Is a train between Keflavik Airport and the centre of Reykjavik a feasible option? Reykjavík Express Ráðgjöf og verkefnastjórnun Runólfur Ágústsson

Project objectives To carry out a preliminary feasibility study on constructing and operating a private enterprise high-speed rail between Keflavik Airport and the centre of Reykjavik. To evaluate and outline the benefits of such a project for society. Reports to be published within 10 days. Findings presented today not final and confidential until published.

The City of Reykjavík Municipalities in the Sudurnes area Efla (Consulting engineers) Kadeco - The Keflavik Airport Development Corporation Landsbankinn (largest commercial bank in Iceland) Isavia ( national airport and navigation service provider ) Istak (prime contracting firm) Reitir (real estate company) Project participants

October 2013: Preliminary study, gathering information, analysis and first assessment. Possible business partners view study. November June 2014: Proposals and analysis on possible routes and technologies. Initial engineering analysis and financial evaluation. A business plan. November 2013: A work group is established. Results are presented to possible investors. I feedback is positive an SPV would be established to further development the project : Preparations. Environmental impact assessment. Work on design and organization : Construction Project stages

Reykjavík Express

Two parallel tracks from Keflavik to Hafnarfjordur. Single track through a tunnel from Straumsvik to the centre of Reykjavik. The route is 47 km, thereof 12 km inside the tunnel. Average speed around 180 km/h, maximum speed 250 km/h Four trains that can initially carry up to passengers an hour in each direction with an option to double the capacity in future years. Reykjavík Express- route

Train stations Surface terminal at the airport connected to the airport terminal Underground station in southern part of Reykjavik Underground terminal at the end of the tunnel in the center of Reykjavík.

Estimated construction cost ExpenseEUR (million) Tunnel 9,82 Constructions above ground 219,71 Railway stations (KEF+ middle station +REK) 22,62 Storage and maintenance facility 29,08 Rails 116,32 Signalling and control system 27,79 Railway electrification system 42,00 Rolling stock 103,39 Total construction cost (excluding VAT) 659,13 +/- 20% Estimated construction cost 14 million EUR per km

Construction plan Design and planning phase Preliminary cost and risk assessment Design Research & Development Environmental impact assessment Project planning Construction phase Construction of tunnel Constructions above ground Railway stations and platforms Railway electrification system Storage and maintenance facility Construction of rails Signalling and control system Investment in rolling stock Test and trial

Construction plan - cost

Estimated number of passengers Four different groups: Foreign tourists travelling to and from the country Domestic tourists travelling to and from the country Transit passengers Regular domestic passengers e.g. commuting passengers and students

Estimated number of passengers travelling through KEF Airport

Estimated percentage of air passengers travelling through KEF Airport using train as transport mode Comparison with Oslo Airport OsloEstimated in report All passengers49%50% All foreign passengers54%55% Foreign passengers traveling to and from Oslo / Reykjavik59%55% Icelandic / Norwegian passengers46%35%

Revenue generation Estimated number of sold tickets 2023 Passenger group Estimated total in 2023 Percentage using Air Rail Number of tickets sold Foreign passengers KEF airport % Transit passengers KEF airport % Domestic passengers - KEF airport % Total number of tickets sold to passengers from KEF airport Live in Keflavik, work in Reykjavík Live in Reykjavik, work in Keflavík Students Leisure passengers Total number of tickets sold to domestic passengers: Total tickets sold in

Revenue generation Estimated average price of tickets Rail operatorPrice of ticketCurrency rateISK Flytoget170 NOK18, Stansted23,4 GBP187, Arlanda260 SEK17, Heathrow21 GBP187, Average ticket price Price range from 800 to ISK Average price ISK / 17,4 EUR

Estimated operational cost Estimated operational cost is based on information from North Star Consultancy and Flytoget AS. Operational cost includes: Infrastructure cost EUR 11 million Operating cost of rolling stock EUR 26,5 million Total operational cost is estimated EUR 37,5 million

Operation first 10 years EUR - THOUSANDS Number of sold tickets (m)44,14,34,44,64,855,25,35,5 Average price per ticket17,1 17,217,317,417,5 17,617,717,8 Revenue Variable cost Fixed cost EBITDA Depreciation EBIT Cost of interest Earnings before taxes Transferred loss Taxable income Tax Retained earnings/loss

Cash flow first 10 years EUR - THOUSANDS EBITDA Changes in working capital-102,0-4,3-4,5-4,7-4,9-5,1-5,3-5,5-5,8-6,0 Cash flow before taxes Taxes paid After tax cash flow Capital expenditures Financing activities Interests paid Loan payments Net increase in cash End of year cash

Funding and profitability Private funding with no direct public funding Equity ratio 20% 30 year IRR 9,9% Real interest rates 4,7% during construction 3,5% long term

Sensitivity analysis Investment cost and number of passengers – effects on IRR Number of tickets sold (millions) Investment cost (millions) EUR 3,03,54,04,55,0 5306,7%10,1%13,1%16,2%19,1% 5955,3%8,5%11,4%14,3%17,0% 6594,1%7,1%9,9%12,6%15,2% 7243,0%5,9%8,5%11,2%13,6% 7881,9%4,8%7,3%9,9%12,2%

Sensitivity analysis Long term growth of passengers through KEF airport - effects on IRR

Sensitivity analysis Interest rates - effects on IRR Real interests rate long term R eal interest rate during construction 1,5%2,5%3,5%4,5%5,5% 2,7%12,7%11,5%10,3%9,2%8,1% 3,7%12,6%11,3%10,1%8,9%7,8% 4,7%12,5%11,1%9,9%8,7%7,6% 5,7%12,3%10,9%9,6%8,4%7,2% 6,7%12,1%10,7%9,3%8,1%6,9%

The economic case

The standard approach to economic appraisal of new transport projects: Cost benefit analysis Is society benefiting from the efficiency provided by train transport between Reykjavík and Keflavík airport? Should be read in conjunction with the strategic case for a private investment, which summarizes the full rationale for the scheme The analysis is carried out in line with standard cost-benefit analysis of road infrastructure according to framework set out by the Danish Ministry of Transport

The economic case Monetized impacts: i.User benefits – the value of time and net expenditures - Valuation of time savings; business or leisure - Net costs: train ticket vs prior outlays ii.Societal benefits – the value of safety and environmental impacts - Pollution: noise and air - Accidents: Decrease in accident rate. ◦Geographically limited: The user benefits are comprised of Icelanders only. ◦Differs from traditional cost-benefit analysis: Not funded by taxpayers! Therefore we seek to assess user- and societal benefits only, i.e. benefits are not weighed against the net costs. ◦We assume that there is not an excess return on a similarly risky investment in the private sector.

Results Horizon: 30 years Required rate of return: 5% Benefits in the order of €250 – €375 million over 30 years

Wider economic impacts However, the economic case of cost benefit analyses can only ever provide part of the overall picture, and there are many other factors that can and should be taken into account. We try to assess the additional factors – the wider economic impacts: i.Local economic growth in the communities affected ii.Impact on real estate prices and investment iii.Impact on general wage level and productivity

Wider economic impacts The scope of the analysis at this point does not allow for a intricate assessment of wider economic impacts. We therefore only mention likely impacts. Avoid double counting! Not likely to influence local economic growth significantly. Only applicable if the community is heavily constrained by existing transport infrastructure. Likely to have a positive effect on local employment – the joining of two areas, Keflavík and Reykjavík. Mobility of the workforce Likely to influence real estate prices and wage level.

Green express: What are the benefits for society?