Subsidization of passenger trains is economically inefficient

10/2/2002 | 12:00 AM

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TALLINN, 2 October 2002 - The State Audit Office used the example of the subsidization of AS Edelaraudtee to investigate how the state has attempted to provide the population with optimum opportunities with public transport. The audit demonstrated that it is economically inefficient to go on supporting the passenger train traffic as it has been done up to now and there are no substantial arguments for preferring trains over other means of transport.

The State Audit Office assumed that the Ministry of Transport and Communications as the provider and planner of the services obtained for the subsidies has clarified the destinations and frequency of travel to be provided for the population with public transport subsidized at national level and therefore chosen the economically most efficient means for providing transport services.

The State Audit Office formed the following conclusions:

The state (Ministry of Transport and Communications) has not specified the minimum level of transport services or where to and how often people should be able to travel using the state support.

In most cases people prefer trains because of the price, convenience or speed. The State Audit Office’s survey, carried out among the local governments, showed that train is the only possible mean of transport for approximately 400 people living in south-eastern part of Estonia. The state is going to spend approximately one billion kroons to subsidize passenger train traffic until 2009.

Ticket revenues only amount to approximately 10% of the transport costs on the railway. This means that the state will have to add up to 9 kroons to each kroon paid the passenger has paid for the ticket; in 2001 the state paid approximately 84 kroons extra for each time somebody traveled by train. The respective amounts are considerably smaller in case of carriage by bus. At the same time it would not be realistic to increase the prices of the tickets as in most cases the prices of the train and bus tickets are the same.

The calculations of the State Audit Office show that for the amount paid as the subsidies it would be possible to replace each train for 9 buses traveling free of charge, if we are not to consider the expenditures necessary for the construction of roads. The number of people traveling in each train amounts to the number of passengers carried by 1-3 buses. This means that if we were to allocate at least some part of the train subsidies between the other modes of transport it would be possible to provide the passengers with considerably better opportunities for mobility. Such a decision would call for additional costs for road construction but nevertheless we need to consider that in addition to buses there are other vehicles making use of the roads.

The main arguments given to justify the economically inefficient passenger transport on railway are mostly related to safety and environment protection requirements. The State Audit Office does not deny the importance of passenger safety and environment protection requirements. Nevertheless, these aspects are not sufficient to reason for the subsidization of railway transport being proportionally larger than the amounts of support allocated for other means of transport, as the relative share of railway transport in total passenger transport is very small. Therefore it is not plausible that the safety or environment friendliness of this mode of transport would have substantial impact on the status of environment or the passenger safety as a whole. If we were to spend the same amount of assets to solve the environment protection problems of other most common modes of transport it would be possible to achieve better results as we look at the picture as a whole while providing the passengers with traveling opportunities better than now.

The privatization of Edelaraudtee was the first attempt to involve private investments in provision of services subsidized by the state. This attempt was only successful to a certain extent. The volume of the transport services to be contracted for by the state was not clear until the end of the privatization. The tenderers were not asked to submit any binding bids concerning the price of the transport services, the quality of thereof, etc. therefore the competition between the tenderers did not include these issues. Therefore it is difficult to say whether the bid received by the state was economically the best. The contract in force also enables AS Edelaraudtee to increase the price charged for each transport kilometer on continuous basis while the state has no sufficient grounds to demand the maximum value of transport services from the provider of thereof.

The State Audit Office recommended the Minister of Transport and Communication to decide what should be the level of transport services provided to the citizen by the state resultant to the subsidization; the ministry should also complete the necessary calculations to decide whether to go on supporting Edelaraudtee or to replace the trains – at least in part – with buses. In case of transport between Tallinn-Tartu and Tallinn-Narva this should be done as soon as possible as the Parliament’s decision to support these lines shall expire in 2003.

Pursuant to the decision endorsed by the Parliament the amounts to be paid to Edelaraudtee as subsidies total to 939.6 million kroons in 2001-2009.

Sven Soiver
Press Representative of State Audit Office
Telephone: (372) 640 0787
GSM: (372) 53 414464

  • Posted: 10/2/2002 12:00 AM
  • Last Update: 10/15/2015 9:46 AM
  • Last Review: 10/15/2015 9:46 AM

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