Is rail transport economical?

This is an automatic translation of the original Czech paper “Vyplatí se železniční doprava?”

An article published in the newsletter of the Parliamentary February 6, 2009.

The European Council in its decision No. 884 of 2004 highlighted the importance of promoting rail and water transport as a complementary means of transport of goods and people to the road transport system. Out of the water transport network is rail transport form one of the functioning of a common economic space, as it has facilitated communication between nation states. You have to put its unification. Arguments for the economic policy may be understandable.

Economic theory umbrella of European Union efforts to remove barriers and communication corridors linking is not complicated and seems to be rational. However, this view may be purely superficial, particularly when one considers the question: Why should it be just rail and water transport to allow easier transport of goods and people? Why would it not be a better solution to create denser and clearer road network? This question is in the Czech Republic know the answer.

Rail transport can reduce the problems associated with negative externalities that are not factored in the cost of road transport. Moreover, it is able to realize economies of scale. Rail transport can also act as a tool of regional policy and, last but not least, is something like a “quasi-public good”, which means that it provides a cheap and relatively safe transport services in almost all the inhabitants of the country. Leaving aside the strategic interests of national governments associated with the operation of rail transport and truthfully admit that rail transport in reality has a private good characteristics, then in Europe is very popular opinion on the environmental benefits of railways that can also provide easier transport services, seems to be the most compelling argument.

Most economists dealing with externalities is but a similar argument towards the implementation of inherently discriminatory economic policies designed to help the state to favor one mode of transport to another, cautious. It is said that rail transport is “better” than the road, it is not clear until it is presented serious “cost-benefit” analysis, and that in the case of externalities practically unfeasible, because the negative impacts of externalities is difficult to quantify, and especially appreciate. If it were not serious externality problem, as could easily be internalized. This paper is therefore focused on the opposite side of this issue. He will not only highlight the benefits of rail transport as it is in the last few years, a habit, but to point out just what our rail transportation costs. The example of the Czech Republic, it is necessary to provoke a debate about whether the arguments in favor of rail transport (ne) are superficial, and whether (or not) conceal other equally important fact.

The competitiveness of rail transport
Before reaching the Raging rail compared to other modes of transport, goods and services, it is appropriate to remember the historical context of the railroad itself. It is not true that the railroad was able to operate the transport system better than car traffic, which can prove to historical development. The reason for this argument is the fact that the rail car traffic in the process of beating the competition. When you look at it purely from the view of economic that already since Adam Smith highlights the positive impact of competition on market efficiency, it must be clear that the railways představuje uncompetitive mode of transport. In Europe, the railroad operated from the second quarter of the nineteenth century. At that time, the trains used mainly for industrial purposes, for example, have been associated with the mining and transport of heavy materials destined to the production of industrial plants. Railways were profitable enterprise, but spared involvement in state administration by pointing to its strategic importance in arms.

While at the beginning of the twentieth century, the railway transport sector hopeful, within a few decades the situation is reversed. It was the development of automobile traffic, which buried the hopes of the heyday of the railways. High fixed costs and inflexibility infrastructure disadvantage train services in competition with cheaper and more operational vehicles. In addition, the First World War and the Great Depression undermined the financial stability of capital-intensive enterprises, such as railways undoubtedly are.

The fact that rail transport survives, does not demonstrate its competitiveness, but the interests of the European countries that supported the centralization of railway transport significant financial injections. After the Second World War, the railway company became a state-controlled monopoly. Position strategic partner army was lost and economically declining railroad industry has become dependent on government funding. Up to this period of railway transport services are beginning to think about as public goods. Train service but under the weight of safety and other regulations become very expensive, and if it were not for the Second World War nationalized, it would still be able to survive. Despite the massive support of the state, however, the price and sometimes the quality of transport services conducted on rails compared to the decreasing cost and increasing service quality conducted on roads lagged.

Czech Republic in this development is no exception. Although the European Union prevailed efforts to turn this development, the current reform measures had virtually no impact. Czech Republic, for example, pushed for the separation of infrastructure from rail operators, but this measure seems to be no significant improvement tristního financial condition of railways nothing to help. Czech Republic is proof that rail transport is not competitive, and therefore must ask the question whether the inefficient operation of the railways pay. Although, as mentioned, the negative impacts of transport on the environment is not easy to evaluate, rail costs can be partially appreciated. Perhaps it would be useful to note how much rail transport in the Czech Republic stands.

The cost of rail transport
Although the idea of ​​competing in the form of smaller organizational units can operate in favor of the efficiency of the industry, many economists consider decentralizing the rail industry to be useful. These economists but forget the importance of desirable economic incentives. Yes, separate companies can compete, but they can also compete for grants provided by the customer from the state budget. Such competition does not lead to efficiency sectors. Document inefficient functioning of Czech Railways can be a cost analysis of external services in the last four years. The growth rate of external services costs in 2006 and 2007 to five times higher than that of the total cost of Czech Railways. Hence, the ČD increase the amount of outsourced services, the costs of these services are higher than when the CD is ensured by themselves.

More important than the cost of the CD to an external service but the financial situation in the industry. Table 2 shows the financial analysis presented in terms of subsidies to rail transport. In 2007, subsidies railway transport increased by 14.2% (nominally 3.9 billion Czech crowns) and in real terms the growth of subsidies amounted to 11.0% (1.8 billion Czech crowns), which demonstrates the increasing provisioning needs for Czech railways. In addition, Table 3 shows that managers operating in the rail sector have been successful in obtaining grants than in achieving market yields, which in turn confirms the importance of Czech Railways, depending on public budgets.
One of the good ways to get subsidy uncertain, lending is costly investments with the tacit assumption later state guarantee for future problems repaying credit risk. Czech Railways debt structure shown in Table 4 Although in the period amount outstanding loans declined, reaching in 2007 amounted to 60 billion Czech crowns.

The risk associated with the fact that RIA will be able in the future to repay their debts, it is quite large. Future developments in the railway sector debt must also be assessed with regard to future investments in III. and IV. corridor. In the future, can thus be expected to cost 100 billion Czech crowns. Other problems can be expected in 2011, the RIA will have to repay the loan in the amount of targeted 7 billion Czech crowns. These expected costs in turn train operations in the Czech Republic expensive. Table 5 shows the state realized no debts CD. In 2003, at a time when it was founded RIA, all debts (not only investment in infrastructure) Czech Railways transferred to RIA. For the converted debts the state assumed a guarantee.

The aim of this paper is to demonstrate the negative side in the last few years vyzdvihovaných benefits of operating railways in the country. From the above data it should be clear that rail transport is a losing proposition, and it is unlikely that this fact has changed in the near future. It is thus questionable whether the government is willing to hold the rail transport in the Czech Republic in life because of their strategic interests or ideological beliefs from a position where rail transport is considered as a mode of transport, which is in the public interest. However, if we want to highlight the environmental benefits of rail transport, it would still remain to consider whether high investments bring the desired result, or whether it should be worthwhile to invest resources in research less expensive and greener combustion engines or other ways to address the negative externalities. Anyway discriminatory economic policies favoring inefficient sectors will discourage innovation in sectors that may in the future be far more progressive.