Urban transport challenges in Europe in the context of the financial crisis

04 November 2015ContactFrédérique Prédali

Faced with the ever-increasing mobility needs of their local populations, European capitals are looking at financing options that will enable them to develop their transport services. The need to manage budget cuts and develop adequate services at reduced cost has led to the emergence of varying strategies.

For the Île-de-France region, the key issues facing public transport systems concern not only existing services, but also the development of amenities for the future.

As far as services provided are concerned, the most pressing issue is that of regularity - affecting primarily the metro, RER and Transilien networks - and its effect on impressions of service quality and overall satisfaction with the existing network. As for future development, there are several avenues to be explored, including those pertaining to modes of active transport and alternatives to vehicle ownership and use (such as car sharing and carpooling). Concerning the physical extension of the current network, the primary question is one of financing: should we look towards new resources and, in particular, introduce property taxes to fund new infrastructures?

Seeking answers to these questions, L'Institut Paris Region (Paris Region Planning and Development Agency) has undertaken an analytical review of transport policies of other large European capitals such as London, Madrid and Berlin. These metropolitan areas are often confronted with the same problems, though the timeframes concerned may depend on the age and performance of each city's network. Each city tackles problems in their own way depending on their political culture, the organisation of their transport systems and their public institutions. Today, all these cities have been affected by the crisis to a more or less serious extent, with Madrid being the hardest-hit.

No cost-cutting on maintenance and upkeep

Though investment in high-capacity transport networks in the Greater Paris region is currently deemed to be insufficient, situations in Berlin and London have shown that cost-saving measures should not be made in areas relating to maintenance and upkeep -whether related to underlying facilities or the vehicles themselves - as doing so can increase the risk of exponential failures in punctuality and safety.

London: disillusionment with public/private contracts

In the 1990s, after years of neglect had allowed the underground network to fall into disrepair, London could no longer postpone the necessary maintenance work.

After failed attempts at using public/private contracts to modernise the underground, the transport authority Transport for London (TfL), regrouped its maintenance teams within the new organisational structure of London Underground. As the owner and operator of the underground infrastructure, TfL was able to directly oversee modernisation work and give priority to those lines which had experienced the most significant delays. For example, the failure of the public/private partnership with Tube Lines in 2010 had caused significant delays in the execution of planned modernisation work, and upgrades to the signalling system on the Jubilee line ended up costing twice the original estimate.

The state of the London metropolitan transport network is now improving line by line, but the modernisation plan is only halfway complete. A summary of the state of the underground and its regularity issues (State of the Underground), drawn up by the London Assembly(1), was published in September 2011. Delays have been reduced by 27% across the underground network since 2003, but four lines (Jubilee, Victoria, District and Metropolitan) are noted for their lack of reliability and poor service quality due to material or infrastructure damage. Following the publication of this report in late 2011, TfL drew up an action plan aiming to improve the reliability of the underground service and suburban trains.

The situation in London demonstrates that it is always possible for a city to take action, even in difficult circumstances. Though it was initially more dilapidated than the Paris metro, the London Underground is now undergoing a complete refurbishment, though the work will take another ten years to complete.

Berlin: cost-cutting at great expense

As the case of Berlin's S-Bahn demonstrates, it pays to maintain a high-performing transport network with punctual service rather than to allow ongoing dysfunction, damaging the entire image of the public transport system. The S-Bahn, roughly equivalent to the RER in Paris, had previously enjoyed a favourable reputation, but since 2009 services have been regularly interrupted for two main reasons: deficiencies in the rail infrastructure rendering it incapable of functioning during harsh winters, and the dilapidated state of the vehicles themselves. In effect, the "S-Bahn crisis" in is part linked to flaws in the system's vehicles, which were introduced during period of considerable cost-cutting imposed by network owner Deutsche Bahn. Unfortunately for users, the vehicle design is specific to the Berlin transport network, which has slowed the availability of repair/replacement solutions. As a result, for the last four years, the services provided by the S-Bahn network have not met contractual expectations.

The local transport authority also played a role by dispensing with calls for tender by allocation, which allows for standards and expectations to be redefined for each new call for tender and contract, in terms of both the vehicles used and the quality of service. As such, after several months of debate on how to tackle the crisis, the Länder of Berlin and Brandebourg decided, in June 2012, to submit to calls for tender by operational lots for the S-Bahn network. The network will be divided into three lots: North-South, Stadtbahn and Ring. The first call for tenders for the Ring network is underway, with the RATP group having submitted its candidacy for the contract, scheduled to take effect in 2017 with a new fleet of carriages. The network improvement aspect of the tender will be continued qualitatively and quantitatively via the attribution or renewal of operational contracts for regional lines. In order to properly define the requirements for network maintenance, the regional organisational authority, Verkehrsverbund Berlin- Brandenburg (VBB), now carries out a network performance analysis (S-Bahn, rail and metro) in the second quarter of each year. Notably, this analysis uses an indicator to flag increased journey times across the network, in order to quantify slowdowns and compare performances year on year. The results allow the authority to highlight improvements to the infrastructure that will eventually optimise train circulation speeds, as well as any worksite organisational improvements to be implemented.

Eventually, regions that had delayed the onset of necessary network upgrades ended up paying maintenance costs that were much higher than anticipated, and have since been obliged to try to recover some of these costs by increasing fares, to the detriment of network users. Berlin transport users, having already been forced to accept cuts to transport services, also found themselves subjected to 2.8% fare increases each year. However, the rise in prices remains below the rate of inflation (3.2%) and includes the increased energy costs faced by operators. In London, where TfL has had to review fare prices due to a mishandling of the costs associated with renovation of the underground, fares have increased by 5 - 7% each year since 2010 - a rate higher than that of inflation. The scale of fare increases across collective transport services has caused concern amongst commuter associations, who fear that users will be encouraged to return to using cars.

Early anticipation to ensure financing

Whether relying on private financing via public/private contracts (PPP) or joint ventures for construction and transport, it is essential to anticipate future issues while maintaining realistic expectations.

PPPs: precise clauses, rigid contracts

A fairly liberal economic culture means that British authorities are used to relying on private financing, with the state investing only partially in public transport infrastructures. This type of financing allows public sector bodies to spread debts across various timeframes, which may be advantageous in the context of the Maastricht Treaty whose aim is to limit unnecessary additions to national debt.

However, the workings of these kinds of financial arrangements are judicially and financially complex. Once a contract is agreed upon it is difficult to amend, due to the highly precise ways in which clauses are designed. In the case of public-private partnerships (PPP) for maintenance of the London Underground, this type of contract was revealed to be ill-suited to the scale of the work involved, the scale of which has been underestimated by the contracting authority and project candidates. In the case of the PPP entered into with American company Cubic for the provision of the Oyster ticketing system, the contract did not allow TfL to develop its fare prices by integrating cost savings from advances in ticketing technology. In the Borough of Croydon, the construction of the tram network received financial support from the contract holder, whose remuneration was intended to be derived from ticket sales. When TfL sought to introduce subsidised fares on the network, the organising authority ran into problems due to the drop in profits this would represent for the contract holder, and was forced to enter into negotiations in order to get the new tariff system accepted.

Construction-transport development operations: mortgaging future development

Regarding financial incomings from property and real estate, TfL no longer considers the arrangement of joint construction-transport development operations to be a viable supplement to project financing, as a result of difficulties encountered during the Beckton extension of the Docklands Light Railway (DLR). In 1993, the Greater London authorities intended to finance this new branch of the light railway via land sales and real estate operations; when property prices dropped dramatically, governing bodies were left with no choice but to take over the project using traditional financing methods.

In Spain, the rupture of the property bubble that was linked to the financial and economic crisis means that reliance on private financing for new infrastructures is no longer a viable option. The costs of constructing and operating transport lines have become prohibitive for local authorities, which now find themselves incurring significant debts. The district of Parla in the suburbs of Madrid is no longer able to pay the maintenance costs for its tramway, resulting in a two-day suspension of the service at the end of 2011. Parla had instigated the project despite a lack of support from its regional government, and the tram was constructed thanks to costly private financing measures entered into in the hope that the new lines would increase property values. Despite support from the regional government, new transport projects rarely get off the ground, as contract holders are no longer able to secure support from banks in order to finance transport projects seen as no longer being profitable enterprises.

This is the case for the new (largely underground) rail service linking the districts of Móstoles and Navalcarnero, which was abandoned in 2009 after more than a year of construction work. The concession agreement that was entered into for the financing, construction and operation of the 15km line was suspended by the prime contractor, whose organisation was banking upon significant population growth in the Navalcarnero area. In fact, the city had intended to open up large swathes of land for urbanisation projects, with the objective of multiplying its population by five, from 25k to 125k inhabitants.

With the onset of the financial crisis, this development plan was never validated at a regional level. Consequently, many accommodation and business units remain empty and the number of residents in the Navalcarnero area has remained more or less unchanged. The contract holder had invested 130bn of the 360bn needed for the construction of the line, but was unable to recoup their investment. While the contract did specify that the contract holder would assume all losses, the company is now attempting to secure 50bn in subsidies from the Community of Madrid (CAM) – a sum it has been unable to obtain from banks. For the moment, the CAM has announced that it will not fine the company for not respecting the work schedule as long as negotiations surrounding the return to work are ongoing.

Using taxes to finance transport projects

In the 1990s, British authorities learned not to rely too heavily on economic benefits arising from development projects as a means of financing transport infrastructures, and consequently direct contributions from developers and promoters for real estate operations near transport stations is fixed at an upper limit of 2% for the financing of the CrossRail line. Despite the financial crisis, British operators have kept their 100km East-West rail development plan alive by diversifying resources. A new fiscal entity has been created: the Community Infrastructure Levy, which will tax development projects in the Greater London area, bringing an extra 2% input from developers to the CrossRail project. The project uses existing transport infrastructures (except in the central zones where tunnels are currently being excavated), though financing has not yet been secured - of the £16bn budget required for the project, 2bn has not yet been sourced.  Greater London's financial participation in the operation has been made possible due to the guarantees offered to lending organisations. On one side, TfL is counting on fare price development (linked to annual fare increases and line operation) and on the other hand the Greater London organisation has instituted an additional tax on businesses located in London in order to pay back project loans. The Business Rate Supplement is in addition to local taxes payed by businesses in accordance with the rental value of their real estate properties, both buildings and undeveloped land. In CrossRail's case, the supplement amounts to 2% of the Business Rate paid by companies in the Greater London Area, and will allow the organisation to pay back all loans sought for the project within twenty-five years.

The finance/debt equation

At a time of swollen public debt, securing financing for new infrastructures is undoubtedly one of the most difficult hurdles to overcome. Financing from the private sector has raised hopes that new projects may be begun without putting extra pressure on public debt; however, it may also add constraints to a project, rendering it ill-adapted to public transport systems over which public authorities need to maintain control (for elements such as network service area, fare tariffs, construction and maintenance repair schedules, etc.). Moreover, the prevailing economic context raises questions about the potential outcome of a property bubble rupture, especially if a significant portion of project financing was based on capital gains in real estate.

It is therefore preferable for authorities to exercise extreme selectiveness in their project prioritisation, delaying projects whose budgetary requirements are beyond the capacity of public investment.

Top of the list of priorities is modernisation of transport networks and vehicles. These actions cannot be delayed, as they will inevitably lead to an avalanche of future issues, especially where safety is concerned. Issues arising in maintenance and upkeep can be kept in checkusing calls for tender to attract operational contracts that include service quality and regularity indicators. In the Île-de-France region, improvements achieved through contracts with operators SNCF and RATP have enabled notable advances in this perspective, but these will need to be supplemented by broader and more costly modernisation work. The recently-concluded management plans for RER lines in the Paris region include the replacement of vehicles, as well as infrastructure maintenance and railway line renovation.

This network modernisation will need to be accompanied by mobility management actions such as those introduced by authorities in London over the last 15years. Policies encouraging Eco-mobility in London are the result of the political desire to provide a public transport system capable of restoring the shortcomings of existing heavy transport modes that are either obsolete, congested or undergoing maintenance, as well as a bus network that experiences heavy delays during rush hours (and as a result of building working on roadways in central London).

Without support from corporate lobbies, these alternative systems are often difficult to implement. This is why projects must have the support of public bodies, especially in the context of the economic crisis. Such actions provide support for mobility management during periods where transport lines are undergoing upgrade work, thereby relieving pressure on networks and allowing the city to defer certain investments for new transport projects while adding to their existing range of public transport services.

New mobility services are ready to emerge, and are the only communications options that manage to effectively get messages across to reach local citizens, who are increasingly choosing more eco-conscious modes of transport.

1. This assembly is elected by a direct vote during Greater London elections, with the aim of overseeing the actions of the Mayoral office and raising questions on behalf of city residents.

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