REGULATORY FRAMEWORK FOR INTERURBAN COACH TRANSPORT ACTIVITIES IN SPAIN

1. REGULATORY FRAMEWORK FOR INTERURBAN COACH TRANSPORT ACTIVITIES IN SPAIN Workshop on long distance bus and coach lines in Europe Brussels, 29th February 2012 Mr. Francisco Iglesias ALSA – Managing Director Intercity Transport Division

2. OBJECTIVE OF THIS PRESENTATION • To present the role intercity buses play in inland Spanish transport, and its decisive contribution towards the achievement of a model for sustainable mobility. • To examine the model of franchise contracts for the operation of public services that governs the provision of regular services. • To identify the terms in which the Obligations of Public Service are defined in our model of intercity mobility. • To analyse the opportunities and threats that our sector is going through, and the perspectives for the continuity of our business. Contact Details: Francisco Iglesias Campos C/ Alcalá, 478 – 28027 Madrid (Spain) Mail: figlesias@alsa.es Phone: 00-34-91-754-80-53

3. 1 Data for ALSA and the Spanish market

4. 1.- DATA ALSA / MARKET ALSA Presentation • Leading company in the provision of intercity passenger transport services by road in Spain. • Integrated since 2005 in NATIONAL EXPRESS. • Geographic implementation: Spain (only company present in the whole country), Morocco, Continental Europe (international routes). • Growing continuously. • Transport activities: • Intercity transport by coach (regular, occasional). • Urban transport / metropolitan. • Station management. • Sightseeing transport. • Licenced as a rail operator: licence and safety certification. MAIN FIGURES: - Turnover: €613m - Employees: 6738 people - Fleet: 2418 vehicles - Km covered: 313m km

5. 1.- DATA ALSA / MARKET Current distribution of Trips by collective forms of transport (Spain): Intercity mobility in Spain • 80% of all transport is carried out using private cars. • Cars are easy used in every type of trip. • Taking into account only collective transport, that by BUS/COACH is the form of transport most used in Spain: 65% of the total number of trips. • Compared to the average figure for the European Union, Spain has a higher frequency of use of public transport, due to the existence of a consolidated transport network by bus/coach. In passenger transport, uncontrolled use of the car and individual mobility are the causes of the lack of sustainability of the transport model

6. 1.- DATA ALSA / MARKET Comparative positioning of intercity bus transport in Spain and the European Union USE OF PUBLIC TRANSPORT DENSITY OF SERVICES OFFERED The market of passenger transport by road in Spain is more important than in countries with a greater demographic weight like the UK or France. In Spain, as it is regulated, transport by bus is the form that guarantees mobility as a public service. In other countries in which the market has been deregulated, the offer is much lower and has concentrated into corridors or subsidised axes.

7. 1.- DATA ALSA / MARKET Comparative positioning of intercity bus transport in Spain and the European Union BUSINESS CONCENTRATION AVERAGE AGE OF THE FLEET The Spanish system of regulation, based on regulated competition for the operation of services through the open tender process, increases competitive rivalry and the Concentration Rate is lower. In Spain, ALSA’s market share (leading the sector) is less than 10%. The bus fleet in Spain is more modern, as a result of the demands of franchise contracts, and of the higher investment effort made by companies to improve the service to clients.

8. 1.- DATA ALSA / MARKET Comparative positioning of intercity bus transport in Spain and the European Union PRICE LEVELS FOR PASSENGERS In Spain, the prices of transport services by bus are lower than in other countries. In deregulated models the dominant operator tends to impose price increases and only in the case of the entry of low-cost operators are there decreases in prices. In terms of parity of purchasing power, prices in countries like the UK or Sweden are between 25 and 55% higher than those in Spain.

9. 1.- DATA ALSA / MARKET Efficiency of the private initiative in the operation of a public service regulated by the administration: • Importance of the Private Initiative: 3,678 companies. In 1999: 4,742 companies. • Franchise disaggregation: 1,448 franchises (of these, 108 national ownership). • Generation of employment: 62,000 direct jobs. • Mature Markets, and in Decline in numerous corridors. • Very small companies: 10-11 employees and 9-10 vehicles per company, on average. • Geographical Dispersion, that prevents in many cases the appearance of resource savings and cost synergies. • Very scarce Concentration of the Sector: the market share of the first 5 business groups does not exceed 15%.

10. 2 Regulatory framework

11. 2.- REGULATORY FRAMEWORK Legal regulations of intercity transport activities • In Spain, the provision of intercity land transport services (road and rail) is governed by standard base regulations: Law 16/1987 of the Land Transport Law (LOTT) and its 1990 Regulations (RD 1211/90). • Complemented by laws in autonomous regions which have adapted the state regulations to the peculiarities of each region, but maintaining a single market and common regulatory principles for the whole State. • Despite having a common legislative base, common regulatory bodies and serving a single mobility market, transport by road and rail have had very different regulatory developments: • Transport by bus has consolidated a regulated management model, in which the services are always carried out by private companies that act through public service contracts and authorisations. • Transport by rail (inland passengers) has not evolved in its operation, maintaining a rigid monopoly regime, in every type of distance and trip. Operating these services are state and regional state-owned companies, with no possibility for new entries. • Contracts are at risk of the operator. The Spanish model fully complies with EU Regulation 1370/2007 and the Directives 2004/17 and 2004/18

12. 2.- REGULATORY FRAMEWORK Basic regimes for the provision of services with regard to competition and market access • In Spain, as opposed to other European countries, intercity transport by bus: • Is extended to every type of trip and distance. • Is not legally subordinated to rail transport. • Regular services are considered Public Services. • There is a regime of regulated competition, based on competitive Tenders which are open and with no barriers to entry. • Requires a high level of investment. • Classification of transport activities by bus that our legislation establishes:

13. 2.- REGULATORY FRAMEWORK Public Service Contracts for the operation of regular intercity services: franchise system (II) • Structure of a Public Service Contract for regular intercity coach transport (franchise): • Current term for new Contracts: between 6 - 15 years (according to Regulation UE 1370). • Exclusivity of Operations, through corridors, routes and stretches. • Price regulation: maximum fares established in each contract, with a guaranteed annual price review (consumer price index). • Level of supply: is regulated by each contract. In term of services, frequency, timing and schedules. • Compulsory minimum fleet of vehicles, max. age and technical characteristics. • Compulsory minimum discounts. • Highly regulated.. • Our Transport Regulators: Ministerio Fomento (Ministry of Public Works) and 17 Regions. • High concurrence in tenders.

14. 2.- REGULATORY FRAMEWORK Matters to be solved in the Spanish regulation model • Lack of a common set of regulations for intercity transport by road and rail, that solve the significant distortions in intermodal competition which are currently taking place: • Great imbalance in the policies of investment in infrastructure, with fairly irrational dedication in the last few years to high-speed train services and airports, without real justification of demand. • Unequal opportunities to access the markets: rail monopoly • Unequal allocation of subsidies and state aid. Not based on real sustainability criteria. • Overlap of supply and situations of irrational competition between public transports. • Imbalances in the taxation of each form of transport. • Different management capacities for the provision of transport. • Without clear policies for intermodality and co-modality in existing networks. • Need for more flexible mechanisms for operating companies. • Clear and agile instruments to guarantee the economic equilibrium of contracts.

15. 3 Competing for the market: exclusive rights granted through open tenders

16. 3.- COMPETING FOR THE MARKET Accessing services on a competitive basis • The tender process is currently underway, through open tenders, for the renewal of the transport service network belonging to the Ministry of Public Works. • The process started in 2007. • Withoutbenefits of a territorial nature. • The bidding specifications conditions establish a very wide definition of Public Service transport, encouraging the IMPROVEMENT and TAKING ON OF COMMITMENTS in key matters like safety, comfort and customer service, conditions for company personnel, energy and environmental efficiency, the improvement of intermodality, etc. • Required strong investment. High competitive rivalry, with a very significant improvement in the services.

17. 4 Advantages of the Spanish franchise model

18. 4.- ADVANTAGES OF THE SPANISH FRANCHISE MODEL Adapting the franchise system to EU Regulation 1370/07 and procurement directives • Length of the contracts: according to Spanish legislation, a maximum length of 10 years, extendable only to another 5 due to exceptional investment needs. • Clear definition of public service Contracts, in terms of Obligations taken on and mechanisms (if applicable) for compensation, as well as the rules for its awarding. Spanish transport legislation defines in detail the content of the franchise licenses, and the terms of tenders. • All the contracts, whether they are deficient or not, are granted through open processes. Spanish contract legislation is even stricter than EU Regulations, preventing situations of direct awarding of contracts which European Regulations allow. • The obligatory subrogation of employees assigned to contracts is already a reality, in the case of a change in operator. The Spanish franchise system currently complies with all the contracting terms of EU Regulation 1370/2007 and Directives 2004/17 and 2005/17. Even working ahead of the transition period until 03/12/19 in the compliance of article 5 (awarding of public service contracts).

19. 4.- ADVANTAGES OF THE SPANISH FRANCHISE MODEL Control and protective mechanisms which the Administration has available for public transport systems • The operation of intercity transport services by bus is carried out 100% by private companies, there are no public operating companies. • Despite this, the Administration maintains the administrative ownership of the services it contracts, and has mechanisms to safeguard compliance with the entrusted Public Service Obligations: • The services are operated within the contractual provisions of the ‘Management Contract for Public Services’, clearly specified in Spanish contract legislation, and according to the EU Directives regarding contracting. • The offers presented for the operation of services are binding, and once the contract for operation has been signed, these go on to form part of the essential obligations of the contract. • Any modification in the contract, once awarded, must be made through predetermined legal procedures. There is no place for tacit agreements or negotiations that do not strictly follow the legal procedures for changes in operation. • Important work is carried out in Inspection and Vigilance by all the Administrations involved, with specific bodies dedicated to this.

20. 4.- ADVANTAGES OF THE SPANISH FRANCHISE MODEL Environmental sustainability of coach transport (reducing externalities) In Spain, coaches are the form of transport that currently most contribute towards the saving of externalities and emissions on a national level (external costs avoided). Additionally, coaches channel Public Service Mobility, whose only other transport alternative is the private car. Taking into account only Intercity Mobility. Estimation carried out using the methodology and unit costs of the INFRAS Study “External Costs of Transport” (2004), updating data to 2007. EXTERNALITIES AVOIDED BY COACHES equal toEXTERNAL COSTS SUBSTITUTION MODES (if coaches didn’t exist*)Minus CURRENT EXTERNAL COSTS OF COACHES * Assuming current Market Share Quotas from the Ministry of Public Works

21. 4.- ADVANTAGES OF THE SPANISH FRANCHISE MODEL The existence of a network of regular services by bus, with an adequate level of service, is a necessary condition for the effective transfer of car users, and to advance towards sustainable mobility. Example: New product BUS+FLY. Single ticket, no transfers, facilities for the customer. ECONOMIC To efficiently satisfy the needs of mobility, promoting development and competitiveness ENVIRONMENTAL To contribute towards the protection of the environment and health, reducing environmental impact, greenhouse gas emissions and optimizing non-renewable resources, especially energy SOCIAL To provide adequate conditions of accessibility, favoring social and territorial equality and the healthiest modes of transport Fuente: AFI. Impacto económico y social del transporte de viajeros por carretera

22. 5 Conclusions

23. Opportunities to improve the mode • Solidity of the franchise regulatory model, which contributes value to transport companies and allows us to design growth strategies. • Public policies that really encourage greater use of regular intercity buses, as a fundamental element to achieve patterns of sustainability mobility, attracting private car users: • Investments in own infrastructures for public transport (stations, BRT, traffic light priority, etc). • Safety, quality, energy efficiency. • Changing the habits of people towards collective transport. • Capacity to innovate in the improvement of the service for our passengers: comfort, accessibility, information, marketing, etc. • Integration of networks and public transport services: intermodality, co-modality.

24. Threats to avoid • Deregulatory processes that question the current condition of public services on regular intercity routes, disregarding their fundamental positive contribution towards sustainable development. • Adverse economic-financial situation of Public Administrations, especially at regional and local levels: • Cutbacks in the provision of public services, among them land transport. • Lack of liquidity, problems to pay supplying companies. • Shortage of resources to face the economic rebalance of deficient transport contracts. • Bad situation of infrastructures and basic complementary services to transport, like passenger stations or information systems. • Difficulty in implementing mid- and long-term strategies. • Deviations in basic costs that are fundamental for our operations, without the possibility of passing them on to fares or compensating for them quickly: fare deficit, loss of profitability. • Rigidity of the regulatory model to adapt the transport offer to the needs of the market.

25. Conclusions • The Spanish regulatory model for the operation of intercity services by road, based on management contracts for public services operated by private companies, has a solid legal. • Public transport by road, urban and intercity, Spain has better productivity rates in most EU countries. • Attracting demand to public transport is a fundamental issue, which can only be achieved with aligned policies from all Administrations linked to mobility. • Public transport by road needs actions of modernization, implementing more efficient transport solutions, of higher quality, with an ever increasing service coverage. • Keep public transport as a service of general interest private management is the most efficient in both the bus and train.

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