Infrastructure charges / -prices PREFACE The Government presented its plans for reform of the rail sector in its White Paper “På rett spor” [1] [Along the right lines]. These proposed reforms should help to:
• bring about rational placement of primary tasks and provide clear purposes for the organisational units by • a more commercial arrangement in the sector by • an appropriate governance structure by • better observance of customers’ needs (both private and commercial) than is currently the case by
A joint European framework has been established over the past 25 years as a result of the EU/EEA cooperation [2]. As Bane NOR SF is a sole provider of railway infrastructure, both capacity distribution and pricing are regulated through the Railway Regulations [3] and Norway’s obligations are regulated through the EEA Agreement. In line with EU Regulation 2015/909 [4], Bane NOR SF has prepared an implementation plan for the implementation of revised regulations. This report describes this plan and associated documentation. As the implementation plan involves significant changes to the prices for use of tracks, Bane NOR has opted to include as much as possible of the documentation relating to calculations and analyses carried out.
Oslo: 14 July 2017
Bjørn Kristiansen Group Director Trafific Management and Customer Services
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Infrastructure charges / -prices
TABLE OF CONTENTS 1 Summary...... 5 1.1 Background ...... 5 1.2 Project execution ...... 5 1.3 Consultation on draft implementation plan...... 6 1.4 Proposals for new infrastructure prices ...... 6 1.5 Implementation ...... 7 2 Historical overview ...... 8 2.1 Development of infrastructure charge ...... 8 2.2 Railway package IV ...... 10 3 Pricing terms in the paulway regulations ...... 12 3.1 Minimum package, etc ...... 12 3.2 Use of service facilities ...... 14 3.3 Additional services ...... 14 3.4 Ancillary services ...... 14 3.5 Tax cost and Ramsey pricing ...... 14 4 Cost structure ...... 15 4.1 The Infrastructure Manager’s production prosess...... 15 4.2 Marginal costs and cost elasticities ...... 16 4.3 Scope of the cost concept ...... 17 4.4 Selection of methods ...... 20 4.5 Relevant cost functions ...... 20 4.5.1 The network except for the Ofoten line ...... 20 5 Estimated cost elasticities and marginal costs ...... 24 5.1 Estimated values for sections excepr for the Ofoten line ...... 24 5.1.1 Alternative estimated cost functions ...... 24 5.1.2 Data ...... 25 5.1.3 Estimation result ...... 26 5.2 Estimated values for The Ofoten line ...... 31 5.2.2 Results from the analysis ...... 32 5.3 Surcharges in the event of a lack of capacity ...... 33 5.4 Recommendations...... 34 5.4.2 Ofoten line ...... 35
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Infrastructure charges / -prices 6 Market differentiation ...... 37 6.1 Minimum review of market areas ...... 37 6.1.1 Passenger Transport Versus Freight Transport ...... 37 6.1.2 Transport of Hazardous Goods Versus Other Freight ...... 37 6.1.3 Domestic Versus International Transport ...... 38 6.1.4 Combined Transport Versus Direct Trains ...... 38 6.1.5 Passenger Transport in Towns and Regions and Between Towns ...... 38 6.1.6 Special-Purpose Trains and Full-Load Trains ...... 38 6.1.7 Regular Versus Sporadic Services ...... 38 6.2 Proposed division into market areas ...... 39 6.2.1 Within Freight Service ...... 39 6.2.2 In Respect of Passenger Service ...... 39 6.3 Trach sections – track division...... 40 7 Proposed future price structure and rates ...... 41 7.1 Price matrix...... 41 7.1.1 Price for the minimum package ...... 41 7.1.2 Surcharges for Individual Market Segments ...... 42 7.1.3 Project surcharges ...... 42 7.1.4 Discount ...... 42 7.2 Summary of prices and revenue estimate ...... 43 7.2.1 Summary of prices ...... 43 7.2.2 Revenue estimates ...... 44 7.3 Udating of cost data and prices ...... 45 7.4 Annual price adjustment ...... 45 8 Implementation ...... 47 8.1 Need for an adaptation period ...... 47 8.2 Escalation plan and method ...... 47 8.2.1 Purchase ...... 47 8.2.2 Main airport ...... 47 8.2.3 Other passenger services ...... 47 8.2.4 Combined / Full load ...... 47 8.2.5 Ore and mineral transport ...... 47 8.2.6 Other industrial trains ...... 47 9 Possible development of the price system ...... 48
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Infrastructure charges / -prices 10 Bibliography ...... 49 11 Appendices ...... 52
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Infrastructure charges / -prices 1 SUMMARY 1.1 Background Over the past 25-30 years, the EU has gradually facilitated standardisation of the rail sector with a common framework and reduction of special national railway characteristics [5]. There is both a technical (cf. ERTMS) and a market regulation side to this standardisation. The purpose is to make the transport sector – including the railways – to support the four freedoms of the EU1, as well as facilitating safer transport that is more efficient and eco-friendlier. EU Directive 2001/14/EU [5] and its follow-up in 2012/34/EU [2] with amendments in EU Directive 2016/2370/EU [6] and EU Regulation 2015/909 [4] have allowed the EU to establish a common framework for capacity distribution and pricing of track capacity. The EU Directive dating back to 2001 is part of the EEA Agreement and binding for Norway. The other documents are relevant to the EEA but have not yet been enacted in Norwegian law as such. Bane NOR assumes that this will take place in the near future. Nevertheless, the Ministry of Transport and Communications has incorporated the contents of the 2012 EU Directive in new regulations, including the Railway Regulations [3] relevant in this context. In a letter dated 8 July 2016, the Ministry of Transport and Communications asked Bane NOR to compile an implementation plan for infrastructure charges2 in line with the 2015 regulation. This document specifies new infrastructure prices, how these have been calculated and how they will be implemented. 1.2 Project execution The implementation plan has been completed as an internal project involving the following: Project owner: Bjørn Kristiansen; Group Director, Traffic Management and Customer Service Project managers: Gunnar Markussen; Traffic Management and Customer Service Elzbieta Jankowski; Traffic Management and Customer Service Joanna Kiepiela; Infrastructure Hans Otto Hauger; Infrastructure The project has received some excellent assistance from the staff of the Punctuality Section at the TIOS Group and the Maintenance Unit at the BaneData Group. These units have contributed traffic figures and technical data for the infrastructure, along with cost data. In addition, staff at the Legal Section has contributed to the interpretation of the Railway Regulations and EU law in general. Professor Emeritus Erik Biørn at the Department of Economics at the University of Oslo has contributed professional advice relating to the estimation of marginal costs and criteria for assessment of the results of the estimation. All figures have been processed and all calculations performed in-house at Bane NOR.
1 This term refers to the market’s free movement of goods, services, capital and people (Store norske leksikon) 2 Bane NOR has chosen to use the term “price” and not “charge” in order to emphasise the fact that we are referring to payment for a service, not an indirect tax Implementation plan Page 5
Infrastructure charges / -prices 1.3 Consultation on draft implementation plan Bane NOR held a consultation on the draft implementation plan between 25 April 2017 and 26 May 2017 which involved the railway undertakings, the Ministry of Transport and Communications, the Norwegian Railway Directorate and the Norwegian Railway Authority. Bane NOR received 8 statements from these. Norsk lokomotivmannsforbund and the Jernbanealliansen association also submitted statements of their own. A meeting was held at the Ministry of Transport and Communications on 19 May 2017. Bane NOR also had a guidance meeting with the Norwegian Railway Authority on 22 June 2017. Based on the feedback received, Bane NOR has:
1. revised its proposal for track divisions 2. devised a proposal for discounts for freight services in accordance with section 6-4 of the Railway Regulations 3. postponed the establishment of surcharges based on market differentiation – see section 6-3 – in order to provide a more detailed explanation of the reasons. Market differentiation itself is being maintained. All parties submitting consultation statements have received separate responses from Bane NOR. 1.4 Proposals for new infrastructure prices Pursuant to Chapter 6 of the Railway Regulations and Bane NOR’s calculated marginal costs, the following prices are proposed for use of the infrastructure: Table 1: Prices the use of the infrastructure
Capacity Surcharges for the following market Basic price (section 6- pricing areas (section 6-3) – applicable from 2 (3)) (section 6-2 R19 (4)) Passenger Main Ore and Track section Freight trains section 6-2 PSO (Øre airport minerals trains (Øre (Øre per (4) per gross (Øre per (Øre per per gross gross (NOK per tonne- gross gross tonne- tonne- train) kilometre) tonne- tonne- kilometre) kilometre) kilometre) kilometre) Oslo Local 0.97 0.47 500.00 Ofoten Line 2.50 2.50 - To be established in 2017 Rest of the rail 1.47 1.06 - network Note: The prices here are mainly linked with gross tonne-kilometres. The new calculations on the basis of accounting and service figures for the 2014-2016 period provide slightly lower estimates for marginal costs than previous analyses. This may be due in part to other cost refinement – cf. EU Regulation 2015/909 – and to lower cost development than service development would indicate on the basis of previously estimated cost elasticities. The basic price differentiates between passenger services and freight services on the basis of different marginal costs; see section 5. It is proposed that the capacity pricing that was introduced
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Infrastructure charges / -prices in 2017 should be restricted to just the Oslo Corridor, as the other areas do not face capacity challenges that are not internalised; see sections 3.1 and 5.3. Application of the rules on market differentiation as specified in the Regulations is proposed, along with higher prices for some market areas; see section 6. 1.5 Implementation An implementation plan must be devised if the methodology used to calculate the direct costs or marginal costs as a consequence of EU Regulation 2015/909 is amended and this has an impact on setting prices. In Norway, the pricing has been determined politically and is not based on any specific calculation methodology. Now that Bane NOR has implemented an econometric analysis of the marginal costs of rail traffic in line with the Railway Regulations and Norway’s obligations in accordance with the EEA Agreement, Bane NOR finds that there are grounds for establishing an implementation plan for phasing in new prices. Bane NOR SF will take into account the fact that different market segments will have different needs for gradual adaptation to the new infrastructure prices. Section 8 describes gradual adaptation for each market segment. The 2012 Directive indicates that the new prices can be implemented over a period of 4 years. Bane NOR assumes that the 2018-2021 period can be used for implementation.
PSO2: The basic price and capacity price will be introduced in full as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 1 January 2019 (R19). MAIN AIRPORT: The basic price and capacity price will be introduced in full as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 1 January 2019 (R19). OTHER PASSENGER SERVICES: The basic price and capacity price will be introduced in full as of 1 January 2018. COMBINATION/FULL-LOAD: The basic price will be introduced gradually over 4 years from 1 January 2018; i.e. 25% in 2018, 50% in 2019, etc. The capacity price will be introduced in full as of 1 January 2018. ORE AND MINERAL TRANSPORT: The basic price will be introduced as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 2019 (R19). OTHER INDUSTRIAL TRAINS: To be introduced in a similar way to combination/full-load.
2 Service agreement with public authorities, with the authorities paying for the services Implementation plan Page 7
Infrastructure charges / -prices 2 HISTORICAL OVERVIEW 2.1 Development of infrastructure charge Discussion on governance of the public sector – including the transport sector – began in Norway in the 1980s. It was agreed that “… General reorganisation of the use of funds in transport policy, from regulation to more economic instruments, would be appropriate” [7]. In White Paper 34 (1987-88) [8], the Ministry of Transport and Communications proposes NSB’s budget and accounts into two elements; an infrastructure element and a service element. This was implemented as of 1990. One key element was the introduction of infrastructure charging 3 . The Norwegian infrastructure charging system that was introduced in 1990 [9] was based on:
a) The signal function indicating that it costs money to produce applicable services, and that these costs are dependent on the scope of activity on the infrastructure
b) Obtaining revenues to cover costs involved in maintaining and extending the infrastructure
The rate for 1990 was set to 2.5 øre per gross tonne-kilometre. With a possible price adjustment,4 this is equivalent to 5.35 øre per gross tonne-kilometre in 2016. Passenger services were exempted from the charge as buses and coaches did not pay similar charges to use the roads in 1990. Nowadays, buses and coaches pay “road use charges” through the diesel charging system, while no changes were made to passenger rail services until 2017. In the 25 years or so since this was introduced, the Storting – Norwegian Parliament – has reduced the charge for freight transport on a number of occasions so that most freight services (measured in train-kilometres) up to and including 2016 did not pay the infrastructure charge; see also Table 2. The infrastructure charges now have various structures. On the Gardermoen Line, the charge is divided into two elements: one for use of the line (charge per train-kilometre), and one for use of stations (charge per departure), while the charge for freight trains with an axle load in excess of 25 tonnes is linked with traffic load (charge per gross tonne-kilometre). The Royal Proposition [10] that established the opening balance for Flytoget AS, stated the following: “One-time payment for priority, but not exclusive rights to operate on allocation of track capacity on the Gardermoen Line, is recognised in the balance sheet as an intellectual property right. This right will have to be depreciated on a systematic basis over the period for which the right to priority is applicable. It is assumed that the one-time payment of NOK 424 million will be funded by 40 per cent equity and 60 per cent liabilities.”
This statement is understood to mean that Flytoget AS has paid a form of “capacity charge”5 linked with its right to 6 departures an hour per direction between Oslo S and Gardermoen. This is confirmed in the traffic agreement dated 1 February 2013 between the Ministry of Transport and Communications and Flytoget AS. Table 2 provides an overview of the historical development of the charging system.
3 The new Railway Regulations use the term “infrastrukturavgift”, infrastructure charge. 4 The consumer price index from 1990 to 2000 and the price index for road system maintenance from 2000 to 2016. 5 Based on Flytoget’s required rate of return, the fee amounts to NOK 1,745 per return departure between Oslo S and Gardermoen. Implementation plan Page 8
Infrastructure charges/- prices
Table 2: Historical overview – nominal values Year Passenger Freight Freight services services < 25 Gardermoen Line services (Øre/Gross tonnes (NOK/Train- Oslo S Lillestrøm GMB > 25 tonnes tonne-km) (Øre/Gross km) (NOK/train) (NOK/train) (NOK/train) (Øre/Gross Tonne-km) Tonne-km) 1990 - 2.50 - - - - - 1991 - 2.60 - - - - - 1992 - 2.70 - - - - - 1993 - 1.40 - - - - - 1994 - 1.20 - - - - - 1995 - 0.90 - - - - - 1996 - 0.92 - - - - 0.94 1997 - 0.94 - - - - 1.46 1998 - 0.95 - - - - 1.50 1999 - 0.98 - - - - 1.53 2000 - 1.00 15.50 - - - 1.56 2001 - 1.03 15 .90 - - - 1.61 2002 - 1.06 15.90 - - - 1.65 2003 - 1.10 16.30 - - - 1.72 2004 - 1.40 20.85 - - - 1.78 2005 - 1.18 13 .90 90 .00 15 .00 60 .00 1.84 2006 - - 14.30 92.90 15.50 61.90 1.90 2007 - - 14 .80 95 .90 16 .00 63 .90 1.97 2008 - - 14 .80 98 .49 16 .43 65 .63 2.05 2009 - - 13.30 88.60 14.80 59.10 2.26 2010 - - 13.60 90.40 15.10 60.30 2.26 2011 - - 13.90 92.20 15.40 61.50 2.73 2012 - - 16.90 112.00 18.80 74.80 2.84 2013 - - 17.50 116.10 19.50 77.50 3.13 2014 - - 19.60 130.00 21.90 86.80 3.25 2015 - - 20.90 138.70 23.40 92.60 3.79 2016 - - 21 .80 144.90 24 .50 96 .80 4.50 2017 (1) 0.25 0.09 20.30 134.80 22.80 90.00 5.35 Note (1)Converted the first two columns from train-km to gross tonne-km with an estimated weight per train
The change in 2005 with regard to the Gardermoen Line was due to the fact that the train carrying aviation fuel is also liable to pay the charge for that part of the Gardermoen Line (Langeland – the aviation fuel terminal) used by this train. As the train carrying aviation fuel does not use the stations, it was found unreasonable to charge the freight train these station costs via the charge for use of the track. The charge for freight trains with an axle load > 25 tonnes originally had a lower defined limit of > 22.5 tonnes. The increase in the lower limit was implemented by the Ministry of Transport and Communications / Storting 6 as the timber industry wanted to use 25-tonne axle loads for its timber trains.
6 From the 2007 revised budget: “The Government proposes an increase in the limit for exemption from the infrastructure charge for rail freight services from a 22.5-tonne axle load to a 25-tonne axle load. Initially, a two- year trial is envisaged in order to obtain experience from the scheme.” No evaluation has ever taken place.
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The table below (Table 3) shows the charge for freight trains in 2017 compared with other sections along Corridor 3 (ScanMed). Table 3: Charges for freight trains along Corridor 3 (Source: ScanMed)
NOK per Section Euro (2) NOK Km train-km Norway Alnabru – Kornsjø 12 109 174 0.63
Sweden (3) Kornsjø – Göteborg 288 2,612 173 15.10 Göteborg – Malmö 508 4,608 284 16.20 Malmö – Pederholm (1) 353 3,202 25 127.81 Total for Sweden 1,149 10,421 482 21.60
Denmark Pederholm – Padborg 1,384 12,557 332 37.78
Germany (3) (4) Padborg – Machen 637 5,779 213.8 27.03 Maschen – München 2,307 20,928 774.3 27.03 München – Kufstein 308 2,795 103.4 27.03 Total for Germany 3,253 29,502 1,092 27.03
Austria (3) Kufstein – Brennero 540 4,898 109.86 44.58
Italy (3) Brennero – Domegliara 582 5,279 215.6 24.48 Domegliara – Verona 142 1,288 18.7 68.87 Roma – Pisa 1030 9,342 329.6 28.34 Firenze – Roma 953 8,644 234.8 36.81 Roma – Rosarmo 2094 18,993 605.3 31.38
Note: (1) Incl. Öresund Bridge charge; (2) 1 Euro = NOK 9.07; (3) 1,600 tonnes and 100 km/h; (4) “Standard” freight train
2.2 Railway package IV Besides technical audits, the fourth Railway Package proposes reforms in the fields of governance and market opening. These amendments will be covered by updating two existing parts of the legislation and repealing a third legal act. The aim is to open the domestic passenger rail market to competition. This will also be an important step towards completion of a single European railway area. One of the changes relates to governance of infrastructure managers. Infrastructure managers and railway operators frequently remain part of the same integrated structure. The proposed changes will distinguished infrastructure managers from railway operators to a greater extent.
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As regards regulation of the relationship between infrastructure managers and railway operators, EU Directive 2012/34/EU [2] in particular is key. The regulatory arrangement for capacity distribution and pricing of infrastructure managers’ monopoly services are revised here. More detailed rules on what costs can be used as a basis of pricing are specified in a separate regulation [4]. The market regulation paragraphs of the directive are incorporated in Norwegian law via the new Railway Regulations [3]. Although neither the directive nor the regulations are part of Norwegian law at present, Bane NOR has assumed that they will become so in the near future. The said regulations also require infrastructure managers to submit an implementation plan linked with any consequences with regard to establishment of the charge when introducing the new rules prior to 3 July 2017. This document provides a response to this requirement. The European Parliament in plenary session adopted the final wording in the market section of Railway Package IV on 14 December 2016. The Commission submitted its proposal back in February 2013, but all the proposals in the package have only now been adopted, almost four years later. The market section of the Railway Package specifies requirements for the member states to open up the domestic market to passenger services on the railways before December 2020, and states that competitive tendering must be introduced – certain exceptions will be permitted – when awarding contracts prior to December 2023. Independence between railway infrastructure managers and service providers will also be reinforced.
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3 PRICING TERMS IN THE PAULWAY REGULATIONS The Railway Regulations [3] pursuant to the Railways Act [11] and EU Directive 2012/34/EU [2] and regulate:
a) access to the provision of services on the rail network and to service facilities, including port and terminal tracks and services on the same b) requirements for the administration of railway infrastructure and transport activities implemented by railway companies c) establishment and collection of infrastructure charges 7 and pricing of railway-related services d) allocation of infrastructure capacity e) market monitoring
The implementation plan is applicable to clause c); more specifically, sections 6-1 to 6-8 of the Railway Regulations8 . This document is all about Bane NOR’s understanding of the rules laid down in the regulations, calculation of marginal costs, establishment of prices and their rates, and an implementation plan. EU Regulation 2015/909 [4] provides provisions for calculation of costs incurred directly as a consequence of railway operation. According to the regulations, the Ministry of Transport and Communications establishes the framework with regard to the establishment of prices. Bane NOR establishes the scope of the specific prices and collects the revenue. Bane NOR is bound by Norwegian law and the obligations undertaken by Norway through the EEA Agreement. It will not be possible to overrule the establishment of the infrastructure prices in political terms as long as establishment of prices is in line with this framework. The Norwegian Railway Authority states in its letter dated 4 October 2016 to the Norwegian National Rail Administration, in connection with an appeal from LKAB Malmtrafikk AB, that: “… indicates, in the opinion of the Authority, that specific infrastructure charge rates cannot be established by the infrastructure manager’s overriding authority” [12]. In the opinion of the Authority, this interpretation is supported by the decision made by the European Court of Justice concerning case C-483/10 against Spain [13]. Prices must be non-discriminatory, but it is possible to differentiate between market segments. The regulations differentiate between different infrastructure services, namely:
1. the minimum package 2. services 3. additional services 4. ancillary services In this regard, Bane NOR has used the same definition as that specified in the Agreement on track access and the use of services (ATS). Again, this is pursuant to the Railway Regulations. 3.1 Minimum package, etc The prices for access to the minimum package of services (cf. sections 4-1 and 6-2 of the regulations) and access to service facilities must be set at the cost arising “as a direct consequence of the rail service in question ”. In line with EU Regulation 2015/909 [4], Bane NOR is of the opinion that the term “direct
7 The term “charge” here does not mean an indirect tax from the public sector, but is synonymous with “tariff” (as in “network tariff”) or price for a service provided (use of the Bane NOR infrastructure) 8 Section 6-9 of the Railway Regulations on service facilities is discussed specifically; cf. the Service Catalogue
Implementation plan Page 12 Infrastructure charges/- prices consequence” can be understood as a marginal cost principle. Furthermore, the regulation uses a “mandatory clause” (section 6-2 (3)), and this is understood as a minimum payment. The Swedish Transport Administration uses the terms statutory and mandatory to refer to price [14]. The regulation specifies a few exceptions to this general rule, principally the opportunity to take a higher price/charge than the marginal cost, but also a few discount schemes (see below). The price may also reflect the lack of capacity in an identifiable part of the infrastructure during periods of congestion. This is applicable in instances where a number of railway undertakings are competing for the same capacity9. The capacity cost was internalised within the business in the former monopolistic, integrated railway. The cost emerges in that there is a trade-off between speed and the number of trains. The more trains that operate on a single-track section, the more frequently trains have to wait for oncoming trains, and hence the average speed is lower for everyone. Similar effects occur on double- track sections as well. The more local trains there are, the more slowly the long-distance trains travel; and vice versa. Longer running times result in an increase in time-dependent costs such as salaries and other personnel costs, as well as increased capital costs tied up in train stock. The railway undertakings influence one another’s costs without this being part of their own commercial decision data. A capacity price is intended to internalise this in the companies’ decision data. The price can also take into account the environmental costs – including noise – generated by rail traffic for third parties. This does not imply that the prices can be adjusted downwards (compensated for) on a permanent basis as a consequence of missing prices for other modes of transport. Any compensation must be time-limited and benefit users (the railway undertakings’ customers) if the railway undertaking has exclusive rights. In the opinion of Bane NOR, the Ministry of Transport and Communications will be responsible, where applicable, for establishing a time-limited scheme of this type and compiling transparent documentation for the same. For specific investment projects, Bane NOR can propose a higher price on the basis of the long-term cost if this would increase efficiency and the project would not be implemented otherwise. The prices on the Gardermoen Line were justified at the time [15] on the basis of the corresponding option in the rules at that time. LKAB’s advance payment for the development of the passing track on the Ofoten Line can also be viewed in light of these rules as this advance payment is to be regarded as interest-free loans, and hence as a time-limited payment for increased capacity. The Ministry of Transport and Communications approves whether measures can be funded entirely or partly by means of user payments. Surcharges may be established in order to achieve full cost coverage, if the market can stand this. Full cost coverage is understood to mean coverage of both fixed and variable (indirect and direct) costs. The prices cannot have greater surcharges so that one or more market segments “drop out”. In the event of any surcharges, Bane NOR must analyse the market segments for which this is relevant. The regulations provide more detailed rules on how the market segments can be divided up. Section 6 provides a more detailed description of Bane NOR’s proposal for market differentiation in Norway Both the Directive [2], article 32 (6) and the Railway Regulations [3], section 6-3 (6) impose a notification obligation on the infrastructure manager – in reality over a period of 15-18 months prior to implementation – if the basic elements are to be changed. Market segmentation must be reviewed at least every five years, and the
9 The way competition for passenger services is arranged, there will only be one operator between Ganddal and Stavanger on the Sørlandet Line
Implementation plan Page 13 Infrastructure charges/- prices way in which segmentation takes place must be approved by the Ministry of Transport and Communications. Bane NOR can issue competition-neutral discounts for parts of the infrastructure. Time-limited discounts can also be given in order to promote new railway services and use of lightly used infrastructure. Section 7 submits Bane NOR’s proposals for future prices, including discount. 3.2 Use of service facilities The Directive [2] and the Railway Regulations [3] state that the price/charge for services and service facilities must not exceed the cost by providing it with supplements for reasonable profits. This is interpreted as meaning that full cost provides an upper framework for pricing the services. Reasonable profits means “normal” returns on capital invested in the facility in line with the Railway Regulations, section 1-3 (h). In Bane NOR’s opening balance sheet, the fixed assets are primarily funded by means of a supply obligation, or as prepaid revenue for a service supplied. This liability is resolved with corresponding income recognition in line with depreciation. Therefore, it is proposed that only the interest element on book capital should be included in calculated returns. A separate report – Service catalogue – has been prepared, so use of service facilities is not discussed further in this report. 3.3 Additional services Additional services can essentially be supplied by a number of stakeholders, not just Bane NOR. This may, for example, involve resale of traction current, converter facilities for traction current, etc. If Bane NOR is the sole provider, the prices must not exceed full cost; as outlined in clause 3.2. A separate report – Service catalogue – has been prepared, so additional services are not discussed further in this report. 3.4 Ancillary services Ancillary services are services that are essentially traded in a market. The prices offered by Bane NOR in this regard must be competitive, but not underpriced, in the market in question. Underpricing will be considered to be illegal subsidising. 3.5 Tax cost and Ramsey pricing In instances where there are economies of scale10, pricing in accordance with the marginal cost principle will result in failure to cover incurred costs. In the rail sector, this difference has to be covered by the state budget; i.e. funded by taxation. It is generally assumed that tax funding has socio-economic costs as this results in market imperfection. The Ministry of Finance has determined that cost-benefit analyses should use as a basis a societal cost of 20% of the costs to be funded through taxation. Ramsey pricing – see [16] – takes this into account. Such pricing means that the price must be somewhere between the marginal cost and the monopoly price. The Railway Regulations do not assume that this type of pricing – which includes the tax cost – can be used. However, the theoretical basis for such pricing may form a framework for implementation of market differentiation; see sections 3.1 and 6.
10 Economies of scale are achieved when the average cost becomes lower when production increases; which also implies that the marginal cost is lower than the average cost
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4 COST STRUCTURE 4.1 The Infrastructure Manager’s production prosess Bane NOR SF is a supplier of infrastructure services on a par with Avinor AS, Statnett SF and telecoms network operators such as Telenor AS. Production of infrastructure services does not differ from production of other services. It is characterised by the fact that consumption takes place at the same time as production – services cannot be stored. Subsequently, we can view Bane NOR’s production process as any other service provider. Resource consumption (input factors) are measured in NOK by means of the costs, while production/traffic load can be measured in terms of the number of trains, the number of train-kilometres, the number of gross tonne-kilometres or revenues, for example.
Figure 1: Outline of a production process Not only the production volume drives costs. A range of other factors will affect the cost level, such as:
• traffic-related cost drivers such as axle load, speed, number of departures per time unit, etc. • Other cost drivers such as infrastructure design; including curvature, gradients, flexibility, etc. The marginal cost principle described in clauses 3.1 and 4.2 is based on how the costs to the infrastructure manager vary with the production volume. Because of the other cost drivers specified, it will in theory be unreasonable to assume that the actual marginal costs are of a constant extent for the entire rail network and all types of train.
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Figure 2: Relationships between transport volume and infrastructure costs – All figures are fictitious Businesses may frequently be such that average costs will fall in the event of lower production volumes, but average costs may change and increase when the volume increases up towards the capacity limit. In the event of an increased traffic/transport volume, the infrastructure manager could have shorter maintenance breaks than is optimum in terms of costs, resulting in an increase in costs for each maintenance assignment. 4.2 Marginal costs and cost elasticities In purely mathematical terms [17], there will be a relationship between the marginal cost and the average cost via the cost elasticity. This relationship is as follows:
(1) B' x ex BX where: B’ = marginal cost e = cost elasticity B = average cost The cost elasticity indicates the extent to which tie total cost increase as the production volume increases. A percentage increase in production volume gives an e(x) per cent increase in total costs. If the elasticity I less than one (e(x) < 1), we will see declining average costs I respect of production volume, or economics of scale. In this case, pricing based on marginal cost principle will not result in full cost coverage. If the elasticity is greater than one (e(x) > 1), the marginal cost will be greater than the average cost, and pricing based on marginal cost will give a surplus.
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Figure 3: Average costs and marginal costs – All figures are fictitious Only a linear cost function gives constant marginal costs. The cost function of the Cobb-Douglas type gives constant elasticity in respect of production volume and hence a fixed ratio of average cost to marginal cost. Appendix 1 provides a description of the mathematical relationships used. 4.3 Scope of the cost concept EU Regulation 2015/909 [4] provides a more detailed description of the cost types that are to be included in the data for calculation of marginal costs. Traffic management, overheads and capital costs are key cost elements that are not included. Nevertheless, the provisions have to be adapted to the cost data used by Bane NOR; cf. clause (6) in the preamble to the regulation. This is why the Bane NOR methodology is described below. It is evident from the information provided below that operating costs are not included, as they are nevertheless considered to be independent of the traffic volume and as such are regarded as being a fixed cost. However, operating costs form part of the costs assessed in connection with any full cost coverage; see section 3.1.
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Maintenance
Corrective Preventive maintenance maintenance Refurbishment
Deferred/plannable Condition- Minor refurbishment Emergency Time-based Strategic based
Purpose Checked Reset degradation Recycle Recycle required Reveal Main- condition required condition tain required function function changes function
To be carried Periodic Periodic out Fault/ As required Periodic Periodic As required As incidents As required required
Examples Remedial action Repairs Inspections Audits Ballast cleaning Renovation Emergency response Inspection Cleaning Sandblasting Rail Measurements Cleaning refurbishment Noise attenuation Functionali- Lubrication Sleeper re- ty Securing furbishment Bridge replacement Figure 4: Maintenance definitions Corrective maintenance can be divided into activities that have to be carried out immediately and those that can be postponed (usually with remedial action; cf. slow running). The need is relatively unpredictable, but it requires an emergency response division that can be deployed at short notice. Development in corrective maintenance reflects development in the technical standard of the facilities. The intention with preventive maintenance is to maintain awareness of and control over the development of condition, achieve the anticipated service life and reduce the likelihood of failures and malfunctions. Refurbishment involves replacing facilities that can be maintained either economically or functionally by means of corrective or preventive maintenance. Strategic refurbishment will be implemented on long
Implementation plan Page 18 Infrastructure charges/- prices sections and be systematic in nature, bringing objects back to a “new” state in accordance with applicable technology. The above is a description of maintenance activities and how Bane NOR SF has grouped them. Not just the use of the infrastructure influences the scope of these activities. We would like to point out the following cost trigger factors in the further definition of the cost structure:
• User-related wear and tear are costs triggered as a result of increased use that will correspond to the short-term marginal costs, and these are what form the basis for marginal cost pricing. • Natural degradation are costs incurred by ageing or natural phenomena. These costs are not affected by usage and so should not be included in the data for marginal cost pricing. • Approved upgrading is costs that occur when a decision is made to upgrade the infrastructure to a higher standard than the current one and must not be included in the data for marginal cost pricing. The ERTMS project is one such example. • Maintenance costs that are not driven by these conditions are usually defined as capital costs. These are fixed in the short term and must not be included in the data for marginal cost pricing. Figure 5 provides an illustration of the extent to which various maintenance types relate to cost trigger factors.
Condition Emergency Postponed Time-based Minor Strategic based refurbishment maintenance maintenance maintenance refurbishments maintenance
Cost trigger factor
Approved upgrading
Natural degradation
User-related wear and tear
Theoretically correct volume variable costs
Practical approach, volume variable costs
Figure 5: Types of maintenance, with associated cost trigger factors The figure shows that costs type can be triggered by a number of things. Essentially, all cost trigger factors could be referred to a greater or lesser extent to use of the infrastructure. Refurbishment costs
Implementation plan Page 19 Infrastructure charges/- prices are related to accumulated traffic history and not directly linked with current traffic. Even so, it is undisputed that current traffic will contribute to depreciation. Despite this, most studies have opted to disregard refurbishment costs. This is also a simplification recommended by Working Group 1, among others [18]. This simplification means that estimated marginal costs may be slightly lower than actual costs. Replacement of rails, sleepers and point switches has been included for the Ofoten Line as these elements are refurbished continuously. 4.4 Selection of methods The Commission Implementing Regulation 2019/909 [4] basically assumes that the direct costs are to be calculated by means of an activity-based calculation (ABC). To allow these calculations to be harmonised in the member states, the regulation provides a relatively detailed specification of the cost elements that can be included in the calculation. Article 6 of the regulation paves the way for use of an econometric method. The historical accounting data is not of such quality that can ABC analysis would have given good results in relation to the requirements of the regulation: the analysis would have included a fair amount of estimation. An econometric method will leave some of the estimation to mathematics and statistical variations. Bane NOR is of the opinion that an econometric method will give more substantial results. Therefore, a decision has been made to use an econometric method, but a number of mathematical function forms have been assessed. 4.5 Relevant cost functions A product or service as described in section 4.1 is a transformation of input factors. In economic theory, this transformation is often described mathematically by means of a product function. The costs are the scalar product11 of the consumption of input factors and associated purchase prices; see also Appendix 1. It is reasonable to assume that consumption of input factors will increase as production increases, but the relationships may be extremely complex. This assumption means that it is possible to assume that costs will vary with the production volume, but that the technical and physical relationships are not necessarily known a priori. All literature relating to the estimation of marginal costs is based on various approximations and criteria. The most common approximate methods are the use of Trans log or double log functions – these are described in Appendix 1. In reality, these function forms involve estimating either the marginal costs or the cost elasticity independently of the technical and physical relationships. In the analyses performed to date, the Ofoten Line has been considered separately as this will be what is known as a “statistical outlier” and will adversely influence the results for other lines from a statistical perspective. The approaches implemented in previous analyses are described below, along with an assessment of which ones should be updated. Bane NOR would like to look at other alternative approaches to be able to make the best possible assessments in professional terms with regard to the level of the marginal costs. 4.5.1 The network except for the Ofoten line Three different analyses have been carried out for the Norwegian rail network except for the Ofoten Line over the past 15 years:
11 A scalar product is, for example, a price vector (p) multiplied by a volume vector (v) or
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• Øystein Børnes Daljord (Frischsenteret) on behalf of the Norwegian National Rail Administration [19] • Christoph Siedler and Kaja Voss (Norwegian National Rail Administration) [20] • Vetle Dahl Gundersen and Håvard Thorsrud Karlsen (Master’s thesis at the Norwegian School of Economics) [21] None of the analyses are entirely identical with regard to approximation of the actual cost function or restriction of costs. It is therefore difficult to compare them. The results also diverge extensively in part. Table 4: Comparison of investigations
Daljord Siedler/Voss Gundersen/Karlsen
Cobb-Douglas (double Second degree Function form – Five double log log transformation with polynomial described in greater transformation detail in Appendix 1 constant cost elasticity) variants; based partly on different production
variables and partly Trans log on fewer restrictions on cost elasticity
Cost data Corrective Corrective All costs for maintaining a standard maintenance maintenance Costs for opening for Preventive Proportion of the “first” trains maintenance preventive Refurbishment maintenance Other costs dependent on traffic Costs for increased quality/capacity
Production data Track length (km) Gross tonne- Number of trains + average weight (traffic-related cost Gross tonnes kilometres drivers); see section Gross tonnes 4.1 Gross tonnes, divided into passenger and freight trains Technical data (other Track lengths (km) Dummy for regions Track lengths (km) cost drivers); see Number of point Number of point section 4.1 switches switches Proportion not in Proportion not in tunnel tunnel Proportion of curvature Proportion of curvature < 500-metre radius < 500-metre radius Dummy for Speed (weighted)
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Daljord Siedler/Voss Gundersen/Karlsen
electrified or non- Proportion of non- electrified electrified
Average marginal cost 9.2 øre per gross 8.9 – 20.1 øre per 0.4 – 2.8 øre per gross tonne-kilometre (2004 gross tonne-kilometre tonne-kilometre (2015 prices) (2014 prices) prices)
When using technical data in the analysis, it has been necessary to take into account how the design of the infrastructure influences total and average costs. Two sections with the same cost elasticity but different average costs will have different marginal costs according to (1). Gundersen and Karlsen have analysed relationships that have also been implemented for British railways [22]. Although only cost data for 2014 and 2015 has been analysed, the study has given significant results. Bane NOR has requested more detailed assessment of this approach using accounting figures for 2016. Refurbishment costs are included in the analysis by Siedler and Voss. This means that the marginal costs will be higher in this analysis.
4.5.2 OFOTEN LINE The Ofoten Line is unique in a Norwegian context. It is just 42 kilometres long and carries approximately two-thirds of all tonnage on the Norwegian railways. There is also a 523-metre difference in height between the Fagernes terminal at the port of Narvik and the national border with Sweden. This line is also the only one in Norway designed for a 30-tonne axle load. Services are dominated by ore traffic from Kiruna to the port of shipment in Narvik. Over the last few years, this line has taken on greater significance for the transport of freight to and from Northern Norway. Passenger services are limited to 2 pairs of trains a day, operating between Narvik and Kiruna on weekdays. These factors make separate analysis of the Ofoten Line a natural choice. The Norwegian National Rail Administration has previously carried out an econometric analysis, namely:
• Kristine Bakken (Norwegian National Rail Administration) [23] This analysis has disregarded data relating to the route as the data in question has not altered over the period (2005 – 2011) that was analysed. However, during this period the permitted axle load was increased from 25 tonnes to 30 tonnes. Therefore, whether the “intensity” of the load had a part to play was examined, not just the total load. For trains of the same length, the hypothesis is that one 8,000- tonne train will cause more wear and tear on the infrastructure than eight 1,000-tonne trains. Average weight per train is used to denote production, in addition to gross tonne-kilometres. See Appendix 1 for
Implementation plan Page 22 Infrastructure charges/- prices the mathematical formulation of the cost function and associated cost elasticity. The analysis showed that the average weight was a significant cost driver, resulting in the following: Table 5: Results of previous analysis, Ofoten Line
Average cost (øre per Marginal cost (øre per Estimated cost elasticity gross tonne-km – 2011) gross tonne-km – 2011)
1.54 11.10 17.09 Table 5 provides a slightly higher result than the 2012 report by the Norwegian National Rail Administration [23]. This may be due to the fact that the marginal cost was calculated in a different way to the method described in Appendix 1. We now have the opportunity to add data for another 5 years (2012 – 2016) to the analysis.
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5 ESTIMATED COST ELASTICITIES AND MARGINAL COSTS Cost functions have been estimated from simpler relationships used by the Institute of Transport Economics when an infrastructure charge was to be introduced in 1990 [24], along with more sophisticated regression analyses as described in the previous section. The objective was to find a relationship between traffic load and costs for the operation and maintenance of the infrastructure. As stated in section 4.2, the Ofoten Line is a special section of track that should be viewed separately. Professor Emeritus Erik Biørn (UiO) has provided professional advice relating to what relationships should be tested and what assessment criteria should be used. 5.1 Estimated values for sections except for the Ofoten line In section 4, we described how costs are dependent not only on the traffic load, but also on the design of the line. One example of this assumption is that a line with lots of sharp bends has a higher cost per traffic unit than a straight line. We have to take into account technical variables of this type so as to ensure that the relationship between traffic load and costs is as correct as possible. As we are using cost figures from different years, we are also using a price index as an explanatory variable.
5.1.1 Alternative estimated cost functions Given the price level and technical variables, we would like to analyse various traffic load specifications. Table 6 provides an overview of the variables included in the various model specifications. For models II and IV and V, our estimates are based on absolute values; a pure linear function, second degree polynomial and third degree polynomials. All models are also estimated on the basis of the natural logarithms of both costs and explanatory variables. Models IV and V are included in order to test whether cost elasticity varies according to the traffic load. The mathematical relationships are described in Appendix 1. Table 6: Model specifications for sections except for the Ofoten Line
Model Production variable Technical variables Price level
Model I Number of trains Number of kilometres Statistics Norway’s Operation Average weight per train Number of point switches per price index forand road maintenance of kilometre system [25]. Proportion of kilometres in tunnel Number of bends with radius < 500 metres per kilometre Weighted speed Dummy: Not electrified
Model Ib As for model I, but in trans As for model I As for model I log/interaction variant
Model II Total gross tonnes As for model I As for model I
Model III Gross tonnes, passenger trains As for model I As for model I
Gross tonnes, freight trains
Model IIIb As for model III, but in As for model I As for model I trans log/interaction variant
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Model Production variable Technical variables Price level
Model IV Total gross tonnes (x) As for model I As for model I
Total gross tonnes (x2)
Model V Total gross tonnes (x) As for model I As for model I Total gross tonnes (x2) Total gross tonnes (x3) The above table forms the starting point for Bane NOR’s assessments of what describes the relationship between costs and production volume in the best way possible. Each individual estimate is assessed below. Bane NOR will provide its recommendation in section 5.4. Adjustment of the recommended model – reducing the number of technical variables – will also be assessed here. 5.1.2 Data The data used as a basis for the estimates is described briefly here. Figures for 2014, 2015 and 2016 have been used in the analysis. 5.1.2.1 Cost figures Given the definitions in section 4, the cost figures are the sum of corrective and preventive maintenance devised by the Maintenance Unit at the Infrastructure Division. It is assumed that the operating costs do not vary much in relation to the traffic volume, as these costs are particularly linked with keeping the line open to services regardless of the traffic volume, and hence they are not included in the data for the analysis. Nor are refurbishment costs included, even if they are dependent on the traffic volume, but this is due to accumulated load over a long period. The various system components are of different ages and are worn to different extents as a consequence of traffic. Including refurbishment as one of the cost components is an extremely demanding analysis. Before the next rollover – see section 7.3 – of the calculation of the marginal costs, how this can be resolved methodically should be studied in greater detail. 5.1.2.2 Traffic-/Production figures As stated in section 5.1.1, we would like to use various traffic concepts in the analysis. Our data is made up of the number of passenger and freight trains that have operated, based on counts of services provided that appear in the TIOS database. It is assumed that different trains are of different weights, namely:
• Passenger trains: Average 300 tonnes per train (50/50 single/double sets) • Combination trains: Average 650 tonnes per train (50/50 empty/fully loaded) • Industrial trains: Average 870 tonnes per train (50/50 empty/fully loaded) Gross tonne-kilometres is the unit of measurement used for the Ofoten Line and in Sweden. Gross tonne- kilometres can be broken down into 3 underlying units:
• Number of trains operated • Weight per train (weight of locomotive and hauled stock + weight of cargo) • Number of kilometres from A to B An increase in the number of gross tonne-kilometres will be caused by more trains, an increased weight per train or a combination of the two. The number of kilometres from A to B is defined – where
Implementation plan Page 25 Infrastructure charges/- prices logarithmic values are used – under technical variables, and so this is not included in the production data. Hence production is defined as either the number of trains and weight per train or as the product of these, namely gross tonnes in total. As the number of kilometres from A to B will be the same for all gross tonnes on the section in question, the cost elasticity will be the same for both gross tonnes and gross tonne-kilometres. 5.1.2.3 Technical variable The data for the technical variables used in the analysis has been obtained from BaneData. A more detailed description can be found in Appendix 2. 5.1.2.4 Price index We are using the costs from 3 different years, each with their own input factor price level. We could have used costs in fixed prices, but we have chosen to use the price index as a separate explanatory variable. It may be interesting in theory to see how changes in price level impact on maintenance costs. As stated above, Statistics Norway’s price index for “Operation and maintenance of road systems” has been used. 5.1.3 Estimation result Here, the results of the various models based on Table 6 are divided into 3 categories:
1. Polynomial12 models based on absolute figures 2. Polynomial models based on natural logarithms – referred to here as “Double log” 3. Two-product models with and without interaction – referred to here as “Trans log” With this, regression of the relationship between cost and production volume has been carried out in 10 different models. One common element of the outlined models is the fact that the estimated intercepts are not significant. This is probably due to the fact that the technical parameters deal with whatever fixed costs there may be.
5.1.3.1 Models based on absolute figures Three models are estimated in this category; Model II, Model IV and Model V. These models are intended to describe the relationship between cost as a dependent variable and gross tonne-kilometres as an independent production variable. Model II is a pure linear relationship, while Models IV and V are second and third degree polynomials respectively. A linear relationship will result in a fixed marginal cost for the entire network – which is a very strict condition. Therefore, the polynomial variants are also being tested in order to assess whether the marginal cost may vary with the production volume (gross tonne- kilometres), and if so how. Table 7 provides an overview of the estimated parameters with associated standard deviations in the various model variants, as well as the correlation coefficient R2. The average marginal cost for the entire network has also been calculated. Appendix 3 provides an overview of cost data and traffic data together with estimated costs and marginal costs.
12 Polynomials are expressions consisting of many terms. This term is used in particular to refer to expressions of the form: 푓(푥) = 푎 + 푏푥 + 푐푥2 + 푑푥3 + ⋯ + 푠푥푛
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Table 7: Table of results – Sections excluding Ofoten Line – Linear models (Figures below the estimate are t-values) Model II Model IV Model V
Constant 20200000 14,800,000 21300000 0.16 0.12 0.17
Gross tonnes 0.028382 0.0397841 0.0725182
8.78 5.87 4.90
Gross tonnes squared -8,91E-12 -8,48E-11
1,91 -2,74
Gross tonnes cubic 3,54E-20
2.48
Average marginal cost (NOK per gross tonne-km) 0.028 0.031 0.038 R2 0.367 0.378 0.396 Correlation, actual and estimated cost 0.606 0.615 0.630 N total 215 215 215
Estimated parameters for gross tonne-kilometres are significantly different to zero. On the basis of R2, the models describe approximately 40% of the variations in costs. The correlation13 between actual and estimated cost is approximately 0.6. Of the technical variables, only “Proportion in tunnel” and “Weighted speed” provide the “right” signs on the basis of what would be anticipated a priori, but they are not significantly different to zero. The model gives an average marginal cost for the entire country of between 2.8 and 3.8 øre per gross tonne-kilometre. In section 5.4, Model V will be assessed in greater detail against potential other model candidates.
13 The correlation coefficient is equivalent to the cosine of the angle between two vectors.
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5.1.3.2 Logarithmic models This is very similar to the previous set of models. Logarithmic figures are used here for both cost and production volume. However, gross tonnes is used as the production variable here, while the number of kilometres of line has been added to the technical factors. This resolves some of the rigidity of the linear model, as the marginal costs may vary even without squaring, etc. That said, the cost elasticity will be constant for the entire network in the case of the simplest variant. Table 8 provides an overview of the estimated parameters with associated standard deviations in the various model variants, as well as the correlation coefficient R2. The average marginal cost has also been calculated. Appendix 3 provides an overview of cost data and traffic data together with estimated costs and marginal costs. Tabel 8: Results table – sections excluding the Ofoten line – double log-models
Model II Model IV Model V
Constant 29.5868 32.4496 88.6092 0.51 0.56 1.14
Ln Gross tonnes 0.3748 -0.1420 -11.7029 4.09 -0.14 -1.11
Ln Gross tonnes cubic -0.0172 -1.11 Average marginal cost (NOK per gross tonne-km) 0.019 0.019 0.021 R2 0.379 0.379 0.383 Correlation, actual and estimated cost 0.643 0.643 0.647 N total 215 215 215
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Estimated parameters for gross tonnes are only significantly different to zero for Model II. On the basis of R2, the models describe approximately 40% of the variations in costs. The correlation between actual and estimated cost is approximately 0.65, which is slightly better than for the models using absolute figures. The technical variables provide the “right” signs on the basis of what would be anticipated a priori, but not all are significantly different to zero. The model gives an average marginal cost for the entire country of between 1.9 and 2.1 øre per gross tonne-kilometre. Model II will be assessed in greater detail in section 5.4, with fewer technical variables.
5.1.3.3 Two-Product models with interaction Here, the production volume will be represented by two production variables, namely: • Number of trains and weight per train (Model II) • Number of gross tonnes of passenger services and number of gross tonnes of freight services (Model IV) Again, versions a and b are used here. The production variables in version a are singular, while they are squared in version b, as well as being multiplied by one another in order to include an interaction effect. Table 9 provides an overview of the estimated parameters with associated standard deviations in the various model variants, as well as the correlation coefficient R2. The average cost elasticity has also been calculated. Appendix 3 provides an overview of cost data and traffic data together with estimated costs and marginal costs.
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Table 9: Table ogf resulta – Sections excluding the Ofoten line – Translog models Model I Model Ib Model III Model IIIb
Constant 30.1171 17.2061 27.4507 23.1227 0.52 0.22 0.46 0.40
Ln Gross tonnes of passenger services x Ln Gross tonnes of freight services -0.0236 -1.73 Average marginal cost – Gross tonne-km 0.014 0.018
Average marginal cost – Gross tonne-km – Passenger services 0.012
Average marginal cost – Gross tonne-km – Freight services 0.009
R2 0.378 0.379 0.357 0.404 Correlation, actual and estimated cost 0.649 0.648 0.644 0.605 N total 215 215 215 215
Model I and model Ib do not provide significant estimators for production volume. This is a clear weakness of these, and so they are rejected for further assessment. Model IIIb mainly provides significant estimators for the production variables and the right signs for the technical variables. On the
Implementation plan Page 30 Infrastructure charges/- prices basis of R2, the models describe approximately 40% of the variations in costs. The correlation between actual and estimated cost is approximately 0.6. The models give an average marginal cost for the entire country of between 0.9 and 1.6 øre per gross tonne-kilometre. Model IIIb will be assessed in greater detail in section 5.4. The model shows rising cost elasticities, partly with regard to production volume for both passenger and freight services, but there is decreasing interaction between passenger and freight services; in other words, marginal costs for freight services will be reduced if passenger services increase, and vice versa. 5.2 Estimated values for The Ofoten line There have been no changes to the infrastructure, other than an upgrade to a 30-tonne axle load. Hence there is no need to include technical variables in the analysis. As the number of observations is just for 12 years (2005-2016), cost in fixed prices are used; that is to say, the costs are deflated using a price index instead of having the price index as a separate variable.
5.2.1.1 Alternative Estimated Cost Functions The analysis covers a period that includes the change from a 25-tonne axle load to a 30-tonne axle load for ore traffic. To measure this effect, we used gross tonnes per train departure as a variable for traffic in the main alternative. However, we also examined whether cost elasticity also varies with the traffic load, as has also been done for the rest of the network. Table 10: Model specifications, the Ofoten Line
Model Production variable Technical variables Price level
Model A Gross tonnes Statistics Norway’s price index for Operation and Average weight per None, as these are the same for all observations and maintenance of road departure provide no new systems information, and hence are dealt with by the intercept in the cost function.
Model B As for model A As for model A As for model A with lagged cost,
Model C As for model A As for model A Average weight per departure
Model D As for model A As for model A Number of trains Average weight per departure and with lagged cost.
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The data used as a basis for the estimates is described briefly here. Figures for 2005 to 2016 have been used in the analysis. 5.2.1.2 Cost Data – The Ofoten Line The analysis from 2012 [23] uses full costs, including refurbishment costs. This will not be entirely in line with the regulation [4] used as a basis. Due to the relatively short service life of rails on the Ofoten Line, the costs are based on:
• Corrective maintenance • Preventive maintenance • Refurbishment of rails, sleepers and point switches This is slightly different to what was used as a basis for the network in general, but it is within the boundaries defined in section 4.3. 5.2.1.3 Production Figures Ore traffic is entirely dominant on the Ofoten Line. Other traffic constitutes merely a fraction of the number of gross tonnes on the line. Therefore, only traffic figures linked with ore transport are used, and these are based on railway undertakings’ own reports. 5.2.2 Results from the analysis Table 11 provides an overview of the estimated parameters with associated standard deviations in the various model variants, as well as the correlation coefficient R2. The average cost elasticity has also been calculated. Appendix 2 provides an overview of cost data and traffic data together with estimated costs and marginal costs. Table 11: Results table – Ofoten Line
Model A Model B Model C Model D
Constant 23.60 17.86 8.21 18.27 1.98 1.57 2.12 1.60
Ln Gross tonnes -1,29 -1,14
1,59 -1,59
Ln Weight per trains 1,93 1,27 1,14 0,14
3,58 1,90 2,44 0,20
Ln lagged costs 0,50 0,40
2,03 1,60
Ln Numbers of trains -1,01
-1,40
Average marginal cost 0.028 0.010 0.054 0.011 R2 0.73 0.73 0.37 0.61 Correlation between actual and estimated cost 0.73 0.69 0.59 0.80 N total 12 11 12 11
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The choice of model has a major impact on average marginal cost, calculated here as the average over the 12 years. The average marginal cost varies from 1.0 øre to 5.4 øre per gross tonne-kilometre. However, the development of costs and traffic has made it difficult to achieve good, significant estimators. 5.2.2.1 Model A Unlike in the Norwegian National Rail Administration’s 2012 report [23], the sign for the estimator for gross tonnes is negative; in other words, the cost elasticity is negative with increased volume in gross tonnes and without increased average weight. The estimate is not significantly different to zero, which does not favour selection of this approach. However, the cost elasticity for average weight is positive and significant. Both R2 and the correlation between actual and estimated cost are at a usable level. 5.2.2.1.1 Model B This model is similar to model A, but includes lagged cost. The estimator for lagged cost is significant and takes some of the explanatory force from the others in relation to Model A. Both R2 and the correlation between actual and estimated cost are at a usable level. 5.2.2.2 Model C As weight per train was the most significant of the traffic volume factors in Models A and B, there is an estimated relationship between costs and weight per train. This provides significant results but does not deal with increased transport volume with the same average weight. 5.2.2.3 Model D Instead of gross tonnes, number of trains together with weight per train and lagged cost are used here. Although this approach fits in best with the accounts-related (actual) costs, it is of slightly poorer significance for the explanatory factors. 5.3 Surcharges in the event of a lack of capacity The Railway Regulations, section 6-2 (4), provide a basis for a surcharge to the price so that it reflects the lack of capacity in an identifiable part of the rail network. A “capacity price” could help to bring about more efficient use of the railway infrastructure. This is an indicator that transport of greater value should be given priority over transport of less value in conflicts where the prioritisation criteria do not necessarily give the same results. As an infrastructure manager, Bane NOR is obliged to assess the positive and negative economic consequences to the applicant’s activities when the wagon-routing table is compiled. Use of a supplementary price may be one way of meeting this requirement, if this is known at the time of the application. An extra cost will not necessarily be formulated in order to resolve a conflict, but to act as an instrument in the planning of wagon routing. Such a development is in line with a stated objective for efficient utilisation of capacity. In the short term, and in the absence of submission of tenders, we believe that the additional revenues arising as a result of an extra price will not be significantly higher than was the case for 2017 – and will probably be lower. Capacity pricing was introduced in Oslo, Stavanger, Bergen and Trondheim in 2017. There will be only one operator between Ganddal and Stavanger both now and in the future, hence capacity pricing in this area is not the right thing to do; cf. section Error! Reference source not found.. When the Ulriken project is complete and there is a double track between Arne and Bergen, there will hardly be a lack of capacity
Implementation plan Page 33 Infrastructure charges/- prices in this area. Traffic volume in Trondheim is limited, Bane NOR feels it is not particularly appropriate to have a separate capacity price in this area. Hence only in the Oslo area should a lack of capacity result in capacity pricing, and it is also in this area where all the railway undertakings “meet one another”. Pricing linked with a lack of capacity is also discussed in the Norwegian National Rail Administration’s “Kapasitetsforbedringsplan Oslo S – Lysaker” [26]. As long as the capacity in this area is not auctioned off, the price should indicate to relevant applicants that passing through this area at certain times of the day will cost the applicant more. Formulation of this price in accordance with a model from Sweden, where there is an “access charge” in major cities during morning and evening rush hours, and this is applicable to all applicants and all types of train; also including empty trains getting into position. The area for an access price of this type will be established for use of Oslo S and the Oslo Tunnel. Rush hours are defined as follows for Monday to Friday inclusive:
• Morning rush hour: times: 07:00 – 09:00 • Evening rush hour: times: 15:00 – 17:00 The access price is set at NOK 500. Previous calculations indicate that rush hour traffic accounts from between 15 and 20% of the total number of trains in this area. The corresponding price in Stockholm for 2018 is SEK 433, equivalent to around NOK 420. 5.4 Recommendations The recommendations in this section are related to the prices established in accordance with section 6- 2 of the Railway Regulations.
5.4.1.1 The Rail Network Except For The Ofoten Line In particular, there are three models that can be used to establish the marginal costs. These are:
1. Third degree polynomial, using absolute figures for costs and traffic volume 2. Logarithmic model for costs and traffic volume with constant cost elasticity 3. Interaction model with passenger and freight services as separate products and in logarithmic form. The marginal costs are estimated by track number level and vary according to the traffic volume; as illustrated by the figures below.
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On account of the distribution, Bane NOR deems it natural to divide the network into various sections, with different rates for each section. In the two-product model, the marginal cost for one product will be dependent on the traffic volume for the other. If one of the products (passenger services or freight services) isr “alone” on the track, the marginal cost shifts upwards. On the Solør Line, for example, which is only used by freight trains, the marginal cost is 6 øre per gross tonne-kilometre, as opposed to 1 øre on a national basis. A similar situation is applicable to the Spikkestad Line, which is only used by passenger trains: the marginal cost is 4 øre per gross tonne-kilometre, as opposed to 1.2 øre on a national basis. Bane NOR recommends using the estimates from the two-product model. 5.4.2 Ofoten line As the data does not provide particularly good results, Bane NOR recommends using an average of the 4 models described above. This gives a marginal cost of 2.5 øre per gross tonne-kilometre. This is independent of the axle load and direction to/from Narvik and is asserted for all. At the time of the next rollover of marginal cost calculations, it is recommended that these calculations should be performed in consultation with the Swedish Transport Administration for the entire Narvik –
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Kiruna – Luleå section. In this case, it will also be possible to include cross-sectional/panel data in order to analyse the significance of the section of line (technical variables) with regard to marginal costs.
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6 MARKET DIFFERENTIATION The Railway Regulations, section 6-3, clause 3 provide some guidance on how the market can be segmented: “Before establishing surcharges on infrastructure prices, the infrastructure manager must analyse the market segments for which they are relevant. As a minimum, this analysis must include freight transport, passenger transport covered by a public service and other passenger transport, but the market segments can be divided further on the basis of the goods or passengers transported. The market segments must be analysed on the basis of the following pairs, as a minimum: a) passenger transport and freight transport b) trains that transport hazardous goods and other freight trains c) domestic services and international services d) combined transport and direct trains e) passenger transport in towns or regions and passenger transport between towns f) special-purpose trains and full-load trains g) regular and sporadic rail services” These sections a) – g) are taken directly from the EU Directive [2] and do not provide a complete view of how the various markets should be defined. These sections stipulate requirements for a minimum review of the market. Bane NOR has also assessed other relevant market areas served by the railways in Norway. These assessments are outlined below. 6.1 Minimum review of market areas Bane NOR has carried out an internal assessment of the market areas referred to above. Whether other market areas are more relevant in a Norwegian context has also been assessed.
6.1.1 Passenger Transport Versus Freight Transport Passenger transport and freight transport are two very different market areas, and it is natural to make an initial distinction between these market areas in this assessment.
6.1.2 Transport of Hazardous Goods Versus Other Freight Overland transport of hazardous goods is subject to a separate regulation [27]. The term “hazardous goods” is highly diverse and includes a very large number of products. Many of these products are transported together with other freight. This means that the wagon/container/semitrailer in question is labelled “hazardous”, along with the type of freight in question, so that the train controller knows which organisations have to be alerted in the event of adverse incidents. In the opinion of Bane NOR, any differentiation must involve the transport of hazardous goods restricted to system trains transporting either highly explosive or highly toxic liquids/materials such as:
• Hydrochloric acid (Sarpsborg – Kristiansand) • Aviation fuel (port of Oslo – Gardermoen) • Propane
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6.1.3 Domestic Versus International Transport Work is ongoing in Corridor 3 (ScanMed) to simplify the business-related procedures between the infrastructure managers. The first aim is to implement a joint track access agreement for the corridor – and implementing joint billing is a potential next step. The main challenge is that there is no clear setup with regard to what VAT is to be applied, or to which country. Something similar is conceivable for passenger trains operating on the Narvik – Stockholm, Oslo – Stockholm and Oslo – Göteborg routes. This would simplify administrative work at the railway undertakings. At this point, Bane NOR does not wish to make advance payment of any differentiation between domestic and international transport.
6.1.4 Combined Transport Versus Direct Trains Combination trains in Norway are primarily direct trains between two terminals as well. Bane NOR is of the opinion that it makes little sense to differentiate between these two categories.
6.1.5 Passenger Transport in Towns and Regions and Between Towns There are two situations that would indicate differentiation between these forms of passenger transport:
• Infrastructure capacity utilisation • Travel purposes Towns utilise the infrastructure most intensively. The option of pricing the lack of capacity in these areas is present in the general prices; see section 6-2 (4) of the Railway Regulations and section 3.1. Passenger transport in towns is characterised by business travel, while transport between towns is characterised by leisure travel. Passengers have different price elasticity for various travel purposes. This price elasticity is smallest for people travelling on business whose employers frequently pay for their travel, and greatest for people who travel for leisure purposes. Bane NOR is of the opinion that it would be more relevant to differentiate between other situations rather than these; see also section 6.2.2. 6.1.6 Special-Purpose Trains and Full-Load Trains The term “special-purpose trains” is not used by Bane NOR as all freight trains are more and more characterised by being fixed wagon stock (combination, full-load, timber, etc.) Travelling between two terminals. Switching wagons is primarily only carried out for operational reasons at the terminals. Bane NOR is of the opinion that such differentiation makes little sense and is therefore irrelevant.
6.1.7 Regular Versus Sporadic Services With sporadic services, Bane NOR assumes:
• Extra trains during holidays • Extra trains for sporting events, cultural events and other trips • Military transport • Other ad hoc transport An agreement has been made between the Norwegian Railway Directorate and Bane NOR indicating that the Norwegian Railway Museum’s operation of museum trains under its own auspices will not be charged infrastructure prices. However, it is proposed that these trains should be charged like other trains if others
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(private individuals, companies or organisations) charter trains from the Norwegian Railway Museum. Bane NOR sees few cost-related and market-related reasons to set “sporadic” trains apart from regular scheduled traffic. 6.2 Proposed division into market areas Bane NOR has also assessed other market areas of relevance in a Norwegian context. These areas are based on separation between freight services and passenger services. Figur 7 shows the assessed areas in addition to the above.
Alle markeder
Godstrafikk Persontrafikk
Industrielle Kombi/Vognlast Kjøpsavtale Hovedflyplass Andre systemtog
Malm og Farlig gods Tømmer/Flis mineraler
Figur 1: Market differentiation as defined by Bane NOR
6.2.1 Within Freight Service In a Norwegian context, it may be relevant to separate out industrial system trains as a separate market area from the combination/full-load segment. Industrial system trains generally form part of a production/logistics process where just a single product is transported and where the market for the product (ore, timber, etc.) controls the demand for rail transport. Combination/full-load transport services are characterised by providing “public transport” for freight services. Here, fixed train units pass between two or more terminals, and senders of groupage traffic order space for their load carriers (containers, semitrailers, etc.). Competitiveness vis-a-vis road transport in particular will govern the demand for rail transport here. 6.2.2 In Respect of Passenger Service As stated in the Railway Regulations, section 6-3, there is a difference between the traffic included in transport agreements with governmental and/or regional traffic agencies and where a payment is linked for the service(s)14 – referred to here as “PSO” – and other passenger services. Within other passenger services, it will also be relevant to differentiate between train products that routinely stop at the main airport – referred to here as “Main airport” – and other passenger transport.
14 See also the EU’s description of “Public Service Obligation” (PSO): https://ec.europa.eu/transport/themes/pso_en
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Current passenger services to Oslo Airport Gardermoen are covered both by trains with purchase agreements with the Norwegian Railway Directorate and by trains without such purchase agreements. Defining this traffic as a separate market area may mean the same price for all trains serving Gardermoen. 6.3 Trach sections – track division As stated in section 4, it is not reasonable to assume that the marginal costs are constant throughout the entire network. The marginal cost calculations confirm this: see Appendix 3. The calculations facilitate definition of marginal costs by line/section – the methodology is described in Appendix 1. Table 12 shows the suggested division into sections that can be combined with the above market differentiation. Table 12: Division of tracks in Norway
Track section Definition
Drammen – Asker – Lysaker – Oslo S – Etterstad – Lillestrøm – Gardermoen – Eidsvoll Oslo local Oslo S – Grefsen; Oslo S – Ski – Rakkestad.
Ofoten Line Narvik – Riksgrensen
Eidsvoll – Hamar – Lillehammer Ski – Fredrikstad – Sarpsborg – Halden – Kornsjø (Western Line) Drammen – Tønsberg – Skien Drammen – Hokksund – Kongsberg – Kristiansand – Stavanger Skien – Hjuksebø – Notodden Nelaug – Arendal Hokksund/Roa – Hønefoss – Bergen Rest of the rail network Myrdal – Flåm Grefsen – Roa – Gjøvik Lillehammer – Dombås – Trondheim Lillestrøm – Kongsvinger – Riksgrensen Kongsvinger – Elverum Hamar – Elverum – Støren Dombås – Åndalsnes Trondheim – Hell – Riksgrensen/Bodø
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7 PROPOSED FUTURE PRICE STRUCTURE AND RATES As stated in section 3.1, the marginal costs will constitute the minimum value to which the prices are set. All service/train types will have to pay this for use of the infrastructure. The marginal costs will also vary from section to section. Average marginal costs are calculated for this division on the basis of the division into sections shown in section 6.3 – the methodology is shown in Appendix 1. Bane NOR also wants the existing price regime to be incorporated in/replaced by a new regime. This is in line with the Railway Regulations, section 6-2 (1) “… The charging scheme must be based on the same principles across the entire rail network…”. The price rates may vary, but the principles must be the same. The directive [2], article 37 work together to define prices for international services. This work takes place via what are known as the corridors; see EU Regulation 2010/913 [28]. Bane NOR SF is currently leading corridor 3 (ScanMed), and this work has begun. However, the proposal below does not include separate price rates for international transport as this work will require more time in order to ensure there is good coordination between infrastructure managers and practical solutions for users. However, Bane NOR will reserve the right to make the changes brought about by the ScanMed cooperation. 7.1 Price matrix Bane NOR SF proposes basing the future pricing structure on the marginal costs for the various sections, but adapted to conditions:
• market segmentation • discounts These conditions are pursuant to the Railway Regulations, sections 6-3 and 6-4 [3]. 7.1.1 Price for the minimum package As stated in section 3, the price for the minimum package may be made up of 3 elements:
1. price elements based on the direct costs (marginal costs) in the case of train production; referred to here as “basic price” 2. price elements that reflect a lack of capacity; referred to here as “capacity price” 3. price elements that reflect the environmental costs charged to third parties by the rail services; referred to here as “environmental charge” 7.1.1.1 Basic price The prices are stated per gross tonne-kilometre, which is the “smallest” production unit used in estimating the marginal costs. Billing will be based on actual train weights on the basis of the following sources:
a) where the wagon recording assignment is submitted to Bane NOR digitally in a format that can be imported into TIOS, train weight will be obtained from TIOS b) where the wagon recording assignment does not meet the condition in section a, the train weight will be taken from the route request in TPS. c) where the train weight is unknown, a default value will be used The price rate will vary due to the fact that marginal costs will also vary depending on section.
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7.1.1.2 Capacity price A new capacity price of NOK 500 per train passage is being introduced during rush hours inside a delimited area around Oslo S. As stated previously, the price is intended to be a signal in the timetable process and is not based on any socio-economic analysis of the external capacity costs for railway undertakings. 7.1.1.3 Environmental Within the timeframe for preparation of this implementation plan, Bane NOR has been unable to identify good solutions for establishing prices relating to environmental costs, but prices for noise resulting from old brake technology will be assessed in greater detail. Positive incentives will also be assessed in this context.
7.1.2 Surcharges for Individual Market Segments The Railway Regulations, section 6-3 (6) state: “If an infrastructure manager intends to alter the basic elements of the surcharges on the infrastructure charges, the changes must be announced at the latest three months before the deadline for publication of the Network Statement”. This means notification around 15 months before the timetable for which the price applies. Bane NOR interprets this rule as also referring to the situation in which a proposal is now being made to establish such surcharges on infrastructure prices. Introducing surcharges on the basis of market differentiation may subsequently be introduced for the 2019 timetable (R19) at the earliest. As Bane NOR interprets the provision on notification in section 6-3 as applying to the scheme itself and not the size of the surcharge, Bane NOR has decided in consultation with the Norwegian Railway Authority that these surcharges will be reviewed again so as to ensure there is sufficient documentation regarding price elasticities, ability to pay, etc. 7.1.3 Project surcharges As stated in section 3.1, the Railway Regulations, section 6-2 (7) provide an opportunity, following submission to the Ministry of Transport and Communications, to establish higher prices as a consequence of long-term costs linked with specific projects. It is also assumed that track upgrades in respect of axle load, capacity or speed – if this will result in significant increases in efficiency for the railway undertakings in question – may be covered by such a scheme. This will be agreed in each individual case. An agreement of this type could include a funding scheme in that any construction contribution could be offset against a future price increase. The scheme will apply to all parties that operate services on the section in question. 7.1.4 Discount On the basis of the principles of competition neutrality, Bane NOR wishes to agree possible discounts in each individual case in accordance with the Railway Regulations, section 6-4, in order to promote new services. These agreements will specify the period and scope of the discount. The regulation also provides the opportunity to give a time-limited discount in order to encourage traffic on significantly underused sections. A copy of the Norwegian Railway Directorate’s overview of utilisation of sections throughout the day [29] is reproduced in Appendix 4. The regulation specifies that it is not enough for it to be underused; it has to be significantly underused. It is proposed that “significantly” should mean that the track capacity is below 50% throughout the day. There are several sections that fall within such usage, namely:
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• The diesel sections (the Solør, Røros, Rauma and Nordland Lines) • The Sørlandet Line south of Kongsberg • The Dovre Line north of Lillehammer • The Roa – Hønefoss – Hokksund section It is Bane NOR’s perception that freight services should be given incentives to increase the use of these sections. Although the railway network around the terminals for combination traffic may see higher section usage, Bane NOR is of the opinion that if this is to be meaningful, the discount must cover the entire section; e.g. Alnabru – Ganddal and not just Kongsberg – Ganddal. The discount must be time-limited. Bane NOR proposes a 75% discount up to and including 2025 for freight services on the following sections:
1. All diesel sections 2. The Sørlandet Line (Alnabru – Ganddal) 3. The Dovre Line (Alnabru – Heimdal/Brattøra) 4. The Roa – Hønefoss – Hokksund section This will be in addition to whatever emerges from the implementation plan. Bane NOR will come back to the issue of whether the discounts should be gradually reduced towards 2025 the next time it updates the basic pricing; see section 7.3. As regards section 6-2 (8) of the regulation, at the present time, Bane NOR does not wish to propose a further incentive scheme linked with ETCS equipment beyond what has already been established via the agreement on 50% coverage of the railway undertakings’ installation costs. 7.2 Summary of prices and revenue estimate 7.2.1 Summary of prices Bane NOR proposes a specification of the basic price between passenger rail services and freight rail services, and also for 3 zones/lines. Table 13 provides an overview of the prices that will apply when implementation is complete. However, price adjustments will also take place during the implementation period as a consequence of price changes in society on the basis of a price index; see section 7.4. Table 13: Price matrix after implementation
Capacity pricing Surcharges for the following market Basic price (section 6-2 (section areas (section 6-3) – applicable from (3)) 6-2 R19 (4)) Track section Main Ore and Passenger Freight section 6-2 PSO (Øre airport minerals trains (Øre trains (Øre (4) per gross (Øre per (Øre per per gross per gross (NOK per tonne- gross gross tonne- tonne- train) kilometre) tonne- tonne- kilometre) kilometre) kilometre) kilometre) Oslo Local 0.97 0.47 500.00 To be established in 2017 Ofoten Line 2.50 2.50 -
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Capacity pricing Surcharges for the following market Basic price (section 6-2 (section areas (section 6-3) – applicable from (3)) 6-2 R19 (4)) Track section Main Ore and Passenger Freight section 6-2 PSO (Øre airport minerals trains (Øre trains (Øre (4) per gross (Øre per (Øre per per gross per gross (NOK per tonne- gross gross tonne- tonne- train) kilometre) tonne- tonne- kilometre) kilometre) kilometre) kilometre) Rest of the rail 1.47 1.06 - network
7.2.2 Revenue estimates An estimate of revenues has been compiled on the basis of the traffic volume in 2016; see Table 14. Revenues in 2018 will be lower as a consequence of the implementation period; see section 8.2. The estimate does not take into account the demand effect of increased prices for use of the infrastructure. Table 14: Estimated revenues – NOK thousands
Passenger Freight Pursuant to the Railway Regulations services Total services Section 6-2 Infrastructure charge Basic price 144,300 71,400 215,700 Capacity/Passage charge 25,100 - 25,100 Total section 6-2 169,400 71,400 240,800
To be established in autumn Section 6-3 Surcharge on infrastructure charge 2017
Section 6-4 Discounts - -23,700 -23,700 Total revenues 169,400 47,700 217,100
The estimate shows potential revenue of less than NOK 220 million without the announced surcharges; of which less than NOK 50 million will come from freight services. In this case, freight services except for the Ofoten Line will account for more than half of the estimated revenue. Table 15 shows the annual development based on traffic figures from 2016 and without surcharges linked with market segmentation. The change from 2017 is linked to the fact that the new price system as such will be the same throughout the entire country. The special arrangements for the Gardermoen Line and freight trains in excess of 25 tonnes have been eliminated. Instead, Bane NOR will establish surcharges in the price for individual market areas in line with section 6-3 of the Railway Regulations; see section 6.2. The surcharge cannot be implemented for 2019, for regulatory reasons.
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Table 15: Annual revenue development, excluding surcharges for individual market areas (NOK thousands – 2018 prices)
2017 2018 2019 2020 2021
Freight services Ofoten Line 44,000 26,100 26,100 26,100 26,100 Other networks, including discounts 5,000 5,400 10,800 16,200 21,600 Total, freight services 49,000 31,500 36,900 42,300 47,700
Passenger services Flytoget 96,800 20,000 20,000 20,000 20,000 Other passenger services 159,200 149,400 149,400 149,400 149,400 Total passenger services 256,000 169,400 169,400 169,400 1 69,400 Total charge excluding any surcharges 305,000 200,900 206,300 211,700 217,100 Note: Based on traffic figures from 2016 and not including any surcharges linked with market segmentation
There is uncertainty linked with the estimated revenues as whether the demand for routes will be affected by the price changes is one of the factors not known. 7.3 Udating of cost data and prices The EU Regulation recommends updating the cost estimates at regular intervals. It is proposed that Bane NOR should implement recalculation on the basis of the principles in this report/plan, but using extended data by adding more years, every four years. In this regard, the market segmentation undertaken will also be revised; see section 3.1. Considerable development of railways is taking place that cannot be taken into account here. This is particularly true in the Eastern Norway area, with development of double tracks on the Dovre, Vestfold and Østfold Lines. The following new subsections are not included in the calculation data that forms the basis for prices as of 2018:
• Langset – Kleverud • Holm – Nykirke • Farriseidet – Eidanger Furthermore, the Follo Line will be completed before the next rollout of the cost calculation, but we will not have empirical data from this line before 2021. The same could be applicable to the Ringerike Line and other IC development after 2021. Hvor it is not clear whether new double tracks will affect the marginal costs. It is reasonable to assume that cost elasticity will be reduced in terms of numerical value, while the changes in the average costs will also be dependent on the increase in traffic. 7.4 Annual price adjustment There is a need for annual price adjustments between the four-yearly updates of calculated marginal costs and the establishment of new price levels. For these adjustments, Bane NOR recommends use of recognised priced indices compiled by Statistics Norway. The aim of this is to provide an objective basis for these. As no official index has been established for costs in the rail sector, use of Statistics Norway’s cost index for operation and maintenance of road systems [25] is proposed. The price adjustment itself will be undertaken according to the following principle (2):
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KI Q 2 t Pt 1 Pt KI Q 2 (2) t 1
where: Pt+1 = price next year
Pt = price this year KIQ2 = Statistics Norway’s index as at second quarter for the present year (t) and previous year (t-1)
This means a price adjustment in arrears and provides a great deal of predictability for the railway undertakings as the price level is known for 4 years at a time and adjustment of the following year’s prices will be completed in the third quarter of the previous year. At the same time, it will be possible to monitor the index throughout the year.
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8 IMPLEMENTATION 8.1 Need for an adaptation period Going from an approximate “zero-charge regime” to a situation in which the basic price corresponds to the marginal costs on the section in question could have a significant impact on the rail sector in Norway. The Directive [2] specifies an implementation period not exceeding 4 years in article 31 (3). Bane NOR SF therefore assumes that it is possible to use the 2018-2021 period for gradual implementation of the new prices. Possible time-limited compensation schemes from the authorities are not included in this implementation plan. The various market segments also have different needs for a transitional period. The need for a transitional period is at its lowest at the point where the Government, via the Norwegian Railway Directorate, purchases passenger transport services. The combined freight services will probably face the biggest challenges. 8.2 Escalation plan and method Bane NOR SF will take into account the fact that different market segments will have different needs for gradual adaptation to the new infrastructure prices. Gradual adaptation for each market segment is described below. There will also be annual price adjustments as described in section 7.4. 8.2.1 Purchase The basic price and capacity price will be introduced in full as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 1 January 2019 (R19). 8.2.2 Main airport The basic price and capacity price will be introduced in full as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 1 January 2019 (R19). 8.2.3 Other passenger services The basic price will be introduced gradually over 4 years from 1 January 2018; i.e. 25% in 2018, 50% in 2019, etc. The capacity price will be introduced in full as of 1 January 2018. 8.2.4 Combined / Full load The basic price will be introduce gradually over 4 years from 1 January 2018; i.e. 25 % in 2018, 50 % in 2019, etc. The capacity price will be introduced in full as of 1. January 2018 8.2.5 Ore and mineral transport The basic price will be introduced as of 1 January 2018. The surcharge based on market differentiation in accordance with section 6-3 of the Railway Regulations will be introduced in full as of 1 January 2019 (R19).
8.2.6 Other industrial trains To be introduced in a similar way to combination/full-load.
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9 POSSIBLE DEVELOPMENT OF THE PRICE SYSTEM As stated in section 7.3, significant development has begun in what is known as the IC triangle. This involves not only double tracks, but new lines to a great extent. The service offering and demand will change, and it is highly likely that they will grow compared with current service levels. In future, it will be relevant to link the prices for infrastructure services to the service offering and not to line sections per se. Zoning of prices into Oslo local, Inner IC, Outer IC and others, for example, will be assessed, along with a similar arrangement in other urban areas as the development of double tracks suggests this.
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10 BIBLIOGRAPHY
[1] Ministry of Transport and Communications, “Meld. St. 27 (2014-2015) – På rett spor”, 5 December 2015. [Internet]. Available: https://www.regjeringen.no/no/dokumenter/meld.-st.-27- 20142015/id2411094/?ch=1&q=.
[2] European Parliament, “2012/34/EU – Directive establishing a single European railway area”, 21 November 2012. [Internet]. Available: https://www.regjeringen.no/globalassets/upload/sd/vedlegg/jernbane/hoering_02122013/hdir ective212.pdf.
[3] Ministry of Transport and Communications, “Railway Regulations”, [Internet]. Available: https://lovdata.no/dokument/SF/forskrift/2016-12-20-1771?q=jernbaneforskriften.
[4] EU Commission, “EU 2015/909 – On the modalities for the calculation of the cost that is directly incurred as a result of operating the train service”, 12 June 2015. [Internet]. Available: http://eurlex.europa.eu/legal-content/DA/TXT/PDF/?uri=CELEX:32015R0909&from=EN.
[5] EU Commission, “On the allocation of railway infrastructure capacity and the levying of charges for the use of railway infrastructure and safety certification”, 26 February 2001. [Internet]. Available: http://eurlex.europa.eu/legal- content/DA/TXT/PDF/?uri=CELEX:32001L0014&qid=1499063089058&from=DA.
[6] EU, “Amendment of Directive 2012/34/EU, as regards the opening of the market for domestic passenger transport services by rail and the governance of the railway infrastructure”, 14 December 2016. [Internet]. Available: http://eur- lex.europa.eu/legalcontent/DA/TXT/PDF/?uri=CELEX:32016L2370&from=EN.
[7] S. Killi et al., “NOU 1987:5 Nytt økonomisk styringssystem for Norges Statsbaner”, Universitetsforlaget AS, 1987.
[8] Ministry of Transport and Communications, “St.meld. nr. 34 (1987-88) Om nytt økonomisk styringssystem for Norges Statsbanen”, March 1988. [Internet].
[9] Ministry of Transport and Communications, Norsk jernbaneplan 1990-1993, Ministry of Transport and Communications, 1989.
[10] Ministry of Transport and Communications, Om NSB Gardermobanen AS og oppfølging av NOU 1999: 28 Gardermoprosjektet, 2000.
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[11] Ministry of Transport and Communications, “Lov om anlegg og drift av jernbane; herunder sporvei, tunnelbane og forstadsbane mm (jernbaneloven)”, 1 10 2015. [Internet]. Available: https://lovdata.no/dokument/NL/lov/1993-06-11- 100?q=jernbaneloven.
[12] Norwegian Railway Authority, Vedtak i klagesak fra LKAB Malmtrafik AB vedrørende kjørevegsavgiften, 2016.
[13] European Court of Justice, “Failure of a Member State to fulfil obligations – Development of the Community’s railways – Directive 2001/14/EC – Allocation of railway infrastructure capacity – Levying of charges – Charges – Administrative independence”, 28 February 2013. [Internet]. Available: http://curia.europa.eu/juris/document/document_print.jsf?doclang=DA&text=&pageIndex=0&pa rt =1&mode=DOC&docid=134377&occ=first&dir=&cid=1595051.
[14] Swedish Transport Administration, “Prissättning av kapacitet för järnvägstransporter”, Swedish Transport Administration, 2017.
[15] Ministry of Transport and Communications, “St. prp. nr. 52 (1999-2000) Om NSB Gardermobanen AS og oppfølging av NOU 1999: 28 Gardermoprosjektet. Evaluering av planlegging og gjennomføring”, 2000. [Internet]. Available: https://www.regjeringen.no/no/dokumenter/stprp- nr-52-1999-2000/id203026/.
[16] K. P. Hagen, Økonomisk politikk og samfunnsøkonomisk lønnsomhet, Oslo: J. W. Cappelens Forlag as, 2000.
[17] K. Sydsæter and B. Thalberg, Matematisk formelsamling, Oslo: Dreyers Forlag, 1976.
[18] EU – Working Group 1, “Calculating Transport Infrastructure Costs”, 28 April 1999. [Internet]. Available: http://ec.europa.eu/transport/infrastructure/doc/infrastr-cost.pdf.
[19] Ø. B. Daljord, “Marginalkostnader i jernbanenettet”, Frischsenteret, 2003.
[20] C. Siedler and K. Voss, “Kjørevegsavgift for norsk jernbane”, Norwegian National Rail Administration, 2014.
[21] V. D. Gundersen and H. T. Karlsen, “På sporet av kjørevegsavgiften”, Norwegian School of Economics, 2016.
[22] P. Wheat and A. S. J. Smith, “Assessing the Marginal Infrastructure Maintenance Wear and Tear Cost for Britain’s Railway Network”, Journal of Transport Economics and Policy, Volume 42, Part 2, pp. 189-224, 2 May 2008.
[23] K. Bakken, “Kjørevegsavgift – Ofoten Line”, Norwegian National Rail Administration, 2012.
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[24] O. Skarstad, H. Thune-Larsen and K. Østmoe, “Jernbanens kjørevegskostander – Kjørevegskostnadene sammenholdt med norske vegholdskostnader”, TØI, 1990.
[25] Statistics Norway, “Byggekostnadsindeks for veganlegg”, Statistics Norway [Internet]. Available: http://www.ssb.no/priser-og-prisindekser/statistikker/bkianl/kvartal/2016-07-05#content.
[26] Norwegian National Rail Administration, “Kapasitetsforbedringsplan Oslo S – Lysaker”, Norwegian National Rail Administration, 2014.
[27] Ministry of Justice and Public Security, “Forskrift om transport av farlig gods”, 14 November 2016. [Internet]. Available: https://lovdata.no/dokument/SF/forskrift/2009-04-01-384.
[28] EU Commission, “Concerning a European rail network for competitive freight”, 22 9 2010. [Internet]. Available: http://eur- lex.europa.eu/legalcontent/DA/TXT/PDF/?uri=CELEX:32010R0913&from=EN.
[29] Norwegian Railway Directorate, “Jernbanestatistikk 2016”, 2017. [Internet]. Available: www.jernbanedirektoratet.no.
[30] D. M. Dalen and N.-H. M. von der Fehr, “Økonomiske prinsipper for fastsettelse av priser for jernbaneinfrastruktur”, Frischsenteret, 2003.
[31] T. E. Markussen and K. Pütz, “TØI: 472a/2000; Jernbanens kjørevegsavgift - Dokumentasjonsrapport”, Institute of Transport Economics, 2000.
[32] H. Minken, T. E. Markussen, K. Pütz and H. Samstad, “TØI 429/1999: Konkurranse på det norske jernbanenettet,” Institute of Transport Economics, 1999.
[33] O. Skarstad, H. Thune-Larsen and R. Lea, “TØI: 140/1992: NSBs kjørevegsavgift,” Institute of Transport Economics, 1992.
[34] P. Johansson and J.-E. Nilsson, “An economic analysis of track maintenance costs”, Transport Policy, pp. 277-286, 20 February 2004.
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11 APPENDICES APPENDIX 1. DESCRIPTION OF THE MATHEMATICS USED
1. Product function The product or service produced is described as a transformation of input factors such as labour, equipment and capital. This is usually described as a mathematical function. The product function defines the optimum production process, given the available technology.
(3) X f v
where: X = volume of a product or service produced
v = vector of input factors (v = v1, v2, …, vn)
If the function (3) is continuously derivable and v is cost-effective input factors, there will be a dual relationship between (3) and a cost function.
2. Costs The costs are linked to consumption of input factors and the prices of the same.
n BX ,q, s q vX qi v i X (4) i1
where: qi = price of input factor no. i
vi = consumption of input factor no. i
s = technical characteristics of the individual subsection, giving v(X) In the further explanation, B(X) is used as an expression for the costs even if both the prices (by means of a price index) and technical characteristics are included in the estimation of the marginal costs.
3. The marginal cost criterion The marginal cost criterion follows on from economic welfare theory, where it is concluded that the welfare optimum is achieved when there is free competition, with full information to all parties. The producer will then maximise profit (π) in respect of the production volume:
(5) πX pX BX We find the maximum by setting the derivative of (5) with regard to X so that it is equal to 0 (zero), i.e.:
' (6) p B X 4. Function forms – approximation of the cost function The relationships with input factors and production volume are often complex and not “clearly apparent”. The cost estimate should help to find the best approximation in a statistical sense. From experience, we have found that to function forms are used in particular: trans log and double log. They
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Infrastructure charges/- prices have their similarities. Trans log is normally used when we want to describe the production volume using a number of production variables; e.g. number of train-kilometres and weight per train (gross tonnes). Linear/polynomial Initially, pure linear relationships are tested where there are differing degrees of polynomial. For n = 1, (7) will be a pure linear function, for n = 2 the function will be a second degree polynomial, and for n = 3 the function will be a third degree polynomial.
n m i BX , s a bi X c j s j (7) i 1 j1 Here, the marginal costs will be equal to the derivative of the function.
n ' dBX i1 B X i bi X dx (8) i1 Marginalkostnad Trans log Trans log functions are based on natural logarithms for both the costs and the explanatory variables.
m 2 2 lnBU,V ,s v v u u vv v uu u vu vu j s j (9) j1 where: u and v = natural logarithms for e.g. two factors (V, U) that describe production
The sum of the product μj and sj represents here the cost implications of technical cost drivers in logarithmic form. Double log Double log functions involve describing the actual production volume with a variable; e.g. gross tonnes. It is also possible to include technical cost drivers here. The natural logarithms for both cost (B) and production volume (X) are also assumed here.
n m i lnBX ,s a βi lnX μ j s j (10) i1 j1 When n = 1, the function is a Cobb-Douglas variant with constant cost elasticity. With n = 2, the cost elasticity will be either increasing or decreasing with regard to production volume. When n = 3, the cost elasticity could be both decreasing and increasing, depending on the production volume. Functions, the Ofoten Line In the analysis carried out for the Ofoten Line in 2012, the Norwegian National Rail Administration used a slightly different function form in which axle load is a key cost driver. To simulate an increase in axle load during the analysis period, average weight (gross tonnes per train) was also used as an explanatory variable.
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X lnBX 1 lnX 2 ln (11) T
where: T = numbers of trains X = number of gross tonnes As it is now possible to have 5 years more in the analysis, whether there is a certain reaction time in the maintenance work has been tested. It is usually assumed that the actual cost (B*) is different to the realised/book cost (B), and that it takes a certain amount of time for the organisation to adapt to new production volume. The function for the actual cost, in mathematical terms, can be equal to (11):
* X lnB X α β1 lnX β2 ln (12) T The following reaction patterns are assumed:
k B* B t t B B (13) t 1 t 1
The realised change from last year’s cost level is assumed to bear a fixed relationship to the actual change. It is assumed that k < 1, so there is a delay in the relationship between the actual and the realised costs. With a little recalculation, this gives us:
X t lnBt X kα kβ1 lnX t kβ2 ln 1 klnBt 1 T (14) t Here, the coefficients kβi will give the “realised” effect in the short term for the maintenance activities
of change in the production volume, while βi will give the “actual” effects. When k < 1, the “realised” effects for the maintenance activities will be greater than the “actual” effects. Conversely, where k > 1, the organisation will “overreact” to changes in the production volume.
5. Calculation of the cost elasticity The following is based on the standard calculation rules relating to derivation and elasticities; see [17]. Using these will allow us to calculate the cost elasticity and hence the marginal cost. The cost elasticity is given in (15).
X ' El X BX B X (15) BX Cost elasticity der:
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' dBX B X El X BX BX (16) dx Marginal cost where:
BX BX (17) X Average cost
The derivative of the cost function in log-normal form is given in (18).
lnBX 1 B ' X (18) X BX By inserting (18) in Feil! Fant ikke referansekilden., it follows that:
lnBX El X BX X (19) X
In the various cost functions. Feil! Fant ikke referansekilden. will mean:
El BU.. β 2β u β v (20) U u uu vu [Translog] n i1 El X BX i βi lnX (21) i1 [Dobbel-log] El BX β β (22) X 1 2 [Ofotbanen] El BX kβ β (23) X 1 2 [Ofotbanen- Alternativ]
The transition from cost elasticity to marginal cost in equation (16) is applicable only in “single product” production. In trans log functions such as equation (19), the transition will have to take into account the fact that production of the various services may require different proportions of the total costs, and that these proportions are not known a priori. In the example where we define the fact that Bane NOR produces two services, namely passenger services (P) and freight services (G). Here, it is assumed that these are measured in the same way; e.g. in gross tonnes. We make a definition and an assumption:
(24) X P G
where we define that total production (X) is equal to the sum of the two services. This gives:
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P (25) X G 1 (26) X
We assume that the average cost for passenger services on the basis of its proportion of the total cost is equal to the same for freight services and that these in turn are equal to the average cost for total production; i.e.
B B B P G X BX (27) P G X
Total differentiation of the cost function and insertion will allow us to define the marginal costs for passenger services and freight services respectively as follows: B El P BX (28) P B El G 1 BX (29) G
6. Average marginal costs The marginal costs are estimated at a detailed line section level that would be inappropriate to use in a pricing context. Therefore, aggregation takes place up to a higher level. This is done by means of a weighted average calculation.
n ' Bi X i X i ' i1 Bv n X i (30) i1
where: B’v = weighted average marginal cost
B’i = marginal cost on estimated section no. i (i = 1, 2, …, n)
Xi = production volume on section no. i (i = 1, 2, …, n) This form of weighting provides a satisfactory expression for the average marginal cost, if the growth in traffic volume is equal over the entire section.
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APPENDIX 2. SPECIFICATION, TECHNICAL DATA
The table below describes the technical data used and how this is calculated. Technical element Description Calculation
BKM = Number of kilometres for the Track length Kilometres current line number K = Number of bends < 500-metre Number of bends with a less than radius Bends 500-metre radius of curvature per K kilometre
BKM T = Number of kilometres of tunnel Percentage number of kilometres in Tunnels T tunnel
BKM V = Number of points
Point switches Number of points per kilometre V
BKM
Hi = Speed on subsection no. i within same line number
KMi = Number of kilometres
Speed Average signposted speed signposted with Hi n
H i KM i Weighted speed i1 BKM
Non-electric line Dummy 1 for non-electric; otherwise 0
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APPENDIX 3. RESULTS TABLES
The results of the estimation of the selected model (passenger and freight services in conjunction) are shown below.
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Regnskap Estimert Banestrekning Banenr. MC-person MC-gods Brtkm-person Brtkm-gods 2016 2016 0300 0,006 0,004 343 098 933 221 874 120 16 598 744 24 312 163 0310 0,003 0,017 33 246 747 144 614 878 5 467 128 13 836 059 1200 0,014 0,002 134 709 150 24 355 110 7 070 521 9 700 098 1210 0,014 0,002 134 709 150 24 355 110 7 070 521 9 700 098 1300 0,014 0,002 134 709 150 24 355 110 7 070 521 9 700 098 1310 0,009 0,013 56 804 682 78 493 487 16 470 934 12 691 933 1320 0,009 0,013 61 990 927 85 848 602 18 028 326 14 227 870 1321 0,008 0,011 51 135 011 70 569 186 14 819 628 10 108 232 1330 0,010 0,009 55 974 284 50 891 519 10 678 986 9 230 138 1340 0,007 0,009 97 345 908 124 838 459 17 011 528 15 253 312 1341 0,009 0,010 52 765 632 57 681 572 9 175 325 9 480 426 1350 0,014 0,006 77 699 574 40 088 081 6 763 894 9 942 414 0400 - 0,073 - 111 722 619 8 363 724 13 976 312 0800 0,015 0,015 38 252 252 38 275 164 15 192 701 10 395 928 0900 0,020 0,011 37 424 024 23 406 553 12 910 416 8 051 813 0910 0,028 0,006 91 832 987 27 491 640 14 837 096 16 507 187 0920 0,035 0,000 104 449 947 3 561 542 6 313 008 12 459 540 1000 0,048 0,001 54 815 679 2 004 724 2 577 276 8 929 359 1010 0,114 - 32 446 215 - 4 805 773 6 487 216 1011 0,123 - 32 950 123 - 4 708 902 7 098 579 Resultat Oslo lokal 0,0147 0,0106 5 847 562 632 4 075 910 970 739 561 570 658 177 548
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APPENDIX 4. SECTION LOAD
Source: Norwegian Railway Directorate
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