The Economics of a New Rail Freight Line: the Case of the Betuweline in the Netherlands



The Economics of a New Rail Freight Line: the Case of the Betuweline in the Netherlands

Authors

B W Wiegmans,TU Delft, NL

Description

In the paper, the financial aspect of the Betuweline will be analysed from an economic engineering point of view

Abstract

With the opening of the Betuweline in June 2007, a dedicated freight railway line has become available for hinterland transport from and to the port of Rotterdam (and the rest of the Netherlands) into Europe. An intense debate preceded the actual investment in the Betuweline. Arguments that supported the investment were claimed to be: 1) the competitive position of the port of Rotterdam should be strengthened; 2) existing rail infrastructure is not capable to handle the expected growth of rail freight transport; and, 3) rail freight transport is better for the environment that single-mode road transport. However, arguments that undermined the investment were: 1) the Betuweline harms the typical Dutch landscape; 2) the costs will run out of hand; and, 3) the environmental advantages will be limited. This leads to the following problem definition: How does the financial balance look like for the Dutch government? Different financial modeling methods have been implemented in order to answer the research question.
The present worth analysis showed that the expected life of the Betuweline and the depreciation period do not influence the PW too much. Higher annual operating costs and lower interest rates worsen the PW, but introducing a salvage value improves the PW. The most optimal PW for the Betuweline results from a high salvage value, low interest rates and low operational cost and a short depreciation period.
The annual worth analysis proves that influence of the expected lifetime of the Betuweline and the annual operating costs on the annual worth is limited. A reduction in interest rates shows the greatest reduction in annual worth.
Given the expected negative cash flows from the Betuweline, the calculation of the rate-of return is not necessary. As long as the net cash flow is negative it means that the rate of return is -/- 100% percent, meaning that the whole invested amount in the Betuweline is lost (in this respect meaning that it is not recovered).
The result of the benefit cost analysis should be a ratio above 1.0. If the B/C ratio is less, the extra benefits associated with an investment are not justified. In case of the Betuweline, this is true for most of the alternatives analysed. Only expensive alternatives for the Betuweline combined with a long lifetime and a low interest rate result in acceptable B/C ratios.
The sensibility analysis into depreciation and interest for the Betuweline shows that for the Dutch government it is cheaper to pay interest and depreciation as compared to only interest. Furthermore, it is also better to limit the depreciation period to 30 years, because the total bill for the Dutch government increases considerably if longer lifetime periods are taken into account.
In total, taken from an economic point of view, the Betuweline is not a profitable investment. Given the financial conditions, the decision to invest in the Betuweline should not have been made, taken from a financial oriented point of view. However, to invest in rail freight transport could be a good decision because: 1) market parties indicated to have strong commitments to the Betuweline; 2) there were no alternatives for increasing the rail freight transport over the existing networks; 3) the Betuweline can relieve the mixed passenger-freight rail network; 4) the transport of dangerous goods can be redirected to the Betuweline; and, 5) the Betuweline is important for international rail freight transport network. The total bill for the Betuweline will be higher than 4668 million Euros, depending on interest levels and depreciation schemes. Most research has focussed on (cost and benefit) details of the Betuweline. The major amounts of interest and depreciation are not taken into account in most exploitation calculations. Compared to user charges and exploitation costs, interest and depreciation are enormous cost drivers. The whole public discussion about the Betuweline could have been a lot easier if the Dutch government had defined appropriate and serious alternatives for the investment in the Betuweline. Most actors agreed on the importance of rail freight transport and the statement that an investment was needed in the rail freight network in order to seriously develop rail freight transport in the Netherlands. The Betuweline was a ?must? in order to give rail freight transport a serious chance in the Netherlands. Or in other words, there was no alternative (than to do nothing). In the end, the decision to built the Betuweline should be respected, as an investment in rail freight transport was needed in order to give rail freight transport in the Netherlands a serious chance for the future.

Publisher

Association for European Transport