South East Europe: Rail financing challenges
Posted: 25 May 2016 | | No comments yet
In the development of European transport policies, growing priority is given to railway transportation. This places huge pressure on railway infrastructure managers and EU Member State governments to provide major financing for railway infrastructure projects. This challenge is particularly important for the ‘Cohesion countries’, such as Bulgaria, because in addition to the poor condition of railway infrastructure, they have limited budgetary capabilities. However, they dispose of the options of the Cohesion Policy. As Maria Tchakarova, Director of the NRIC explains, a continuous challenge exists of combining various financial instruments when building new or modernising existing railway infrastructure.
In an ideal situation, the funding of a project is divided between the state budget and the rail infrastructure manager. Loans from commercial banks and/or international financial institutions are often added to the funding, most frequently from the rail infrastructure manager.
When considering the possibilities given from the Cohesion Policy of the European Union, it continues to become more complex with financial resources from the corresponding Operational Programme ‘Transport’. At the same time, depending on the purpose of investment, the funding under the programme can be further combined between the Cohesion Fund and the ERDF.
EU regulations 1316/2013 and 1315/2013 introduce the possibilities for achieving the policies set out in its white paper on transport, regarding reducing CO2 emissions by 2030, as a result of achieving the priorities in transport. A Connecting Europe Facility is being established which will serve as an instrument for achieving these results on the main TEN-T network of the European Union.
All of these financial sources and opportunities can be combined, depending on the specifics of the particular project and its compliance with the priorities of the various sources of funding.
The duration of the preparation and implementation processes of major railway projects can be prolonged as a result of the pre-contract phase. This precedes the signing of a construction contract and can last between three and five years. When a project needs environmental consideration (such as construction across densely populated urban areas) decisions can take up to 10 years. For this reason funding can start with particular instruments and finish with elements that were not available in the beginning of the project.
The same applies to the construction phase. For complex projects, this period might be considerably extended and the inclusion of new sources of funding and/or the termination of them can occur.
Planning and programming of such a project, as well as the strategy for its funding, is a difficult task, associated with a number of challenges for the beneficiary, which in most cases is the rail infrastructure manager.
A typical example is the project to modernise the railway line between Sofia and Plovdiv. It has a total investment value of €770 million and will be funded from four different sources.
The preparation phase began with the funding of the feasibility study and the conceptual design with a choice of options – this action was financed under the ISPA programme in the period 2007-2013.
Based on an approved version of the conceptual project, two optimisations of the costs for the Sofia–Septemvri section were made in the 2011-2013 period, and from 2013 the construction of the Septemvri–Plovdiv section began according to the FIDIC yellow book. These activities received funding under the Operational Programme ‘Transport’ 2007-2013.
In 2015, on the basis of the selected conceptual design version for the Sofia–Elin Pelin section, an application to the CEF was made for the design and construction of the section. The contract was signed in December 2015 and the tender procedure to select a contractor was announced in January 2016.
Meanwhile, in January 2015 the drafting of technical designs and the spatial planning for the remaining section from Elin Pelin to Septemvri was assigned. This funding was secured under axis 5 of the Operational Programme ‘Transport’ 2007-2013 through the ERDF. As a result of the design of works and the balance of funds under the Operational Programme ‘Transport and Transport Infrastructure’ 2014-2020, two sections were defined: the first from Elin Pelin to Kostenez to be funded under the Operational Programme ‘Transport and Transport Infrastructure’ 2014-2020 and the second from Kostenez to Septemvri, for which an application form was submitted under procedure 2015 for funding under the CEF.
The scheme clearly shows the distribution of sources of funding between the different sections and for the different phases of the implementation of the project.
The main challenges in combining the various instruments and sources of funding include:
- Organisation of the unit that will manage the implementation of the project
- Optimisation of the processes and the costs during the implementation of the project and depending on the sources of funding
- Coordination of the physical and financial implementation.
For tackling the problem of managing the project, good-practices were applied during the period that NRIC was a beneficiary of various donor programmes. At the time of the preparation of the feasibility study for the ISPA programme, a unit for the project preparation was established that completed application forms and all necessary documents for tendering. On completion of the contracts for the construction of the Septemvri–Plovdiv section, a unit for the management and implementation of the Sofia–Plovdiv project was created for the Septemvri–Plovdiv section.
The two units continued their work in parallel and in sync: the unit for the preparation of the project continued its activities consisting of cost optimisation, assignment and implementation of the technical design and the spatial planning for the remaining sections of the railway line, including the preparation of a strategy for the sources of funding. The unit for the implementation of the project has begun construction on the Septemvri–Plovdiv section and is due to complete it by December 2016.
The cost optimisation processes were carried out simultaneously in both units with experts from one of the units temporarily working with experts from the other unit, with solutions and decisions being made in full awareness of both structures. The flexible structure of employment of such experts – working on the preparation, project management and implementation – is guaranteed by the ‘rules’ for the preparation, management and implementation of projects in NRIC. While the Preparation Unit prepares the new sections, the spatial planning, land expropriation procedures, archaeological studies etc., the Implementation Unit is focused on the construction and the SWOT analysis in the preparation of this section, in order to optimise the activities for the next sections. As a result of the joint activity the costs from the conceptual design were optimised by approximately 22% compared to initial indicative values concerning the amount of investments for the railway line.
Specific clauses for reporting progress, technology for carrying out construction works, early sanctioning mechanisms and other new instruments resulting from the experience from building the first section, were included.
The end result was the preparation of a comprehensive strategy for the modernisation of the Sofia–Plovdiv railway line and the possible sources of funding.
The big challenge with managing the implementation of the project is the coordination of the physical and financial performance. The various sources of funding have different requirements for accountancy, reporting, inspection, monitoring and eligibility. On the other hand, all sections are too difficult and large-scale for one contractor and, therefore, each of them was divided into several smaller ones. The number of contracts to be coordinated and managed exceeds 100, including the expected new contracts. For effective coordination of the contracts and the implementation of the project – apart from specific positions – new expert on-site inspectors were introduced to the Managing Unit. These individuals are highly-qualified and in direct connection with each other on a daily basis. A specially designed system graphically presents the progress of all railway infrastructure elements for each of the contracts. Every day the on-site inspectors measure the physical progress, which is then visualised and the verifiers report the financial progress to the coordinator and then he uploads every payment to the system. The project manager has two deputies responsible for all sections funded from a single source from OPTTI and CEF, respectively.
In the future, more and more projects will be carried out through combining various financial instruments and the railway infrastructure managers will face further challenges. I therefore consider that NRIC’s experience presents a valuable example to all colleagues. We are far from completing the entire Sofia–Plovdiv railway line, but I am convinced that the selected approach and the lessons learned so far will help us to complete it within the planned deadline.
Maria Tchakarova has been the Director of NRIC, responsible for investment projects of programming, preparation, implementation and management over two periods – initially from 2003 to 2009 and after that from 2014 until now. Prior to this Maria worked in the Ministry of Regional Development and Public works, the Agency for Privatisation, as well as a freelance consultant on European projects in Macedonia and Turkey. Maria graduated as an Engineer from the University of Chemical Technology and Metallurgy; has an MA in Economics from the University of National and World Economy; and has a master’s degree in Investment Projects.