Select Committee on Transport Written Evidence


Supplementary memorandum by Nederlandse Spoorwegen (FOR 91A)

  It was a great pleasure to host the visit by yourself and Terry Gourvish to the Netherlands on 25 and 26 November. I hope you found that it added to your knowledge of the Dutch rail system and I look forward to reading the conclusions of the Select Committee's inquiry next year.

  In the meantime, please find attached a note responding to the questions raised in your letter of

21 November and the additional queries raised during your visit.

1.   Do you have any comparative figures on the costs of maintaining a single use ( passenger or freight) railway as opposed to a "mixed" railway?

  Building as well as maintaining a dedicated freight line is less expensive than one used by both freight and passenger trains. Maintenance costs for the "Betuweroute", a dedicated freight line in the Netherlands, are expected to be 10-20% lower than for the main track. This is mainly because more maintenance can be done during daytime and the comfort requirements are lower.

  The Betuweroute is connected to the main track, and freight trains on this dedicated line also run on the main track. Maintenance costs of this dedicated line could have been even lower if the track did not have the facilities (catenary, safety system) to enable freight trains to run on an international main track.

  In the US, maintaining dedicated freight lines is some 80% less expensive than mixed lines in Europe. The characteristics of US freight lines differ vastly from track in Europe eg longer headways (7 kilometres), less points and switches etc.

2.   The table on subsidy in Figure 4 of your letter to the inquiry might have suggested (to me) that you do not receive any subsidy but your evidence (Qq 863,872) cleared this up and pointed to the sort of subsidies NS and Prorail receive. It would be helpful to have a run of these figures over the past five years together with any projections for future subsidy you may feel able to share with us. I take it that the position is that without subsidy you would make no profit?

  That is correct: subsidies for the rail system are required. The total system in the Netherlands is funded as follows:

    —  Passenger farebox:

    1.4 billion

    —  Government subsidies to operators:

    200 million

    —  Government subsidies to ProRail:

    1 billion

  This implies that 60% of the costs of running and maintaining the whole rail system in the Netherlands comes from the farebox. As I explained earlier the tariffs/kilometre in the UK are 60% higher than in the Netherlands. If the fares in the Netherlands were set at the UK level, the Dutch system would be self-supporting.

  The table below gives an overview of the subsidy to be received by NS for operating the secondary subsidised lines. From 2006, NS can lose subsidised concessions in competition to other operators and the listed subsidy accordingly. It is expected that the subsidy received for operating the secondary lines will remain at a constant level of

200 million (with a price correction). Subsidies to ProRail decline as the operators pay more track access charges over time.
19981999 200020012002 200320042005 200620072008
Subsidy to NS for secondary lines (
m)
007264 656565 65656565
Refund of track access payments from NS for secondary lines 004 9142025 303030 30
Total subsidy to NS00 767380 84909595 9595
Access charges from NS for the core network 001428 416080 110140170 170
Total access charges from NS to Prorail 001837 5580105 140170200 200
Profit NS89117 6488847 nanana nanana
Dividends from NS to government9 18281**31 16nana nananana
Government grants to Prorail for inframanagement* 806736757 840730830 976954981 941na

*including Traffic Control & Capacity management, excluding investments

**this year's payment includes an amount of
227 million from the extraordinary results of 2000.

3.   Dutch railways are regulated by a body attached to the Ministry of Economic Affairs (Q874). One of the arguments made by our own Rail Regulator is that being demonstrably separate from the Government gives the private sector comfort that the regulatory decisions are not politically motivated. What do you think of that argument? Much of the private sector investment in the UK railway is underwritten by public money.

  The argument is correct. At present the Dutch Competition Authority—Nederlandse Mededingingsautoriteit (NMa) and its transport specific Chamber, the so called "Vervoerkamer", are at present still part of the Ministry of Economic Affairs. Shortly the NMa will become an independent administrative authority. As a consequence the Minister of Economic Affairs can no longer impose any instructions as to any decisions (to be) taken nor determine any policy matters of the NMa and its Chambers.

  If compared to the UK ORR, the role of NMas Transport Chamber is far more limited. The Nma has to monitor equal access and fair competition between operators. It has no role in setting track access charges, evaluating the efficiency of Pro Rail or determining the level of subsidy the government pays to Prorail. This is done by government.

4.   Could you confirm that what in the UK is called rail maintenance and rail renewals are both out sourced on the Dutch railway (Q 906). What work, if any, does Prorail do at its own hand?

  Both rail infrastructure maintenance and renewals are outsourced in the Netherlands. Only Traffic Control, operating bridges and the catenary are handled in-house. Engineering is done by certified consultants; maintenance and renewals are done by certified contractors. Daily maintenance is outsourced in service process contracts to four certified contractors; renewals and heavy maintenance are tendered in competition in between certified (Dutch and foreign) contractors.

5.   The infrastructure provider here seems to believe that taking day-to-day maintenance in-house will drive costs down (Q 1403). They appear therefore to have reached a different conclusion from Prorail. Are they wrong?

  Before 1995 all daily maintenance was done in house. After maintenance was outsourced costs started rising. This was because of the risk and profit margins of the contractors. However, over the longer term the contractor is more efficient, which results in lower costs. At the moment we have control mechanisms in place to get the contracted services at appropriate cost levels. This mechanism involves not only the specification of required RAMS levels and related costs, but also provides tools to monitor the maintenance activities. A penalty regime is not part of this mechanism.

  The major benefit of outsourcing maintenance is not so much a cost reduction but an increase in service quality levels at the same costs. In addition, innovations are introduced at a far higher rate than under an in-house regime.

6.   We are very interested in "bench-marking" and would appreciate further details of what you do in this area, especially in arriving at cost control (Q 906).

  There has been an extensive UIC benchmark on rail infrastructure life cycle costs and cost drivers. Attached please find an overview of the results.

7.   How many people does Prorail employ? Prorail is two years old. Is that long enough to be absolutely certain that the model it embodies is the right one for the Dutch railway? There were great hopes initially for Railtrack here which were not fulfilled.

  ProRail has approximately 3,000 employees, of which 700 work in the maintenance department. ProRail was established two years ago from three companies: Capacity Management, Traffic Control and Infrastructure Management. From 1995 these companies were separate entities but up until 2001 they came under the control of the NS holding company.

  We believe that the model is fit for its purpose. This is not just based on experience of the first two years of ProRail in operation, but on the fact that the defined roles and responsibilities are the result of an incremental joint process, prepared in the early 90s and implemented from 1995.

8.   You say that since 1995 you have managed to reduce the workforce ( Q905). May we have details who, how much, what priorities did you apply?

  In 1993 a designated in-house organisation was established to provide guidance and career coaching for the 4,800 employees, who were to be made redundant from 1996. Staff reductions were achieved by organising our core activities more efficiently and by ceasing non-core activities like town and country planning. Other smaller reorganisations of the companies within NS have taken place over the years.

  Besides these redundancies, our workforce was further reduced by selling off non-core activities, such as telecommunications.

  At the same time our workforce was increased as activities like station (incl retail) and real estate development were given more emphasis. The introduction of a 36-hour working week in 1996 led to a 1% full time equivalents (fte) rise. Last year, the number of employees increased because we hired additional on-train staff to improve security and service for our customers, and mechanics to enhance the fleet availability.

  Currently another major reduction is taking place. Approximately 7,000 indirect positions were evaluated on their contribution to our core business. As a result, 1,300 jobs will be cut by 2005. These reductions include current vacancies and temporary contracts, so the social impact of the redundancies will be limited.

Overview of the NS workforce
YearNumber of fte
199525,949
199625,855
199723,446
199823,794
199924,236
200022,853
200122,286
200222,985

9.   Costs. Figures demonstrating how Prorail got these under control would be informative (Q 1216).

  In the first graph below you see (red line) the contracted work with inflation correction. The one off renewals were the main cause of the cost increase. The downward trend seen after 2001 is expected to continue.

  On the second graph you will find the cost rise explained. Most of the extra costs are in renewals (blue lines) (back to a normal % renewal)



10.   The names of the other passenger and freight operators on the Dutch railway would be helpful

  The following operators are active on the Dutch rail market:

    —  Passenger : Connexxion, NS, Noordned, DB RegionalBahn, Synthus, Thalys.

    —  Freight: ACTS, ERS, Railion, Shortlines, IMCs, Rail4Chem.


11.   What proportion (%) of freight travels by rail in the Netherlands?

  Modal split freight transport in tonne-km (figures year 2000).

National freight transport

  Road:  75%

  Ship:    23%

  Rail:    2%

International freight transport over Dutch territory

  Road:  28%

  Ship:    62%

  Rail:    10%

12.   What are your views of the benefits and disbenefits of short and long rail franchises (Q 889)?

  Opting for either long or short rail franchises, depends on the role given to the operator. In a short-term contract the government sets out the strategy and determines the service level in detail and is more involved in operational issues like rolling stock refurbishment. The operator becomes a carrier, with a limited role in co-developing rail services as part of a transport system.

  In a long-term contract on the other hand, there will be a strategic partnership between government and operator. In this way joint effort can be put into redevelopment of rail and more innovations can be expected from the operator. At the same time longer term contracts involve higher risks in terms of the working relationship with the government because there is less flexibility to change partners. In addition, long-term forecasts entail a high level of insecurity. Contract frameworks, providing adequate review periods must be used to overcome these disadvantages.

13.   Could you say something about how the NS subsidiary rolling stock leasing company works (Q 890)? What is its budget?

  NS Financial Services offers its services in mainland Europe in competition with other (European) leasing companies. Revenue in 2002 was

75 million, balance sheet total

600 million.

14.   We would welcome further explanation about the PPM (punctuality point) as it applies in the Netherlands(Q898)

  All parties (NS and Prorail) have the obligation to improve punctuality. Punctuality is measured from three minutes after scheduled arrival time at the 34 most important stations on the network. The registration of train delays takes place automatically and is the responsibility of the Traffic Control Centre, which is part of Prorail.

  Every three months NS reports punctuality results to the government. These results cover all delays, including those caused by infrastructure or other operators. NS also reports results on connections and cancelled trains.

  NS has aims for a 89% punctuality (<3') in 2005 (equivalent to 94% <5').

  A punctuality penalty regime has been developed. Within this regime, NS has to pay a

500,000 penalty for every 0.1% punctuality below the set target, with a maximum of

12.5 million per annum. These funds are earmarked for reinvestment in the railway system by the government. Should punctuality levels fall below 3% of the set target in a year, NS has to deliver an improvement plan to the government.

  Due to the fact that the performance of Prorail is not yet on target, the implementation of this penalty system has been postponed. In order to help Prorail with infrastructure improvements, NS has agreed to a "Green Route Strategy" enhancing possessions during daytime.

  Currently there are no contractual or financial arrangements between NS and ProRail regarding delays and infrastructure availability. From 2004 NS will get a reduction on Track Access charges, if Prorail fails to meet their targets.

15.   Do you think that the rail timetable should be the responsibility of the train operating companies in the UK?

  As a principle we do not comment on the UK approach.

  At present it is quite difficult to pass these responsibilities to the UK TOCs, as there is (partially) on-rail competition and TOCs don't have equipment equivalent to that used by Network Rail for timetabling. In a region with limited or no on-rail competition a TOC could develop its own timetable, provided there are good working relations with freight operators and NetworkRail, who also have responsibility for co-developing and operating the timetable. In this way a timetable could be developed more effectively. It will be more closely connected to passenger demand. The TOC after all, has most expertise on current and future passenger demand. Efficiency gains could be made as less stakeholders are involved.

  In the Netherlands we are pleased to have developed a joint working group (TOCs, ProRail, government) which allows for major structural changes in the timetable, based on (public) transport demand, and efficient using available assets.

16.   Could you just confirm that NS borrowing does not count in the Dutch government accounts (Q 909).

  Confirmed.

17.   Something on the business case for the dedicated rail freight line would be helpful (Q 913). What estimates are there for the increases in rail freight as a result of the European Directive on freight operations?

  The new Betuweroute in the Netherlands is not undisputed. As a result, a considerable number of studies have been carried out to underpin the benefits of this line. Rail freight transport will rise in the coming years, independent studies claim a growth of two to three times present situation.

18.   Do you agree with the SRA's approach to Network Output Planning (Q 914-919)

  As a principle we do not comment on the UK approach. It appears that adequate care has to be taken to ensure that the secondary network is operated to a sufficiently high quality which meets the demands that are expected of it.

19.   Do you think that the separation that exists between a Regulator who determines the track access charges of Network Rail (and hence effectively the public subsidy to the company) and the SRA which in charge of substantive rail policy is a flaw in our system?

  As a principle we do not comment on the UK approach, but we are happy to exchange examples of best practice.

ADDITIONAL QUESTIONS BROUGHT FORWARD DURING THE VISIT 25, 26 NOVEMBER:

20.   Number of staff working employed by Railion

  1,200 employees.

21.   Number of staff employed by other passenger train operators

  Approximately 265 employees. This is an estimate, as one of the TOCs uses one workforce for both train and bus operations.

22.   Board structure ProRail

  In addition to the board structure below, ProRail has a Supervisory Board, whose members are appointed by the shareholder, the Ministry of Transport.


23.   In what way could Electronic ticketing & gating be interesting for the UK?

  It could be interesting as it delivers:

    —  A gated semi-open system comprising heavy rail.

    —  Introduction of a national smart card for public transport and other related services.

    —  Introduction of a service level monitoring system ie real time monitoring of all systems and all its interactions with clients in and around stations—allowing for instant repairs, crowd control, emergency handling, marketing information, efficient staff deployment.

CAPABILITIES:

    —  introducing an innovation in public transport, based on proven technologies together with all stakeholders involved.

RESULTING IN:

    —  Improving service quality: increasing revenue.

    —  Transport integration by ticket integration (including bus, train, parking, bike rentals etc).

    —  Adequate numbers of staff on stations.

    —  Reliable systems in and around stations (ie escalators, lighting etc) enhance security.

    —  Reduce aggression -> improve security—staff and passengers.

    —  Reduce costs -> less on train staff required, effective number of trains deployed.

    —  Reduce fare dodging -> increase revenue.

24.   Number of tonne kilometres freight

  40 billion tonne kilometres per annum.

25.   Subcontractors ProRail

  Daily infrastructure maintenance is outsourced to the following four contractors: Strukton, Volker Stevin, BAM and Tribase. Daily station maintenance is outsourced to an NS subsidiary (NS Stations). Various engineering companies are hired for design activities; most important are Holland Rail Consult en Arcadis.

  Remark: ProRail only owns the operational part of the station (platforms, tunnels, foot bridges), not the commercial part of the station.

  All other activities are being tendered. In the Netherlands, over 60 companies are certified for various rail infrastructure related activities.

Anton Valk

Managing Director

NedRailways

18 December 2003


 
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