Table of contents

1. Liberalisation of the railway markets. A challenge to finance railwaysystemsRailway Days - WBSA, Railway Investment Summit8th October 2013, Bucharest (RO)Gilles PeterhansSecretary General UIP

2. Table of contents • UIP: International Union of Wagon Keepers • Regulatory framework: economic terms • Rolling stock: the freight wagon market • Rolling stock: asset financing • Conclusions

3. UIP: International Union of Wagon Keepers Role Acts as a promotional body for wagon keepers and rail freight; Represents 14 National Associations and round 200’000 freight wagons; Supports its members in improving regulatory framework that affects wagon keepers; Supports its members in the development of technical questions relating specifically to wagons, as well as organisational and economic matters, in order to increase the real quality of rail freight transport services; Aims at securing a continuous improvement in the safety and reliability of freight wagons;

4. Table of content • UIP: International Union of Wagon Keepers • Regulatory Framework: economic terms • Rolling stock: the freight wagon market • Rolling stock: asset financing • Conclusions

5. Financing railways: the role of Governements History • New financing streams • Eurofima • Private lessor • Oil shocks • Accumulated deficits (often +2% of GDP) • Concerns about rail freight market decline Competition from road transport begins Private capital 19th century 1920 - 1925 1930 - 1955 1955 - 1970 1970 - 1990 1991 … • States take over services • Repairing war damages • Rising costs • Strikes • Economic expansions • Divergent national policies • Increase of public contributions Railways under various forms of public ownership EU policy • Government intervention in order to provide appropriate financing • Railways decisions mainly driven by government priorities • Private investments mainly in freight wagons for dangerous good transports • Eurofima to support the railways in renewing and modernizing their equipment

6. EU initiatives - Fostering competition 3 railwaypackages First package Second package Third package • DIR 91/440/EC: • Independence from state • Accounting separation • Sound finances • 1st market opening • DIR 2001/12/EC: • Unbundling • Greater opening to international freight market • DIR 2004/51/EC: • Full opening of internat. & domestic freight services • DIR 2007/58/EC: • Opening of international passenger transport MARKET • DIR 95/18/EC: • Concept of license valid throughout the EU • DIR 2001/13/EC: • Conditions for granting of licences LICENSES • DIR 95/19/EC: • Track access charges and capacity allocation: • Concept of capacity allocation body, allocation priorities and principles • Safety requirements @ EU level • DIR 2001/14/EC: • User-changes and allocation of infrastructure capacities • Safety certificate • DIR 2007/59/EC: • Certification of train drivers INFRASTRUCTURE • DIR 2004/49/EC: • Definition of safety rules at European level DIR 2004/881/EC: ERA SAFETY • DIR 2008/110/EC: • Update of safety rules • ECM Art. 14 (a) • DIR 96/48/EC: • Interoperability of high speed rail • DIR 2004/50/EC: • Harmonisation and clarification of interoperability requirements • DIR 2001/16/EC: • Interoperability of conventional rail • DIR 2008/57/EC: • Interop conventional update INTEROPERABILITY 1991 - 1996 2001 2004 2007 2008 …

7. EU initiatives – Towards Single Market Improveframework Last mile ? 4th package RECAST 1st package MARKET • COM 2013/26: • NormalisationoftheaccountsofRUs • DIR 2012/34/EC: • (1) strengthening the power of national regulators • (2) improving the framework for investment in rail • (3) ensuring fair access to rail infrastructure and rail related services Infrastructure • COM 2013/28: • Openingofthemarketfordomestic passenger transportservicesbyrail New TEN-T guidelines Connecting Europe Facility Freight corridors 913/2010/EC + LICENSES + • COM 2013/29: • Openingmarketfordomesticpassenger servicesbyrail • Governanceoftherailinfrastructure INFRASTRUCTURE + • COM 2013/27: • ERA regulation SAFETY Technical pillar Intermodal level playing field ? – • COM 2013/31: • Definition of safety rules at European level (RECAST) INTEROPERABILITY • COM 2013/30:: • Harmonisation of interoperability requirements (RECAST) 2012 2013 -2015

8. Table of content • UIP: International Union of Wagon Keepers • Regulatory framework: economic terms • Rolling stock: the freight wagon market • Rolling stock: asset financing • Conclusions

9. Freight market growth and changes Market drivers • Transport policy (objectives and their full implementation) • Global economicdevelopments and transport demand • Major trends in logistics: • Delivercustomized international transportation acrossfrontiers • Demand for products individualisation and added services • Goods structure effect: awayfromheavybulkcommodities • Globalisation, automation and information processing: ICT requirements Freight wagon is one of the most important resources for rail freight transportation to achieve higher economic performance and adapt to modern logistic chains requirements

10. European wagon fleet: based on GCU and keepers’ head office Total: 587‘069 wagons 985 9‘077 25 79‘384 3‘816 158‘658 11‘113 3‘936 37‘484 25‘142 25‘463 12‘832 39‘548 89‘714 3‘350 13‘608 6‘215 35‘130 2‘820 4‘183 471 3‘355 1‘428 19‘332

11. European wagon fleet and market developments Otheravailable data sources • SCI Verkehr: Freight Wagons - Global Market Trends 2013 • Boston Consulting Group: World Rail MarketStudy 2012 • Eurostat data, UIC data, National VehicleRegistry data Source: ERA EcoEv Unit: NSA questionnaire

12. European wagon fleet and market developments Market trends • Procurement rates expect to beverylowin the coming 5 years • New procurementsmainly to replace old wagons • Incumbents (former state railways) still in a fleet downsizing process • Marketshare of freight wagon lessors (independentkeepers) isrisingsharply Drivers influencingprocurementstrategies • Adequateeconomicreturns and availability of financing sources • Additionalcustomersneeds and pessimism-bias(tendency to beunderoptimistic) • Improvement in RU productivity • Fleetrenewal rate and replacement needs (incl. policydriven) • Efficiency gains through wagon management systems and operational systems

13. Table of content • UIP: International Union of Wagon Keepers • Regulatory framework: economic terms • Rolling stock: the freight wagon market • Rolling stock: asset financing • Conclusions

14. Private Sector Markets Financing freight wagons: the sources Bonds and Private Placement Fonds, SPV and Investors SpecializedBanks Sources of finance • Own cash flow • Debt or equityfrom a State or an agencythereof • Grants or loansfrom supranational organisations (EIB) • Leasing or debt finance fromprivatesector

15. Financing freight wagons: risks vs returns Cost drivers - Borrowers Interest - Lenders • Financial market conditions (interest rates, spreads, refinancing costs) • Creditworthiness and probability of default • Loan-to-Asset-Value and collaterals (intrinsic value) • Underlying contracts/concession • Available asset securitisation • Country and foreign exchange risks • Long disbursement and repayment (loan) periods (15 – 20 years) • Relative constant returns (recurring revenue streams) • High transaction volumes • More attractive than alternative assets (diversification), more value than corporate • Pledge of assets and political support seen as comparative advantage Attracting private investments is possible but...

16. Financing freight wagons: as long as… Ensure value for money Privateinvestmentwillonlybeattracted for projectswith revenue streamsthat are isolatedfromrisks over whichinvestors have little control • Independent regulatoryauthoritiesare essential to attract large scaleprivateinvestments • Separategovernment’ssovereignfunctions of regulationfrom management and operation of railways • Policy makers to provide a stable regulatoryframework and avoid over-regulation • Stakeholders to focus on fields with competitive advantage, improveproductivity and service quality (in particular reliability, price and customer orientation)

17. Table of contents • UIP: International Union of Wagon Keepers • Regulatory framework: economic terms • Rolling stock: the freight wagon market • Rolling stock: asset financing • Conclusions

18. Conclusions • Liberalisationaimsatprovidingefficency in a Single Market. • Liberalisationis a challenge but also an opportunity in financing the railway system. • Stillmanyproblemsto attractprivateinvestments: lowmargins, lowreturns, decreasing volumes. + + – A real revitalisation in today’s rail freight market and a better modal split for railways needs new realities!!

19. EU initiatives - Liberalisation Structural changes are not enough to fosterperformance, efficiency and ensure more private investments: Ensureregulatorystability Ensurefairintramodalcompetition (freight vs passenger) Ensurefair market conditions between transport modes Remove remaining technical and administrative barriers Reduce regulatory burden and barriers to entry UIP welcomed and fully supports the 4th Railway Package and its objectives

20. 4th railway package – Expectations More interoperability, “interoperable” Safety & strengthened role for ERA myabost investments: Boostmarketaccess Schengen for rail vehicles and railways Same exams and same pass marks over Europe Reduction of time to market and costs to market Reduction of risks when launching new products Clear framework of roles & responsibilities Clear framework to limit national and protective rules Boost innovation Boostproductivity

21. Thank you for your attention! GILLES PETERHANS Secretary General gilles.peterhans@uiprail.org

22. UIP – External Working Structure Environment Members: 14 national associations • MEMBERS • keepers • workshops • shippers • manufacturers • NoBo • ... Other int. associations UIP UIC, CER, ERFA, UNIFE, UIRR, EIM, UITP, EPTTOLA, ESC, CLECAT, ETF,... Other organisations OTIF, UNIDROIT, RSRD2, national associations, etc. EUROPEAN INSTITUTIONS TRAN Committee ERA Administrative Board Commissioner for Transport Council of Transport Ministers European Railway Agency (ERA) * European Parliament European Commission Council of the EU RISC: Member States * ERA draftrecommendationsfor EU COMMISSION on safety and interoperability