1. Twinning project, activity 4, Maintenance assessment Tuesday 4 th October 2005, session 2b The concession model; the instruments in the relationship By Jan Swier, ProRail, The Netherlands Tel. +31 30 235 5315. e-mail: jan.swier@prorail.nl © ProRail. All rights reserved File: g:\Js05\0406.Slovenia.Oct.3.Concession model.ppt

2. 2 Presentation contents *Business relationships in the concession model *The instruments in the relationship between Government and ProRail: *Management plan *Financial model *Dashboard *Track Access Charge

3. 3 en Government Train Operators Transport concession (Passengers only ) Performance contract Forwarder Passengers Forwarders Payment Repayment scheme Network statement Access agreement Track Access Charge Performance regime Contractors Engineers Process contracts Project specifications RIB VL ProRail Management concession Management plan Budget: financial model Performance: KPIs Track Access Charge Business relationships in the institutional triangle

4. 4 Dashboard Legal context Instruments Essential instruments in the relationship between Government and ProRail *(New) Railways Act *Management concession: the contract *Management plan *Budget: financial model *Budget: Track Access Charge *Dashboard: KPIs

5. 5 Contents Management Plan* 1.Mission and strategy of ProRail 2.Assessment by stakeholders: duty of care and key performance 3.Ensuring sufficient, reliable and safe infrastructure 4.Supplying sufficient, reliable and safe capacity 5.Safety and the Environment 6.Continuous improvement: migration to output-based management 7.Financial parameters 8.Operators view of management plan * Management plan = strategic policy plan ProRail with objectives for costs, performance and organisation for the next five years.

6. 6 Financial model Government - ProRail Performance Activities Costs Departure points

7. 7 In the management concession (art. 20), the Minister imposes four conditions on ProRail for heading towards output: Transparency in the relationship between activities, costs, performance and departure points. A Awareness of the interaction between performance by manager and operators. B Awareness of the long-term effects of maintenance (LCM). C Structures and systems for effectively using the insights referred to in A, B and C. D Audit 2008

8. 8 The financial model should establish a relationship between costs, performance and departure points in a transparent manner Focus: ‘Trade off’ within the sector Given the departure points… -the operational model: e.g. existing or corridor -the accompanying infrastructure: quantity, quality -intensity of use -Environmental and Safety legislation …for the required performance… -availability -TAOs and FHT …the cost level is fixed -at given efficiency Given the departure points… -the operational model: e.g. existing or corridor -the accompanying infrastructure: quantity, quality -intensity of use -Environmental and Safety legislation …for the required performance… -availability -TAOs and FHT …the cost level is fixed -at given efficiency ‘Trade off’ Financial model Perfor- mance Setting level Costs Efforts Indexing Departure points Infrastructure Intensity Legislation Operational model

9. 9 - Production plan - OPC 2004 - IHC - RVL - CM - … - Production plan - OPC 2004 - IHC - RVL - CM - … Activity ProRail activities The financial model is directly related to the ProRail activities and the efficiency with which they are implemented Feedback loop keeps model up to date ‘Trade off’ Costs Financial model Departure points Setting levelEfforts Indexing Task setting organisation Perfor- mance Perfor- mance Focus: ‘Trade off’ within the sector Departure points are jointly determined by agreements within the institutional triangle (Government- Operators-ProRail) Insight into mutual influence of alterations to budget, performance and departure points Departure points are jointly determined by agreements within the institutional triangle (Government- Operators-ProRail) Insight into mutual influence of alterations to budget, performance and departure points Focus: Efficient operation of ProRail How is the required performance translated into activities within ProRail How do efficiency moves influence the ‘trade off’ within the financial model How is the required performance translated into activities within ProRail How do efficiency moves influence the ‘trade off’ within the financial model

10. 10 Example relationships between maintenance costs, intensity of use and disruptions Relationship between intensity and maintenance costs Trains/year Euro/point Relationship between intensity and performance Trains/year Failures/year EXAMPLE for points

11. 11 The model must provide an insight into the effect of changes in expenditure, performance and/or departure points. Relationship between costs and performance if departure points remain the same prestatie  € € Kosten  P1 P1 Fall in additional yield  P2 P2 Costs Performance Relationship between costs and performance with changed departure points Prestatie  € € Kosten  P2 P2 Fall in additional yield  P1 P1 Costs Performance Illustration

12. 12 ProRail Dashboard: internal management instrument for measuring the results achieved within the concession agreement KPIs

13. 13 5 Safety & Environment 5. … within statutory frameworks for safety and the environment... 6 Finance 6. … as efficiently as possible... 1 Availability 1. ProRail will guarantee optimum availability… 3 Adjustment 3. … complies with agreements with operators... 4 Use 4. …will optimise supply/demand for the available track … 2 Transfer 2. … lives up to agreements on transfer facilities... Indicators 7 Personnel 8 Innovation The Board of Directors’ dashboard with 6 top KPIs & 2 organisation KPIs

14. 14 5 Safety & Environment 5. … within statutory frameworks for safety and the environment... 6 Finance 6. … as efficiently as possible... 1 Availability 1. ProRail will guarantee optimum availability… 3 Adjustment 3. … complies with agreements with operators... 4 Use 4. …will optimise supply/demand for the available track … 2 Transfer 2. … lives up to agreements on transfer facilities... Indicators 7 Personnel 8 Innovation The Board of Directors’ dashboard with 6 top KPIs & 2 organisation KPIs

15. 15 The dashboard covers all parameters in the financial model ‘Trade off’ Financial model Perfor- mance Costs Departure points 1 Availability 2 Transfer 3 Adjustment 4 Use 5 Safety & Environment 6 Finance

16. 16 The top KPIs from the dashboard have been translated into more specific KPIs at underlying management levels Board of Directors Director Infra Management Contract manager

17. 17 A target value represents the target aimed at by ProRail. A threshold value is the target according to which ProRail will be held accountable. A target value is therefore less absolute than a threshold value. A threshold value can only be determined once ProRail has sufficient experience with a KPI. The eventual intention (at the latest by 1 January 2008) is that all KPIs will have threshold values. Internal regulation limits have been agreed to focus ProRail on the agreed targets. They indicate, according to a colour code, whether the KPIs are ‘on track’. The colours have the character of traffic lights. The colour green means that the KPI is developing according to the target, and is on track. The colour orange indicates that there is a temporary deviation for which no (more) separate actions need be taken. The colour red indicates that additional action and therefore attention are necessary to tackle the deviation from the target. GreenOrangeRed Internal regulation limit 1 Internal regulation limit 2 Target values and/or threshold values have been agreed for all KPIs

18. 18 Target values and threshold values 2005

19. 19 Track Access Charge TOCs have to pay for the use of the Rail Infrastructure, but…….. this is only possible when the TOCs earn sufficient money to make a profit. This is a delicate balance between business possibilities and limitations.

20. 20 Development of Track Access Charge in the Netherlands In 2007, the track access charge will provide ProRail with about 20% of its total income

21. 21 Attribution of Track Access Charge to systems and cost drivers Train km Ton km Stops kWh million Euro

22. 22 Situation from 2006 onwards *New Railways Act and EU Directive 2001/14 –Track access charge must be agreed with TOCs –ProRail sets the system and the tariffs –Competition Authority monitors developments –Payment based on realisation figures Conclusion: New revised system necessary *EU Directive is strictly followed –% variable cost is set on basis of 2000 to 2003: Approx. 19% of our costs are variable –Standard costs instead of estimated costs: stable tariff –Attribution of costs to cost drivers carried out by experts

23. 23 Cost drivers and tariffs (beyond 2005) *Signalling & Control : € 0.5046 per train km *Yards:14% surcharge on train km fare *Catenary:€ 0.02989 per kWh *Superstructure: € 0.001711 per tonne km *2006: € 0.0005 per ton km for freight trains Stations: *Very large (4 stations): € 5.0672 per stop *Large (approx. 35 stations): € 2.4848 per stop *Small (approx. 350 stations): € 0.8615 per stop INFORMATIVE

24. 24 Cost drivers are measured *Train kilometres and stops: by traffic control within the VPT system. *Axle loads, speed and round wheels: new measuring system “Quo Vadis” *kWh from cost model, used for the allocation of electricity costs (no measuring system yet)

25. 25 Conclusions 1.The concession model has laid down the conditions for further professionalisation of the railway transport sector in the Netherlands. 2.The requirements imposed by government on ProRail to head towards output are encouraging and effective. 3.Establishing a transparent relationship between costs – performance - activities - departure points is a challenge which appears fulfillable, but which will demand maximum effort from the organisation. 4.By introducing the “track access charge”, train operators impose explicit demands on the rail infrastructure: “he who pays the piper calls the tune”. This will have a stimulating effect. 5.Instruments for measuring use have been introduced for the track access charge, which will increase the efficiency and effectiveness of train operators and ProRail. 6.Focusing on KPIs has increased management involvement and effectiveness.

26. 26 Thank you for your attention Any questions?