Chapter 20: Financing railways
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European Railways are in a period of tension among regulatory, fiscal, and political objectives, with track access charges playing a key role. We analyze the financing structure of infrastructure managers and main railway undertakings in 11 European countries by comparing the level of access charges, cost coverage ratios, and the share of public funding. Literature on the regulation of natural monopolies suggests the application of marginal cost pricing for the infrastructure. Due to the high share of fixed costs, this would require large public transfers. Since transfers are considered costly, European regulation aims to reduce public expenditures by implementing Ramsey–Boiteux like access charges. In practice, some infrastructure managers reach cost coverage ratios of 100 percent. Track access charges in 2018 ranged between 0.74 and 11.96 euros per train kilometer. However, a large fraction of infrastructure managers’ revenue comes from public services; that is, mark-ups are partially funded from public service contributions. On average, each train kilometer is subsidized by around 8 euros. In this case, deviation from optimal marginal cost pricing does not necessarily lead to a reduction of government funding, but to a shift. Therefore, it seems appropriate to pool government funding at the infrastructure in order to lower access charges of all modes. From a regulatory point of view, it seems preferable to use more integrated approaches that combine the regulation of charges, as well as schemes to promote efficient use of public funds at the infrastructure level. In many countries, performance agreements and the regulation of access charges are independent.

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