An Overwiew of the Spanish Rail sector: Services and Infrastructure

Inés de Alvear Trenor, Julio López Quiroga.

October 2007 Transportation Finance Review


1.   LEGAL REGIME

1.1.  The EU regulations

The principal target of European policy on rail transport for the latest 20 years could be summarized as aiming the upgrading of rail transport. Such aim was followed by the European Community when it adopted, on 2001, the three Directives known as the “rail infrastructure package”.

The White Paper, presented by the Commission on 2001 and titled “European transport policy for 2010: time to decide”, was a triggering instrument intending an improved safety, interoperability and opening up of the rail freight market.

It was followed by the new set of measures proposed by the European Commission known as the “second railway package”.

1.2.  The new Spanish legal panorama

In implementation of EU’s Directives, Spanish rail legal regime has suffered tremendous changes which can be identified in time as starting on November 2003, when the Law 39/2003 dated 17 November on rail sector (the Rail Sector Act, “RSA”) was passed (its date of effectiveness was however postponed until 31 December 2004).

The RSA constitutes the first of a number of initiatives that have considerably revised the Spanish rail panorama and has introduced in Spain a new model for the rail sector based, principally, on the separation of the infrastructure management from the provision of services, the opening up of national and international freight transport to private railways undertakings, the creation of a system to grant required licences to provide services and the establishment of an authority to regulate the sector’s activity.

While  the RSA set the principles of the new Spanish rail model, the development of such principles has taken place by the enacting of a number of regulations, among which, the most important ones are: (i) Royal Decree 2387/2004 approving the ail Sector Regulation (“RSR”); (ii) Royal Decree 2395/2004 approving the by-laws of the Infrastructure Manager (Administrador de Infraestructuras Ferroviarias, “ADIF”); (iii) Royal Decree 2396/2004 approving the by-laws of the newly created public operator RENFE-Operadora; (iv) Order FOM/897/2005 regarding the Network Declaration and procedure to allocate Rail Infrastructure; (v) Order FOM/898/2005 establishing the amounts of the Rail Charges; (vi) Order FOM/233/2006 ruling the conditions required for homologation of Rolling Stock and maintenance centres; (vii) Royal Decree 354/2006 on Interoperability of the conventional rail system; (viii) Royal Decree 355/2006 on Interoperability of the high performance rail system.

2.   THE SEGREGATION OF SERVICES AND INFRASTRUCTURE MANAGEMENT

As explained, infrastructure management and services have indeed been separated and are currently handled by two different entities, RENFE-Operadora as services’ provider public operator, and ADIF, as the infrastructure manager.

2.1.  The infrastructure management

The authority of the new infrastructure manager, the public corporation ADIF, is to manage the rail traffic, allocate the available infrastructure to the different railways undertakings, and to build up further infrastructure following Government’s instructions. For such purposes, ADIF is in charge to prepare and approve -further to clearance from Ministry of Development- Network Statements and allocate Rail Infrastructure Capacity to operators

(i) Network statements containing the description of the relevant network d and exhaustive information, including (i) general description of legal framework and procedures for the applications of capacity allocation, (ii) safety requirements, (iii) technical description (iv) criteria for allocation of capacity in the relevant network, (v) additional, auxiliary and complementary services, (vi) economical and tax regime.

(ii)      Rail Infrastructure Capacity is defined as the number of slots available in a relevant network during a particular term taking into consideration the different types of traffics.

2.2.   The services market

Regarding the carriage of goods by rail, as explained, RSA provided for the opening of such services to competence under a license system.

RSR describes the relevant requirements to obtain a “Railways Undertaking License” including financial and technical competence requests as well as civil liability insurance coverage, Safety Certificate and a specific form of company (sociedad anónima). Furthermore, all applicants wishing to obtain  a Railways Undertaking License have to contribute their own traction (while it is also permitted that the relevant applicant does only contribute traction).

According to the Ministry of Developments’ available data, up to seven private railways undertakings have already obtained the relevant licenses.

Once the license has been obtained any candidate (undertaking) wishing to provide also freight transport services, should apply for the allocation of the relevant slot (of Rail Infrastructure Capacity) to infrastructure manager, ADIF.

Candidates not holding Railways Undertaking Licenses (such as transport agents, consignor or combined transport operators) can also apply for slots, provided that they comply with the rest  of requirements.

3.   FINANCING THE RAIL INFRASTRUCTURE: MAINTENANCE AND CONSTRUCTION. THE SPANISH PEIT

The development and implementation of rail infrastructures in Spain is mainly established under the Infrastructure and Transport Strategic Plan (Plan Estratégico de Infraestructuras y Transporte or “PEIT”). The PEIT sets forth the program and  steps to be taken regarding infrastructures for the period 2005-2020 on the grounds of  rail policies established in the above mentioned White Paper.

The PEIT determines the particular actions that, during the period referred to above, shall be carried out in Spain regarding, among others, rail infrastructures and consequently also includes the European priority interest projects established by the European Union by means of the Decision 884/2004/CE, dated April 29.

3.1.  Guidelines for infrastructure development

The following are the specific guidelines identified in PEIT for the development of  the rail infrastructure sector :

(a)     Promotion of a central role for rail in the intermodal system for the transport of passengers and goods;

(b)     Creation of a high-performance network;

(c)     Developing a strategy to enhance the involvement of rail transport in the cargo carriage;

(d)     Definition of a clear gauge-conversion strategy for the conventional network;

(e)     Maintenance of high safety standards in rail transport;

(f) Maintenance of the rail system, improving its management.

The PEIT contains a specific Rail Sector Plan with the following lines of action:

(i) High-performance corridors. The action will be focused in three different areas: new  trunk lines and sectors exclusively for passenger services; lines and sections on routes varying substantially from existing ones, for mixed traffic (passengers and goods); and terminal sections, where the traffic is significantly less than in the other two cases, for mixed traffic.

(ii) Interoperability with the conventional network. This refers to, among other actions, introduce UIC gauge into the country’s network and incorporate the European signalling system (ERTMS) on new lines.

(iii)     Safety and maintenance. It is considered as essential to eliminate level crossings or, alternatively, to improve their safety. A plan for conventional network, for maintenance actions on track, infrastructure, electrification, signalling and telecommunications is in preparation.

(iv)     The environmental integration of rail. This refers to actions on landscape integration, a reduction of the barrier effect and fragmentation, and controls on emissions or noise from rail traffic.

(v)     Rail services and operators. This action affects not only the public corporation RENFE-Operadora but also the new private rail companies.

3.2.  Foreseen investments and financing resources

Almost half (43,70%) of the total foreseen investment in transport infrastructures for the referred period (2005-2020) is devoted by PEIT  to investments in rail infrastructure (excluding urban actions). A good evidence of the upgrading aim mentioned at the very beginning of this note.

Amounting   to Euro 108,760 million PEIT  allocates the budget as follows :

  • High-performance: Euro 83.45 million.
  • Maintenance and upgrading of the conventional network: Euro 18.00 million.
  • Elimination and upgrading of level crossings: Euro 3.56 million.
  • Rolling stock: Euro 3.75 million.

The financing of such investments shall come from both budget financing (mainly, through direct, deferred and indirect investments) and off-budget financing.

Within the budget financing, direct investment is the traditional budget investment  where the rail infrastructure is paid for with public funds. Such activities are paid for in work certifications, entered entirely as public expenditure  in the financial period when the work is done. The deferred investment, (also known as “German system”) also implies  that investment is met from public funds, but the total cost of the infrastructure is deferred and paid when delivered. Finally, the third type of budget financing, the indirect investment is carried out through the ADIF. In such case, capital flows from budgets to ADIF which have their own management capacity and is able to generate resources so that there are prospects that the contributions will be recovered -in the case of ADIF, revenues from a royalty for use of rail infrastructures will allow it in the future to use the financial market to implement some of its investment (off-budget financing).

Off-budget infrastructure financing is set under PEIT to be  18,6 % of the total. Principally by means of a increase of the participation of the private sector (as it was the case of the concession of the Figueras-Perpignan line) with the use of public-private finance methods and, particularly, through the execution of contracts for the concession of public works. Under such contracts, the State awards a concession to operate a relevant infrastructure. As consideration for this concessional right, the private agent takes on an obligation to complete an investment program. Thus the remuneration comes from the collection of charges agreed with the infrastructure user who, ultimately, bears the cost of the investment. It must to be mentioned that contracts for the concession of public works refer not only to rail and road but also to ports and airports infrastructures.