Debts and subsidies for High Speed Rail

by Andrew Bodman

The ongoing costs of running a high speed rail system are sometimes overlooked or underestimated. In July 2010 a World Bank report cautioned that governments planning high-speed rail systems: “. . should also contemplate the near-certainty of copious and continuing budgetsupport for the debt”.

Japan was the pioneer of high speed rail in the 1960s but within two decades had accumulated massive debts. The system was privatised by creating seven Japan Railway operators, and the $280 billion debt was transferred to the taxpayer and is still being paid off. Apparently four of the seven operators are still government owned, and it is thought that the privately owned operators receive concessionary usage fees. In addition, the three private operators receive another $2 billion annually from the government. And all of these subsidises are needed despite Japan having the highest rate of rail use in the developed world.

The French accounting system treats taxpayer subsidies as “commercial revenues”. So the French programme’s $1.75 billion “profit” occurs through a $10 billion annual subsidy according to a study by Amtrak in 2008. The national rail infrastructure assets were transferred to Réseau Ferré de France (RFF) in 1997. Between RFF and SNCF there was an accumulated debt of €38 billion from building lines for the TGV by 2011. To deal with this debt, RFF is expected to increase track fees by 40% between 2008 and 2012 to reduce this debt. SNCF has threatened to cancel low ridership routes and has indicated that its reduced profitability will make it impossible to renew its 1981 fleet of TGVs before 2020. TGV fares are being increased by more than twice the rate of inflation and in some cases even more.

It is believed that Spain spends nearly $3 billion on high speed rail subsidies annually and Germany more than $1 billion per year. We also know that the high speed line between Amsterdam, Rotterdam and Breda (in the Netherlands) has been saved from bankruptcy with a £250m government bailout. It has been losing £320,000 per day due to disastrous levels of patronage.

Further afield in Taiwan, it became necessary for the Taiwanese government to take over the running of the Taiwan High Speed Rail Corporation in 2009 as it was almost bankrupt, two years after it first started running its high speed trains. It had lost more than $2.1 billion. One of the contributing factors to the financial problems was that passenger numbers were approximately one third of those that had been forecast.

China which now has a greater distance of high speed line than any other country also has the largest debts from its rail building. In the first half of 2011, these debts amounted to $317 billion which has raised concerns for the World Bank. It is anticipated that almost $80 billion will be spent on building more high speed rail this year, with some funding coming from private sources as banks are restricted in their lending. One of the problems in this country is very low occupancy rates of high speed trains. The Chinese Railways Ministry is required to pay interest of up to 120 billion yuan (US$ 18.26 billion) each year. Apparently the railway system is currently only able to pay interest on the debt, and is unable to repay any of debt itself.

Is it surprising that the states of Florida, Ohio and Winsconsin turned down government incentives to build high speed lines? Not really because the individual states would have had to pick up any ongoing losses associated with such a programme.

Sir Roy McNulty’s report in 2011 highlighted the £5 billion annual subsidy paid in this country to subsidise our railways and recommended it be reduced. Our Secretary of State Justine Greening accepted the subsidy should be reduced when she attended the Transport Select Committee last December. However, HS1 is currently being subsidised by Kent County Council. It may be a small amount and of a temporary nature, but it does cover just 5 trains per day and it is still a subsidy. It would appear from the experiences of several other countries that HS2, if it is built, will add to the subsidy required for railways in the UK. Is this sensible for a country as indebted as the UK?

Andrew Bodman

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4 comments on “Debts and subsidies for High Speed Rail
  1. and of course the above analysis completely and utterly ignores wider economic benefits which are usually the main reason for any major transport infrastructure of anykind anywhere in the world. farebox revenues are only part of the picture. govts that may subsidise transport of any kind do do because it has been calculated using economic modelling that the wider benefits will be greater then the subsidy. people dont normally travel just for the sake of it (apart from steam tours !) they go for a reason such as business or a holiday or shopping. and they spend money when they get there on meals, hotels, gifts, shopping or to further their business etc etc.

    with hs2 these are the main benefits along with greater capacity and reduced journey time. and if you say that the last point isnt a benefit, why do train operators have to recompense passengers for delayed trains ? if nobody cared about the journey time they could always leave earlier for example.

    • The DfT Economic Case does include £ 4 bn for Wider Economic Benefits for London to Birmingham. It’s a round sum estimate because it is basically made up. The main components are “Perfect Competition” and “Agglomeration”. One year on I am still none the wiser what Agglomeration is.

      Shorter journey times are “nice to have” and a straight line High Speed Line like the one proposed would give larger time reductions than the cheaper alternative proposals — but if you think taking 35 minutes off the Birmingham to London journey time is going to fundamentally change the West Midlands economy you must be living in cloud cuckoo land. Ask Digby Jones, he knows what he is talking about.

  2. because high speed rail usually more then covers its operating costs. the french have announced a further extension to connect with the spanish hs lines and further monies have been allocated to spain to further extend their system. many many countries have hsl or are expanding or planning systems. are you saying that all these governments in all these other countries are mad too, just because you dont want hs2 ?

    spain’s problems have been primarily caused by the building industry collapsing due to speculation that the boom would continue. this of course came to an end abruptly by the 2008 financial crisis. hs lines and solar powerplants are NOT the principal reason for spains problems in other words – they form a very small part of the overall financial situation.

    by your reasoning we should expand or improve the tube and we should cancel major transport rail projects such as crossrail and thameslink. after all the business plan and economic basis for these is broadly the same as hs2 and is based on the expectaion that the current shift to rail and huge increase in passengers will continue. please also remember that if hs2 doesnt go ahead it isnt the end of the story. the govt might go cold on its current high priority for rail and go back to more polluting new motorways and airports / runways.

    in fact if you at hs2 believe that travel will lessen in future, why does the airline industry want to commit to adding more capacity. all these people cant be wrong or mad as you put it !!!

  3. Why has our government gone mad and continue to back this scheme?????????????????????????????????????????????????????????

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