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            february 18, 2019

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Competitive tendering in rail transport proceeds, project companies to finance the investments

  05.02.2019    

The Finnish railway sector is facing a lot of pressure to change. The increasing environmental awareness, requirements of sustainable development and mitigation of climate change call for an overall reform of mobility and logistics services.
The aim of opening the railway passenger transport to competition is to make travelling by train a more attractive alternative to private cars and so promote the attainment of the climate goals. With the competition the provision of railway passenger transport services will increase, become more versatile and better meet the needs of different customer groups.
The Government's Ministerial Committee on Economic Policy supports the proposal by the Ministry of Transport and Communications to establish a limited liability company wholly owned by the state in order to comprehensively develop the railway sector and promote large-scale rail transport investments.  The limited liability company will be established with minimum share capital under the ownership steering of the Ministry of Transport and Communications.
The Government's Cabinet Committee on Economic Policy discussed the proposal on 1 February 2019.
The limited liability company to be established, Oy Suomen Rata Ab (working title), will be a group of the following subsidiaries:

- Project company Suomi-rata, (“Finland line”)

- Project company Turun tunnin juna (“fast Helsinki-Turku line”)

- Rolling stock company

- Real estate company, and

- Rail Baltica company.

There are no conditions for big investment projects and project companies to proceed, if rail traffic cannot be subjected to competition. Tendering of transport services is one condition for the financing of infrastructure projects.

Minister Berner: Efficient rail transport services necessary for facilitating everyday mobility

Minister of Transport and Communications Anne Berner is pleased that a full contribution to the development of rail transport services is now possible.
“It is clear that large-scale, necessary rail investments cannot be carried out from budgetary funds and that is why we need new finance methods. A solution has been sought throughout the government term. I am glad that it has now been reached in cooperation with the cities. Efficient rail transport services are essential for facilitating everyday mobility and extending the commuter areas. They are also a significant contributing factor for Finland’s competitiveness,” says Minister Berner.

Project companies to promote the northern connections and those between Helsinki and Turku
With the help of the project companies, rail traffic will be developed in three directions: north, west and east.
At the establishment stage of the project companies Suomi-rata (“Finland line”) and Turun tunnin juna (“fast Helsinki-Turku line”), the majority ownership will be held by the state, which in the early stages will provide capital for the company. In the course of the planning process, the company's capitalisation and new shareholdings will be negotiated and agreed.
The commitment of the cities involved is a prerequisite for the establishment of project companies. In addition to the state, the project company owners will include other public sector or publicly owned entities benefiting from the project.
Preliminary estimates show that the total costs of the projects planned for developing the Suomi-rata (Airport line and Airport-Tampere rail corridor) are around EUR 5.5 billion. The estimated passenger volume is 6.5 million trips a year.
According to preliminary estimates, the total costs of the projects planned for developing the Helsinki-Turku connection (Espoo urban railway, Espoo-Salo rail line, Salo-Turku rail line and Turku railway yards) amount to around EUR 2.0 billion.  The estimated passenger volume is 1.6 million trips a year.
In future, the project company model would be used also in making the eastern rail line faster.

Rolling stock company and real estate company

Along with a partial demerger of VR Group Ltd, all Sm2 and Sm4 trains in the commuter traffic of southern Finland will be transferred to the rolling stock company. As capital will be provided to the rolling stock company, acquisition of new stock will be started immediately to replace the outdated stock.
The real estate company will ensure competition-neutral conditions in the railway market by providing all railway operators with equal access to stations, terminals, depots and maintenance facilities as well as to services offered by these real estates.
The Ilmala rail yard as well as the station buildings owned by the VR Group and located in the commuting traffic area of southern Finland will be transferred by means of the demerger to the real estate company to be established.

Rail Baltica
Finland will take part in the RB Rail AS joint venture.  Once completed, Rail Baltica will be an important new route for transports from Finland to the central market areas. Through its partnership in the venture, Finland will promote the development of the core network corridor from Helsinki to the north.
The following terms will be set for the partnership in the joint venture:  The RB Rail AS joint venture will be responsible for all matters concerning the whole project, for example EU funding will go through the venture.
Instructions that ensure the transparency of procurements will be included in the competitive tendering process. The level of management and administration of the venture will be professional.

Financing of the companies
The state of Finland will transfer to the balance sheet of Oy Suomen Rata Ab shares worth of EUR 100 million in total.

The parent company Oy Suomen Rata Ab will provide capital to the balance sheets of its subsidiaries as follows:

- EUR 16 million to the project company Suomi-rata, (“Finland line”)

- EUR 10 million to the project company Turun tunnin juna (“fast Helsinki-Turku line”)

- EUR 71 million to the rolling stock company

- EUR 2 million to the Rail Baltica company.

Using project companies in big investments significantly decreases the need for financing from the state budget, and the projects will not be assessed within the 12-year national transport system plan.
So the use of project companies will not decrease or limit the state finance programme reserved for the transport system plan.

Ministry of Transport and Communications Finland



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