Modernization tasks of railway transport regulatory model Novikov Sergey Head of the FTS of Russia Moscow October, 24-25, 2013

Border conditions. Background Global trends of freight and passenger transportation service markets development. Transport product. Solid investments in new transport infrastructure. Effective regulation. International and regional transport markets. Regulators' general tasks are: development of markets, consumer protection, balance of interests of different market entities, investments attraction, competition development. 2

1.Base legislation - natural monopolies act and enactments in the field of railway transport state regulation 2.Statuary conditions changing aiming for transparency of adopted decisions 3.Basic points of regulatory model modernization. Basic principles of long-term pricing 4.Regulators' professional growth, qualification upgrade, staff training and retraining in the field of tariffs and pricing (education programs, remote testing, professional standards implementation) 5.Development of international collaboration and cooperation of transport regulatory authorities 3

1.Power sector 2.Gas sector 3.oil and oil-products transport through cross-country pipelines 3.Telecommunication (fixed) and mail service 4.Prices for medicines (approving) on the VED list 5.Price record for defense products 6.Public utilities FTS of Russia – spheres of regulation 4 8.Transport:  Railway transport services;  Railway transport infrastructure services;  River and sea ports services, inland waterways infrastructure services;  Airports services and air navigation service.

Statuary conditions in the field of state railway transport regulation sets the state regulation of natural monopolies entities activity Determines railway transportation as the natural monopolistic field sets the state regulation of natural monopolies entities activity Determines railway transportation as the natural monopolistic field The federal law, № 147-ФЗ «On the natural monopolies» sets the procedure for granting of the exceptional tariffs, envisaging special conditions of the tariffing on the railway transportations and public railway transport infrastructure The prescript of the Government of the Russian Federation, № 787 determines the principal conditions of the organization and fulfillment of the passenger transportation, freight transportation, baggage transportation, freight baggage transportation and rendition of services of the railway public transport infrastructure and other transportation services The charter of the railway transport of the Russian Federation (Federal law, № 18-ФЗ) determines the law, organizational and economic conditions of the public railway functioning, the principles of cooperation of the railway transport organizations and the individual businessmen, performing the railway transport services with the state government bodies and the organizations of the other means of transport, determines the principles of the state regulation in the field of the private railway transport determines the law, organizational and economic conditions of the public railway functioning, the principles of cooperation of the railway transport organizations and the individual businessmen, performing the railway transport services with the state government bodies and the organizations of the other means of transport, determines the principles of the state regulation in the field of the private railway transport The federal law, №17- ФЗ «About the railway transport in the Russian Federation» The competence of the FTS of Russia: establishment (adoption, registration) of: -tariffs, fees and payment, related to the implementation of the railway transportation services (except for the transit) in the locations of their public and private use; -tariffs, fees and payment in the field of public railway transport infrastructure services (except for the transit); - exceptional railway transportation tariffs (except for the transit); The competence of the FTS of Russia: establishment (adoption, registration) of: -tariffs, fees and payment, related to the implementation of the railway transportation services (except for the transit) in the locations of their public and private use; -tariffs, fees and payment in the field of public railway transport infrastructure services (except for the transit); - exceptional railway transportation tariffs (except for the transit); The concept about the Federal Tariff Service (The prescript of the Government of the Russian Federation, № 332) sets the Concept «About the state regulation and monitoring of the tariffs, fees and payment concerning the services of the natural monopolies entities in the field of railway transportation», including the principles of pricing and rules of the state tariffs regulation; sets the list of services of the natural monopolies entities in the field of railway transportation, whose tariffs, fees and payment are regulated by the state sets the Concept «About the state regulation and monitoring of the tariffs, fees and payment concerning the services of the natural monopolies entities in the field of railway transportation», including the principles of pricing and rules of the state tariffs regulation; sets the list of services of the natural monopolies entities in the field of railway transportation, whose tariffs, fees and payment are regulated by the state The prescript of the Government of the Russian Federation, № 643 «About the state regulation and monitoring of the tariffs, fees and payment concerning the services of the natural monopolies entities in the field of railway transportation» sets the procedure for participating of the executive authorities of the entities of the Russian Federation in the field of state tariff regulation in the state regulation and monitoring of the natural monopolies entities activity and their authority limit The prescript of the Government of the Russian Federation, № 950 set the procedure and conditions of the cooperation between the transport operator and owner of the public railway transport infrastructure by doing services in the field of infrastructure for passenger transportations, freight transportations, baggage transportations and freight baggage transportations, i. a. the procedure of the transport operator’s access to the infrastructure under the conditions of the limitation lack of its capacity The prescript of the Government of the Russian Federation, № 703 «About the adoption of the Rules of doing public railway transport infrastructure services» 5

Federal law «On natural monopolies» Key regulation tasks: competition and standards of living growth assistance; guarantee of services reliability and safety of NME (natural monopoly entities); abidance of balance of interests between NME (natural monopoly entities) and consumers; assistance in increase of NME (natural monopoly entities) services quality, fair competition development and creation of competitive markets in the field of natural monopolies, where it is possible and reasonable; guarantee of non-discriminated access to service markets and/or to NME (natural monopoly entities) services, as well as to engineering and technical systems of natural monopoly entities infrastructure; guarantee of the stable conditions for the business activities in the field of natural monopolies; guarantee of the incentive based regulation, focused on motivations creation for the particular natural monopoly entities in order to increase competition, investment attraction, activity effectiveness, service quality, cost reduction. Key regulation principles : free economic activity in the field of the NME (natural monopoly entities); realization of the universal consumer services principle – the right for the optimal quality at a reasonable price (tariff) and increase of the consumer role; principle of independence of the natural monopolies state regulation, consisting in self-determination by decision making and exercise of powers by the natural monopolies regulation authorities according to the legislation of the Russian Federation. 6

Publication of regulatory request, including supporting materials Regulator’s right to make a decision on rejection to considerate regulatory request, in case of non-compliance of regulatory request demand at least 30 days in advance before its running to the regulation authorities Publication of regulation record by regulated entities Publication of results of public discussions concerning investment programs drafts, realization progress and reports on investment programs implementation Organization of consistent information resource, providing information disclosure, i. a. within the framework of whole regulation process Federal law «On natural monopolies» Basic changes, focused on transparency of adopted decisions, which envisage : 7

Development of statuary conditions for railway transport within the framework of regulation model modernization  Methodology for identification of maximum and minimum critical tariff levels for freight transportations (price limits)  Rules of right on tariff level changing for freight transportations realization by economic entities (price limits)  Price tariff limits (maximum and minimum) on railway transport services of freight transportations  Methodology for the long-term tariff regulation in the field of freight railway transportation 8

Basic principles of long-term pricing  Basic method of state tariff regulation – is return on invested capital method. It is allowed to use other methods (according to current economic situation), however only one method is practiced during long-term regulation period.  Duration of long-term regulation period is at least 5 years.  Value tariffs basis (necessary gross profit) is projected on the basis of separate income/spending accounting data, formed on activities «freight transportations» and «infrastructure services in the field of freight transportations», including operation costs, return of capital, capital yield, profit tax sum, as well as balance of other incomes and costs.  Separate accounting of base and invested capital is kept for the purpose of calculation of capital return and capital yield. Invested capital is kept apart from the bookkeeping and tax accounting. Capital yield and return of capital is estimated according to base and invested capital as well as apart from according to capital, formed at expense of public funds, being raised on condition of repayment.  Indexes of the tariff changes of freight transportations are fixed according to the decisions of the Government of the Russian Federation on the accepted level of the tariff index linking on services for relevant regulation period. 9

Mechanisms of general transport burden on railway transport services users control  Development of effective carriage rolling model under conditions of diversification of railway equipment operators.  Conclusion of long-term contracts between operators, dominating at freight transportations market (or SRO – self-regulating organizations) and «base» freighters.  Strengthening of control functions of relevant regulator : in terms of control of unreasonably high prices used by economic entities, providing services during transportation at prices unregulated by the state, in terms of stopping unfair competition and confederacy concerning fixing cost of material and technical resources and used services. 10

1.Promotion of state regulators work efficiency in the field of transport, particularly regulating authorities engagement, as well as development and improving transport services market, while taking into account differences in market structures, possibilities of cross-border trade, as well as considering readiness and qualification of market participants; 2.Promotion of experience sharing between countries on upgrading and development of new state tariff regulation methods according to law demand of states and international agreements; 3.Supporting business development in railway transport by means of guarantee equal conditions for all the market participants; 4.Promotion of effective development and strengthening cooperation in the field of Eurasian and intercontinental railway and combined transportations; 5.Supporting effective development of regulator motivation for attraction of investments in railway transport infrastructure development for its sustainability; 6.Promotion of cooperation between regulatory authorities to coordinate activities aimed at sharing experience and information, as well as coordination of training, tariff staff training and retraining, state management and commerce development in the field of transport and international traffic. Necessary measures of regulators collaboration and cooperation 11

Given the critical importance and the need for exchange of experience, information and best practices in the field of regulation of prices and tariffs for the various modes of transport, and primarily railway transport in different countries, in terms of world globalization and development of integration process, it is necessary: to make a decision on holding the Conferences of railways tariff regulators on a permanent basis (at least once a year); to vest the Program committee to explore the issue of creation of «International Association of transport regulators» (IATR) with the representatives of regulators on a global basis. Measures on further cooperation between transport regulators 12

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