed to use the same track23. The gauge predominantly used by the Spanish railways of Spain is 1,668 mm24. However, since the beginning of the 1990s new high-speed passenger lines in Spain have been built using the international standard gauge to allow these lines to link to the European high-speed network. Source: Authors based on García Álvarez (2010)

Currently, the MEDCORR Valencia-Barcelona section is used by both long-distance passenger trains and freight trains25 and by suburban and regional trains for short and medium-distance

21 Source: Álvarez (2010). 22 http://www.fiatlvx.info/levoluzione-della-ferrovia-dalle-miniere-di-carbone-al-trasporto-passeggeri/ 23 This allows a saving of considerable expense compared to using separate tracks for each gauge, but introduces complexities in track maintenance and signalling, as well as requiring speed restrictions for some trains. 24 This is similar to the gauge established by Spain in the mid-19th century, measuring 1,674 mm. It has been speculated that the Spanish track gauge (six Castilian feet) was adopted for military reasons in order to prevent a French invasion. However, it is known that the Spanish government entrusted such decisions to a committee, whose main work was done by civil engineers with little experience in railroads. Their judgment was that since the Spanish landscape was more mountainous than that of England and France, a wider gauge would have improved locomotives’ stability and speed (source: Álvarez, 2010).

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passengers. Around the cities of Valencia, Castellón, Tarragona and Barcelona traffic is more intense, due to the greater number of suburban and regional services.

In order to clearly show the intensity and heterogeneity of the traffic on the Mediterranean Corridor, the various services are listed in the box below.

Box 1.3 DAILY SERVICES ALONG THE MEDCORR A total of 63 long-distance trains operate daily in each direction, out of which 15 run from end to end of the Corridor. These correspond to: • Two international daily trains: ‘ Mare Nostrum’ trains from Montpellier to Cartagena and from Barcelona to Montpellier; • Two other ‘Talgo’ trains from Barcelona to Murcia and Lorca; • Seven ‘Euromed’ trains, which run from Barcelona to Valencia (3) and to Alicant (4), with intermediate stops in Tarragona and Castelló. • The remaining 4 are different types of trains: ‘Alaris’, ‘Arco’ and Hotel-, which cover different routes, including some with destinations outside the Corridor. 60 middle-distance and regional services operate on the Corridor. They include: • 17 daily trains in each direction between Barcelona and Girona; • 32 daily trains in each direction between Barcelona and Tarragona (and whose final destinations are , Vinaròs, , Mora la Nova, , Caspe and ); • Two daily trains in each direction between Valencia and Tortosa; • A daily train in each direction between Cartagena and Valencia; • Six daily trains in each direction between Cartagena and Murcia; • A daily ‘Express Regional’ train in each direction between Valencia and Barcelona; • A daily train between Ciudad Real and Alicant (and a weekly one between Ciudad Real and Valencia). Finally, a great number of inter-city services operate between provincial capitals and main cities within the Corridor: • 41 daily trains in each direction between Valencia and Castellón; • 47 daily trains in each direction between Valencia and Xátiva; • 23 daily trains in each direction between Alicant and Murcia; • 16 daily trains in each direction between Murcia and Lorca. Source: Authors based on Renfe http://www.renfe.com/

As far as the Valencia-Barcelona section is concerned, the fastest services are provided by seven Euromed trains per day in each direction, some of which reach the city of Alicant (to the South of Valencia): they take 2 hours and 55 minutes from Barcelona to Valencia and 4 hours and 40 minutes to arrive at Alicant. A large number of other trains provide medium-distance and regional services (e.g. on the Barcelona-Tarragona and Tortosa-Valencia sections, including a daily Express Regional train in each direction between Valencia and Barcelona) and inter-city services between different cities along the Corridor, including 41 daily trains in each direction between Valencia and Castellón.

25 The only exceptions are two sections outside the unit of analysis: between Mollet and Barcelona Sants, and Barcelona and Sant Vicenç de Calders, freight trains are diverted to another interior line.

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Table 1.3 TRAVEL TIME AND COST OF RAIL SERVICES BETWEEN VALENCIA AND BARCELONA (2012)

Type of train Travel time Tourism class fares (EUR) Business class fares (EUR)

Euromed 2h 55 min 44.2 72.5 Trenhotel 3h 12 min 31.1 64 Talgo 3h 15 min 39.6 52.4 ALARIS 3h 22 min 40.6 53.7 R.Exprés 4h 39 min 23.85 - Note: The table includes one way fares. Source: Renfe, http://www.renfe.com/

Freight services also use the Mediterranean Corridor. However, passenger services are given priority by the Railway Infrastructure Administrator – Adif (the role of this stakeholder is more extensively described in Section 2.1). This is one of the reasons why freight services suffer from poor reliability and can only compete with the more flexible road transport in bulk traffic. Freight train runs are not only hindered by passenger trains, but also by the infrastructure restrictions on the trains’ length, which is limited to 450-500 metres due to the fact that the rail sidings are short (while freight trains can be longer than 500 m). These are sections of track which run parallel to a line and connected to it at both ends by switches (Figure 1.9). Sidings allow fast or high priority trains to pass slower or lower priority trains going the same direction.

Figure 1.9 RAILWAY SIDINGS

Source: Mike Crowe, 2005. Retrieved from http://www.geograph.org.uk/photo/12051

Short sidings translates into more difficulties in:

• Allowing fast trains to overtake slower ones.

• Regulating access to the most congested sections without interfering with the main tracks.

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• Relieving the consequences of prolonged halts caused by technical circumstances (e.g. accidents).

Finally, the lack of operating rail connections to some of the seaports (Castellón and Sagunt, as mentioned in the previous Section) prevents the capturing of the traffic demand originating there.

1.4 ALTERNATIVE TRANSPORT MODES MEDCORR competes with alternative modes of transport connecting the cities of Valencia and Barcelona: highways and air connections between the two cities for both passengers and freight must be considered26, as they have an influence on the Valencia-Barcelona MEDCORR’s demand.

Of the total long-distance passenger traffic between Valencia and Barcelona (end-to-end route), the railway’s market share is very high, at approximately 80%27. On the Barcelona- Alicant route, the rail market share is about 40-45%, due to higher competition from air transport. For short and medium distance journeys, road transport represents a competitive alternative mode of transport for passengers.

Regarding the volume of freight traffic, in 2007 rail only captured a share of 1% of traffic destined or originated in the regions of Valencia and Cataluña; for traffic from/to other Spanish regions, the share amounts to 5.5%, whilst for international traffic it reaches the highest share, 7.9% of the total freight traffic from/to other countries. The remaining volume of freight is moved by road, including the traffic originating from the ports: 75% of total goods handled in the ports of Valencia and Barcelona is transported by truck. The main reason for this low share is short travel distances, which make rail uncompetitive except for certain products, i.e. mining and steel products, lack of proper infrastructures allowing fast long- distance journeys and the overall good quality of road infrastructure.

Nearly 5 million tonnes a year are transported by rail in and out of the Mediterranean ports, on average just 4.2% of the freight handled in the ports. This percentage varies significantly from one port to another: for instance, Tarragona has a 20% rail share, due to bulk , and Barcelona only 1.5% (Figure 1.10).

26 Short-sea shipping connections are negligible compared to the other transport modes. 27 Ministerio de Fomento de España (Marzo 2011).

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Figure 1.10 TONNES TRANSPORTED BY RAIL AND BY ROAD FROM PORTS LOCATED IN THE MEDCORR - 2007

Note:Tonnes transported by rail are shown in red, tonnes transported by road are shown in blue. Source: INECO (2011)

Road infrastructure on the Corridor includes a toll road, the AP-7, and a parallel un-tolled road, the N-340, which has dual carriageway in several sections, including some kilometres around Tarragona. Eventually the N-340 road, which has several sections under construction, will become a single motorway (called A-7) connecting Barcelona and Algeciras.

Most freight traffic along the Mediterranean coastline is shipped by road transport, making the Corridor one of the most congested roads on the Iberian Peninsula. The average daily traffic in the area is very similar on both main roads, but the percentage of heavy vehicles is notably higher on the N-340. This is most likely due to the absence of tolls, which encourages its use. The AP-7, however, being a much safer road, attracts most of the dangerous goods traffic28.

Table 1.4 TOTAL FREIGHT TRANSPORT BY ROAD - 2009 Community Thousands of tonnes % of Spain Total Cataluña 240,616 19.7 Andalusia 192,616 15.7 Valencia 177,177 14.5 Murcia 50,231 4.1 Total Spain 1,224,159 100.0 Source: Cambra Oficial de Comerç, Indústria i Navegació de Barcelona and Cámara Oficial de Comercio, Industria y Navegación de Valencia (2010)

28 Dangerous goods are those goods or materials capable of putting human health, property, or environment at risk. They include items of common use, such as aerosol cans, perfumes, and paints. (source: http://www.businessdictionary.com/definition/dangerous-goods.html

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Over the past decades, the traffic on the tolled AP-7 road between Valencia and Barcelona has constantly increased, and started to decline only as consequence of the economic crisis in 2008. Data available for the toll-free road show that traffic levels have been constant since the Nineties, due to the near-saturation level of traffic on this road (Figure 1.11).

Figure 1.11 ROAD TRAFFIC BETWEEN BARCELONA AND VALENCIA (AVERAGE DAILY TRAFFIC)

120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 7 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 Toll-free roads AP-7

Note: Data for the toll-free roads are available only for year 1985, 1990, 1995, 2000 and 2005. Source: Authors’ elaboration based on Ministry of Public Works data, various years

With regard to the aviation sector, the main infrastructures on the Corridor are the airports of Málaga, Almería, Murcia, Valencia, Barcelona, Reus (close to Tarragona), Girona and Alicant. The last three are airports served mainly by low-cost airlines and most of their destinations are international.

Air links that can compete with the railway services along the Mediterranean Corridor are only operated between Valencia and Barcelona and Alicant and Barcelona. On the first route, until 2011 there was only one daily flight, at 9.45 pm, from Sunday to Friday and none on Saturdays. It connected Barcelona and Valencia in approximately 55 minutes. This direct flight was discontinued in 2011. On the second route, between Alicant and Barcelona, there are 6 flights a day during the week (the first at 7.00 am and the last at 9.35 pm), 2 daily flights on Saturday (at 8.40 am and 2.55 pm) and 5 on Sunday (the first at 9.55 am and the last at 9.35 pm): travel time is about 1 hour and 10 minutes, with direct flights provided by and by the low cost companies Ryanair and Airlines.

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Figure 1.12 AIR TRANSPORT PASSENGERS BY REGION: TOTAL NUMBER OF PASSENGERS EMBARKED AND DISEMBARKED (THOUSAND)

Source: Authors’ elaboration of Eurostat data

The following tables compare the transport services offered by alternative transport modes along the MEDCORR route, in terms of travel time and cost (tolls, fuel or tariffs). Both the Barcelona-Valencia and Barcelona-Alicant sections are considered.

From a time perspective, Euromed rail services between Valencia and Barcelona are the fastest mode of transport, if the travel to/from the city centre and the waiting time for checking in and out at the airports is taken into account (estimated at approximately 2.5 hours). If other rail services are considered, the picture changes: the travel time via rail becomes similar or slightly higher than the motorway and air alternative mode (between 3 hours 12 minutes and 4 hours 39 minutes, as previously shown in Table 1.3). On the Barcelona-Alicant route, on the other hand, air is faster than rail transport.

With respect to the cost of travel, on the Valencia-Barcelona line, Euromed rail tariffs, which are the highest among all the rail services provided along the line, are relatively cheaper than other transport modes’ costs, while being in line with the un-tolled road. For the latter transport mode, however, travel times are much longer. On the Barcelona-Alicant route, the low-cost air companies operating in the airport of Alicant make air transport relatively cheaper than both rail and road.

This comparison allows to point out that Euromed services for long-distance passengers between Valencia and Barcelona are overall more competitive than motorway and air transport. This supports the fact that the railway transport mode has the largest market share for passengers travelling between Barcelona and Valencia, as already mentioned. In the Barcelona-Alicant section, greater competition is provided by air transport.

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Table 1.5 TRAVEL TIME BY ALTERNATIVE TRANSPORT MODES (2012) Rail (Euromed Motorway AP-7 Road N-340 Air service) Barcelona- 2 h, 59 min 3 h, 30 min 6 h, 7 min 55 min + approx. 2 h Valencia (370 km) 30 min Barcelona-Alicant 4 h, 40 min 5 h 8 h, 4 min 1h, 10 min + approx. (550 km) 2 h 30 min Note: The Barcelona-Valencia flight is no longer provided in 2011. Source: http://www.renfe.com/, http://www.viamichelin.es/ and http://www.spanair.com/es_pos/es_Es/Portal/Start/Home?FROM=BCN&TO=VLC&sid=sg498338&gclid= CNmQmOzYhq0CFQUhtAodyhSNTg

Table 1.6 MONETARY TRAVEL COST BY ALTERNATIVE TRANSPORT MODES (2012) Rail tariff (Euromed Motorway AP-7 toll Road N-340 fuel Air tariff (including service) + fuel public transport to/from airport) Barcelona- EUR 44.2-72.5 EUR 36 + 42 EUR 44 EUR 70 Valencia (370 km) Barcelona-Alicant EUR 56.60-93 EUR 36 + 63 EUR 65 From EUR 30 (550 km) Note: The 2012 tariff of Euromed rail services for tourist and business class, without reductions, are considered. Air tariff for the Barcelona-Valencia direct flight refers to the average January-March 2010 tariff. This flight was discontinued in 2011. Air tariff for the Barcelona-Alicant flight refers to tickets bought one week in advance. Source: http://www.renfe.com/, http://www.viamichelin.es/, http://www.aena.es/csee/Satellite/Home and http://www.edreams.it/

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2 ORIGIN AND HISTORY

2.1 MAIN STAKEHOLDERS The planning, financing and implementation of the Mediterranean Corridor encompasses diverse stakeholders which have, in various ways, influenced and played a role in the project’s development. They are briefly presented in this Section.

• National authorities. The Spanish Ministry of Public Works (Ministerio de Fomento) and in particular its Railway General Directorate are in charge of planning railway investment across the Spanish autonomous communities, with the exception of suburban rail transport, which is in the hands of regional and local administrations. The ministry approved the Railway Transport Plan (1987) which sets the basis for upgrading the Valencia-Barcelona section and more recently supported the inclusion of the Mediterranean Corridor among the EU TEN-T priority projects (see Section 2.4). As far as the rest of the rail network is concerned, the Ministry has generally pursued a strategy of implementing high speed connections in a radial pattern from Madrid to the provincial capitals. As far as the financial aspects of the project are concerned, the Ministry of Economy and Finance was responsible for obtaining information about the project from rail administrations and companies and for submitting the application for EU financial assistance.

• Local authorities. Both regional and local governments, with competence over urban planning, have participated in the project design, by drawing up specific proposals for the layout of the line passing through their territory. In particular, some municipalities asked for changes to the rail route (for instance the municipalities from Sant Vicenç de Calders to Tarragona) and others asked for additional stops on the new rail services at their stations (for instance the municipality of ). Some of these requests were addressed by Renfe, while others were not (see Section 4.5 on managerial response)

• Rail transport authorities. Established in 1941, the National Network of Spanish railways – Renfe (Red Nacional de los Ferrocarrilees Españoles) was the monopolist public company which was operating the railway transport of both passengers and freight in Spain. In 2005, Renfe was divided into , in charge of operating passenger and freight transport in competition with other companies, and the Administrator of Railway Infrastructures – Adif, in charge of managing the rail infrastructures and rail traffic and assigning the use of the infrastructures to operating companies against the payment of a fee. Moreover, Adif is responsible of financing investment in the rail lines, under the control of the Ministry of Public Works. However, the Railway General Directorate also directly funds some high-speed projects. Renfe Operadora is the incumbent rail operator of the Valencia-Barcelona line. It suffers from an operating deficit due, in part, to the fact that tariffs have not increased in line with inflation and wages over recent decades. Despite having

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implemented some measures to increase the productivity of its workforce, which have succeeded in reducing staff levels by 30% since 1986, the operating deficit has not been reduced to the same degree.

• Local and international organisations promoting the competitiveness of the Mediterranean region. They include CITRAME (Interregional Commission for Transport in the Mediterranean), the Catalan Institute for the Development of Transport, CETMO (Centre for Transport Studies for the Western Mediterranean), EURAM (Euro regions of the Mediterranean) and FERRMED, an association of ports, Chambers of Commerce, logistic platforms, transport operators, industrial companies and others. Their interest is in making MEDCORR the main high-speed rail gateway to central Europe. For this purpose, they promote the need to improve the rail infrastructure; in particular, they are requesting more investments to address freight transport demand.

• European Institutions. The European Commission was involved in the co-financing of the Valencia-Barcelona upgrading through the Cohesion Fund. Its contribution was particularly high and corresponding to about 70% of the investment costs. Before the approval, it asked the European Investment Bank (EIB), which had been involved in financing the Railway Transport Programme since 1987, to provide its technical assessment of the Valencia-Barcelona first stage intervention. As a result of the appraisal, the Bank cautioned that, even if the project was considered necessary to improve the poor quality of long-distance services on the line, because of the over- optimistic assumptions in the appraisal proposed by the Spanish Government and the lack of detailed demand analysis, there was a risk that the Mediterranean Corridor project would generate a marginal or even negative economic profitability.

Keeping in mind the kind of stakeholders involved in the project and their responsibilities and interest is important in order in understanding the decisions taken regarding the project and the expected future investments in the Corridor.

2.2 BACKGROUND The topographical conditions of the MEDCORR area have made the narrow band between the and the mountains following most of the Southern coast of Spain a unique passage from the South-Eastern Iberian Peninsula to the rest of Europe. This was already observed by the Romans, who created the first proper land route there (Via Augusta).

During the Eighties, the two cities of Valencia and Barcelona have seen an increasing number of their inhabitants move from the central areas to more pleasant locations in the suburbs. As a result there has been a growth in commuter travel both on the roads and by public transport. Each suffered from road congestion (as shown in Figure 2.1) and the N-340 road, in particular, was reaching saturation point.

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In parallel, the commuter rail system was affected by inadequacies caused by ageing infrastructure and rolling stock. Overall, the Valencia-Barcelona long-distance line traffic was modest29. According to data from the Spanish Ministry of Transport, in 1987 the only saturated section of the line was the single-track Castellón-Tortosa section30 (see Figure 2.2), where capacity utilisation was 110% of theoretical capacity. For long-distance travel, rail’s share of traffic was very small (slightly above 10%, corresponding to approximately 285 thousand passengers in 198731) compared to the share of private cars and bus services. The main demand came from suburban and regional travellers, while a smaller number of services was offered to freight traffic.

Because of the limited market shares of railway, Renfe, the national company operating the Spanish railway network, was suffering from high deficits, which in 1985 amounted to PTS 203,665 million (EUR 1.2 billion)32. Financial sustainability of the operator was ensured by substantial subsidies granted by the central government.

On 19 November 1986 the Spanish government proposed a plan aimed at modernising railway , improving the quality and increasing the profitability of Renfe’s services. The Railway Transport Plan, approved on 30 April 1987, envisaged investment of PTS 2.1 billion (in current terms) between 1987 and 2000. The global objective was to strengthen intermodal transport and services in the triangle Madrid-Valencia-Barcelona and on the Madrid-Sevilla, Madrid-Alsasua and -León lines. As far as the Valencia-Barcelona line is concerned, the plan aimed at establishing, by year 2000, a network of electrified, double track truck routes capable of sustaining speeds of 200/220 km/h. These objectives were further defined by a number of schemes and specified in a series of State Programme Contracts, generally agreed for a 3-4 year period.

29 Source: EIB, 1994. 30 Source: Ministerio de Transportes, Turismo y Comunicaciones (1987). 31 Corresponding to 766 passengers per km. Source: Ministerio de Transportes, Turismo y Comunicaciones (1987). 32 Source: http://www.ferropedia.es/wiki/Plan_de_Transporte_Ferroviario_%281987%29.

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Figure 2.1 ROAD TRAFFIC INTENSITY (VEHICLES PER HOUR)- 1985

Source: Authors’ elaboration based on Ministry of Public Works

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Figure 2.2 DEGREE OF UTILISATION OF THE RAILWAY NETWORK IN 1985 (PASSENGERS PER KM PER DAY)

Source: Ministerio de Transportes, Turismo y Comunicaciones (1987)

The Railway Transport Plan was the first modern Spanish plan to promote the necessity of improving the rail infrastructure between Valencia and Barcelona. The characteristics of the line in 1993, before the beginning of the works, are summarised in Table 2.1.

The improvement of the conditions of the line was expected to generate large benefits particularly for long-distance travellers, for whom journey times would have been substantially reduced, along with traffic diverted from the road and aviation. No effect was expected to be produced for either regional and suburban passengers or freight traffic. The provision of the double track and the modern signalling and communication systems would have increased the capacity of the line (number of trains per day), whilst at the same time improving the reliability and security of the service and reducing the journey time.

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Table 2.1 CHARACTERISTICS OF THE BARCELONA-VALENCIA LINE IN 1993

Section Length Characteristics of the line Valencia-Castellón 69.5 km Double-track. Suitable for speeds up to 160 km/h Castellón-Oropesa 22 km Single-track. Suitable for speeds up to 140-160 km/h Oropesa- 64 km Double-track. Suitable for speeds up to 200-220 km/h Alcanar- 37.7 km Single-track Camarles- 46.4 km Single-track Cambrils- 18 km Single track. Suitable for speeds up to 140-160 km/h Tarragona Tarragona- 90 km Double-track. Suitable for speeds up to 200-220 km/h Barcelona Source: Authors processing data from Ministerio de Obras Públicas y Transportes (1993)

The upgrading of the Barcelona-Valencia line and of the overall MEDCORR has been strongly advocated during the Eighties by several organisations promoting the competitiveness of the Mediterranean regions. These included, for example, the Interregional Commission for Transport in the Mediterranean (CITRAME), set up in 1986 and based in Barcelona, which carried out the first studies on the topic from a multi-regional perspective and was in favour of an interoperable and high-speed railway line with UIC gauge connecting the Mediterranean ports by rail to central Europe. Most of these initiatives were supported by a group of transport professionals within the Catalan public administration33.

Their proposal was to build a new High-Speed Line (above 250 km/h) for passengers starting from the French border and running along the whole Corridor, with the aim of leaving the conventional line for freight traffic only. This technological step-up was considered the only way to make railway competitive for both passengers and freight.

Regional governments, despite having competency over land use planning and over investments in suburban lines, had little influence on national policies concerning interregional lines, which were in the hands of central government. The Ministry, at the time, opted for a progressive adaptation and upgrading of the existing line and the Railway Transport Plan (1987) did not envisage the construction of a high-speed line network in the triangle Madrid- Barcelona-Valencia, but only speeds of up to 220 km/h and the maintenance of the Iberian gauge. Dual-gauge sleepers were however included in the project, with the aim of guaranteeing the possibility of changing the gauge in the future years.

The plan was modified in May 198834: a study of a new layout for the Madrid-Barcelona line was foreseen, in order to allow for higher speeds on this section to make it sufficiently attractive. For the Mediterranean Corridor, on the other hand, CITRAME’s considerations were

33 Various individuals belonging to the Community of Cataluña institutions played a decisive role in the implementation of High Speed Line (HSL) in Spain, due not only to their design of the Barcelona-French border railway with HS characteristics and their participation in the definition of the rail line from Barcelona to Madrid, but also to the influence exerted regarding the change to UIC gauge on the Madrid-Sevilla HSL and on all newly built lines. Source: Macias-Arau, P. (2007). 34 21st May 1988, Congreso de Diputados. Boletín Oficial de las .

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not taken into account and the technical specifications of the upgrading of the line were maintained.

The investment programme included in the Railway Transport Plan was financed by Renfe starting from 1987, and it was assisted by the European Investment Bank (EIB) through eight different loans35. The EIB however did not co-financed the project under assessment.

2.3 PROJECT DESIGN AND IMPLEMENTATION Although some minor interventions on the Valencia-Barcelona line had already been financed before 1993, the major investment, comprising the set of works evaluated in this case study, took place between 1993 and 2002. The objective was to upgrade the existing line, with new layouts where radii were too small, some new stations, the doubling of some single track sections and new superstructure (catenaries36 and signalling). As stated in the application form (Ministry of Economy and Finance, 1994), the project was expected to reduce the travel time for long-distance passengers between Valencia and Barcelona from 3 hours and 38 minutes (in 1992) to 2 hours and a half (time saving corresponding to 1 hour and 18 minutes).

The project, elaborated between October 1991 and July 1994, was structured in three stages in order to limit the impact on the track, which had to remain operational, as well as to spread the high investment cost over several years. The works implemented in each stage are outlined in the following paragraphs.

2.3.1 STAGE 1

In June 1994 Spain applied for a contribution from the CF to co-finance the first stage of the upgrading of the Valencia-Sant Vicenç de Calders section. This project (94/11/65/007) included different interventions to provide the entire line with double track, so as to increase the speed of the railway line Valencia-Tarragona and Tarragona-Barcelona to 200 km/h. In particular, the following interventions were implemented between September 1993 and December 1996:

• Valencia-Sagunt (23 km): upgrading of the section for speeds of 200 Km/h plus the remodelling of station and the replacement of a number of level crossings by over- or underpasses.

• Oropesa-Vandellós (125 km): track works for the scheme to double the line from Alcanar to Camarles and the civil works for the section being doubled between L’Ampolla and L’Ametlla. Upgrading of the second track on the section Oropesa- Alcanar for speeds of 200 km/h plus the installation of a block automatic signalling system on the same section.

35 One of these loans, for example, financed in 1992 a study for automatic train control between the Oropesa and Alcanar section, along the Valencia-Barcelona line. Source: EIB (1994). 36 Contact system of trains to the overhead electrified line.

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• Tarragona-Sant Vicenç de Calders (24 km): track renewal and modification of the route in order to improve small radii and allow speeds of 200 km/h. It included the construction of one bridge over the Gayà River.

• La Encina-Xátiva (48 km): construction of the double track railway on a new layout.

The total planned cost of the first stage amounted to EUR 140.9 million (current 1993 prices)37, of which EUR 115.7 was co-financed through the Cohesion Fund (85% of the eligible cost) and the remainder by Renfe resources38.

2.3.2 STAGE 2 In the second stage (94/11/95/007) the upgrading of some sections of the Valencia-Tarragona- Sant Vicenç de Calders line was continued, for an investment cost of about EUR 191 million (current terms). In particular:

• Valencia-Castellón (38 km): upgrading of the section for speeds of 200Km/h and replacement of a number of level crossings by over- or underpasses.

• Oropesa-Vandellós (23 km): doubling of the line, replacement of some level crossings, upgrading of the section for speeds of 200 km/h and installation of a block automatic signalling system on the same section.

2.3.3 STAGE 3: Works in the third stage (95/11/65/005), estimated to cost EUR 196.8 million39 (85% of which was co-financed through the Cohesion Fund) and implemented between 1995 and 1999, were basically to adapt the new infrastructure (lines doubled or new layouts) to speeds of 220 km/h mainly by harmonising the electrification, signalling and communication systems on the line as well as equipping it with the superstructure necessary for the service to be run.

• Alicant-La Encina (78 km): security and communications facilities in the double track between Font de and Xátiva.

• Xátiva-Valencia (56 km): installation of the Automatic Train Protection system.

• Castellón-Oropesa (23 km): tunnelling and doubling of the track.

• Alcanar-L’Ametlla (53 km): between Alcanar and Camarles, upgrading of the line for speeds of 220 km/h (installation of electrical substations, expansion joints, ballast changing, extension of the drainage works, duplication of two viaducts on the road built, construction of pedestrian underpasses, bifurcation towards Tortosa from L'Aldea station) and electrification works which comprise both the catenary and the

37 Corresponding to PTS 23,443,800 thousand, PTS 22,654,110 thousand of which eligible for EU co-financing. 38 A very minor share of the investment (1.3%, amounting to EUR 1.9 million) was covered by TEN funds already allocated in previous years: ECU 10 million allocated in 1992 by the European Commission for interventions on the section Alcanar-Cambrils (the total project cost was ECU 203 million). 39 PTS 32,751,000 thousand.

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posts, after removal of existing power lines in all the sections. From Alcanar to L’Ametlla, installation of security and communications facilities of the stretch for a two-way operation (signals, track circuits, ASFA equipment, telephone equipment and electrohydraulic actuators along the routes and in the stations of Ulldecona, L'Aldea and L'Ametlla).

• Vandellós-Tarragona (45 km): the works for doubling the track between Vandellós and Tarragona, precisely where the line is single track, were initiated and stopped and the infrastructure is still only partially built. One of the main problems was resolving the connection with the Madrid-Barcelona High-Speed Line, passing north of Tarragona, and how to connect the line with the two main cities on the corridor (Tarragona and Reus).

• Tarragona-Sant Vicenç de Calders (23 km): electrification of the line and installation of safety and communication systems.

The improved railway conditions required ad-hoc rolling stock capable of speeds of 220 km/h. As Renfe had some spare rolling stock able to run at speeds of 300 km/h, initially meant for the Madrid-Seville HSL, it was decided that six train sets would be adapted to the Iberian gauge so the line would have high-quality services. This represented a cost saving for the operator of the Valencia-Sant Vicent line. Overall, however, some cost overruns occurred. A project modification to the third stage was approved in April 1998: in order to solve some deficiencies and mistakes in the initial project design, the investment costs increased to EUR 232.5 million40. The additional costs were covered through national resources. In total, the project cost EUR 759 million at constant 2011 prices. The EC co-financing share was around 70% of total costs.

It has to be pointed out that the whole project has not yet been implemented. In particular, huge delays occurred in the completion of the double track between Vandellós and Tarragona, which still today has a single track. Although the works had already been awarded, they were stopped until the connection between the High-Speed Line (HSL) Madrid-Barcelona-Figueras- and the Mediterranean Corridor at the station of was completed.

This high-speed railway line is part of Priority Project number 3, included in the list of 14 Trans- European Transport (TEN-T) priority projects41 identified in 1994. It ensures continuity of the rail network between Portugal, Spain and the rest of Europe, as shown in Figure 2.3. In order to connect the MEDCORR line to the Madrid-Barcelona HSL, the design of the Vandellós- Tarragona works was changed, so as to include a rail section allowing Tarragona access to the HSL (see Figure 2.5). Although the contracts to complete the works and eventually relieve the existing bottleneck between Vandellós and Tarragona were awarded in 2009, the doubling of

40 PST 38,678 million (current 1999 prices). 41 Approved by the European Council in December 1994 in Essen. Available at http://www.europarl.europa.eu/summits/ess2_en.htm.

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the section will probably not be completed until 2013. Actually, the necessity to carry out archaeological studies42 and the unavailability of financial resources, due to the current economic crisis, has contributed to further delaying the completion of works.

Figure 2.3 TEN-T PRIORITY PROJECT 3: HIGH SPEED RAILWAY AXIS OF SOUTHWEST EUROPE

Source: European Commission, http://tentea.ec.europa.eu/en/ten- t_projects/30_priority_projects/priority_project_3/priority_project_3.htm

The high performance services linking Barcelona to Valencia and Alicant provided by the high- speed trains were called Euromed and were inaugurated in 1997. As Figure 2.4 shows, long distance passengers between Valencia and Barcelona benefitted the most from these new services: their number doubled between 1996 and 1998, from 318,699 to 674,637. One year after the start of Euromed services, it was estimated that 50% of passengers had previously been using air and road transport, 35% other rail services and 15% represented induced demand43. If considering not only Euromed but all the rail services provided on the MEDCORR Valencia-Barcelona section, the average induced demand is more modest (around 5%), while the remainder is represented by passengers shifted from alternative transport modes, particularly from car and bus transport (90%) and to a lesser degree (5%) from air transport.

Demand along this section continued to grow until 2001 and then stabilised at approximately 840,000 passengers per year. It has to be considered that the line is used also by long-distance passengers going from Barcelona to Alicant. Their number also increased over the same period, from 91,710 in 1996 to a maximum of 303,696 in 2002, and then stabilising. Finally, the

42 As reported in the “Annual Activity Report 2009-2010 for the PP3 and PP19” by Mr. Carlo Secchi, European Coordinator of TEN-T Priority Projects PP3 and PP19. 43 http://elpais.com/diario/1998/06/17/cvalenciana/898111090_850215.html.

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improved infrastructure benefitted to limited extent also medium-distance passengers, who increased from approximately 87 thousand in 1996 to 237 thousand in 2001. Overall, the total number of medium and long-distance passengers using the new services offered by Renfe along the Valencia-Barcelona line went from less than 500 thousand in 1996 to 1,330 thousand in 2010, with the maximum number recorded in 2008 (1,460 thousand passengers). In order to meet the higher demand and to provide passengers with more comfortable services, in 2007 a new Euromed train44 was put in operation. In recent years, demand has fallen substantially (- 18% between 2008 and 2010) due to the economic crisis, back to the levels recorded in 2000.

Figure 2.4 PASSENGER TRAFFIC ALONG THE VALENCIA-BARCELONA SECTION, 1993- 2010

Note: The number of passengers is the sum of passengers in both directions. It includes the passengers using the service regardless of the station at which they commenced or ended their journeys. Source: Authors based on Renfe data (2011)

Thanks to the project, the travel time between Valencia and Barcelona was reduced from 3 hours and 38 minutes in 1992 to 2 hours and 55 minutes (a 24.5% time saving), less than expected (the target was 2 hours and a half). This is probably due to over-optimistic forecasts during the design phase, which did not completely took into account the slowing-down caused by the large number of suburban and regional services, and, in part, to the delays in completing the Vandellós-Tarragona section. Whilst the improved services attracted new passengers to rail, neither regional and metropolitan services nor freight transport were significantly affected by the investment.

44 http://www.ferropedia.es/wiki/Tr%C3%A1ficos_corredor_Mediterr%C3%A1neo_%28pasajeros%29#cite_note-Ben-10 .

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2.4 FUTURE DEVELOPMENT The future performance of the MEDCORR Barcelona-Valencia section will be affected by the completion of the initial project, particularly on the section Vandellós-Tarragona, which will eliminate the existing bottleneck on the line with further benefits in terms of travel time savings.

Figure 2.5 CURRENT SITUATION AND EXPECTED DEVELOPMENTS FOR THE CONNECTION WITH THE HSL IN TARRAGONA

Source: (2011a)

As illustrated in Figure 2.5 above, by 2013 the new double track line between Vandellós and Tarragona will be opened to traffic, while the existing single track line, closer to the coast, will be used mainly by freight traffic. Two new rail stations - for the town of Cambrils and for Reus

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airport - will be built on this new line. The airport will also be provided with direct connection to the Madrid-Barcelona HSL, through the construction of a new high-speed section between Camp de Tarragona and the airport itself.

Moreover, the implementation of the TEN-T Priority Project 19 may affect to some extent the demand along the Corridor. This project, which in 2004 was added to the list of TEN-T Priority Projects agreed ten years earlier, involves the construction and the upgrading of high performance lines and the installation of dual-gauge (polyvalent) sleepers, third rails or axle- gauge changeover stations on the Spanish and Portuguese high speed rail networks, in order to make them fully interoperable with the rest of the trans-European rail network. Priority Project 19 is synergistic with Priority Project 3, i.e. the high speed railway axis of southwest Europe, by allowing the creation of a fully interoperable high speed rail network on the Iberian Peninsula connected to the rest of Europe.

Figure 2.6 TEN-T PRIORITY PROJECT 19: HIGH SPEED RAIL INTEROPERABILITY IN IBERIAN PENINSULA

Source: European Commission, http://tentea.ec.europa.eu/en/ten- t_projects/30_priority_projects/priority_project_19/priority_project_19.htm

One of the rail corridors belonging to Priority Project 19 is the Madrid-Levante-Mediterranean, which includes the Valencia-Tarragona coastal line. The major interventions are envisaged on the section between Valencia and Castellón (62 km), where a new high-speed rail line has been planned. The goal is to create a unique high-speed connection between Castellón and Madrid, via Valencia, which since the end of 2010 has been connected to the capital city by high-speed rail.

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For the works on the section between Valencia and Castellón, the Ministry of Public Works will invest EUR 1 billion through Adif45. The new HSL would connect the existing railway station in Castellón to Valencia, following the alignment of the A-7 road, or the existing rail line. The section has been designed as a double standard gauge track for mixed traffic of passengers and freight and can reach maximum speeds of 350 km/h46. The works to connect these cities with high-speed rail have not started yet, but are expected to end in 2014.

The completion of this infrastructure will allow for reducing congestion on the line, caused by suburban and regional services, which limit the speed of long-distance services47, and the attainment of a better operation of both high-speed and of freight and suburban services: actually, the final configuration of the Valencia-Castellón section will have a total of four tracks. The project is aimed at raising the competitiveness of the rail lines connecting Valencia and Castellón to the capital city, by significantly reducing travel time and ensuring territorial cohesion between the centre of the country and peripheral regions. As far as the Barcelona- Valencia line is concerned, the new HSL will further reduce by about 15 minutes the journey times of long-distance passengers. The construction of the new section will also increase capacity, by alleviating congestion of passenger trains to the benefit of freight services, which between Valencia and Castellón are particularly intense48.

It has to be highlighted that no high-speed connection has been planned between the new high-speed route arriving in Castellón and Tarragona, linked to the Madrid-Barcelona- Perpignan (Priority Project 3) HSL. Actually, Castellón and Tarragona will continue to be connected by the double track high-performance railway platform49.

45 Source: Adif, http://www.adif.es/en_US/infraestructuras/lineas_de_alta_velocidad/levante/tramo_castellon.shtml. 46 Source: INECO (2011). 47 http://www.vialibre-ffe.com/noticias.asp?not=3459&cs=infr. 48 Source: Casas (2009). 49 Also Regulation N° 913/2010 of the European Parliament and of the Council49 concerning a European rail network for competitive freight49 and laying down a list of freight corridors which are considered a priority for future investment, does not identify the Valencia-Barcelona section as a priority. The aim of the regulation is to improve the efficiency of rail freight transport relative to other modes of transport, by promoting the investment in infrastructure and in technical equipment, such as ERMS, that should aim at increasing rail freight capacity and efficiency.

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Figure 2.7 FUTURE STATE OF THE MEDCORR RAIL INFRASTRUCTURE

Source: Ministerio de Fomento, 2006

The new interventions have been criticised by some transport associations50. Even though the Castellón-Valencia HSL will be available for freight traffic as well and freight traffic will benefit from spare capacity on the conventional 200/220 km/h line due to the transfer of fast passenger services to the high speed line, these associations complain about the still numerous and frequent short and medium-distance passenger services on the line which constrain the possibilities for freight transport. They claim that, if the railway administrator’s focus remains on passenger trains between Barcelona and Valencia and on increasing passenger demand by further reducing travel time, freight traffic will be more difficult to accommodate alongside more frequent and faster trains.

They also argue that the improvements to be achieved with the new High-Speed Line do not justify such a high investment and they demand further actions to resolve the infrastructure limitations (mostly represented by too short sidings) on the 220 km/h double track line, which impose restriction on the trains’ length.

50 See Riol, R., president of Associació per la Promoció del Transport Públic (2011), El Corredor Mediterráneo: de la frustración a la desmesura.

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If what we are really interested in is promoting freight transport on a Corridor in which the road network is saturated with trucks, we should ask why we talk so much about an exclusive HSL […] instead of focussing on solving bottlenecks between suburban and freight trains [...]. If we are, above all, concerned about the reduction of passengers travel times, we should evaluate if such a high investment is worth it to obtain only a 16 minutes saving compared to the Euromed. Source: Association for the Promotion of Public Transport (PTP), No.56, spring 2011

The rail transport network planning has taken very little account of intermodality and the needs of freight transport. Indeed, even today, passenger traffic receives priority attention. Source: Centre of Transport Studies for the West Mediterranean (CETMO), May 2005

The latest developments in the railway infrastructural planning at European level appear more in line with the associations’ requests. On October 19th 2011 the European Commission included the Mediterranean Corridor in the provisional list of new TEN-T Priority Projects to be financed in the 2014-2020 programming period and expected to be completed by 2030. In Spain the Mediterranean Corridor Priority Project will comprise the Algeciras-Madrid, Sevilla- Valencia, Valencia-Barcelona, Barcelona-Perpignan sections, with interventions on both the rail network and ports, for which the interconnection with railway will be strengthen. If the Mediterranean Corridor will be confirmed as a priority project, additional financial resources will be available to transform MEDCORR into a gateway for both passengers and freight to central Europe.

Figure 2.8 THE TEN-T NETWORK TO BE COMPLETED BY 2030

Source: Railmed, http://www.railmed.org/reports/europe/

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3 LONG-TERM DEVELOPMENT EFFECTS

The main long-term effects produced by the project are presented and discussed here. First, through a summary of the effects produced according to the seven categories51 identified in the First Interim Report. Then, the most significant ones are discussed and further evidence provided.

3.1 KEY FINDINGS The description of long-term effects requires a definition of what may be considered long- term. In the case of the Valencia-Barcelona line, works have been underway since the 1990s and are still not completed, as far as the Vandellós-Tarragona section is concerned. Moreover, as discussed in Section 2.4, the project under assessment represents only a first step in converting the whole MEDCORR into an effective transport infrastructure, as new investments for the High-Speed Line have been planned for the coming years.

It is clear that the situation has not completely stabilized yet and further positive or negative developments may still occur, depending on how the current and future scheduled works are carried out. Therefore, when describing the long-term development effects of the MEDCORR’s Valencia-Barcelona section, the focus will be on the current situation, which is the result of the works financed by the Cohesion Fund and carried out between 1993 and 2002. The social cost of these works has been compared with the benefits generated by the new passenger service lines operational between Barcelona and Valencia. However, as the upgrading of the line is not completed, the relationship of the project with the expected future situation will also be presented.

Evidence shows that, overall, upgrading the Mediterranean Corridor brought some positive results, mainly in terms of producer surplus, time saving and positive environmental externalities. However, as the negative result of the CBA points out (with an Economic Net Present Value of EUR -6.87 million52), the net impact of the project on socio-economic development was not high enough to justify until now the large amount of money allocated on the line in these years. This is strongly supported by the qualitative analysis carried out, in which the mixed results of the investment are discussed. On the one side, the project succeeded in fostering social and territorial cohesion in the target areas and in positively affecting the endogenous dynamics of growth, by spreading know-how in rail technology; on the other side, its contribution to institutional quality was negligible. On the contrary, the project intensified the frictions between central and regional institutions, with negative consequences for planning capacities (as further discussed in Section 4).

51 Direct economic growth, endogenous dynamics, social cohesion, environmental effects, territorial cohesion, institutional quality, social happiness. 52 See Annex II.

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Table 3.1 summarises the nature and strength of impacts of the project produced under the seven categories (direct economic growth, endogenous dynamics, social cohesion, environmental effects, territorial cohesion, institutional quality and social happiness), while in Table 3.2 the stakeholders affected by each category are presented. Finally, Table 3.3 presents the how the effects have developed over the years and are expected to stabilise in the future. The criteria considered to assign the scores are presented in Annex I.

Table 3.1 SUMMARY OF NATURE, STRENGTH AND LEVEL OF IMPACTS Effects Strength Level 1. Direct economic growth -2 Local, regional, national 2. Endogenous dynamics +2 Local, regional, national 3. Social cohesion +4 Local, regional 4. Environmental effects +3 Local, regional, national, global 5. Territorial cohesion +4 Local, regional 6. Institutional quality -2 Regional, national 7. Social happiness +2 Local, regional *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect.

Table 3.2 IMPACTS* ON DIFFERENT STAKEHOLDERS STAKEHOLDERS Effects Renfe Mediterranean Rail users (residents and Public local and National ports tourists) regional government administrations on the Corridor Local Regional 1. Direct -1 • +1 +1 -3 economic growth 2. 2 Endogenous dynamics 3. Social +4 +4 cohesion 4. +3 +3 Environmental effects 5. Territorial +4 +5 cohesion 6. Institutional -2 -2 quality 7. Social -4 +3 +3 -3 happiness *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect, •= expected effects which did not materialise

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Table 3.3 TEMPORAL DYNAMICS OF THE EFFECTS Temporal Short run Long run Future Comments dynamics of the (years 1-5) (years 6- 10) years effects 1. Direct - -- ± High investment cost, delays in implementation economic and cost overrun prevented positive economic growth effects. It is uncertain whether further investment and new planning in the future will improve the project's performance. 2. Endogenous + ++ ++ New know-how has been generated by the dynamics project. The effects have stabilised. 3. Social + + + Immediate positive effects which have stabilised cohesion since the early stages of operation. 4. Environmental + ++ ± Positive effects which strengthened along with effects the increase in railway demand. If freight demand rises in the future, environmental effects may further improve. 5. Territorial + + + Immediate positive effects which have stabilised cohesion since the early stages of operation. 6. Institutional - -- ± The lack of proper planning and coordination quality capacities have not yet been resolved. It is uncertain whether some "learning by doing" process will be triggered in the future. 7. Social + - ± The initial satisfaction with the new happiness infrastructure and high quality trains has been in part overcome by frustration and lack of confidence about the future. Source: Authors

3.2 DIRECT ECONOMIC GROWTH From the economic point of view, as presented in Section 1, the Mediterranean Corridor has great economic growth potential as it connects some of the most economically dynamic areas in Spain. The works undertaken under the project being analysed succeeded in improving rail passenger services and increasing the share of long-distance travellers using rail transport between Valencia and Barcelona. The reduction in travel times for long-distance rail passengers has mainly diverted traffic from other modes (road and air), while induced demand has not been substantial (about 5% of the total passengers carried).

Euromed, which entered into service in June 16th 1997, has reached in these two years an average occupancy rate of 72%, putting the Mediterranean corridor at the top of long distance rail services. Since it has come into operation, Euromed has exceeded […] 70% of the Mediterranean corridor passengers’ traffic. Over 70% of their customers come from other means of transport, i.e. the car (37%), aircraft (22%) and bus (11%). Source: La Vanguardia, June 17, 1999

The improvement in speed for rail passengers between Cataluña and Communidad Valenciana has facilitated both business and leisure trips and possibly induced some efficiency in labour distribution between the two regions.

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If all rail services are considered, the average reduction of travel time in 2012 compared to 1989 has been over 1 hour on the section Valencia-Barcelona. The new Euromed service allows the shortest travel time between the two cities. The greater time saving (almost 3 hours) has been achieved by the night Trenhotel. It has to be remarked that the Regional Exprés service today takes 12 minutes longer than in 1989 (probably due to priority assigned to other services and slower speed), but its frequency has increased (see Table 3.4).

Table 3.4 TRAVEL TIMES BETWEEN BARCELONA AND VALENCIA IN 1989 AND 2012 1989 2012 Service Average travel time Service Average Time saving travel time RAP 4h Euromed 2h 59 min 2h 1min ELT 4h 23 min Alaris 3h 22 min 1 h 1 min Talgo 3h 55 min Talgo 3h 30 min 25 min Exprés (only in 4h 41 min Regional 4h 53 min -12 min (time lost) summer) Exprés Nocturno 5h 05 min Trenhotel 3h 12 min 2h 53 min Exprés (night) (night) Average 4h 25 min Average 3h 35 min 1 h 14 min Source: Authors processing data from Colomer J.V. (1989) and Renfe (2012)

Besides cutting travel times, the doubling of the line has meant an important increase in capacity, which has translated into reliability gains and made rail a more competitive option for long journeys. Moreover, the removal of level crossings has allowed the local road network to become, on one hand, more permeable, which means a reduction in vehicle travel times, and on the other hand, safer, as there had been some accidents between cars or buses and trains on level crossings on the line.

Until July, in 1999, there were 16 victims in train accidents; 11 of them were concentrated in two collisions between trains and vehicles at the last manual level crossings of the Mediterranean Corridor (in Alboraia and Alcalà de Xivert). In both cases the barriers were not lowered due to human error. Source: El País, August 8, 1999

Moreover, the use of high-performance rolling stock and improved service quality has created an impression of proximity, notably between Barcelona and Valencia, that has facilitated the development of business linkages between the regions. Business dynamism and entrepreneurship observed in the Mediterranean Corridor is an important basis for economic growth potential. Since 2000, the number of companies located along the Corridor has experienced a 31% increase, a slightly higher percentage than the national average. This increase cannot be directly associated with the project, though, as there is no information available on the weight of the commercial links between Valencia, Alacant and Barcelona in the generation of new companies in the region. We can argue that the overall effects of the project in directly generating economic growth dynamics appear to be positive, but probably modest.

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Table 3.5 BUSINESS STRUCTURE IN THE CATALUÑA AND COMMUNIDAD VALENCIANA 1st January 2009 Number of companies % of % var. 2000- Business density (Companies Spain 2009 per 100 inhabitants) Cataluña 619,624 18.5 25.8 8.26 Com. Valenciana 362,844 10.8 31.4 7.12 MEDCORR area 1,357,800 40.5 31.3 7.33 Spain 3,355,830 100.0 29.3 7.15 Source: Cambra Oficial de Comerç, Indústria i Navegació de Barcelona and Cámara Oficial de Comercio, Industria y Navegación de Valencia (2010)

The direct effects on economic growth through increased efficiency have also been minor because they have not led to lower logistical costs supported by improved rail freight transport along the line. As a matter of fact, freight transport has not been affected by the project. Although the seaports located along the Valencia and Catalan coast represent a relevant source of freight transport demand, the rail market share for freight shows very limited figures compared to passenger transport (Section 1.4). Poor service, due in part to the lack of adequate sidings length – to allow freight trains to be overtaken by passenger trains, which are given priority – and the congestion of the line by short, medium and long-distance passenger trains have hindered the development of freight transport along the rail corridor. Because of this, freight transport demand is still mostly captured by road transport.

The result of the Cost-Benefit Analysis (CBA) sets out an economic rate of return of 4.9%53 and a negative Economic Net Present Value (ENPV), amounting to EUR -6.87 million (at 2011 constant prices). The project’s economic profitability has been assessed against a counterfactual Business-As-Usual scenario consisting in the maintenance of the situation before the project, i.e. a conventional line with a single track in many sections and severe speed limitations.

The producer surplus, represented by increased revenues from tariffs, is the largest benefit produced by the project, being about EUR 25 million per year on average between 2001 and 201154. In fact, although Renfe, which operates the rail network all over Spain, suffers from a financial deficit, the tariffs appear to be adequate to cover the Valencia-Barcelona line’s operating cost, thus ensuring the project’s financial sustainability during the operational phase. The economic benefits due to travel time savings net of increased tariffs (i.e. the consumer surplus), in particular for business travellers, who constitute about 48% of the total traffic in the Valencia-Barcelona section of MEDCORR and have a notably higher value of time, amount to an average of EUR 13 million per year in the same decade55. The vehicle operating cost savings (fuel saving, reduced wear of wheels, etc.) for users who remain on the road and benefitted from a reduction in congestion, thanks to the shift of passengers to the new rail services, amount to approximately EUR 3.9 million per year. Some cost savings, in terms of better comfort and reduction in waiting time, can be imputed also to air passengers that

53 Not including the opportunity cost of the rolling stock, due to lack of data (see Annex I). This cost, however, if included in the CBA, would not have a substantial impact on the ENPV. 54 It amounts to 47% of the present value of total benefits. 55 The present value of the consumers’ surplus represents 24% of total benefits.

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remained on the air network up to 2010 (almost EUR 6 million per year on average). This benefit no longer exists due to the cancellation of the direct Valencia-Barcelona flight. Finally, positive externalities generated by the project and consisting of a reduction in accidents (thanks to the new level crossings which improve road safety), noise, air pollution and climate change effects, thanks to the shift to a cleaner mode of transport, have been quantified in the CBA: they are on average EUR 8 .4 million per year56.

The total value of benefits, however, has not been enough to compensate for the very high investment cost of the line sustained by the Spanish government, as the negative ENPV suggests (more details on the CBA are presented in Annex II). The risk analysis, moreover, indicates that the probability for a negative ENPV is very high - 59% - meaning that the project has only 41% of possibilities to generate a positive return to society (Table 3.6). As a matter of fact, this risk had been already identified by the European Investment Bank in 1994, when it assessed the project’s ex-ante CBA (see Box below).

Box 3.1 EIB COMMENTS ON THE EX-ANTE CBA The ex-ante CBA of the first stage of intervention (Comité Inversiones Públicas, 1994) considered the following benefits (besides investment, operation and maintenance costs): • Value of travel time saving for existing and induced passengers, who shift from air and road transport to railway. The induced traffic was estimated by applying the results related to other High Speed projects with a weight based on the travel time saving achieved with the current project. • Value of travel time saving for freight transport which shifts from road to railway. Induced freight demand has been estimated in the same way as passenger demand. The time saving achieved not because of the faster journey but because of the higher capacity of the rail network has also been considered. • Value of travel time saving for road traffic, thanks to the elimination of level crossings. • Reduction of accidents thanks to the elimination of level crossings and the shift of road users to a safer mode of transport. • Positive environmental externalities thanks to the shift of road users to a cleaner mode of transport. • Improved energy efficiency of railway transport compared to road transport. • Residual value of the rail infrastructures, estimated to have a useful life of 75 years. The results of the economic profitability analysis, discounted at a 6% social discount rate and based on a time horizon of 26 years (6 years of investment and 20 years of operation phase) were: Economic Net Present Value = PTS 14,059.9 million (corresponding to EUR 84.5 million in current terms) Economic Rate of Return = 7.6% Benefit/Cost Ratio= 1.2

56 Positive externalities are the third largest benefit quantified in the CBA, corresponding to about 14% of total benefits.

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The European Investment Bank, which reviewed the CBA, provided a negative comment on it. In general, it argued that “Although some of the projects [to complete the upgrading of the Barcelona- Valencia line] taken in isolation can be justified, their global interest can only be assessed in the context of the possible alternatives for the improvement of rail services on the Corridor. This global study has not been provided and therefore the correctness of the adopted solution cannot be established. In any case, as most benefits of the proposed schemes will only be achieved when the whole line is completed, a detailed investment programme for the full upgrading of the line is necessary to evaluate its economic and financial profitability”. It also adds that “The dossier doesn’t provide sufficient information on traffic or on advantages to be brought […]. Given the over optimistic assumptions on the very simple appraisal proposed, which generated a modest rate of return, there is a risk of obtaining a marginal or even negative profitability”. It finally requested a new and proper economic evaluation, criticising, in particular, the fact that that “the demand analysis [presented by the promoter] is pure guess-work, the benefits in travel times and in other elements are based on untenable hypotheses and the parameters used to monetise these benefits are neither standard nor otherwise justified”. Source: Comité Inversiones Públicas (1994) and EIB (1994)

Table 3.6 RESULTS OF THE EX-POST RISK ANALYSIS ON THE ECONOMIC NET PRESENT VALUE (EUR) Reference value of the ENPV -6,870,412 Mean -5,973,040 Median -6,414,824 Standard deviation 29,333,752 Minimum value -82,831,043 Central value -4,932,212 Maximum value 72,966,619 Probability of the ENPV being higher than the reference value 0.505 Probability of the ENPV being lower than zero 0.59 Source: Authors

Up to now, traffic volumes between Barcelona and Valencia have been insufficient to justify the investment. A recovery to the volumes carried in the years 2007-2008 would however boost the economic profitability and make the project viable (see sensitivity analysis in Annex II). It is also possible that the adoption of a wider perspective, including investments carried out (or to be carried out) over the entire Corridor spanning from Andalucía to Cataluña, would also raise the profitability. However, the quantification of the direct economic growth the project will generate in the future is affected by large uncertainty.

For instance, the plan to build a new High-Speed line between Castellón and Valencia, as part of the TEN-T Priority Project 19, could contribute to some extent to generating spare capacity along the line, to be exploited by freight traffic. This would raise some efficiency gains. Further, the forthcoming connection with the HSL Madrid-Barcelona-French border around Tarragona is expected to increase the overall number of passengers, but also to reduce the traffic on the lines currently operational between Tarragona and Barcelona. All these investments would free up room to operate freight traffic in a more efficient way by diverting medium-to-long distance passengers from the high-performance to the High-Speed line. This high quality rail line could therefore promote regional and international trade and enhance the role of the

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Mediterranean ports (notably Barcelona and Valencia) as a European gateway for Far East and South Mediterranean imports and exports.

However, for this purpose, additional interventions to adapt the existing line with longer sidings and good connections to ports and other intermodal logistical platforms would be needed. Also, the High-Speed Line has a huge cost which needs to be duly justified via accurate demand forecasts.

In conclusion, the MEDCORR’s Valencia-Barcelona section is integrated into an articulated system of already existing transport infrastructures, as well as new planned infrastructures, each with its own history, future prospects and market strategies, which, in turn, affect the system and make it dynamic and sensitive to change. In this context, any assessment about the long-term profitability of the project is uncertain. Its success will depend on the quality and accuracy of the future public investment decisions and the capacity to integrate them into a systemic view of public interventions.

3.3 ENDOGENOUS DYNAMICS Endogenous dynamics can positively affect three main aspects relevant to long term economic growth, namely: technological progress (including R&D investments), human capital and organisational change. These factors can potentially affect economic growth by increasing the productivity of the input factors.

The project’s impact on endogenous dynamics is not particularly significant and it has mainly consisted in the increase of know-how on rail technology. The upgrading works on the Valencia-Barcelona line, by involving the installation of modern traffic control systems, the construction of tunnels and over or under-passes led to some technological progress and know-how on rail infrastructure. To mention a few illustrative examples, the construction works around Castellón, including a 3.7 km urban tunnel, and a record-breaking bridge over the Ebro River brought new knowledge on civil works to the region (see picture below).

Figure 3.1 THE VIADUCT OVER THE EBRO RIVER

Source: Wordpress (2009), http://ssictor.wordpress.com/2009/11/01/hasta-siempre-euromed/

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3.4 SOCIAL COHESION The Council of Europe defines ‘social cohesion’ as the capacity of a society to ensure the wellbeing of all its members, minimising disparities and avoiding social marginalisation57. The project contributed to improving social cohesion within the regions of Cataluña and Communidad Valenciana, by bringing better rail services for people who do not own a car or have disabilities. In this way it reduced inequalities in terms of income and quality of life for less well-off social groups.

The differentiated tariffs for business and economy class, and special discounts for young people, large families, groups and people with disabilities, make rail transport more attractive than alternative transport modes.

Moreover, the user-friendly design of the new rail facilities and rolling stock should be highlighted. Some examples of this are the construction of the new station in L’Aldea, the new passenger building in L’Ametlla de Mar station or the remodelling of Sagunt station, now equipped for the disabled. The fact that six out of the seven Euromed trains are high-quality rolling stock, initially meant to be used on the Madrid-Seville HSL, and later adapted to run along the Valencia-Barcelona line, further improved the quality of service offered to the benefit of long-distance passengers.

3.5 ENVIRONMENTAL EFFECTS As declared in the environmental questionnaire attached to the application form for CF financing, the project did not have significant negative environmental effects58. On the contrary, by improving the quality of rail passenger services, the project has encouraged modal shift from road and/or air to rail, thereby strengthening synergies between environmental protection and growth. Time reductions on long-distance journeys were significant enough to encourage road users’ shift to a cleaner and more energy-efficient means of transport while, at the same time, reducing road congestion on a dense traffic roadway.

It has been estimated that about 80-90% of total demand between Valencia and Barcelona is represented by passengers who shifted from car, attracted by the frequent, reliable and relatively cheaper rail transport59. These correspond to more than 600 thousand vehicles avoided on average each year, with positive environmental effects in terms of reductions in air pollution, noise and climate change effects (quantified in the CBA). The construction of underground crossings (e.g. in the city of Castellón) contributed to reducing also the noise pollution from trains.

Modal shifters from air to rail amounted to approximately 35-40 thousand people per annum, corresponding to 5% of rail passenger traffic in the MEDCORR between Valencia and Barcelona. It is likely that these travellers preferred to use the new railway services because of

57 Source: http://ec.europa.eu/research/era/areas/investing/investing_research_en.htm (24/05/2011). 58 Ministry of Economy and Finance (1994). 59 See Section 1.4.

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their higher frequency and relatively lower tariffs. From the travel time perspective, on the other hand, Euromed services are in line with air transport (approximately 3 hours of travel time for both of them, as shown in Section 1.4). The previously existing flight between Barcelona and Valencia (only one per day, none on Saturday) is no longer provided. It is not possible, however, to ascertain that the entry into service of the Euromed trains was decisive in determining the flight cancellation. In fact, the Euromed became operational in 1997 and the flight service has existed, in parallel, for 13 years. Thus, while recognizing a mutual relationship between the two markets, it would perhaps be overstating the case to impute the cancellation of the flight to the Euromed. Rather, the latter will have contributed to taking a decision, driven by many factors, including the route strategies of the carriers, the costs of airport slots, etc.60

With regard to the Barcelona-Alicante route, the situation is quite different because Alicante airport is served by a large number of low-cost airlines. It is not straightforward to determine to what extent Euromed services may gain modal share at the expense of air on this route, since they are less competitive both in terms of fares and travel time. Hence, the modal shift along this route is probably negligible.

In the long term, if additional works on the MEDCORR are carried out, the line will possibly be used by a higher number of freight trains connecting the ports to Central Europe. Air pollution and greenhouse gas emissions will be reduced as goods are transferred from road to rail and container traffic is diverted from the Northern ports of Europe to a shorter route61 within Europe.

The Catalan Office on Climate Change (Oficina Catalana de Canvi Climàtic) stated that the rail corridor will mean relieving the load on the environment by 900,000 tons of CO2 every year, which represents about 6% of all emissions generated by the transport sector in Cataluña. Source: Generalitat de Catalunya (2011)

3.6 TERRITORIAL COHESION The contribution of this major investment in the Mediterranean Corridor to territorial cohesion is particularly relevant. By improving transport connections along the Mediterranean coastline, the project supported the development and strengthening of new linkages within the target regions. It has to be considered, also, that the Valencia-Barcelona section is part of a longer line (from Algeciras/Sevilla to the French border) which could become a major corridor for passengers and freight linking Eastern Spain to the rest of Europe.

In a framework in which most of the governmental investment in the rail network in recent decades was aimed at providing the capital city of Madrid with a High-Speed connection to the

60 Accordingly, to avoid over-estimation of the project benefits and any double-counting with the benefit identified in the savings generated on the passengers that remained on the air network, the positive externalities on air pollution from the flight’s cancellation have not been included in the CBA model. 61 The Annual Financial Report (2010) of the Catalan Chamber of Commerce points out that savings of over 15-20% in time can be achieved as journeys would be reduced by 3 or 4 navigation days.

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regional cities62 (Sevilla, , Toledo, Barcelona, Valencia, Valladolid), the project for upgrading the Valencia-Barcelona line represents an example of intervention conceived to contribute to a more polycentric development for the country. The regional press and associations promoting the competitiveness of the Mediterranean regions, have always emphasised that the upgrading of the MEDCORR’s Valencia-Barcelona section is as important as implementing the railway “radial model” centred on Madrid.

The decision in the Eighties not to build a new High-Speed Line between Valencia and Barcelona, but only to upgrade the existing line, has more recently been offset by the planned construction of the High-Speed Line between Valencia and Castellón and the connection of Tarragona to the Madrid-Barcelona HSL. It is still unknown, however, if in the future the remaining section between Castellón and Tarragona will also be connected by a High Speed Line: this will eventually complete the High-Speed connection between the major cities of Valencia and Barcelona.

We need a policy of recognition of the importance of the Mediterranean area, not only for Spain but for Europe, [...]the radial design of infrastructures implemented by the Spanish Government, which seriously damages communications between Cataluña and the , is totally unjustified. Source: La Vanguardia, June 14, 2003

A fundamental issue is, however, the spatial impact of high-speed rail on the Mediterranean Corridor, as it could further tip the balance of demographics and economic activity towards the coastal corridor. To ensure balanced development and contribute to the territorial cohesion of the Corridor, there must be a proactive policy to improve the connectivity of inland areas, ensuring adequate and reasonably homogeneous levels of accessibility by rail to the different areas of it.

3.7 SOCIAL HAPPINESS The upgrading of the line allowed rail passengers to travel faster, more comfortably and safely and with higher reliability. Besides the direct benefits to users, which are reflected in the CBA, this has created option values for non-users63 and a positive perception for the population of a better quality of life due to increased connectivity and the possibility of using a modern and cleaner transport mode.

This subjective satisfaction, which permeates through the interviews, is not included in the traditional project evaluation but seems relevant as indicated by the social pressure observed in most major cities to have their own high-performance rail stations. It is also observed in the MEDCORR from those areas that have not benefitted from the service improvement due to the slow pace of its implementation or to the decision not to build additional stations that have been requested (see Section 4.5 on managerial response).

62 This strategy is discussed also in Section 3.8. 63 Option values are defined as the potential benefits not derived from actual use of a good or service, but for the possibility to use it in the future.

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Not everybody is happy about the works, though. As a result of the relocation of Benicàssim station (located about 15 km East from Castellón), a campaign of public opposition to the change arose. Formerly the station was located in the urban centre of Benicàssim but, due to problems arising from the growth of the village and the railway layout through urban areas, the new station has been built on the outskirts of the town. Local residents complained about this increase in the distance to the rail station and the owners of land which had to be expropriated resisted the execution of the works, delaying their beginning.

Carlos Fabra, president of the Castellón Council, yesterday threatened to use force to take control over the properties in Benicàssim affected by the Mediterranean Corridor. Given the constant refusal of the owners and their requirement for legal compliance, Fabra threatened to inform the security forces. The Ministry of Public Works has already tried three times to access the properties, but has found that the owners have stood up to the bulldozers. Source: El País, March 4, 1999

Another case of inhabitants’ dissatisfaction was perceived in Tortosa, where the station was left out of the Mediterranean Corridor project. In this case, the feeling was of disappointment as they felt excluded from such an ambitious project. Moreover, the range of medium and short-distance services available from Tortosa station had been notably reduced. A dozen institutions and entities in Tortosa and the Ebro river mouth area asked the mayor to reach an agreement with the Ministry of Public Works to maintain the old line as a by-pass serving the town. Tortosa station has only been left, however, as a dead-end for a few regional services from Barcelona.

The entry into operation of the Mediterranean Corridor and the consequent disabling of the track between Tortosa and meant for the city the end of long distance trains passing through the station. For entities that have signed the document, this loss has been a serious detriment to commercial and business development of Tortosa and the whole territory. Source: La Vanguardia, November 3, 1999

Finally, the positive effects on social happiness were constrained by widespread feelings of frustration and lack of confidence about the future of the Corridor. These have been generated among local people, regional public administrations and transport associations and have been reflected in the press. Delays and deadlocks in the Valencia-Barcelona works and the lack of a plan for implementing the High-Speed Line along the entire rail section have become a recurring topic in comic strips of newspapers and websites (see, for instance, Figure 3.2), which reflect the local impression that the Corridor is left out of the political priorities of the central government. The government’s strategy is perceived to be mostly in favour of radial High-Speed connection in the country and of having put MEDCORR aside in its political agenda. At the time of the 1987 Railway Transport Plan, in fact, only the Madrid-Barcelona section was selected to become a High-Speed Line; in the following years, a HSL was also installed between Madrid and Valencia. Some local associations complain that similar interventions were not foreseen for the Corridor as well, in spite of its acknowledged high potential passenger and freight demand.

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Figure 3.2 COMIC STRIP MAKING FUN OF THE LACK OF COMMITMENT OF THE SPANISH GOVERNMENT TO FINISH THE CORRIDOR

Note: Man: “Madame, here is the government’s commitment to the works of the HSL Tarragona- Castellón”. Woman: “Where should I file it?”, Man: “ With all the other commitments, of course” – “In politics, the unavoidable commitment is the most excusable one”. Source: Faro and C. Da Col (2009)

These feelings of distrust and scepticism about the completion of the line, rather than discouraging supporters of the project, have encouraged the creation of a number of organisations whose objective is to promote the Corridor and to convince both local and national stakeholders and international bodies of the need for this railway line. Probably, the most visible of them is FERRMED, a powerful and active international lobby set up in August 2004 and based in Brussels. It includes ports, Chambers of Commerce, logistics platforms, transport operators, industrial companies from different countries, with the purpose of enhancing European competitiveness through the development of a rail line from the North of Africa to Northern Europe, passing through the Mediterranean Corridor. The establishment of FERRMED has been strongly supported by the Spanish Southern regions.

Lobbying from civil society channelled through these initiatives has been decisive in the recent declaration of the Mediterranean Corridor as one of the TEN-T priority projects for the 2014- 2020 European programming period (see Section 2.4).

3.8 INSTITUTIONAL QUALITY The spillover effects that the investment project brought to the Public Administration and other institutions at national and regional level are discussed in this Section. The analysis shows that the improvements generated in the quality of institutions are negligible. The project, on the contrary, contributed to exacerbating the contrasting views of regional and national planners as far as railway infrastructure development is concerned.

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On the one hand, the regional administrations of Cataluña and Communidad Valenciana, local municipalities and other authorities involved in the promotion of competitiveness in the Mediterranean Corridor area, have constantly been pressuring the government to also implement a HSL along the Corridor and to promote its inclusion as an EU TEN-T priority project, so as to facilitate project funding. The construction of a new HSL would have benefited not only passengers, but also freight traffic, thanks to the generation of spare capacity along the already existing line.

On the other hand, by contrast, the central government has followed a strategy to support the development of Madrid as a major European capital, by providing direct High-Speed connections with other major Spanish centres. The government did not promote the inclusion of the whole Mediterranean Corridor as an EU priority project, either in 1994 or in the 2004 revisions of the TEN-T guidelines.

Although the TEN-T Priority Project 19 is expected to develop technical interoperability and improve the use of rail freight transport along some sections of the Corridor’s route, no plan has been approved yet to connect the Southern cities of Spain (from Sevilla/Algeciras to Barcelona) through a new HSL, in addition to the existing 220km/h line. As already stressed, this is considered crucial by some lobbies in order to really foster the increase of freight traffic on the railway.

These contrasting views generated and fed hostility and friction among different stakeholders and contributed to reducing the perception of positive effects produced by the project among the target population (as discussed in the previous Section).

The lack of a general consensus about the MEDCORR and of coordination by the Ministry of Public Works of all the interests at stake caused planning instability as far as rail investment in this area is concerned. Due to the lack of a coordinated long-term strategy for the Valencia- Barcelona line, planning for it has been continuously modified. For example, the decision to connect the Madrid-Barcelona HSL at the station of Camp de Tarragona forced a re-design of the Vandellós-Tarragona route, which caused severe delays in the completion of the project. Moreover, if the focus is to be put on the promotion of freight transport, additional investment works on the line will be required not only for the construction of a new Valencia- Barcelona HSL, but also for adapting the existing line for freight rail traffic (e.g. by extending the rail sidings).

In synthesis, the project did not manage to improve institutional quality, but by intensifying the existing frictions between the regional and national level, in fact generated planning instability which hindered project development.

If the Mediterranean Corridor will be confirmed as a new TEN-T priority route for the 2014- 2020 programming period, it is possible that some convergence between the central and regional interest will be achieved. The European Commission could also play a role in this respect, by promoting an integrated strategy for the rail infrastructure across different stakeholders at national and European level.

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4 DETERMINANTS OF PROJECT OUTCOMES

4.1 KEY FINDINGS In this section the key determinants of the long-terms effects discussed in the previous Section are illustrated and discussed. After a brief presentation of the key messages, each significant determinant is presented and evidence and arguments supporting the findings are discussed.

Table 4.1 IMPACT OF KEY DETERMINANTS OF PROJECT’S PERFORMANCE

Strength* 1. Appropriateness to the context -1 2. Project design -2 3. Forecasting capacity -4 4. Project governance -4 5. Managerial response +1 *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect; ** Positive in the first phase, strongly negative in more recent years. The criteria considered to assign the scores shown by this Table are presented in Annex I.

The analysis shows that many determinant factors contributed to limiting the project’s performance. In particular, the project’s appropriateness to the context was good if the needs of long-term passengers are considered, but not adequate to address the transport needs of other elements of demand, such as suburban and regional passenger and freight traffic.

The lack of a proper ex-ante CBA and demand analysis prevented derivation of indications about the uncertainties and risks of the project, particularly relating to traffic volumes (the ex- post CBA shows that results are particularly sensitive to variations in demand). An accurate analysis of alternative project options also limited the possibility of identifying the best project to be implemented, that would have ensured higher demand.

Bad forecasting is reflected also in poor project design. Although some infrastructural flexibility was ensured by the polyvalent sleepers allowing the installation of a third rail suitable for both UIC and Iberian gauge rolling stock, the new planned HSL line connection Tarragona and Barcelona will have standard gauge: this will prevent Euromed trains, able to run only on Iberian gauge track, from reaching Barcelona. Additionally, several modifications of the project’s design were made necessary by the need to overcome some inaccuracies and mistakes made at the time of application.

From the project governance perspective, the lack of coordination of all stakeholders and the strong political influence to which the project was subject limited the possibility of implementing the best project option, that could have fully exploited the potentiality of the Mediterranean Corridor’s Valencia-Barcelona section.

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Finally, managerial response proved to be quite adequate to respond to the emerging requests of municipalities (concerning, for example, a change in the line’s layout) but its scope to improve project performance was overall limited.

4.2 APPROPRIATENESS TO THE CONTEXT To consider the appropriateness to the context means to analyse whether the context was positive or negative for the project and if the project had impact on the context. Hence it has to be considered whether the project was ‘trait taker’ or ‘trait maker’: in line with Hirschman’s concepts (1967), a ‘trait-taking’ project is one which accepts the context without trying to change it and a ‘trait-making’ project is one which attempts to change the pre-existing context. These relationships must be considered in terms of institutions, society, economy and culture as all of them play an important role in the investment project’s achievements.

As has already been described, when the project was planned, the long-distance traffic along the line was limited, due to poor-quality and slow rail services. The upgrading of the line was aimed at increasing the demand for rail services, by diverting passengers from road and air transport and generating additional demand. Thus, the project was intended to be ‘trait maker’, by changing the existing behaviour of travellers. As a matter of fact, the project was the right initiative to implement in order to increase long-distance passenger demand, and it actually achieved its goal.

Hence, if the needs of long-distance passengers are considered, the project itself appears well adapted to the context. Fast rail services are ideal to serve a corridor containing conurbations separated by a few hundred kilometres that maintain very strong business and social relationships. A high-performance rail infrastructure between Valencia and Barcelona makes sense, as road congestion created difficulties in reaching city centre; moreover air transport was hardly competitive for origin-destination links as they are of a short distance.

However, by being solely focused on improving services for this demand segment, the project brought no advantages for short and medium-distance passengers. In fact, in order not to excessively increase the congestion of the rail line, some municipalities (such as Tarragona and l’Hospitalet de l’Infant) had to accept a reduction in suburban and regional traffic. It is worth remembering that the Castellón-Tortosa rail line had been saturated by short and medium distance services since the late Eighties (see Section 2.2): while some of those passengers started to use the fast Euromed services for long journeys, the still high demand for short and medium distance services was not addressed by the project. The project did not address the freight traffic potential demand either, almost all of which is captured by road transport.

Therefore, although the project proved to be appropriate to the context as far as long-distance demand is concerned, it missed the opportunity to address also the potential demand deriving from other segments, which were left out the scope of the initial project. In order to accommodate short and medium-distance and freight demand on the already existing line, local stakeholders pushed for the construction of a new High Speed Line connecting Valencia and Barcelona, to be used mainly by long-distance passengers. The already planned Castellón-

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Valencia HSL, conceived as a continuation of the Madrid-Valencia HSL, will partly satisfy their request, generating more capacity on the old line thanks to the shift of long-distance services onto the new Line. Moreover, the recent inclusion of the MEDCORR in the provisional list of TEN-T Priority Projects to be financed by the European Commission in the 2014-2020 programming period is considered a step that could finally allow the exploitation of the full potential of this line.

4.3 FORECASTING CAPACITY The works designed for the Mediterranean Corridor were supposed to accommodate potential demand for long-distance traffic, notably through the elimination of bottlenecks (i.e. single track sections) and increased speed. The project actually succeeded in increasing the long- distance passenger demand, but no proper demand analysis is at the basis of this positive result. As highlighted by the European Investment Bank64 and discussed in Box 3.1, the quality and completeness of the documents presented to the European Commission in 1994 were poor: no accurate demand and option analysis were provided by the national authorities and the positive results of the ex-ante CBA were determined by over-optimistic and unjustified assumptions regarding demand.

By contrast, the ex-post CBA, and particularly the sensitivity, scenario and risk analyses carried out (their results are presented in Annex II), allows us to point out that the economic profitability of the project is very sensitive to the traffic levels. In spite of the increase in the rail market share for long-distance passengers, the increase in demand was interrupted in 2001. After that year it fluctuated and the recent economic crisis caused an 18% demand reduction between 2008 and 2010. If demand were to return to the pre-crisis level, the Economic Net Present Value would turn positive65.

A good ex-ante analysis of demand would also have increased the knowledge of the context, improved project design and at the same time reduced uncertainties and risks that could have had an impact on the project performance. Moreover, a better analysis might have given indications to the planner about the possible necessity to abandon the initial project idea (upgrading the existing Valencia-Barcelona line) and design a different infrastructure. Alternative project options should have been evaluated in depth at the beginning of the Nineties in order to detect the most profitable one. In particular, a possible alterative project could have been one specifically focused on improving the potential of the Valencia-Barcelona Corridor for national and international freight transport, by diverting passengers onto a new HSL, as demanded by the regional stakeholders.

The more recent plans to connect Castellón and Valencia via a HSL seem to go some way in this direction. This would make the past investments in upgrading the existing line excessive, since regional and freight services operate at much lower speeds and none of them require the 220km/h layout of the project.

64 See Box 3.1. 65 According to the risk analysis, the maximum value that the Economic Net Present Value could take is EUR 73 million.

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Although the identification of the best project option that should have been pursued twenty years ago to improve the railway network in the Mediterranean Corridor area is outside the remit of this evaluation study, it is nevertheless certain that without any rigorous ex-ante analysis the risk of not implementing the most effective and sustainable project remained high.

4.4 PROJECT DESIGN The project design was affected by several weaknesses. During the construction works, different points of the line were modified due to inaccuracies and mistakes in the design66, and, in some cases, as a consequence of the pressure from municipalities (demanding a change in the route and/or of the location of train stations, as described in Section 1.5). These modifications increased the investment costs and delayed the project’s implementation.

An unresolved issue that still remains open is the track gauge. Because of the decision in the late Eighties not to upgrade the Valencoa-Barcelona line with UIC standard gauge, the line today can be used only by services adapted for the Iberian gauge. The project envisaged the installation of dual-purpose (also called ‘polyvalent’) concrete sleepers, which ensured a certain flexibility in this regard (see Figure 4.1): actually, by having already allowed for extra boltholes at the time of the sleeper installation, the decision to change the gauge would not imply the need to replace the existing sleeper.

Figure 4.1 THE DUAL-PURPOSE RAIL SLEEPER

Note: On the left, a polyvalent sleeper; on the right, an example of third rail installed to change the track gauge. Source: http://www.p-tec.org/projektbeispiele/beispiel_2/01.jpg, Skipshearer, 2004 (retrieved from http://en.wikipedia.org/wiki/File:3rd_rail_to_overhead_wire_transition_zone_on_the_Skokie_Swift.jpg)

Thanks to the possibility provided by such infrastructural flexibility, a third rail on the track can easily be installed67, so as to change the gauge and ensure the structural continuity and interoperability of the Spanish rail network, as is foreseen by the TEN-T Priority Project 19. Yet, gauge continuity with the Madrid-Barcelona High-Speed Line being built with standard gauge was not properly taken into account and operational questions are now pending. The new

66 For example, it was not considered that the underground electric cables needed to be replaced along with the change of the line’s layout. Source: Ministry of Economy and Finance (1998). 67 The Ministry approved its installation in the early 2012.

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Barcelona-Tarragona connection, which is expected to be built by 2013, will have UIC gauge. This will make it usable only by High-Speed trains or trains suitable for , such as Talgo trains. Euromed trains, which can only run on Iberian gauge tracks, will instead have to stop in Tarragona, as the new line will prevent them from reaching Barcelona. This introduces important uncertainties and most probably additional costs, including a changing gauge station, with a location that has not yet been defined but will probably be in the new station to be built between Reus and Tarragona.

Box 4.1 INFRASTRUCTURE AND OPERATING DETERMINANTS IN PASSENGER AND FREIGHT TRANSPORT Both infrastructure and operating determinants affect the operation of passenger and freight services in the Corridor. As can be seen below, most of them are closely interrelated, so when designing a new line the various aspects that can turn into a future restriction must be analysed as a whole. A list of them, based on findings derived from the literature, is provided below. Conditions that affect continuity: • Track gauge: a problem arises when different gauges meet one another (break of gauge). In these cases, either the track or the train must be built to handle different gauges, or passengers and freight must be taken off one train and loaded on to the next. • Electrification; • Security installations. Conditions that affect efficiency: • Length of the trains; • Maximum axle load; • Maximum slope; • Sidings’ length and distance between them: this determines the maximum possible length of trains, which, as well as a high maximum axle load, is an essential characteristic for the development of competitive and efficient freight transport. • Line capacity: this depends on the number of single or double-track sections and on the variability of the traffic operating on that line. These two factors can lead to problematic bottlenecks along the line. • Train maximum height: as one of the potential aspects of freight rail transport is intermodality, the use of containers or swap bodies should not be limited due to the lack of adaptation of the infrastructure to this type of traffic. • Others (such as the difference between speeds of fast and slow trains). Source: Authors processing specialised literature

The project design also proved not to be adapted to freight trains, thus contributing to limiting the rail market share for freight transport. The infrastructure is currently not capable of accepting longer trains, with higher axle loads, and has slow gradients. Freight trains should be compatible with passenger trains, which need to reach higher speeds. This means having enough sidings to allow passenger trains to overtake freight trains, which today are missing.

It would be necessary to build many sidings […], to make this combined use of the track possible, in order to momentarily stop the goods trains and let the high-speed train pass. These sidings have not been made by the Ministry of Public Works in the quantity or length that would be necessary. Source: Tremosa-Balcells, R., 2009

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Additional investments, such as the construction of sidings for longer trains (750 m), are necessary on the line in order to be able to absorb increasing goods transport.

In conclusion, if works included in the project are analysed, it can be highlighted that they certainly improve the quality of the line, but that the lack of a global and long-term view in their design prevented implementation of the best solution.

4.5 MANAGERIAL RESPONSE The project managers and decision-makers faced various unpredicted events during the project’s development. A factor of uncertainty in relation to the project has been the opposition of certain municipalities and landowners to some features of the Valencia- Barcelona rail section. It has mostly been in relation to its layout, particularly in areas located along the coast or with high agricultural value. The municipalities from Sant Vicenç de Calders to Tarragona, with the line near the parallel coast, considered that higher speed trains would represent a danger and reinforce the physical barrier between the urban area and the sea.

Mayors say that the use of the current path, which runs near the sea, for the movement of trains that can reach speeds of 220 kilometres per hour will freeze urban and tourism development in their municipalities. Source: La Vanguardia, May 24, 1994

In 1994, the government rejected the option of changing the layout of this section. The Infrastructures General Director of the Ministry of Public Works declared that relocating the stations five kilometres away from the populated areas would be a territorial mistake and would make rail services unprofitable.

On the other hand, in response to similar requests by some municipalities between Tarragona and l’Hospitalet de l’Infant (close to Vandellós), in 1997 the government of the time agreed to change the route near the coast and move the stations out of the central area. Some local stakeholders considered that this decision was a mistake, as a station inside the city centre would have attracted higher demand.

The most complex case was the location of the main station within the Tarragona-Reus-- metropolitan area, which has not yet been built. Eventually it is expected to be located between the two main cities (Tarragona and Reus) near the airport but, according to some experts, not close enough to either to allow proper intermodality. This could arguably be an error as, the station within the airport area could make an alternative for some air links to Barcelona, particularly for low-cost airlines. The main issue here is the difficulties in coordinating AENA (the Spanish airport authority), Adif and the regional and local authorities responsible for urban and spatial planning.

In addition to the already mentioned ones, there were other and more specific claims related to the layout and the government acceded to most of them. The route was changed in at least two points. The first one was to preserve the landscape of Joan Miró’s “masia” (the house where the artist was born and worked, close to Cambrils), a famous cultural landmark that

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includes a museum. The second modification was in response to a complaint, supported by the municipality, from the powerful chemical industry in Tarragona asking for a layout that would not divide the specialised industrial area.

Other complaints which had nothing to do with the line’s layout were made. In 1998, the population of Ulldecona, a village of 5,200 inhabitants68 located between Castellón and Tortosa, marched to ask for more trains to stop in the city station. According to the municipality, although the rail track passed through the village and had been improved, rail services had reduced during the previous twenty years.

Another source of uncertainty is represented by the current budgetary constraints, which limited the resources available to complete the project. This led to delays in the implementation of some sections. In particular, the section where more delays have occurred is the upgrading of the Vandellós-Tarragona section (the only one which still remains as single track). Initially the works expected to be carried out were the doubling of the line and upgrading for speeds of 200/220 km/h. With the advance of the works on the Barcelona- Madrid HSL, the possibility of connecting the Valencia-Barcelona line with the HSL between Madrid and the French border was later considered. This led to works being suspended and a new public information study was opened (Estudio Informativo). This requirement, which was missing when the need for improving the line arose, required the project design studies to be submitted to public consultation in order that city councils, citizens, organisations or individuals affected by the project could submit their comments and alternatives. This process, which ensures the adoption of a solution more adequate to the stakeholders’ need and interest, lengthens considerably the time it takes to reach an agreement on the solution69. After about three years of discussion, an agreement was finally reached; it then took two more years to develop and draw the projects (which were finished in 2004). Currently works to complete the project have been tendered but have not yet been awarded.

Another unforeseen event was faced: the design of the Rojales tunnel, whose works had already awarded, had to be changed in order to comply with new regulations of the State and the European Union, imposed after the accident in the Mont-Blanc Tunnel (1999). This contributed to delaying the completion of the infrastructure.

In summary, the managerial response of the planners and decision-makers was tested on several occasions. In some cases, requests by local stakeholders were satisfied: this positively contributed to increasing social happiness and the perception of the project’s benefits. Managerial response proved to be adequate also when driven by changes in regulations and planning. Yet, the lengthy procedures and budgetary constraints represented in some cases an insurmountable obstacle that limited the managers’ room for manoeuvre.

68 In 1998. In January 2009 Ulldecona’s inhabitants were 7,236 (source: Royal Decree 1918/2009, of 11 of December http://www.ine.es/jaxi/tabla.do). 69 Some of the alternatives discussed were: to build a ring section crossing the city of Tarragona, to build a Y-shaped connection between the two HS lines, to build a railway station near Reus airport in order to promote intermodality.

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4.6 PROJECT GOVERNANCE The stakeholders’ involvement, their roles and responsibilities in the development of the Mediterranean project must be analysed at local, regional, national and wider level. Different actors pursued a specific interest in the project. They include:

• Municipalities and regional public administration, requesting changes in the rail route and additional rail services at their stations (as highlighted in Section 1.5);

• local, regional and international rail transport organisations (such as CITRAME, CETMO, EURAM, FERRMED) but also other bodies promoting the competitiveness of the Mediterranean region (e.g. Chambers of Commerce and associations of ports), having the common objective of promoting regional economic competitiveness and in making the MEDCOORR the main rail gateway to central Europe for freight traffic;

• national authorities (Renfe-Adif and the Ministry of Public Works), in favour of implementing high-speed connections in Spain mainly in a radial direction from Madrid to the provincial capitals and whose interest in the MEDCORR is perceived as relatively minor by other stakeholders.

Figure 4.2 CHART OF STAKEHOLDERS

Source: Authors

This analysis shows that the overall project design and development have been negatively affected by poor coordination of all stakeholders. At the planning stage, the project suffered from lack of reliability and long-term vision. Planning in the Valencia-Barcelona project has been continuously modified since the project was subject to strong political influence. Both the Autonomous Community of Cataluña and Communidad Valenciana have actively participated

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in the project by drawing up specific proposals for the layout of the line passing through their territory and meeting with the Ministry to reach agreement on future decisions and actions. Indeed, both regional and local governments, with competence over urban planning, have attempted to influence Corridor decisions that, from their perspective, could deteriorate local quality of life. Several submissions subsequent to the publication of all the public information studies by the Ministry have been made70.

During the period of public information 86 allegations were received, submitted by the following agencies, entities, and individuals who were affected: Department of Territorial Policy of the Generalitat de Catalunya, General Directorate of the heritage and of the Physical Environment of the Generalitat of Cataluña, Department of Culture of the Generalitat of Cataluña, Tarragona Provincial Council, town councils from: Tarragona, Reus, Vila-seca, Salou, Roda de Barà, , , Constantí, , La Pobla de Montornés, Valls, Cambrils, , Mont-Roig del Camp [...]. Source: Gazette n.52, March 1st, 2003

In addition, some requests were also made by some municipalities after the project’s approval to revise some layout and design solutions. This slowed down to some extent the progress of the line.

As already mentioned, the strategy of the Spanish Government, promoting a radial infrastructural model, has been particularly criticised by some lobbies at regional level for not being in line with the actual needs of population and of the economic sector.

“I had never seen before such a great will to make the economic efficiency criteria prevail. We had enough of building infrastructures where there is nothing or nobody.” Source: Tremosa, R. to Catalan Agency News, October 5, 2011

Their lobbying action, on the other hand, has enticed politicians to include the project in their agendas. Actually, it seems that a broader consensus of the rail industry and the government has been recently reached, as the MEDCORR is expected to be included as a TEN-T Priority Project in the 2014-2020 programming period. This decision would raise the financial resources available to increase the intermodal potentiality of the Corridor. A higher degree of coordination among all stakeholders than has been the case up to now will be a necessary condition to ensure the implementation of the most effective intervention.

70 The activities of certain lobbies, such as FERRMED, have certainly contributed to a strong media presence that has created a public opinion in favour of the MEDCORR and exacerbated the conflicts with the central institutional level (see Section 3.8).

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5 CONCLUSIONS

The Mediterranean Corridor project has a controversial storyline. The analysis of the project’s appropriateness to the context, its design and the promoters’ forecasting capacity allows us to point out that the project suffered from an intrinsic weakness. While being focused on improving the quality and speed of rail service for medium and long-distance passengers, it missed the opportunity to also target other segments of demand, i.e. regional/metropolitan passengers and, particularly, freight. These were not affected by the project; on the contrary, their development was constrained by the existence of a single double-track rail line, over which priority has been given to Euromed and other long-distance passenger services. The lack of an adequate ex-ante analysis of options and demand prevented proper assessment of the benefits brought by the investment and its opportunity cost, i.e. the social cost of upgrading the proposed infrastructure instead of investing in alternative transport infrastructures in the area.

Additionally, the project was subject to strong political influence from the central and regional governments, which had divergent interests around the Mediterranean Corridor. On the one hand, the regions of Cataluña and Valencia, supported by the associations of transporters and other organisations involved in the promotion of the Mediterranean ports and industry competitiveness, have always been in favour of building in the MEDCORR area a High-Speed Line for passengers and of planning more interventions to enable, particularly, freight transport, which should have fully integrated with the main commercial ports of the area. On the other hand, the Ministry of Public Works opted for a less costly solution, by upgrading the Valencia-Barcelona existing line allowing for speeds up to 220 km/h. This should have been used by both passengers and freight trains.

The lack of coordination of all these interests had negative consequence on the project design and development, since it limited the scope to identify the most effective and sustainable project solution to satisfy the largest possible set of needs.

As a consequence of these weaknesses, the project’s effects, particularly the economic impact, have been lower than expected. The Cost-Benefit Analysis shows that the total value of benefits is not enough to compensate for the very high investment cost incurred between 1993 and 2002 to upgrade the line and sustained by the Spanish government and the European Commission (through the Cohesion Fund): the Economic Net Present Value, actually, is negative and amounts to EUR -6.87 million. The largest benefit has been generated for Renfe, through the increased revenues from tariffs, followed by benefits to users, in terms of time saving. As estimated in the risk analysis, the CBA results are strongly sensitive to demand variations and the return of traffic volumes up to the levels before the economic crisis would be enough to generate a positive ENPV71. This corroborates the fact that an appropriate ex-

71 An optimistic scenario in which future demand increases by 10% would generate an ENPV of EUR 50 million (see Annex II).

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ante demand analysis would have been crucial to estimate the potential risks to the project and to identify adequate risk mitigation measures.

As far as other non-quantifiable effects are concerned, those on endogenous dynamics of growth were positive, through the spread of know-how in rail technology. The project also succeeded in fostering both social cohesion, by improving the rail services for disabled people and offering an alternative mode of transport to those not owning a car, and territorial cohesion, by reinforcing the economic and social links between the Comunidad Valenciana and Cataluña. By contrast, the project impact on ‘institutional cohesion’ was limited: conflicts between the central government and regional authorities intensified over time because of lack of agreement over the rail infrastructure priorities.

For the stabilisation of the project’s effects more time is needed and, because of this, further positive or negative developments may still occur. Works in the Valencia-Barcelona line have been underway since the 1990s and the initial project will probably be completed only in 2013, with the finalisation of the Vandellós-Tarragona section. Other interventions on the line, which could influence project performance, are also expected in the subsequent years.

First, the construction of the HSL between Valencia and Castellón will divert long-distance passenger demand onto the new line, thus freeing spare capacity on the already existing line to the benefit of suburban and regional passengers and freight transport. Second, at the end of 2011 the Mediterranean Corridor was included by the European Commission in the provisional list of new TEN-T Priority Projects to be financed in the 2014-2020 programming period and expected to be completed by 2030. Most MEDCORR stakeholders hope that this decision will encourage enough investment to increase the interoperability of the line and its connection to the ports. The goal is to transform MEDCORR into a gateway for both freight and travellers to central Europe.

Adopting a holistic vision for these investments will be crucial to ensure their smooth implementation and effectiveness. The interplay between actors, interests and interventions is large and adequate supervision and coordination of public decision-making will become the key to promoting a balanced and sustainable development of the Corridor.

In order to put in place a coordinated investment strategy aimed at maximising the benefits generated by the future projects, higher convergence between the central and regional interests will have to be achieved. The European Commission could probably play a role in this regard, by promoting an integrated vision for the rail system at Spanish and European level. Actually, the inclusion of the Mediterranean Corridor as a future TEN-T project may substantially enlarge the degree of involvement of the Commission at the planning stage, in partnership with national authorities.

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ANNEX I. METHODOLOGY OF EVALUATION

The present Annex summarises the methodological approach undertaken for carrying out the project case studies and presented in the First Intermediate Report of this evaluation study. Moreover, the Annex further elaborates on and specifies the definition of long-term effects considered throughout the case study and the typology of determinant mechanisms analysed in interpreting the project outcomes. The main objective is to provide the reader with a set of information describing how the project evaluation was conducted and to enable him/her to replicate this methodology.72

The Annex is divided into three parts: in the first one, the overall conceptual framework of the evaluation study is recalled and the definition of long-terms effects and project determinants are laid out; in the second one, the methodology of analysis followed to implement the ex-post evaluation is discussed; finally, the structure of the case study reports and the tools used to standardise them is described in the third part.

CONCEPTUAL BASIS The Conceptual Framework of this evaluation study is based on three dimensions of analysis: the object of the evaluation (the ‘What’), the timing of the long-term effects (the ‘When) and the determinants of the project’s outcomes (the ‘How’).

The ‘What’ dimension

The Team developed a classification of long-term effects, with the aim of identifying all the possible impacts of public investments on social welfare. A broad distinction of project effects is among effects on ‘Economic development’ or ‘Quality of life’. Investment projects can foster economic development, which is generally quantifiable by aggregate indicators, such as the Gross Domestic Product; although economic development is not disconnected from the wellbeing of society, it is acknowledged that there are a number of other factors that may affect public welfare, that are not captured by the traditional economic indicators73. For the purpose of this study, the notion of quality of life74 refer to the factors that affect social development, the level of social satisfaction, the perception of social reality and other dimensions which are outside the conventional economic dimension. Under these two broad categories, a taxonomy of more specific long-term development effects of investment projects has been developed. The definition of each type of effect is provided in Table I.1.

72 Specific recommendations which may enable application of the same evaluation methodology to future projects are discussed in the Final Report of this evaluation study. 73 Dasgupta, 2011 and Stiglitz et al., 2009. 74 Used also as synonymous with wellbeing, as mentioned in the ToR.

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Table I.1 TAXONOMY OF LONG-TERM DEVELOPMENT EFFECTS Effects Definition Checklist Economic development Direct Following the traditional growth theory75, both Did the project have effects on the endowment of economic public and private investment contribute to labour or capital production factors? Did it contribute to growth increasing the stock of capital and thus economic employment creation? Did it attract new investments? growth. The direct contribution of a project to Did it create new business opportunities? Did it produce economic growth, in terms not only of real growth of time savings for business trips? Did it produce GDP, but also, more generally, on economic welfare decreases in travel costs? is discussed within this category of effect. Endogenous Endogenous dynamics comprise all the factors that Did the project contribute to the improvement of the dynamics have an indirect effect on economic growth, by productivity of the economic system? Have social improving the productivity of inputs: the increase of behaviours changed as a result of the project? Did the the stock of competences and knowledge of human project provide new/improved skills, R&D investment, capital76, the introduction of a more advanced organisational changes that translated into an increase technology77 and changes in the organisational in labour productivity? model of economic actors, making them more efficient78, are analysed insofar they contribute to increasing the production function. Quality of life Social Public investment can affect social cohesion, by Did the project promote social inclusion? Did it improve cohesion minimising disparities, avoiding social the conditions of specific segments of the population marginalisation and reducing income inequalities (e.g. elderly, migrants)? Did it improve the affordability across different socio-economic, gender or ethnic of services? groups. Environmental Polluting emissions, biodiversity loss and depletion Did the project improve the quality of the natural effects of natural resources caused by large infrastructural environment? Did it alter wildlife habitats? Did it affect projects can affect social wellbeing of both the the ecosystem? Were there any environmental issues present and future generations. related to project implementation? Territorial The project can contribute to reducing welfare Did the project improve the territorial cohesion of the cohesion disparities caused by unequal distribution of region/country? Did it play any role in urban-rural or resources and opportunities among regions and their core/periphery or cross-border dynamics? Did it expand population. The focus, in particular, is on core- the territorial coverage of the delivery of a basic periphery and urban/rural differences. service? Institutional Investment projects can bring wide spill-over effects Did the project induce any institutional learning at learning to the quality of Public Administration and other regional administrative level? Did it raise political institutions at national, regional or local level. awareness regarding a specific theme? Did it have Institutional quality is strongly related to economic effects on the level of corruption? growth79, but it can also affect the quality of life of people, because of the intrinsic value that individuals can attribute to a well-ordered society80. Social This category encompasses all those variables which Are the project beneficiaries overall satisfied with the happiness may affect the subjective perception of people’s project’s implementation and outcomes? Did the wellbeing, and have to do with their psychology, project have any effect on the perception of quality of family context, religion and cultural traits. life? Did it affect the sense of security of the target population?

In researching all the possible long-term effects of project investments, it is acknowledged that there is a risk of duplication and double-counting: for example, a project for water treatment clearly has effects on environment, which may contribute to the development of new economic activities that foster economic growth.

75 Solow, 1956. 76 Becker, 1962. 77 Griliches, 1992 and Griffith, 2000. 78 Tomer, 1982 and Martinez, 2009. 79 See, for instance, Easterly et al., 2006. 80 Sen, 1987.

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The ‘When’ dimension

The temporal dimension of analysis relates to the point in the project’s lifetime at which the effects materialise for the first time, how they develop over time and whether they have already stabilised or are still evolving. A clear distinction emerges between short-term and long-term effects, with the former being the first contributions made by the project and enjoyed by society after a relatively short time following project completion (about 1-5 years); the latter, on the other hand, become visible after a longer period of time and tend to stabilise over many years. It is acknowledged that, given the varying timeframe for different effects to appear and stabilise, the choice of the time horizon and the timeframe at which the ex-post evaluation is carried out can significantly affect the results of the evaluation.

The ‘How’ dimension

Project outcomes, i.e. the way projects affect the generation of certain effects and the varying timeframe for effects to appear and stabilise, are not certain, but result from a non- deterministic combination of different and interrelated factors. Five stylised determinants of project outcomes have been identified: appropriateness to the context, project design, forecasting capacity, project governance and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects (see Table I.2).

The three dimension of analysis are logically interconnected and by combining the ‘What’, ‘When’ and ‘How’ dimensions the evaluator can disentangle the causal chain between the project’s inputs and the outputs.

METHODOLOGY OF ANALYSIS The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (personal interviews, surveys, searches of government and newspaper archives, etc.) techniques. Qualitative techniques are probably better at determining why certain effects are generated, along what dimensions, and underlying causes and courses of action of the delivery process. The media (including websites or blogs), in particular, have proved to be an excellent source of evidence identifying or revealing both objective information and perceptions about the project, thus concurring to assess the project’s impact on social happiness. At the same time, quantitative data can provide an important support to test and validate certain findings derived from interviews and other sources. The most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome81.

81 More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study.

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Table I.2 KEY DETERMINANTS OF PROJECT OUTCOMES CONSIDERED Determinant Definition Working Hypothesis Questions to be answered Appropriateness Includes the Context traits can be more or less favourable for project performance Has the (political, cultural, socio-economic, institutional, regulatory) context to the context consideration of and deserve early and careful consideration about which to take or to played a role in influencing the attainment of long-term effects? institutional, cultural, make. Were there any political, social, cultural, economic, regulatory, or institutional social and economic The terminology of context traits that can be either ‘taken’ (that is, constraints to project implementation and performance? environment into accepted, as they are considered unchangeable) or ‘made’ (by changing Was the project ‘trait taking’ or ‘trait making’ in its nature? If it was intended to which the project is existing or creating new traits) is drawn from Hirschman (1967). be trait making, did it succeed? inserted. Project design Refers to the technical The technical and engineering capacity to design an infrastructure and to To what extent and in what way did the technical, structural and financial capacity to design the provide the appropriate mechanism for its financial sustainability should features of the project influence its performance? infrastructure project be sufficiently disciplined to reduce future risks; at the same time it Did the option selection process lead to the implementation of the most and to select the best should leave some degrees of ‘latitude’ to enable adjustments for promising project idea? project option. unforeseen circumstances. Was project design capacity a relevant factor in determining the observed ex- Following Hirschman, latitude is the characteristic of a project that post performance of the project? permits the project planner and operator to mould it, or to let it ‘slip’, in Was the project design flexible enough to be adjusted, if needed, to external and one direction or another. Some projects are so structured that latitude is unexpected constraints? severely restricted or completely absent: in these cases, the project is considered highly ‘disciplined’. Forecasting Relates to the A good initial investment in building the forecasting capacity does not Were the ex-ante forecasts based on a sound methodology and a comprehensive capacity feasibility and capacity eliminate risks, but it increases the knowledge of the context, improves set of information? to predict future the project design and optimises the distribution of responsibilities Were some important factors not sufficiently considered ex-ante? variables, such as the without lowering the commitment to performance. Was the forecasting capacity a relevant factor in determining the observed ex- demand level. post performance of the project? Project Concerns the number High stakeholder involvement, well-defined roles and responsibilities and What are the interests and motives of different actors and incentives for governance and type of incentive mechanisms require commitment of resources and increase the decision-making? How did they change over the time-span considered? stakeholders involved complexity of the decision-making process, which may be subject to Was the ownership of the project clearly identified? throughout the project particular pressures, but they can favour the project performance and its Did contractual arrangements improve the co-ordination of different cycle and how sustainability over time. stakeholders towards achievement-oriented results? responsibilities are attributed and shared. Was project visibility a relevant political incentive to foster proper project implementation? Was the project subject to political or other forms of pressure? Managerial Defined as the Unpredicted events that occur and undermine the sustainability of the How did the project react to exogenous, unpredictable, events? response managerial and project and its capacity to lead to expected benefits can be overcome by What remedial actions were put in place? What mechanisms were used to professional ability to prompt and adequate response from the decision-makers and project incentivise proactive responses? react to unforeseen managers, driven either by professionalism and experience or by Why were these events unexpected? Was it due to their purely exogenous and events. creativity and imagination. ex-ante unpredictable nature? Or, was it due to poor planning capacity?

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STRUCTURE OF CASE STUDIES AND STANDARD TABLES OF RESULTS Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten project ‘histories’ and to isolate and depict the main aspects behind their long-term performance. All case study reports share the same outline, presented in the following Table:

Table I.3 OUTLINE OF THE CASE STUDY REPORT SECTION CONTENT Projects description The first section provides a brief sketch of the unit of analysis. It describes the key structural features of the infrastructure and the service delivered, the context in which it takes place, the target population and the current performance of the project. Origin and history This section describes the background in which the decision to initiate the project was taken, the need and objectives expected be met and the key stakeholders involved and their role. The section should present a brief chronicle of the main developments after the construction phase and the most recent facts. Description of long- This section should describe the main long-term development effects provided by the term development project. The seven categories of effects should be considered and for each of them an effects assessment of the contribution of the project to that specific effect, and the timing of their materialisation and evolution, should be given. Determinants of The main drivers influencing the performance observed are described and elaborated here. project outcomes The evaluators should provide their own assessment for each of the five key determinants of project outcomes identified in the conceptual framework. Conclusions The key messages in terms of lessons learnt are developed here. Annexes Ex-post cost-benefit analysis report, list of interviewees, other ad hoc analysis if relevant (such as stakeholder mapping).

In order to maintain the structure of all the case study reports as similar as possible, and facilitate the cross-project analysis of findings, a set of standard tables is used to summarise the main evaluation results related to three dimensions of analysis (‘What’, ‘When’ and ‘How’). Section 3 and 4 of each case study include standardised tables in which scores are assigned to each type of long-term effect and each determinant. Scores ranging from -5 to +5 are given in order to intuitively highlight which are the most important effects generated for each case study and which are the most relevant determinants explaining the project outcomes. In other words, scores are used to rank the effects and determinants, showing which ones are the most relevant. Moreover, the plus or minus signs indicate the nature of the effects produced by the project (was the impact positive or negative?) and of the determinant of project performance (did the determinant positively or negatively contribute to the project outcome?).

The same scores are used to disentangle the project’s impacts on different stakeholders. This table allows one to better interpret the aggregated score given to each effect, by understanding on which actor the project impacted the most: for example, a +3 score to “Direct economic growth” may be reflected by a very high positive effect on the infrastructure operator (valued, for instance, +5) and a slightly negative effect on other actors (valued -2). As shown by this example, the aggregate score of each effect and the scores related to different stakeholders should be consistent with each other and should results from a sort of weighted average of the impacts on individual stakeholders: an aggregate positive score is inconsistent with negative impact scores on all the different stakeholders involved.

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Table I.4 SCORES ON PROJECT’S IMPACT AND DETERMINANTS OF PROJECT OUTCOMES Score Meaning +5 Given the existing constraints, the highest positive effects have been generated. +4 Given the existing constraints, high positive effects have been generated, but more could have been achieved under certain conditions. +3 Moderate positive effects have been generated, with large scope for further improvement. +2 Some positive effects have been produced. +1 Very little, almost negligible, positive effects have been generated. 0 No effects have been generated. -1 Very little, almost negligible, negative effects have been generated. -2 Minor negative effects have been produced. -3 Moderate negative effects have been generated, but they could have been worse. -4 Highly negative effects have been generated. -5 The highest negative effects have been generated. Note: The same scores have been used for assessing both the project’s impacts and determinants. In the first case, they have to be interpreted as the nature and strength of effect generated by the project; in the latter, they indicate the strength of each determinant factor in influencing the project outcomes.

The ‘When’ dimensions results are synthetically presented by means of another table: for each kind of effect, a score is given to explain how the nature and strength of the impact evolved over the years, by focusing in particular, on the short-run (approximately 1-5 years after the project’s completion), the long-run (6-10 years after the project’s completion) and the future period. The Table contains information that allows the reader to immediately understand whether the project impacts have already stabilised or not. The meaning of the symbols used and an example of their application is presented in the following two Tables.

Table I.5 SYMBOLS USED TO DESCRIBE THE TEMPORAL DYNAMICS OF THE EFFECTS Symbol Meaning + or - Positive or negative effect. ++ or -- Positive or negative effects reinforced (in positive or negative direction) with respect to the previous stage. +++ or --- Positive or negative effects further reinforced (in positive or negative direction) with respect to the previous stage. +/- Mixed effect, it is not possible to assess whether the impact was positive or negative.

Table I.6 EXAMPLES OF TEMPORAL DYNAMICS OF THE EFFECTS Short run Long run Future Comments (years 1-5) (years 6- 10) years + + + The positive effect stabilised in the short-run. + ++ ++ The positive effect stabilised in the long-run. + ++ +++ The effect has grown over the years and will increase also in the future. - + ++ The effect was at first negative; after some years it turned positive and it is still not stabilised yet. +/- + ++ Effects have been mixed in the initial stage, became positive in the long- run and are expected to further increase in the future.

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ANNEX II. COST-BENEFIT ANALYSIS

This Annex illustrates the results of the ex-post CBA of the project aimed at upgrading the Valencia-Barcelona line. It has been undertaken in order to quantitatively assess the performance of the project in the past and to provide forecasts for the future. The analysis was carried out in line with the guidelines set in the First Interim report and, more generally, according to the methodology defined in the EC Guide (European Commission, 2008). The Railway Project Appraisal Guidelines – RAILPAG have been also take into account (EU Commission and European Investment Bank, 2005).

METHODOLOGY, ASSUMPTIONS AND DATA GATHERING In what follows, the main assumptions and the procedure of data gathering are described in detail.

• Project identification

The project under assessment concerns the upgrading of the Valencia-Barcelona railway line running along the so-called Mediterranean Corridor. Implemented over a period of seven years from 1996 to 2002, the project was aimed at increasing the speed of the line up to 200/220 km/h and included the following typologies of intervention:

o Laying double track.

o Adaptation of the track layout and the superstructure (electrification and signalling system) to allow speeds up to 220 km/h.

o Construction of bypasses and replacement of level crossings.

As explained in Section 2 of the main report, three investment stages were envisaged to upgrade the line. Section Valencia – Sant Vicenç de Calders (about 70 km from Barcelona), where the works were concentrated, has received co-financing from the Cohesion Fund and represents the focus of the investigation. However, in order to have a self-contained project for the cost-benefit analysis, the Barcelona-Valencia origin-destination section is taken as the unit of analysis.

It is worth noting that all the investments under this project were aimed at offering high quality services, by improving the conditions for passenger traffic. As explained in the main report, neither regional and metropolitan services nor freight transport were substantially affected by the project. For this reason, the analysis focuses only on medium and long-distance passenger traffic between Barcelona and Valencia.

• Time horizon

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In line with the First Interim Report, time horizon is set at 30 years. Accordingly, the timeframe for the project’s evaluation spans from 1996, the first year of expenditure, to 2026. A mix of historical data from 1996 to 2011 (covering 15 years) and forecasts from 2012 to 2026 (covering 15 years) is used.

• Constant prices and discount rates

The CBA has been carried out by using constant prices as suggested by the First Interim Report. Historical data (from 1996 to 2010) have been reflated and converted into prices at 2011 Euro by using the yearly average percentage variation of consumer prices provided by the International Monetary Fund, while no inflation has been considered for data from 2012 onwards.

In line with this methodology, real financial and social discount rates have been adopted. In particular, inflows and outflows of the financial analysis - for both the backward and forward periods of analysis – have been discounted and capitalised using a rate of 5% real, as suggested in the current CBA Guide. In the economic analysis, specific social discount rates for Spain for the past and the future periods have been calculated. A real backward social discount rate of 5.4% and a real forward social discount rate of 3.3% have been used.

• Without-the-project scenario

All cash flows have been calculated as incremental against a “Business-As-Usual” counterfactual scenario. This is represented by a continuation of the situation before the project was implemented, which entails running a conventional line with a single track in many sections and severe speed limitations. In particular, the counterfactual scenario consists of following the standard pattern of renewal and maintenance of the infrastructure and equipment, in compliance with the Railway Project Appraisal Guidelines (EU Commission and European Investment Bank, 2005). The alternative scenario we consider is the “do project”, which implies new superstructure (catenaries, signalling), rolling stock and double track allowing the line to operate at speeds up to 200/220 km (see below for a detailed description of the investments), to introduce high performance in rail services.

• Demand analysis and forecasting

Historical data on passengers travelling between Barcelona and Valencia have been gathered from Renfe. It shows that, after a slight increase thanks to the project’s realization in 2000, traffic on the Valencia-Barcelona line has been unstable over the years and decreased sharply between 2009 and 2011, back to the values of year 2000, mainly as a consequence of the economic crisis (see Figure AII.1).

Owing to the lack of an origin-destination matrix with traffic data between the main stations along the route from Barcelona to Valencia, it was not possible to specify the number of passengers for each section (and so to calculate the relative trip costs and

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travel times). However, by crossing the data from Renfe with that from Observatorio del Ferrocarril en España, for long-distance passengers only, it was possible to at least distinguish between long-distance and medium-distance passengers, to whom a different generalised cost of transport applies. Long-distance passengers, accounting for about 80% of the total, are those covering the entire route between Barcelona and Valencia. Medium-distance passengers, accounting for the remaining 20% (regional and metropolitan traffic is not affected by the project, as explained above) are those travelling for an “average trip” of 187 km, which is the distance between Tarragona and Castellón stations. This distinction between long- and medium-distance passengers, although a shortcut, ensures that the consumer surplus is not over- estimated by imputing savings reported for the entire trip Barcelona-Valencia to passengers that have travelled a shorter trip.

In order to estimate the future passenger trend, the following assumptions have been adopted:

the average annual growth rate of -4.6%, recorded between 2008 and 2010, has been assumed to continue until 2012, in line with the current macro-economic forecasts;

in 2013, the negative trend continues although with a milder effect (-2.3% with respect to the previous year);

from 2014 to 2019, a mild, progressive, recovery from the crisis is expected, at least in line with the performance of the project between 2000 and 2008. Accordingly, an average annual growth rate of +2.5% has been adopted;

from 2020 until the end of the time horizon, the hypothesis is to have a stabilisation of traffic, and constant values have been adopted.

If the connection with the HSL Madrid-Barcelona-French border is constructed, a reduction in the passengers travelling on the high-speed line of the Mediterranean Corridor between Barcelona and Tarragona can be expected. Similarly, the construction of a HSL running between Valencia and Castellón, in parallel with the existing infrastructure, will further reduce traffic on that section. However, given the uncertainty attached to the actual realisation, and the timing82, of these investments, their impact on the lines currently operating on the Medcorr is not included in the analysis of the base case. Rather, these hypotheses, and more generally the uncertainty related to the demand forecasts, are tested in the sensitivity and risk analysis (see below).

The above-depicted demand scenario has been compared against the counterfactual scenario, where the project does not take place. Should the project not have been implemented, it is assumed that traffic would have evolved until 2010 in line with the

82 E.g. the construction of the connection between Valencia and Castelló with a new HSL, which would leave the project with regional and freight trains, is expected at 2025 but

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national average of the conventional rail lines of Spain. Data on long-distance passengers on conventional lines was gathered from Observatorio del Ferrocarril en España. More specifically, the estimation of the number of passengers that would have travelled between Barcelona and Valencia in the absence of the project involved a growth rate of +4.34% with respect to year 1996 (before the entrance into force of the project), which is the average growth recorded for long distance passengers of conventional rail lines in Spain between 1996 and 1997. The adoption of this value is justified because it is the one which depicts a counterfactual scenario consistent with the information found in the press at that time: according to them, when the project entered into force, it doubled the number of passengers. However, the robustness of the CBA with respect to this key assumption has been tested in the analysis of uncertainty (see below).

From 2011 onwards, the same logic used to forecast the traffic of the with-the-project scenario has been applied. This consisted in the adoption of the average annual growth reported by the conventional lines in the periods 2008-2010 and 2000-2008, respectively, for the continuation of the negative trend (up to 2014) and for the mild recovery from the crisis (from 2014-2019).

It is worth mentioning that, until 2008, these trends have the opposite signs to those of the Valencia-Barcelona line, which saw positive growth until 2008, followed by a severe reduction in passengers with the occurrence of the crisis. By contrast, the average reduction of passengers travelling on conventional rail lines between 2008 and 2010 was only -0.8%. This is consistent with the consideration that, in periods of crisis, least costly solutions are less sensitive to income status and preferred by users. Traffic on conventional lines did not grow but decreased, on the contrary, between 2000 and 2008, because absorbed by high performance or high speed services.

The adoption of these rates is consistent with the idea that a progressive reduction of traffic in the counterfactual scenario should be occurring, because a lack of capital investments in the long-run would have made the infrastructure obsolete and thus less attractive for users.

The demand difference between the two scenarios comes from traffic diverted from other modes and from traffic induced by the project. This additional traffic was about 500,000 passengers per year at the end of the ramp-up period and is expected to reach some one million passengers/year by the end of the time horizon, by which point a situation of no investments on the Corridor would have made traffic conditions almost unsustainable (Figure AII.1).

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Figure II.1 MEDITERRANEAN CORRIDOR PASSENGERS – HISTORICAL DATA (1996- 2010) AND FORECASTS (2011-2026)

Source: Authors’ elaboration based on data from Renfe and Observatorio del Ferrocarril en Espana(2010)

• Data sources

The analysis relied on data provided by Adif (the railway network owner), Renfe (the operator) and the Ministry of Public Works, as well as on opinions and information from the stakeholders and experts interviewed, the literature and the press.

FINANCIAL ANALYSIS Investment Costs

The investment phase to upgrade the existing line between Valencia and Sant Vicenç de Calders for speeds up to 200/220 Km/h lasted from 1993 to 2002. Total cost of investment was EUR 759.1 million (2011 prices), including:

• Civil works, including costs for labour and materials;

• Land expropriation;

• Others, including feasibility studies, publicity, etc. The investment cost of rolling stock has not been included due to lack of data. Moreover, some of the train for the Valencia-Barcelona line had not been purchased, since it was decided to use excess trains previously bought for the Sevilla-Madrid HSL83.

83 See the discussion in the main text.

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The table below shows the investment flows by year. For the years before 2000, owing to unavailability of information by year, assumptions have been made by allocating the expenditure pro rata84.

Table II.1 INVESTMENT COSTS BY ITEM (EUR THOUSAND, 2011 PRICES) Calendar 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 year Land 3,991 7,622 5,459 24,403 8,751 8,590 4,220 430 0 0 acquisition Civil works 10,331 78,927 75,371 73,060 177,833 174,557 42,883 7,110 3,163 1,966 Other 1,619 4,638 4,429 11,140 10,003 9,818 6,432 1,533 476 340 Total 15,941 91,187 85,259 108,603 196,587 192,965 53,535 9,073 3,639 2,305 Source: Authors elaboration of Ministry of Public Works data

As for the residual value of investment items, at the end of the evaluation period of 30 years, land will keep its value, while it is assumed that civil works and superstructures will keep, on average, a value equal to 35% and 25% of their initial cost, respectively. The residual value amounts to about EUR 66 million, i.e. EUR 89 million at 2011 prices. This value considers that the real value of land at the end of the period is the same as at the time of purchase. This residual value does not take into account the replacement costs, due to lack of reliable data.

Operating Costs

Costs needed for operations and maintenance of the double track line between Barcelona and Valencia have been estimated on the basis of the unit costs provided by Adif85 for conventional lines. In particular, the following components and related unit costs have been considered. All cost items are inclusive of the need for extraordinary maintenance and replacement of short- lived equipment.

• Maintenance of network: unit cost EUR 31,000 per km per year86. This includes maintenance of tracks, machinery, substations, telecommunications, sign-posting and replacement costs. Given a total length of 354 km (see table below), in the scenario without-the-project, the estimated cost for single track line maintenance between Barcelona and Valencia is EUR 10.9 million (2011 prices). In the scenario with-the- project, a 70% increase has been estimated; i.e. a yearly cost of EUR 18.6 million (2011 prices) for maintenance of the existing double track line (except for Tarragona- Vandellós section). Accordingly, the incremental annual cost estimated for the maintenance of the network is EUR +7.7 million (2011 prices).

84 No information is available on sources of funding. 85 Adif, 2011, Manual para la evaluación de inversiones en ferrocarril. 86 This value is significantly lower than for the HSL where Adif estimates a unit cost of 105,000 Euro/km per year.

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Table II.2 LENGTH OF RAIL SECTIONS Section Length (km) Barcelona - Sant Vicenç de Calders 70 Sant Vicenç de Calders - Tarragona 25 Tarragona - Vandellós 39 Vandellós – Castellón 147 Castellón - Valencia 73 Total 354 Source: Authors

• Maintenance of stations: unit cost EUR 250,000 per year. This includes maintenance of civil works, electrical and lighting systems, fire detection systems, elevators and escalator systems, station cleaning, security, consumption of energy and water, and personnel for a middle-sized station. Given a total of 13 main stations87, the annual cost is estimated at EUR 3.3 million (2011 prices). No additional cost is envisaged because of the intervention (i.e. the incremental effect is zero).

• Traffic management and control: unit value EUR 15,000 per km per year. This includes costs of personnel, equipment and Information-Technology systems necessary to manage and control traffic. This translates into a cost of EUR 6.4 million and EUR 5.3 million in the scenarios with- and without-the-project88, respectively.

• Security: this includes the cost for personnel and vehicles necessary to carry out inspections along the track to avoid theft, vandalism, etc. on installations. Given the absence of a specific value proposed, and following indications from Adif that this cost is marginal for non High-Speed lines, a unit cost of EUR 1,000 per km per year has been arbitrarily adopted. No additional cost is envisaged because of the intervention.

• Overhead costs: these are assumed to be equal to 5% of the sum of the above illustrated operating costs.

Train operating costs, including staff, energy and other expenses, have not been included because of lack of reliable data. Accordingly, actual operating costs would be higher than the estimations of the CBA. Cost increases have been tested in the sensitivity and risk analyses.

The fee paid by the operator to the owner of the infrastructure, which represents a cost for the former and a revenue for the latter, has not been considered since the analysis is carried

87 They include: Barcelona, Sant Vicenç de Calders, Tarragona, Salou, Cambrils, L’Aldea-, Vinaròs, Benicarló-Peñíscola, Benicàssim, Castelló de la Plana, Sagunt, Valencia Joaquín Sorolla, Valencia Nord. For Valencia and Barcelona stations, the unit cost of 250,000 Euro/year is estimated as the share of maintenance imputable to the Mediterranean Corridor, given that these stations bear higher costs, as they are part of other HSL corridors. 88 The scenario with-the-project considers a 20% increase with respect to the counterfactual scenario.

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out at consolidated level and the two items cancel each other without affecting the project’s net cash-flows89.

As a general rule, in the first four years of the analysis (1993-1996) operating costs have been assumed equal in both with- and without-the-project scenarios. In 1997-1999, given the progressive opening of sections along the Valencia-Barcelona line, a ramp-up period has been considered and costs estimated as a share of the total. From 2000 onwards, the full net incremental costs are considered. Costs for operations and maintenance have been assumed constant over time.

Revenues

As far as operating revenues are concerned, they have been estimated by multiplying the number of passengers in the two scenarios, distinguishing between medium- and long- distance passengers, by average tariffs. We opted for this approach because of lack of data on the origins and destinations for various types of passengers on different sections, which would have allowed us to apply a different tariff for each type of user.

A picture of the different services currently provided from Barcelona to Valencia is illustrated in the table below. Tariffs reflect the adjustments applied when high performance services on the new upgraded line commenced operations (namely the Euromed, Alaris, Talgo and Trenhotel trains). Accordingly, in the counterfactual scenario, the tariff for non-high performance services, such as that of Real Express, still in place, has been adopted. In the absence of historical data on revenues, the average tariff per long-distance passenger can be estimated as about 75% of the average of the prices applied for the trip Barcelona-Valencia in tourist class90. This approach comes from a study undertaken by CENIT Barcelona, on behalf of the International Union of Railways and the assumption was approved by an expert group with representatives from the different rail operators that are members of a Study by the International Union of Railways (UIC) on infrastructure charges on high speed services in Europe. As a result, average tariffs in the scenario with-the-project are EUR 26.90 91 and EUR 14.1092 for, respectively, long-distance and medium distance passengers. In the counterfactual scenario, these are EUR 17.9093 and EUR 9.4094 respectively.

These values are assumed to be constant in the future. Accordingly, revenues will change only in line with changes in the number of passengers served.

89 Following the First Interim Report, the financial analysis of the ex-post CBA analysis has to be performed according to a simplified model and in a rather aggregate way, for the sake of simplicity. Hence, consistently with the other case studies, the financial returns to each of the different actors have not been calculated. 90 For medium-distance passengers the average tariff can be derived as a share of it, given the shorter length of the trip. 91 35.87*0.75=26.90 92 18.86*0.75=14.14 93 23.85*0.75=17.89 94 12.54*0.75= 9.40

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Table II.3 TARIFFS APPLIED IN THE SCENARIO WITH AND WITHOUT THE PROJECT Type of train Scenario with project Counterfactual Scenario Barcelona-Valencia Barcelona-Valencia (EUR 2011) (EUR 2011) Tourist class Business class Tourist class Business class Euromed 44.20 72.50 ALARIS 40.60 53.70 Talgo 39.60 52.40 R.Exprés 23.85 - 23.85 - Trenhotel 31.10 64.00 Average 35.87 60.65 23.85 Source: Authors

Project’s financial performance

Cash-flows have been calculated on an incremental basis, by considering the difference between costs and revenues in the two scenarios. Results of the project financial performance are presented in Table II.14.

On a financial basis, the profitability of the project is negative. The Net Present Value (NPV) on investment is equal to EUR -1,029.4 million (at a discount rate of 5%, real), with an internal rate of return of -2.3%. These negative values confirm that the project was in need of EU funding since no private investor would have been motivated to implement it without an appropriate financial incentive.

ECONOMIC ANALYSIS From market to accounting prices

In line with the CBA Guide, the social opportunity cost of the project’s inputs and outputs has been considered in the economic analysis. For this purpose, market prices have been converted into accounting prices by using appropriate conversion factors, as proposed in the First Interim Report. In particular, reference has been made to the Spanish Guide to the evaluation of railway investments of the Ministry of Public Works95 and to the Standard Conversion Factor and the Shadow Wage specifically calculated for Spain96. Exceptions are the Traffic management and control and Security items, for which ad hoc conversion factors have been calculated in order to take into account the strong labour component of these typologies of cost. Similarly, the Conversion Factor of the residual value is a combination of the primary items in the cost of investment including land acquisition. The Table below summarises the conversion factors applied for each cost item.

95 Manual para la Evaluación de Inversiones en Ferrocarriles del Ministerio de Fomento (1996). 96 See the First Interim Report for details.

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Table II.4 CONVERSION FACTORS USED IN THE ECONOMIC ANALYSIS Item Conversion Source Note factor Investment Civil works 0.90 Spanish Guide Land acquisition 1.3 Expert opinion The cost of land is assumed to reflect the opportunity cost of the input Other 0.90 Standard conversion factor Residual value 1.04 Own calculation 26% civil works; 72% land; 2% other Operating costs Maintenance of network 0.82 Spanish Guide Maintenance of stations conventional 0.82 Spanish Guide Traffic management and control 0.89 Own calculation 70% labour; 30% standard conversion factor Security 0.86 Own calculation 70% labour; 30% standard conversion factor General cost 0.907 Standard conversion factor Source: Authors

Project’s Effects

Benefits generated by the upgrade of the railway line between Barcelona and Valencia can be divided into:

• Change in consumer surplus, represented by the savings in the generalized cost for already existing users and diverted and new generated traffic;

• Changes in producer surplus, represented by the increased revenues thanks to higher demand and higher unit tariffs, net of operating cost;

• Costs savings for users who remain on the road and air networks;

• Reduction in the negative externalities as a result of the traffic diverted from road and air to rail.

As for operating costs and revenues, benefits start to fully materialise from 2000 onwards, after a ramp-up phase between 1997 and 199, while in the period 1993-1996 the net effect is zero. In the period 1997-1999, given the partial provision of high performance services on some sections along the Corridor benefits have been reduced, while in the period 1993-1996 the net effect is zero.

In what follows a description of each benefit’s component is provided.

Consumer surplus

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Thanks to the intervention, the generalised cost of travel from/to Barcelona and Valencia has been reduced, generating a “surplus” for the users of the line. The so called “rule of half” has been applied to diverted and to new generated traffic, as shown by the formula below:

1 ΔCS = (g − g )(q + q ) t 2 t0 t1 t0 t1 g = p +τ

where: gt0: generalized cost in year t without the investment; gt1: generalized cost in year t with the investment; qt0: users in year t without the investment; qt1: users in year t with the investment; p: price per trip (tariff); τ: value of total trip time.

To apply the methodology, the generalised costs before and after the intervention have been calculated for the two typologies of passengers. First, specific assumptions have been made to estimate travel time savings.

From a social point of view, rail users have benefitted from the improvements in the line, in terms of journey times reductions. Average travel time for a trip between Barcelona and Valencia before the intervention was about 4 hours and 25 minutes, while now it is slightly more than 3 hours (see Table II.5). 74 minutes is therefore the time saving for long-distance passengers. For medium-distance passengers a saving of 39 minutes has been calculated, proportionately, by considering a trip-length of 186 km.

Table II.5 TRAVEL TIME SAVINGS Line Before After Diff. (min.) (min.) (min.) Valencia - Barcelona 265 191 74

Source: Authors’ calculation based on Renfe

In order to estimate the value of time, passenger rail traffic has been divided into business travellers, long distance commuters and other long distance passengers (e.g. leisure). On the basis of experts’ opinions, it has been assumed that 48% of the total traffic are business travellers, 4% are commuters and 48% are other passengers. This assumption takes into account that regional and metropolitan services were not substantially affected by the project, as explained above, and thus the share of commuters is lower than for other rail investments also affecting short distance traffic. For benefit monetisation, unit VTTS (Values of Travel Time Savings) from HEATCO97, presented in the Manual Evaluacion Economica de Proyectos de Transporte, 2010, have been applied. For the sake of prudence, value of time has been assumed constant over time to avoid project benefits being affected by external variables such as GDP trend. However, keeping in mind that the project connects some of the most economically dynamic areas of Spain, while HEATCO values are based on national averages,

97 HEATCO, 2005.

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the robustness of the analysis with respect to the values adopted for time monetisation have been tested in the analysis of uncertainty.

Table II.6 UNIT VALUES OF TRAVEL TIME SAVINGS – SPAIN (EUR/HOUR) EUR, 2002 Business Commuters Leisure (long distance) (long distance) car/train 22.30 10.90 9.20 bus 17.90 7.90 6.60 air 30.80 16.30 13.70 EUR, 2011 car/train 28.70 14.10 11.80 bus 23.00 10.10 8.50 air 39.50 21.00 17.60 Source: Manual Evaluacion Economica de Proyectos de Transporte

Secondly, the increase in the average tariff per passenger has been taken into consideration. This represents an additional cost for the users and a revenue for the producer. By considering them as cost in the consumer surplus and as benefit in the producer surplus, for the society as a whole, effects of changes in the tariff cancel each other out and there is no double-counting.

The generalized cost saving is given by the difference between cost of time and the tariff before and after the intervention, for each type of traveller. For example, for long-distance business travellers, the generalised cost saving is equal to EUR 26 (2011 prices), which considers simultaneously the increase in the tariff and the decrease in travel time. For commuter and leisure trips, the generalised cost savings are EUR 8 and 5, respectively.

Tables II.7 and II.8 below illustrate the generalised costs savings for the two typologies of users.

Table II.7 GENERALISED COST SAVINGS – LONG DISTANCE TRAVELLERS (EUR 2011) Before After Diff. Average ticket 17.90 26.90 -9.00 Cost of time business 127 91 35 commuters 62 45 17 leisure 52 38 14 TOTAL Generalised Cost business 145 118 26 commuters 80 72 8 leisure 70 64 5 Source: Authors

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Table II.8 GENERALISED COST SAVINGS – MEDIUM DISTANCE TRAVELLERS Before After Diff. Average ticket 9.40 14.10 -4.70 Cost of time business 67 48 19 commuters 33 24 9 leisure 27 20 8 TOTAL Generalised Cost business 76 62 14 commuters 42 38 4 leisure 37 34 3 Source: Authors

Producer surplus

The producer surplus is calculated as the change in the rail service operator’s revenues thanks to the increased tariff, but also to the shift of demand from road and air to rail and the new induced demand, net of the additional operational costs.

On average, annual incremental revenues account for some EUR 24.1 million (2011 prices).

Cost savings for non-users

The project has contributed to shifting passengers from the road and air networks, which as a result are relatively less congested. In order to verify the suitability of including as a project benefit the cost savings for passengers that remained on the road and in the air, data on road and air traffic on the Barcelona - Valencia route has been gathered, respectively, from the Ministry of Public Works98 (Figure II.2) and from AENA (the Spanish airport operator).

98 El trafico en las autopista de peaje, 2009. Resumen estadístico 1974-2008.

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Figure II.2 MEDITERRANEAN CORRIDOR ROAD AND AIR PASSENGERS 250000

200000

150000

100000

50000

0

Note: red: air (passengers/year); blue: road (vehicles/day). Source: Authors on Ministry of Public Work and AENA data

Historical data shows a progressive increase in road traffic from 56,000 vehicles/day in 1996 to 91,328 vehicles/day in 2007 (average annual growth +4%). On the face of it, in 2008 and 2009, traffic deceased by 8% annually. However, despite this reduction, given the existence of a substantial critical mass on the road network, the inclusion of a benefit thanks to reduced congestion appears justified. For the future, road traffic trends have been assumed following the same approach adopted for rail passenger forecasts, namely a further reduction in the coming years followed by a recovery in line with the performance recorded pre-crisis.

As far as air passengers are concerned, historical data shows a decrease in traffic between Barcelona and Valencia, which halved from 1999 (183,163 passengers) to 2010 (90,229 passengers). The dramatic shifts are, in particular, between 2007 and 2008 and between 2008 and 2009, when traffic fell by 42% and 43%, respectively. This is explained as a consequence of the international crisis, but also of the strategies adopted by the air carriers operating between Barcelona and Valencia, which have progressively reduced the supply of services, with currently no direct flights available on the Valencia-Barcelona route. The introduction of the high performance services along the Mediterranean Corridor have certainly played a role in this regard, although it would be misleading to conclude that the flight has been cancelled only because of the Euromed services, especially considering that the large majority of shifters (95%) comes from the road network (see below). Other factors have certainly influenced this decision. Accordingly, to avoid any over-estimation of the project benefits, the positive externalities on air pollution from flight reduction or even cancellation have not been included in the CBA model. However, some benefits in terms of increased comfort and reduced waiting time for check-in and embarking operations can be imputed to the passengers that remained on the air network. This benefit exists as long as the direct flight Valencia-Barcelona existed (until 2010).

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Having estimated the number of vehicles that remain on the road and passengers that remain on the air networks, benefits due to lower congestion/increased comfort have been monetised following the indications (cost saving unit values) provided in the study carried out on behalf of the Spanish Ministry of Public Works by BB&J consult, S.A. and INOCSA (2000)99 (Table II.9).

Table II.9 COST SAVINGS Mode Saving Car 0.12 EUR/vehicle km Air 0.07 EUR/passenger km Note: Prices of 2000. Source: BB&J S.A. and INOCSA (2000)

Externalities

Evidence from the literature confirms that improvements in rail transport services contribute to positive impacts on the environment by reducing traffic volumes in other more carbon- intensive modes such as car and air. The externalities which have been considered for the present analysis are: improvements in road safety (reduction in the number of accidents), reductions in air emissions, noise and climate change effects.

Of the total additional traffic (assumed to be 95% diverted traffic, the remaining 5% being generated by the project), the large majority (90%) is assumed to consist of shifters from the road network (of which, 87.5% are from private cars and 2.5% are from bus), while shifters from air are marginal (5%) (Figure II.3). Accordingly, as mentioned above, environmental externalities have been calculated only in terms of the positive effects generated by avoiding vehicles on the road, excluding the air network100. This is consistent with the consideration that the reduced supply of air services between Barcelona and Valencia is not only a consequence of the project, but also of other external factors such as changes in the strategies of the carriers.

99 Estudio de Optimización Funcional del Ferrocarril en el Corredor Mediterráneo”, November 2000. 100 Given the current prices of fuel in Spain, which are generally lower than in other EU countries, it is considered that environmental externalities are not internalized in the price of gasoline. http://www.energy.eu/

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Figure II.3 NEW RAIL USERS : DIVERTED AND INDUCED TRAFFIC

Source: Authors

The second step in estimating the positive externalities generated by the project was to calculate the number of cars and buses avoided on the road because of the traffic diverted to the new rail services. This value has been estimated by dividing the number of modal shifters by the relative average occupancy factors, namely 1.2 per car and 35 per bus101.

Thirdly, unit values provided for each typology of externality by the Handbook on estimation of external costs in transport sector have been adopted to estimate the positive external effects produced by avoiding vehicles on the road. Mean unit values have been considered within the ranges proposed in the Handbook, as shown by the table below. For the sake of completeness, the negative externalities generated by the project, by adding trains to the network, have been also taken into account.

Table II.10 UNIT VALUES OF EXTERNALITIES Externalities Value Unit Reference (EUR, 2011) Accidents saving 0.0273 EUR/(vehicle*km) Table 10, page 44 Air pollution road 0.0053 EUR /(vehicle*km) Table 93, page 206 Air pollution rail 0.4110 EUR /(Train*km) Table 94, page 207 Noise road day 0.0014 EUR /(vehicle*km) Table 22, page 69 Noise road night 0.0027 EUR /(vehicle*km) Table 22, page 69 Noise rail day 0.2556 EUR /(Train*km) Table 22, page 69 Noise rail night 0.4266 EUR /(Train*km) Table 22, page 69 Climate change effects road 0.0051 EUR /(vehicle*km) Table 29, page 85 Climate change effects rail 0.1755 EUR /(Train*km) Table 30, page 86 Source: 2008 Handbook on estimation of external costs in the transport sector

101 Source: Evaluating Public Transit Benefits and Costs Best Practices Guidebook, 2012.

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ECONOMIC PERFORMANCE On a socio-economic basis, the profitability of the project is slightly negative. The Economic Net Present Value (ENPV) on investment is equal to EUR -6.9 million (at a real backward social discount rate of 5.4% and a real forward social discount rate of 3.3%), with an internal rate of return of 4.9% (see Table II.12).

Table II.11 below reviews the main categories of benefits and costs and their relative incidence.

Table II.11 BENEFITS AND COSTS SUMMARY Total value Benefits (EUR thousand, % of total benefits discounted) Consumer surplus 392,342 23% Producer surplus 735,988 43% VOC savings road 115,191 7% Cost savings for air passengers 137,970 8% Residual value 70,446 4% Externalities 241,972 14% Total value Costs % of total costs (EUR, discounted) Investment cost 995,531 81% Operating costs 229,668 19%

Table II.12 RESULTS OF THE ECONOMIC ANALYSIS Economic discount rate (backward) 5.4% Economic discount rate (forward) 3.3% ENPV -6,870,412 Euro ERR 4.6%

The results of the economic analysis suggest that that project’s profitability has been diminished due to inaccurate planning, as well as costly and lengthy execution.

Inaccurate planning translated into the fact the project was considered only for medium-to- long distance passengers, leaving aside the needs of both freight and metropolitan/regional passengers. On the other hand, the non-completion of some works (doubling Vandellós- Tarragona and connection with the Madrid-Barcelona High-Speed Line) have reduced the usage of the project.

The volumes of users carried have diminished significantly in the last years. This reflects how the services offered by the project (more expensive than the conventional lines) are also very sensitive to income status and macro-economic conditions, making the project risky, especially in light of the current forecasts for the EU economy in the coming years. As recalled in the main text, to date, traffic volumes between Barcelona and Valencia have been insufficient to

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justify the investment. A recovery up to the volumes carried in the years 2007-2008 could boost economic profitability, but this is not a certainty.

Thus, the results of the CBA or, better, the profitability of the project, is very sensitive to the assumptions made to forecast the future of the project and, above all, to those made to estimate future passenger demand. For this reason, a sensitivity and risk analysis has been conducted to calculate the expected (most likely) economic performance of the project (see below).

However, the uncertainty of the assessment is not only related to the assumptions about the future. Owing to the lack of historical data made available, the majority of the model is built upon a number of methodological assumptions and parameters (e.g. to quantify operating costs and revenues) that make the analysis uncertain. This uncertainty, related to choices adopted to estimate the project cashflows, has been tested in the analysis of uncertainty to show how project profitability will change if different assumptions are made.

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Table II.13 FINANCIAL ANALYSIS (EUR THOUSAND, 2011 PRICES) – INCREMENTAL SCENARIO Years n. -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 Years 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Costs

Investments

Expropriation 3.991 7.622 5.459 24.403 8.751 8.590 4.220 430 0 0 0 0 0 0 0 0 0 0

Civil Work 10.331 78.927 75.371 73.060 177.833 174.557 42.883 7.110 3.163 1.966 0 0 0 0 0 0 0 0

Other 1.619 4.638 4.429 11.140 10.003 9.818 6.432 1.533 476 340 0 0 0 0 0 0 0 0

Residual 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 value

Total investment 15.941 91.187 85.259 108.603 196.587 192.965 53.535 9.073 3.639 2.305 0 0 0 0 0 0 0 0

Operating 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 costs

maintenance 0 0 0 0 2.559 2.559 2.559 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 of network

maintenance 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 of stations conventional traffic 0 0 0 0 354 354 354 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 management and control security 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

general cost 0 0 0 0 146 146 146 437 437 437 437 437 437 437 437 437 437 437

Total 0 0 0 0 3.059 3.059 3.059 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 operating costs Total costs 15.941 91.187 85.259 108.603 199.645 196.023 56.594 18.249 12.815 11.481 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176

Revenues

from tariff 0 0 0 0 9.548 16.442 18.483 19.999 23.797 23.658 24.744 24.266 25.513 25.717 25.833 28.266 26.853 25.619

Total 0 0 0 0 9.548 16.442 18.483 19.999 23.797 23.658 24.744 24.266 25.513 25.717 25.833 28.266 26.853 25.619 revenues

Net Cash flow -15.941 -91.187 -85.259 -108.603 -190.098 -179.582 -38.111 1.750 10.982 12.177 15.569 15.090 16.337 16.542 16.657 19.090 17.677 16.443

Discounted Cash flow -38.364 -209.002 -186.110 -225.779 -376.380 -338.628 -68.442 2.993 17.889 18.891 23.002 21.234 21.894 21.112 20.247 22.099 19.489 17.265

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Years n. 0 1 2 3 4 5 6 7 8 9 10 11 12 Years 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Costs

Investments

Expropriation 0 0 0 0 0 0 0 0 0 0 0 0 0

Civil Work 0 0 0 0 0 0 0 0 0 0 0 0 0

Other 0 0 0 0 0 0 0 0 0 0 0 0 0

Residual value 0 0 0 0 0 0 0 0 0 0 0 0 -89.670

Total 0 0 0 0 0 0 0 0 0 0 0 0 -89.670 investment

Operating costs maintenance 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 7.677 of network maintenance 0 0 0 0 0 0 0 0 0 0 0 0 0 of stations conventional traffic 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 1.061 management and control security 0 0 0 0 0 0 0 0 0 0 0 0 0 general cost 437 437 437 437 437 437 437 437 437 437 437 437 437

Total 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 operating costs Total costs 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 9.176 -80.494

Revenues from tariff 24.192 22.833 22.239 23.191 24.151 25.122 26.102 27.094 27.094 27.094 27.094 27.094 27.094

Total revenues 24.192 22.833 22.239 23.191 24.151 25.122 26.102 27.094 27.094 27.094 27.094 27.094 27.094

Net Cash flow 15.016 13.657 13.063 14.015 14.976 15.946 16.927 17.918 17.918 17.918 17.918 17.918 107.588

Discounted 15.016 13.007 11.849 12.107 12.320 12.494 12.631 12.734 12.128 11.550 11.000 10.477 59.909 Cash flow

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Table II.14 ECONOMIC ANALYSIS (EUR THOUSAND, 2011 PRICES) – INCREMENTAL SCENARIO Years n. -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 Years CF 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Costs Investments Expropriation 1 3,990.8 7,621.9 5,458.9 24,403.1 8,750.9 8,589.7 4,220.4 429.5 0 0 0 Civil Work 0.902 9,318.9 71,192.0 67,984.5 65,900.4 160,405.6 157,450.3 38,680.2 6,413.4 2,853.0 1,773.0 0 Other 0.997 16,14.2 4,624.4 4,416.1 11,106.6 9,972.6 9,788.9 6,412.8 1,528.5 474.5 338.6 0 Residualvalue 1.159 0 0 0 0 0 0 0 0 0 0 0 Total investment 14,923.8 83,438.3 77,859.4 101,410.1 179,129.2 175,828.9 49,313.5 8,371.5 3,327.5 2,111.6 0 Operating cost maintenance of 0.820 0 0 0 0 2,098.5 2,098.5 2,098.5 6,295.5 6,295.5 6,295.5 6,295.5 network maintenance of 0.820 0 0 0 0 0 0 0 0 0 0 0 stations conventional traffic management 0.894 0 0 0 0 316.3 316.3 316.3 949.0 949.0 949.0 949.0 and control security 0.857 0 0 0 0 0 0 0 0 0 0 0 general cost 0.997 0 0 0 0 145.2 145.2 145.2 435.6 435.6 435.6 435.6 Total operating costs 0 0 0 0 2,560.0 2,560.0 2,560.0 7,680.1 7,680.1 7,680.1 7,680.1 Total costs 14,923.8 83,438.3 77,859.4 101,410.1 181,689.2 178,388.9 51,873.5 16,051.6 11,007.6 9,791.7 7,680.1 Benefits Consumer surplus 0 0 0 0 8,928.6 11,190.6 12,060.2 12,789.8 13,891.5 13,833.7 13,699.0 Producer surplus 0 0 0 0 9,547.9 16,441.9 18,482.9 19,998.7 23,796.8 23,658.0 24,744.3 VOC savings road 0 0 0 0 2,900.2 3,124.4 3,206.3 3,475.1 3,668.6 3,823.4 3,932.8 VOC air 0 0 0 0 8,107.0 7,823.9 6,389.0 6,416.3 6,915.1 7,315.5 6,071.8 Externalities 0 0 0 0 2,047.0 4,658.4 5,377.4 5,888.6 7,366.5 7,317.2 7,813.4 Total benefit 0 0 0 0 31,530.6 43,239.2 45,515.8 48,568.6 55,638.5 55,947.8 56,261.3 Net Cash flow -14,923.8 -83,438.3 -77,859.4 -101,410.1 -150,158.6 -135,149.7 -6,357.8 32,517.0 44,630.9 46,156.1 48,581.2 Discounted Cash flow -38,460.1 -204,012.1 -180,618.0 -223,198.0 -313,558.6 -267,758.4 -11,950.6 57,990.5 75,516.5 74,096.0 73,993.4

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Years n. -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 Years CF 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Costs Investments Expropriation 1 0 0 0 0 0 0 0 0 0 0 0 0 Civil Work 0.902 0 0 0 0 0 0 0 0 0 0 0 0 Other 0.997 0 0 0 0 0 0 0 0 0 0 0 0 Residual value 1.159 0 0 0 0 0 0 0 0 0 0 0 0 Total investment 0 0 0 0 0 0 0 0 0 0 Operating cost maintenance of network 0.820 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 maintenanceofconventional0.820 stations 0 0 0 0 0 0 0 0 0 0 00 traffic management and control 0.894 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 security 0.857 0 0 0 0 0 0 0 0 0 0 0 0 general cost 0.997 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 Total operating costs 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7680.1 7680.1 7,680.1 Total costs 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 Benefits Consumer surplus 13,548.3 13,323.0 13,371.8 12,902.7 12,278.6 11,826.3 11,393.9 11,163.8 11,265.7 11,376.5 Producer surplus 24,266.3 25,513.3 25,717.5 25,833.3 28,265.7 26,852.6 25,618.9 24,192.2 22,832.8 22,238.8 23,190.7 24,151.4 VOC savings road 4,306.8 4,424.5 4,062.1 3,743.9 3,452.1 3,172.9 2,905.3 3,008.6 3,115.6 3,226.4 VOC air 6,794.0 6,521.7 7,326.1 7,811.7 4,488.8 2,604.7 3,147.3 0 0 0 0 0 Externalities 7,785.9 8,503.3 8,697.8 9,012.5 9,847.6 9,131.1 8,855.0 8,301.1 7,773.8 7,554.2 7,976.1 8,399.9 Total benefit 56,167.5 58,062.5 59,596.4 60,405.0 60,036.1 55,234.9 53,352.0 47,492.4 44,905.7 43,965.4 45,548.1 47,154.2 Net Cash flow 48,487.3 50,382.4 51,916.3 52,724.8 52,355.9 47,554.8 45,671.8 39,812.3 37,225.6 36,285.3 37,867.9 39,474.1 Discounted Cash flow 69,075.2 67,531.5 65,069.5 61,303.9 52,829.4 48,138.1 39,812.3 36,036.4 34,004.0 34,353.5 34,666.5

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Years n. 5 6 7 8 9 10 11 12 Years CF 2016 2017 2018 2019 2020 2021 2022 2023 Costs Investments Expropriation 1 0 0 0 0 0 0 0 0 Civil Work 0.902 0 0 0 0 0 0 0 0 Other 0.997 0 0 0 0 0 0 0 0.0 Residual value 1.159 0 0 0 0 0 0 0 -104,006.0 Total investment 0 0 0 0 0 0 0 -104,006.0 Operating cost maintenance of network 0.820 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 6,295.5 maintenance of stations conventional 0.820 0 0 0 0 0 0 0 0 traffic management and control 0.894 949.0 949.0 949.0 949.0 949.0 949.0 949.0 949.0 security 0.857 0 0 0 0 0 0 0 0 general cost 0.997 435.6 435.6 435.6 435.6 435.6 435.6 435.6 435.6 Total operating costs 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 Total costs 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 7,680.1 -96,325.8 Benefits Consumer surplus 11,496.3 11,624.9 11,762.5 11,762.5 11,762.5 11,762.5 11,762.5 11,762.5 Producer surplus 25,121.7 26,102.4 27,094.2 27,094.2 27,094.2 27,094.2 27,094.2 27,094.2 VOC savings road 3,341.2 3,460.2 3,583.3 3,710.9 3,843.1 3,980.1 4,121.9 4,268.8 VOC air 0 0 0 0 0 0 0 0 Externalities 8,825.8 9,254.3 9,685.7 9,685.7 9,685.7 9,685.7 9,685.7 9,685.7 Total benefit 48,785.0 50,441.8 52,125.7 52,253.3 52,385.5 52,522.5 52,664.3 52,811.2 Net Cash flow 41,104.9 42,761.6 44,445.6 44,573.2 44,705.4 44,842.3 44,984.1 149,137.0 Discounted Cash flow 34,945.5 35,192.7 35,410.0 34,377.3 33,377.7 32,410.4 31,474.3 101,014.0

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UNCERTAINTY ANALYSIS Variations to the project’s outcome related to the methodological assumptions adopted to build the CBA model have been tested in the analysis of uncertainty. The difference between this analysis and the standard sensitivity analysis lies in the consideration that variations of parameters are not solely related to uncertainty about the future, but can depend on the methodological choices adopted to estimate the project’s cashflows. Hence, the purpose of this analysis is to test the robustness of the results of the economic analysis with regard to the key methodological hypotheses underlying the CBA model. These parameters, and their related hypotheses, are summarized in the following list:

• Traffic in the counterfactual scenario. In the CBA model, the number of passengers that would have travelled along the route Barcelona-Valencia even in absence of the project has been assumed, in 1997, equal to 731,910 people. This implied the adoption of a growth rate with respect to previous year of +4.34%, which is the national average growth recorded for long distance passengers on conventional rail lines in Spain. As mentioned above, the adoption of this figure was justified because it is the one which depicts a counterfactual scenario consistent with and close to the information found in the press at that time. However, it could have also been possible, and plausible to consider another counterfactual, where the hypothetical growth of passengers in 1997 was the same as recorded along the route Barcelona-Valencia itself in the previous year (+11.8%). Or, it could have been possible to estimate it equal to the annual average growth of the previous three years (+5.32%), both hypotheses being plausible and so deserving to be tested in the uncertainty analysis. It is clear that the lower the demand in the counterfactual scenario, the larger the impact of the project, and therefore the ENPV. The results of the test confirm this, showing in both cases that the ENPV would be lower than in the base case (EUR -25,281,492 with 11.08% of growth in the counterfactual, and EUR -9,554,571 with 5.32%).

• Typologies of passengers. In the CBA, the shares of business, commuter and leisure passengers have been assumed equal to 48%, 4% and 48%, respectively, on the basis of experts’ opinions. Given that different unit values of time correspond to each category of user102, this is a critical assumption which may influence significantly the results of the project. Within the uncertainty analysis, two alternative scenarios have been constructed to test the robustness of the model to the assumption made. In the first scenario, the share of business passengers have been increased to 58%, and a relative decrease of -10% has been applied to leisure passengers (the remaining 4% of commuters being fixed, as only marginally influential). Accordingly, the ENPV would shift up to Euro +45,504,560. In the second, the two shares have been reversed, i.e. 38% and 58%, respectively, for business and leisure passengers. The new ENPV, in this scenario, would be EUR -59,245,385.

102 I.e. 28.70 EUR/hour for business, 14.10 EUR/hour for long distance commuters and 11.80 EUR/hour for leisure passengers, 2011 prices (HEATCO, 2005).

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• Value of time. Related to the previous point, unit Values of Travel Time Savings (VTTS) from HEATCO103 have been applied in the CBA model to the relative share of passengers to monetise the travel time savings benefit. HEATCO values are calculated at country-level and mainly depend on income. The adoption of these values ensured coherence and consistency among projects implemented within EU countries. Given that the regions on which the CBA analysis is centred, Cataluña and Community of Valencia, are richer than the national average, it could however be possible to consider other values, higher for example. The assumptions adopted in the base case have been therefore tested in the analysis of uncertainty. For example, if VVTS are increased by 10%, the economic performance of the project will turn positive, up to Euro 55,084,882.

• Average tariff. The values adopted in the CBA for the average long distance and medium distance tariffs are, respectively, EUR 26.9 and 14.4104. These have been estimated as a share (75%) of the average of the tourist class tickets currently charged on the route Barcelona-Valencia. This approach comes from a study on infrastructure charges of high speed services in Europe105 and the assumption was approved by an expert group with representatives from the different rail operators that are members of UIC. However, it remains an estimation which needs to be tested. Variations of +/- 10% to the share used to calculate the average tariffs have therefore been adopted to see if the results of the economic analysis are sensitive to this assumption. The results confirms high sensitivity, with an ENPV that would range from EUR -47,615,783 to Euro 33,874,958, depending on the values adopted.

The following table reviews the complete results concerning the scenarios arising from the different hypothesized parameters. The overall result is that the economic performance of the project is very sensitive to changes in the above illustrated parameters, and, as a consequence, to the main methodological assumptions adopted to build the CBA model.

This demonstrates the overall uncertainty of the evaluation. Depending on the choices adopted, results vary to a large extent. For instance, the traffic demand in the counterfactual scenario could be higher than that hypothesised in the base case. This would worsen the economic performance even more. On the other hand, if slightly higher values for time are adopted, the results will turn substantially positive. The lack of historical data (e.g. on operating revenues), along with the intrinsic difficulty of determining what would have happened without the project, determines a degree of uncertainty about the evaluation itself, which requires caution in interpreting the results of the CBA. The assumptions adopted in the base case appeared logical and plausible, while being conservative in order not to artificially boost project performance. Thus, they are the most likely to show the performance of the project with an acceptable degree of approximation. However, it is true that any deviation will

103 HEATCO, 2005. 104 EUR 2011.

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be decisive modifying the judgement. In this context of broad uncertainty, the only solid conclusion is that the project benefits are not of such a volume as to make the project robust with respect to adverse conditions including variations of the methodological parameters.

Table II.15 VARIATION OF THE HYPOTHESES MADE IN THE CBA CBA value Value tested ENVP (EUR 2011) * ERR (%)* Traffic in the 4.34% 11.08% -25,281,492 4.83% counterfactual (growth rate) scenario 5.32% -9,554,571 4.93%

Typologies of 48% Business 58% Business 45,504,560 5.28% passengers 48% Leisure 38% Leisure 4% commuters 4% Commuters 38% Business -59,245,385 4.62% 58% Leisure 4% Commuters Value of time 28.70 EUR/h 31.60 EUR/h 55,084,882 5.33% (business) (business)

14.10 EUR/h 15.50 EUR/h (commuters) (commuters)

11.80 EUR/h 13.00 EUR/h (leisure) (leisure) Average tariff 75% of the average 85% 33,874,958 5.20% tourist class ticket

65% -47,615,783 4.69%

* ENVP base case: EUR -6,870,412. ERR base case: 4.95%.

SENSITIVITY AND SCENARIO ANALYSIS Sensitivity analysis

Having tested the variation in the economic outcome associated with different key parameter assumptions, a further sensitivity analysis has been carried out to determine the critical variable of the project so as to test its uncertainty regarding the future. The procedure requires one to make the variables vary one at a time by ±1%, and then to assess the corresponding change in the ENVP and ERR. A variable is considered “critical” if the corresponding variation in the economic outcome is greater than 1% in absolute value. In addition to the sensitivity analysis, a scenario analysis has been performed in order to identify pessimistic and optimistic future paths of the project.

Three key variables have been tested: Forecasted demand, Average price of tickets and Operating costs. These variables are determinant in assessing the project’s future performance because of their impact on the demand side (Forecasted demand), on the producer and

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consumer surplus (Price of tickets), and on the costs (Operating costs). The key variables considered in the sensitivity analysis are described in more detail in what follows:

• Forecasted demand. This variable corresponds to the total number of long- and medium-distance passengers forecasted for the period between 2011 and 2023. The 2011 base values are 1,010,141 and 260,183 passengers, respectively, which correspond to a decrease of –4.5% from the previous year, in line with the consideration that the international economic crisis has affected project performance. The trend will continue until 2013, with a mild recovery expected from 2014 onwards.

• Price of tickets. The base values adopted in the CBA for the average long and medium distance tickets are EUR 26.90 and EUR 14.40, respectively106. These values have been adopted for the whole operational phase. However, future changes in the tariffs level, independent of inflation, may occur.

• Operating costs. The variable is composed of the following determinants of total operating costs: maintenance of the network, traffic management and control and general costs (which correspond to 5% of the total). In the base case these costs have been assumed proportional to the extension (doubling) of the project’s network. As with the tariff, they have been assumed constant over the entire time horizon.

All of these variables’ estimates need to be tested to see if deviations from the forecasted number of passengers, revenues and costs will affect the project benefits.

Overall, the sensitivity analysis procedure shows that the ENVP is very sensitive to variations in the independent variables. Specifically, all the variables are critical with respect to the ENVP, and are characterized by large elasticities (82.28, 74.95 and 31.36 for Forecasted demand, Average cost of tickets and Operating costs, respectively. See the Table below for further details.

Table II.16 RESULTS OF THE SENSITIVITY ANALYSIS Independent variable Variation (in percent) of Criticality Variation (in percentage Criticality the ENPV due to a ± 1% judgement * value) of the ERR due to judgement * variation a ± 1% variation Forecasted demand 82.28 Critical 0.69 Not critical

Average cost of tickets 74.05 Critical 0.64 Not Critical

Operating costs 31.36 Critical 0.27 Not critical

* Critical: ΔENPV or ΔERR > +1%; Less Critical: ΔENPV or ΔERR > +0.7%; Not critical: ΔENPV/ or ΔRR < 0.7%.

106 EUR 2011.

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Scenario analysis

In the scenario analysis, the above tested variables are made to vary at the same time according to “pessimistic” or “optimistic” scenarios. Specifically, the optimistic scenario has been obtained by simultaneously increasing the base value of Forecast demand and Average cost of tickets by 10%, while the base values of Operating costs have been decreased by 10%. By the same token, the pessimistic scenario has been constructed by reversing the signs of the increments of the three variables.

The following table gives a visual presentation both of the variable ranges, as defined in the pessimistic and optimistic scenarios, and of the outputs obtained when the independent variables are made vary one at a time according to the scenario analysis hypotheses.

Table II.17 OVERVIEW OF THE SOURCES AND HYPOTHESES MADE FOR THE CBA Variable Base assumption in CBA Hypothesis ENPV ERR (EUR 2011) * (%) *

Forecasted demand Base number of +10% 49,659,030 5.28% passengers

-10% -63,399,855 4.59%

Average price of tickets EUR 26.9 (long distance) +10% 7,062,091 4.95%

EUR 14.4 (medium -10% -20,802916 4.85% distance)

Operating costs** EUR 26,444,533 +10% 18,492,467 5.08% (2011 total)

-10% -32,502,085 4.81%

* ENVP base case: EUR -6,870,412 (EUR 2011); ERR base case: 4.95%. ** Maintenance of the network, Traffic management and control, General costs (5% of the total operating costs). The CBA base assumption reported in the table corresponds to the sum of these three 2011 components.

The economic performance indicators obtained by making simultaneously vary all the variables according to the above pessimistic or optimistic hypotheses are the following:

• In the optimistic scenario, the ENPV would reach EUR 86,161,306, with an economic rate of return of 5.5%.

• In the pessimistic scenario, the ENVP would reach EUR -105,757,134, with an economic rate of return of 4.3%.

The difference between the two scenarios’ net present values is very large (EUR 95,550,970). This testifies to the fact that that the project is sensitive to simultaneous variations in the key variables adopted for forecasting future cash flows. In the next section, probability distributions have been assigned to the three above-mentioned variables to calculate the risk

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associated with the project, in terms of uncertainty about the project’s future economic performance.

RISK ASSESSMENT The risk assessment has been conducted on the three variables on which the sensitivity analysis was previously performed: Forecasted demand, Average tickets and Operating costs. For the sake of simplicity, it was assumed that the probability distribution of each of these variables was triangular, with the value with the highest probability being the reference one – that is, the “base value” adopted for carrying out the CBA – and the lower and upper bounds being the “pessimistic” and “optimistic” values defined in the scenario analysis.

The analyses have been elaborated through an experimental Monte Carlo simulation107 with 1,000 random repetitions. In a nutshell, at each iteration a value is randomly extracted from the distribution of each of the independent variables. The six extracted values are adopted for computing the ENVP and ERR, and the output results are then stored. Finally, the Monte Carlo numerical algorithm approximates the probability distribution of the two outputs.

The risk analysis procedure shows that the expected value of the ENPV is equal to EUR - 5,973,040 (about EUR one million higher than the reference case), and that the expected value of the ERR is 4.95% (equal to the reference value). It is worth noting two important facts that emerge from the Monte Carlo procedure.

First and foremost, the probability that the ENVP is lower than 0 is very high, equal to about 60%. Hence the uncertainty about the future is such that it is more likely that the project will be economically not viable than the contrary.

Second, the ENVP range is wide, as it generates values between EUR -82,831,043 and +72,966,619. This shows that the ENVP is very sensitive to potential future variations in the key variables.

All these aspects suggest that the ENVP base case value (EUR -6,870,412) is affected by a high degree of uncertainty. However, there is a substantial risk that the overall project performance will be negative, confirming the intuition of the base case. The fact that project risk over the remaining time horizon is high is consistent with the results obtained in the sensitivity analysis section.

107 A proprietary software has been used.

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Table II.18 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC NET PRESENT VALUE (EUR) Reference value of the ENPV -6,870,412 Mean -5,973,040 Median -6,414,824 Standard deviation 29,333,752 Minimum value -82,831,043 Central value -4,932,212 Maximum value 72,966,619 Probability of the ENPV being higher than the reference value 0.505 Probability of the ENPV being lower than zero 0.59

Figure II.4 CUMULATIVE PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR)

1.00

0.90 Punctual probability

0.80 Cumulated probability 0.70 Reference value

0.60 Minimum

0.50 Central

0.40 Max imum

Mean 0.30 SD low 0.20 SD upp 0.10 Median 0.00 -83,000,000 -63,000,000 -43,000,000 -23,000,000 -3,000,000 17,000,000 37,000,000 57,000,000

Source: Authors

Figure II.5 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR)

Source: Authors

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Table II.19 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC INTERNAL RATE OF RETURN Reference value of the ERR 4.95% Mean 4.95% Median 4.95% Standard deviation 0.18% Minimum value 4.47% Central value 4.95% Maximum value 5.43% Probability of the ERR being higher than the reference value 0.507 Probability of the ERR being lower than the reference discount rate (4.95 %) < 0.001

Figure II.6 CUMULATIVE PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF RETURN

1.00 Pu nc tua l probability 0.90 Cumulated 0.80 probability Reference value 0.70 Minimum 0.60 Central 0.50 Max imum 0.40

0.30 Mean

0.20 SD low

0.10 SD upp

0.00 Median 4.4% 4.6% 4.8% 5.0% 5.2% 5.4%

Source: Authors

Figure II.7 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF RETURN

Source: Authors

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ANNEX III. MAP OF STAKEHOLDERS

Stakeholder General description and responsibility European • For the financing decision, the Commission asked for a first reaction from the EIB, whose Commission experts cautioned that, given the over-optimistic assumptions on the very simple appraisal proposed, there was a risk of obtaining a marginal or even negative profitability. • No major involvement can be highlighted in the project design phase. • In future the Commission’s degree of involvement may increase, due to the recent inclusion of the Mediterranean Corridor among the provisional list of TEN-T projects for the 2014-2020 programming period. Spanish Government • Rail investment in Spain has essentially followed a strategy, supporting the development of Madrid as a major European capital. National priorities in transport infrastructure have not been designed taking into account real economic needs or to facilitate accessibility to European intermodal transport chains. • Until recently, Spain’s government has not supported the inclusion of the Mediterranean Corridor as an EU priority project. Ministry of Economy • The Ministry of Finance is responsible for requesting assistance from EU funds. They had and Finance difficulties in obtaining proper information, particularly about the MEDCORR traffic and demand, from rail administrations and companies and sent a poorly-based financing request. Ministry of Public • The Ministry’s mission is to define the strategic planning of the railway sector, taking Works into account both infrastructure and supply of services, as well as to fix the definition of objectives and monitor the activity of railway public companies, Adif and Renfe, and its funding system. It is also responsible for granting licenses to railway undertakings, authorisations to other candidates and security certificates. • Budgetary allocations for infrastructure projects of Ministry of Public Works do not always follow the planned budget; in fact, they are often closely linked to political decisions. Committee on • Created in 2005, the Committee is entrusted with the functions of monitoring rail market Railways Regulation competition to safeguard plurality of supply in the provision of services on the national network of rail infrastructure and to ensure equal conditions among railway undertakings in terms of market access and service provision. Renfe • Red Nacional de Ferrocarriles Españoles, a state-owned company, is the national rail passenger operator and the main freight operator. • Prior to the EU legislation that required rail infrastructure and operations to be split, Renfe was also responsible for the construction and maintenance of rail infrastructure. Adif • Administrador de Infraestructuras Ferroviarias, created in January 2005, is a public enterprise, attached to the Ministry of Public Works, that owns and manages almost the entire rail network of general interest. In addition to its operation and maintenance, Adif is responsible for the construction of new lines commissioned by the State, financed from its own resources or from the State’s budgetary resources. Railway general • DGF is part of the Ministry of Public Works and is responsible for rail policy and for Directorate (DGF) planning and programming investments in the sector as well as for their supervision and control. • Through the General Sub-directorate of Plans and Projects, it is in charge of the development, monitoring and control of the rail infrastructure plans as well as studies on rail projects and coordination with relevant administrative bodies and public entities. • Through the General Sub-directorate of Construction it is responsible for the management and control of the execution of the works of railway infrastructure within its competence. • In the 1990s, when the upgrading of the Valencia-Barcelona line was commissioned, DG Ferrocarriles was responsible for financing works in the Mediterranean Corridor.

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Autonomous • Cataluña, Communidad Valenciana, Murcia and Andalucía are four of the seventeen Communities autonomous communities in Spain. governments • Cataluña, Communidad Valenciana have actively participated in the development of the (Cataluña, Mediterranean Corridor project by drawing up specific proposals for the layout of the Communidad line passing through their territory and having meetings with the Ministry to reach Valenciana, Murcia agreement on future decisions and actions. and Andalucía) • These regions have promoter, together with FERRMED, the Global Study made in 2009 on the rail investment needed in the Mediterranean Corridor (Strategic Transport Planning and Pre-feasibility project). Local governments • Having competence for urban planning, city councils have attempted to influence the and municipalities Corridor decisions by making depositions subsequent to the publication of the public affected information studies presented by the Ministry. Associations for the • Since the 1980s several organisation have been created with the aim of promoting the promotion of the competitiveness of the Mediterranean region as well as to denounce the lack of proper Mediterranean transport infrastructure that would improve trade relationships and commerce along Region this corridor. • Some of these organisations, aimed at fostering the international projection of the Mediterranean regions were CITRAME and the Catalan Institute for the Development of Transport, CETMO, EURAM (with the support of IIVEE) and Observatorio de Infraestructuras del Corredor Mediterráneo. FERRMED • FERRMED was founded in 2004 in Brussels as a non-profit association which seeks to enhance European competitiveness and sustainable development by improving rail freight transport. • In 2009, FERRMED was supported by 143 members, including key business institutions and private companies from all over Europe and North Africa. Indeed, FERRMED is supported by all the agents that have an interest in creating an efficient European rail line for freight transport and acts as a lobby to influence European and national investments and infrastructural policies. Chambers of • Representing the entrepreneurs of both regions, they promote in front of the relevant Commerce of authorities the need to provide more and better infrastructure, not only within their Valencia and boundaries but for the whole country with the aim of increasing economic Barcelona competitiveness and social wellbeing. Rail services users • Passenger rail services between Valencia and Cataluña have been considerably improved both in terms of higher frequencies and reduced travel times. In addition, the removal of several level-crossings along the line has contributed to make travel safer both for rail and car users.

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ANNEX IV. LIST OF INTERVIEWEES

Interviewee Position Date Place Vicente Dómine General Director of Transport, Ports and Cost, 13.01.2012 Telephonic Department of Infrastructures and Transports, Communidad Valenciana Francisco Sánchez Ayala Former sub-director of Rail Infrastructures of the 02.02.2012 Madrid Ministerio de Fomento Alberto López González Ministry of Public Works, Railway General Directorate 02.02.2012 Madrid Xavier Flores Community of Cataluña 20.01.2012 Telephonic 06.02.2012 Barcelona Ángel Checa Engineer at the DG Rail Infrastructure of the Ministry 18.01.2012 Telephonic of Public Works Manuel Niño General Director of Rail Infrastructures of the 18.01.2012 Telephonic Ministry of Public Works Josep Colomer Catedrático de Transporte Universitat Politècnica de 09.01.2012 Telephonic València Eduardo Molina Director, Dirección de Planificación y Coordinación 18.11.2011 Madrid Funcional of the D.G. Dessarrollo estratégico y Relaciones Internacionales Lorenzo Jaro Arias Director de Coordinación de Programas de Inversión y 18.11.2011 Madrid Cuenta Estado of the D.G. de Planificación Estratégica, Dirección de Planificación de Corredores Jose Luis Kaiser Ministry of Economy and Finance 01. 03.2011 Madrid Ana Raquel Ministry of Economy and Finance 01. 03.2011 Madrid Jose Antonio Zamora Ministry of Economy and Finance 01. 03.2011 Madrid Mª Carmen Hernández Ministry of Economy and Finance 01. 03.2011 Madrid Javier Bustinduy BB&J 24.01.2011 Telephonic Pau Caparrós Institut Ignasi Villalonga d’Ecoomia I Empresa 25.01.2011 Telephonic (Valencia) José Antonio Nieves de Ministry of Economy and Finance 30-01.2012 Madrid la Flor Joan Altarriba Abertis autopistas, Traffic and Studies, Dir. 25.01.2012 Telephonic Planificación y Control de Gestión Juan Fábrega Technical Architect for the city hall of Benicàssim 09.02.2012 Telephonic Cristian Bardají Director of Infrastructure Studies , Chamber of 08.02.2012 Telephonic Commerce of Barcelona Gracia Cicuéndez Responsible for the Service of Economic Studies in 09.02.2012 Telephonic Chamber of Commerce of Valencia

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ANNEX V. REFERENCES

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