Regions Need a Clear and Easy-to-Understand Explanation of Benefits of Commuter Train Services

8 december 2017 | Kommersant

The adoption of new regulations providing regional authorities with an explanation of the pattern of expenses incurred by companies operating commuter train services should answer a lot of questions that regional governments have about how to calculate the compensations supposed to be paid to these companies, however, these regulations do not guarantee that these compensations will be paid. Svetlana Ganeeva, Deputy Head of the Analytical Center, shared some of her ideas with the Kommersant newspaper about how the regulators should use the new documents in practice.

Svetlana Ganeeva
Svetlana Ganeeva
Deputy Head

The drafts of new methodologies for calculating the expenditures of commuter train operators definitely offer some very realistic algorithms for resolving numerous issues that the sector is facing. They offer some very good answers to questions that the previous methodologies never addressed. However, these new documents do not offer any formal guarantees that commuter train operators will be able to get compensation from the regional governments for the expenses they calculate using these new methodologies. There are two issues at play here: first, governors do not want to pay and second, there are doubts about whether the expenses that commuter train operators want compensation for are justified.

The doubts have to do with whether the regional governments end up paying specifically for the service that they order and don't end up paying any extra expenses: the new methodologies should put these doubts to rest for the most part, seeing how they are quite easy to understand, very logical and how a wide array of expert discussions have been held about them. Transparency during the development of new methodologies, both when explaining new ideas and when considering new proposals, always helps dispel any doubts about the transparency of the regulatory mechanisms that eventually get picked further down the road.

However, if the root causes of mistrust run deeper and commuter trains are regarded by the regional governments and Russian Railways as an expensive social burden, the methodologies for calculating the costs alone are hardly going to make any difference. Regional governments need to be given a clear and easy-to-understand explanation about the benefits that commuter trains deliver not just for the passengers but for the regional economy as a whole.

Our Analytical Center has developed some approaches that allow us to quantify the benefits from commuter train services and our estimates suggest that subsidies paid to railway companies in the long run boost regional tax revenue as they ultimately increase the economic activity of the population in the region. They show that commuter trains do give you a return on investment and thus represent a normal investment project: the regional government invests in commuter trains and recoups the investments as additional tax revenue seeing how people use commuter trains primarily to commute to work. Since salaries and wages in Moscow are higher, the taxes on them are higher as well. The residents of the Odintsovo district alone, who work in Moscow, generate RUB 4.2 billion per year in extra tax revenue. And that's not the only positive effect of commuter trains.

If these calculations were to be used more, the attitude of regional governments to commuter trains would change and a lot of the problems having to do with lack of trust would just go away. And naturally, we must not forget about legal mechanisms for ensuring that the governments perform the obligations they take on. If a contract for a commuter train service is entered, the regional government must pay for the transport order it placed.

Nevertheless, it must be borne in mind that contracts are entered into freely, with no coercion and the methodologies proposed by the regulator are just a tool that can help the parties agree rational terms.

And new rolling stock for commuter trains is the kind of rational choice we're talking about here. In any big city today there is  a large group of people choosing between sitting in their car in a traffic jam or taking a commuter train. If commuter trains can give them comfort and higher speed they will be willing to pay for it. Even today high speed express trains cost more and there's a lot of demand for them, despite the fact that they are essentially the same kind of trains as your standard commuter trains, the only difference being that the cars are cleaner and they make fewer stops. Sure every regional government should act based on the kind of situation they have there locally, but our studies suggest that when it comes to choosing a mode of transport, it's not the price but convenience that is the deciding factor today.

At the same time, when people use commuter train services more it also helps solve the problem of traffic congestion in big cities and if we remember how much it costs to build a road, it turns out that buying new rolling stock is the cheaper and more rational option here.

Furthermore, commuter train services have a significant impact on the development of urban agglomerations as a whole. The advertisements for any new housing developments today always open with information about when they're going to have a metro station there. But an express commuter train that takes you straight to the city center is essentially the same thing as the metro, except that it travels on land rather than underground. Essentially, what we're seeing is that availability of good transportation options is the chief element in the development of major cities.

We're currently looking into proposals to shift to long-term transportation orders. This would allow carriers to use leasing more liberally and that would give them more options for upgrading their rolling stock. As for the wear and tear of the commuter trains currently in operation, in my opinion, instead of looking at the standard service life, we should be looking at the actual state of the trains. In different parts of the country commuter trains are used at different intensity: in some places a train may run a couple times a week, spending the rest of the time in a heated depot, if that is the case why write it off, even it may be old?

Our view is that in their search for additional funds, commuter train companies should use more fare differentiation depending on the quality of service and route, especially on routes where alternative modes of transportation are available. But this is not about increasing the overall level of prices. The recent bad example in Buryatia clearly shows that the logic where you raise the fares to get more money can backfire. After they raised the fares there the average fare for traveling by train within the republic went above the prohibitive level of RUB 1,000 per 200 km and people simply stopped using trains. By now they've lowered the fairs to RUB 382, or by a factor of 2.7, the number of passengers has increased and total fares have increased as well. Now they're launching new routes there.

This means that such tools as analysis of demand elasticity are not yet being used enough and a lot of people still don't realize that when you lower prices your total revenue may actually increase thanks to a spike in demand that will result from lower prices. The new methodologies and the federal policy on commuter trains offer enough flexibility for all parties involved, but now we have to manage to make use of it.

Source: Kommersant

Photo: from open sources