Committee Reports > List of Committees > Joint > 1993 > Committee on Commercial State-Sponsored Bodies > Report No. 5 - Iarnród Éireann

TITHE AN OIREACHTAIS

SEVENTH JOINT COMMITTEE
ON
COMMERCIAL STATE-SPONSORED BODIES

FIFTH REPORT

IARNRÓD ÉIREANN

Table of Contents

Orders of Reference

Dáil Éireann

7th April, 1993:

Ordered:

(1) That a Select Committee consisting of 7 Members of Dáil Éireann (none of whom shall be a member of the Government or a Minister of State) be appointed to be joined with a select committee to be appointed by Seanad Éireann to form a Joint Committee (which shall be called the Joint Committee on Commercial State-sponsored Bodies) to examine -

(a)the Reports and Accounts and overall operational results, and

(b)in the light of the reports published pursuant to subparagraph (a), the common issues relating to Board responsibility, structure and organisation, accountability and financing, together with the relationship with central Government and the Houses of the Oireachtas

of State-sponsored Bodies engaged in trading or commercial activities referred to in the Schedule hereto and to report thereon to both Houses of the Oireachtas and to make recommendations where appropriate.

(2) That, after consultation with the Joint Committee, the Minister for Finance may include from time to time the names of further State-sponsored Bodies in the Schedule and, with the consent of the Joint Committee, may delete from the Schedule the names of any bodies.

(3) That, if so requested by a State-sponsored Body, the Joint Committee shall refrain from publishing confidential information regarding that Body’s activities and plans.

(4) That the Joint Committee shall have power to send for persons, papers and records and, subject to the consent of the Minister for Finance, to engage the services of persons with specialist or technical knowledge to assist it for the purpose of particular enquiries.

(5) That the Joint Committee, previous to the commencement of business, shall elect one of its members to be Chairman, who shall have only one vote.

(6) That all questions in the Joint Committee shall be determined by a majority of votes of the members present and voting and in the event of there being an equality of votes the question shall be decided in the negative.

(7) That the Joint Committee shall have power to print and publish from time to time minutes of evidence taken before it together with such related documents as it thinks fit.

(8) That every report which the Joint Committee proposes to make shall, on adoption by the Joint Committee, be laid before both Houses of the Oireachtas forthwith, together with any document relating thereto which it proposes to publish, whereupon the Joint Committee shall be empowered to print and publish such report and the said document, or documents as the case may be.

(9) That four members of the Joint Committee shall form a quorum, of whom at least one shall be a member of Dáil Éireann and at least one shall be a member of Seanad Éireann.

(10) That all appointees to high office in the State shall attend meetings of the Joint Committee, as appropriate, and subject to the legal constraints of their office, to discuss issues which are relevant to the matters comprehended by paragraph (1).

(11) That Ministers and Ministers of State shall appear before the Joint Committee to discuss current policies relevant to the matters comprehended by paragraph (1) and the implementation of such policies in their Departments. A Minister or Minister of State may request the Joint Committee to convene to enable him or her to explain current or proposed policy or to initiate a debate thereon.

(12) That in the absence from a particular meeting of the Joint Committee of a member who is a member of Dáil Éireann nominated by the Party or group within the meaning of Standing Order 90 to which the absent member belongs may take part in the proceedings and vote in his or her stead: Provided that in the case of a substitute nominated by a Party which is a Government Party, such substitute may be a member of another Government Party.

(13) That members of Dáil Éireann, not being members of the Joint Committee, may attend meetings and take part in the proceedings of the Joint Committee without having a right to vote.

SCHEDULE

Aer Lingus c.p.t.

Aerlínte Éireann c.p.t.

Aer Rianta c.p.t.

(including its subsidiary Great Southern Hotels p.l.c.)

ACC Bank p.l.c.

An Post

Arramara Teo.

Bord na gCon

Bord Gáis Éireann

Bord na Móna

Bord Telecom Éireann

Coillte Teoranta

Córas Iompair Éireann (including its subsidiaries Bus Éireann, Bus Átha Cliath and Iarnród Éireann)

Custom House Docks

Development Authority Ltd.

Electricity Supply Board

Housing Finance Agency

ICC Bank p.l.c.

Irish National Stud Company Ltd.

Irish National Petroleum

Corporation Ltd.

Irish Steel Limited

National Building Agency Ltd.

Nítrigin Éireann Teo.

Racing Board

Radio Telefís Éireann

Temple Bar Properties Ltd.

Voluntary Health Insurance Board.

Seanad Éireann

8th April, 1993:

Ordered:

(1) That a Select Committee consisting of 4 members of Seanad Éireann (none of whom shall be a member of the Government or a Minister of State) be appointed to be joined with a Select Committee to be appointed by Dail Éireann to form a Joint Committee (which shall be called the Joint Committee on Commercial State-sponsored Bodies) to examine-

(a)the Reports and Accounts and overall operational results, and

(b)in the light of the reports published pursuant to subparagraph (a), the common issues relating to Board responsibility, structure and organisation, accountability and financing, together with the relationship with central Government and the Houses of the Oireachtas

of State-sponsored Bodies engaged in trading or commercial activities referred to in the Schedule hereto and to report thereon to both Houses of the Oireachtas and to make recommendations where appropriate.

(2) That, after consultation with the Joint Committee, the Minister for Finance may include from time to time the names of further State-sponsored Bodies in the Schedule and, with the consent of the Joint Committee, may delete from the Schedule the names of any bodies.

(3) That, if so requested by a State-sponsored Body, the Joint Committee shall refrain from publishing confidential information regarding that Body’s activities and plans.

(4) That the Joint Committee shall have power to send for persons, papers and records and, subject to the consent of the Minister for Finance, to engage the services of persons with specialist or technical knowledge to assist it for the purpose of particular enquiries.

(5) That the Joint Committee, previous to the commencement of business, shall elect one of its members to be Chairman, who shall have only one vote.

(6) That all questions in the Joint Committee shall be determined by a majority of votes of the members present and voting and in the event of there being an equality of votes the question shall be decided in the negative.

(7) That the Joint Committee shall have power to print and publish from time to time minutes of evidence taken before it together with such related documents as it thinks fit.

(8) That every report which the Joint Committee proposes to make shall, on adoption by the Joint Committee, be laid before both Houses of the Oireachtas forthwith, together with any document relating thereto which it proposes to publish, whereupon the Joint Committee shall be empowered to print and publish such report and the said document, or documents as the case may be.

(9) That four members of the Joint Committee shall form a quorum, of whom at least one shall be a member of Dáil Éireann and at least one shall be a member of Seanad Éireann.

(10) That all appointees to high office in the State shall attend meetings of the Joint Committee, as appropriate, and subject to the legal constraints of their office, to discuss issues which are relevant to the matters comprehended by paragraph (1).

(11) That Ministers and Ministers of State shall appear before the Joint Committee to discuss current policies relevant to the matters comprehended by paragraph (1) and the implementation of such policies in their Departments. A Minister or Minister of State may request the Joint Committee to convene to enable him or her to explain current proposed policy or to initiate a debate thereon.

(12) That in the absence from a particular meeting of the Joint Committee of a member who is a member of Dáil Éireann nominated by the Party or group within the meaning of Standing Order 90 to which the absent member belongs may take part in the proceedings and vote in his or her stead: Provided that in the case of a substitute nominated by a Party which is a Government Party, such substitute may be a member of another Government Party.

(13) That members of Dáil Éireann, not being members of the Joint Committee, may attend meetings and take part in the proceedings of the Joint Committee without having a right to vote.

SCHEDULE

Aer Lingus c.p.t.

Aerlínte Éireann c.p.t.

Aer Rianta c.p.t.

(including its subsidiary Great Southern Hotels p.l.c.)

ACC Bank p.l.c.

An Post

Arramara Teo.

Bord na gCon

Bord Gáis Éireann

Bord na Móna

Bord Telecom Éireann

Coillte Teoranta

Córas Iompair Éireann (including its subsidiaries Bus Éireann, Bus Átha Cliath and Iarnród Éireann)

Custom House Docks

Development Authority Ltd.

Electricity Supply Board

Housing Finance Agency

ICC Bank p.l.c.

Irish National Stud Company Ltd.

Irish National Petroleum

Corporation Ltd.

Irish Steel Limited

National Building Agency Ltd.

Nítrigin Éireann Teo.

Racing Board

Radio Telefís Éireann

Temple Bar Properties Ltd.

Voluntary Health Insurance Board.

MEMBERS OF THE JOINT COMMITTEE

Summary of conclusions and recommendations

Main conclusions

Key issue is funding of Iarnród Éireann

1.1The Joint Committee believes that Iarnród Éireann’s future funding is the key issue. (paragraphs 7.2 to 7.4)

1.2The Joint Committee notes that Iarnród Éireann has required funding from public resources: from 1987 to 1993, it received an annual Exchequer subvention averaging £90m p.a. for current purposes - the company’s deficits for the period averaged £89m per year during that period - and EU funding of £39m in 1992 and 1993. (paragraphs 2.1, 2.8, 2.17 and 7.6)

1.3The Joint Committee concludes that if Iarnród Éireann is to continue its current operations and meet future capital investment needs, it would be necessary to provide sizable funding from public resources. The situation described above looks unlikely to change significantly over the medium term, given past performance and certain underlying constraints on Iarnród Éireann’s profitability under present conditions; so that if current operations are to be maintained and a programme of capital investment implemented, it is mainly public funding that will have to account for both expected current losses and capital investment, from both domestic and EU sources. (paragraphs 2.8, 2.19 and 7.2 to 7.4 and see further below on capital investment needs and on mainline rail constraints).

1.4The Joint Committee would like to put in context the total expected cost to the Exchequer of £680m over the years 1994 to 1999; it is equivalent to:

►nearly £200 for every citizen;

►9% of the total £7.2bn in EU Structural Funds over this period;

►nearly 4 times the equity investment of £175m in Aer Lingus;

►nearly double the combined cost of the following projects: the Western Parkway, the Northern Cross, the Southern Cross, the downstream crossing of the river Lee, the by-passes of Athlone, Dundalk, Mullingar and Balbriggan. (paragraph 7.4)

Necessity for justification of State funding

1.5Given the need for public funding, the Joint Committee believes that the central question is therefore whether such funding is justified in value-for-money terms, especially in comparison with other methods of achieving the same objective and with alternatives uses of the same funds. The Joint Committee accepts that this is a wider issue than the financial performance of Iarnród Éireann alone: there are undoubtedly wider economic and social costs and benefits involved. (paragraph 7.5)

1.6The Joint Committee wishes to see the issue of the value of public expenditure on railways subjected to a much greater level of debate and analysis than previously. It is disappointed with the justification provided by Iarnród Éireann, both for its annual subvention and its capital funding and believes that the company has not formulated a good socioeconomic justification of the annual subvention. The Joint Committee believes that responsibility for this matter rests not only with company management, but also with CIE Group management, with the Departments of Finance, and Transport, Energy and Communications, and with successive Ministers and Governments. None of these appear to have demanded or received better explanations from Iarnród Éireann as to why the taxpayer must fund 50% of the cost of every mainline rail trip made in Ireland each year. (paragraphs 7.6 to 7.10)

Policy review

1.7The inadequacy of the case made points, in the Joint Committee’s view, to the necessity for a detailed and comprehensive review of railway policy, addressing the critical question of the railways’ value for money from the Exchequer’s and taxpayers’ perspective, so that a framework for decision-making on appropriate funding over the medium to long term could be agreed. The review must be accompanied by widespread informed public debate, since it is taxpayers who must largely fund the railways, albeit indirectly. (paragraph 7.11)

1.8The Joint Committee believes that many of the wider issues and questions it raises in this report are so fundamental, problematic and, most importantly, interrelated that the most useful approach would be to deal with them together in the review. Obviously, such suggestions made here by the Joint Committee are not intended to prejudice the comprehensiveness of the review. They are as follows:

•the need for Iarnród Éireann to provide a detailed justification of the Exchequer’s outlay on its current subvention and capital investment; (paragraph 7.6)

•the identification and measurement of the wider social and economic costs and benefits - such as environmental, regional, tourism and strategic impacts - and the necessity to include them as factors influencing decision-making;(paragraphs 7.7, 7.20 and 7.21, 7.30 and 7.31)

•the consideration of a wider range of technological options in the rail sector than heretofore; (paragraphs 7.33 to 7.36)

•Iarnród Éireann’s financial costs and profitability; (paragraph 7.5)

•the company’s dependency culture; (paragraphs 7.37 and 7.38)

•its depreciation policy; (paragraph 2.15)

•the geographic and economic constraints on the financial and economic profitability of the railways in Ireland; (paragraphs 7.34, 7.39 and 7.42)

•the economic basis for the allocation of investment between rail and road; (paragraphs 7.17 to 7.21 and 7.30)

•the scope for additional interaction between the public and private sectors in the provision of railway services; (paragraph 7.16 and 5.24)

•the funding of capital investment after the current (largely EU funded) Operational Programme for Transport expires in 1999; (paragraph 7.31)

•the need to develop an integrated transport policy. (paragraph 7.32)

►the practicality of making a single Department responsible for roads and railways. (paragraph 7.21)

Short term priority is profitability

1.9Pending completion of the policy review, the Joint Committee believes that Iarnród Éireann needs to examine its profitability as a priority in the short term. The Joint Committee believes that the consequent need to address financial and business issues requires a change in the company’s ethos towards fostering the development of new and different skills in the commercial, marketing and cost control areas. (paragraphs 7.37 to 7.42)

Rail vs. road must be considered

1.10Pending completion of the policy review, decisions on capital investment priorities by route will have to be taken under the Operational Programme. The Joint Committee is concerned about the effect of the lack of cooperation and consultation between organisations involved in the allocation of resources for land transport and while this matter is best dealt with under the review process, in the meantime the Joint Committee sees a need for a common evaluation framework for all future road and rail investment proposals, and in particular those relating to the mainline rail sector. The focus has to be put on the full economic impact of such proposals - including social, environmental, strategic and tourism impacts among others - as well as the financial outcome and this question has also to be the subject of greater examination in the policy review. (paragraph 7.17 to 7.21)

Operations - mainline rail

1.11The Joint Committee would like to see increased growth achieved in mainline rail passenger numbers than that of the last 6 years (a cumulative 4.9% or less than 1% p.a.). It is also concerned at the levelling off of DART passenger numbers in the last two years. The Joint Committee welcomes the closer liaison between Gardaí and station masters, which may reduce the influence, if any, of crime on DART passenger numbers but feels that the company needs to address ways of increasing overall mainline rail passenger numbers with a view towards increasing utilisation of those assets involved, where feasible. (paragraphs 3.3, 3.40 and 3.51)

1.12While there may be scope for additional interaction between the private and public sector in the provision of railway and associated services, this matter should be addressed in the review. (paragraphs 5.24 and 7.16)

1.13The Joint Committee believes that certain factors present major marketing and cost/pricing challenges to the company in its mainline rail operation:

(1)the competition from both car and coach to rail is significant. Iarnród Éireann’s own market research indicates that most respondents considered the car to be more convenient, quicker and better value for money than the train (paragraphs 4.1 to 4.3, 4.9, and 4.39). Also, coach travel is significantly cheaper than rail with Iarnród Éireann’s extended return fares on most mainline services from Dublin costing 70% to 100% more than those on Bus Éireann (paragraphs 4.7, 4.8 and 4.40). Mainline rail interurban carries only 7.9m passengers p.a. or 30% of Iarnród Éireann’s total passengers. (paragraph 3.3)

(2)The Joint Committee is concerned at the implications for the future of the company of the relatively low usage of the railways among the population. Most mainline travellers use rail less than once a month or 7 times a year (paragraphs 4.4 and 4.15). This contrasts with the position in other European countries, where Ireland has the second lowest number of rail passenger numbers per head of the population. Another relevant comparison with the European scene is that the average length of rail trip here is the shortest. (paragraph 4.15)

(3)On the basis of the limited evidence put forward by Iarnród Éireann on route-by-route profitability, none of the company’s lines are financially profitable. (paragraphs 3.19 to 3.23)

The Joint Committee feels that all of these issues are relevant to the review and also to the examination of short term profitability.

Operations - freight

1.14The Joint Committee does not have figures on profitability of this sector, but is concerned that rail freight’s revenue base appears vulnerable due to a small number of large clients. (paragraphs 3.29 to 3.38)

Rail infrastructure and rolling stock

1.15The Joint Committee notes that much of the company’s track requires up-grading and many of its locomotives need replacing following a low level of investment in rail infrastructure and rolling stock from 1987 to 1991 (paragraphs 4.22 to 4.30). On some routes, the combination of old locomotives and track conditions results in an unreliable low-quality service, leading to a decline in usage. The Joint Committee believes therefore that substantial capital would need to be invested in track renewal and the purchase of rolling stock, if the company is to maintain, increase and, where relevant, address the decline in service quality and ticket revenue but this is a question which is encompassed within the review envisaged by the Joint Committee on value for money of railway funding. (see paragraphs 1.8 above, 7.3 and 7.12)

1.16The Joint Committee welcomes the commissioning of new rolling stock which assists the mobility-impaired in their use of the railways and believes that further progress could be made in this area by providing for wheelchair accommodation at all main railway stations. (paragraphs 4.31 to 4.33)

1.17The Joint Committee is dissatisfied with the level of cooperation at the planning level between the company and county councils, specifically in two areas: the introduction and upgrading of level-crossing facilities and the safety of transport of hazardous substances. While the company’s discussions with the local authorities are welcomed, the Joint Committee notes that continuing disagreements concerning the upgrading of level crossings are resulting in level crossings not being completed and, in some cases, are holding up major road schemes. (paragraphs 4.34 to 4.38)

Ancillary activities

1.18The Joint Committee welcomes the financial performance of the Rosslare Harbour operation and notes the lower rate of return achieved by road freight and catering services. (paragraphs 5.2, 5.9, and 5.13 to 5.15)

1.19The Joint Committee notes that the road freight and catering services sectors are complementary to Iarnród Éireann’s core business and wishes to see their contributions to the company’s surplus increased (paragraphs 5.4 and 5.15). Given the successful franchising of buffet facilities at some main station, the Joint Committee’s view is that the company should consider how the more general application of franchising and out sourcing for services could increase its surplus, perhaps as part of the examination of profitability referred to above. (paragraphs 5.4, 5.15, 5.23 and 5.24)

1.20The Joint Committee believes that the quality of Iarnród Éireann’s catering diverges greatly: it is either extremely high or low, but rarely in between. The Joint Committee believes that Restaurant na Mara and the Dublin to Cork Citygold meet a very high standard, a standard not met on most other services. (paragraphs 5.16 and 5.25)

Stations and property

1.21The Joint Committee believes that much railway property is in an unsatisfactory condition, especially given the considerable architectural heritage reflected in many stations. (paragraphs 5.20 and 5.27) The Joint Committee welcomes the proposed drafting of property management plans for the stations, but nevertheless feels that there is an urgent need to upgrade the quality of stations.

1.22The Joint Committee welcomes recent initiatives on the development of surplus property. It wishes to see the process of spare capacity being developed for alternative uses, and/or disposed of, as appropriate, continue, with more imaginative approaches being considered in certain circumstances, e.g. development of hotels or shopping malls (paragraphs 5.19 and 5.26)

Staff

1.23The Joint Committee welcomes the successful negotiation of new working practices and expects that they should increase labour efficiency and reduce costs. The introduction of new procedures should assist in a change in industrial relations from a conflict culture to a more co-operative approach. (paragraphs 6.13 and 6.14)

1.24The Joint Committee believes that the breakdown of management staff by professional qualification highlights a strong engineering bias within the company with relatively few managers having professional business or marketing qualifications. The Joint Committee wishes to see the company equip itself to meet future challenges which are likely to be in the commercial and marketing arena (paragraphs 6.15 and 1.9 above).

Accounting and information issues

1.25In the Joint Committee’s view, both the public perception of the quality of Iarnród Éireann’s services and the company’s operational performance itself, could be improved by the provision of quality-of-service information. (paragraphs 4.3 and 4.40)

1.26The Joint Committee believes that the rate of depreciation applied by the company may not be sufficient, or its reserves adequate, to cover its physical replacement requirements in the future. Therefore, the Joint Committee believes that the policy applied needs further clarification and examination and also should be included as a topic in the policy review. (paragraphs 2.7, 2.13 to 2.15 and 2.21)

1.27The Joint Committee is disappointed with the two way sub-sectoral split within total mainline rail operations, which does not allow detailed assessment of the individual sub-sectors, especially of the rail freight sector and the entire Dublin suburban service; the Joint Committee recommends that such detailed information and analysis be made available (paragraph 3.1)

1.28The Joint Committee does not regard the limited operational information provided on the private contractor services as adequate and the situation should be improved (paragraphs 5.3 and 5.22)

1.29The Joint Committee does not regard the information presented on other expenses in the category “operating costs” as adequate. (paragraph 3.8)

European Union Directive

1.30The Joint Committee believes that while the separation of the management and funding of railway infrastructure from the operation of rail services would clearly improve the financial position of Iarnród Éireann as service provider, the real Exchequer cost will remain the same. Ireland’s railways, although split into operations and infrastructure divisions, will still be operating at a substantial deficit. All that will change will be the accounting presentation of this underlying financial reality. (paragraphs 7.13 to 7.16)

Recommendations

1.31The Joint Committee recommends:

Policy review

(1)that the Minister for Transport, Energy and Communications undertakes a fundamental and comprehensive policy review of the future of Irish railways, addressing the critical question of the railways’ value for money from the Exchequer’s and taxpayers’ perspective. (paragraphs 1.5 to 1.8 and 7.11)

(2)that the Minister initiates the policy review by publishing a Green Paper, as a basis for informed public debate on the issues involved, and encourages such debate to take place. (paragraphs 1.5 to 1.8 and 7.11)

(3)that the following specific issues (without prejudice to the comprehensive nature of the review) should be addressed:

•the detailed justification for the Exchequer outlay on Iarnód Éireann’s current subvention and capital funding;

•the identification and measurement of the wider social and economic costs and benefits - such as environmental, regional, tourism and strategic impacts - and the necessity to include them as factors influencing decision-making;

•the consideration of a wider range of technological options in the rail sector than heretofore;

•Iarnród Éireann’s financial costs and profitability;

•the company’s dependency culture;

•its depreciation policy;

•the geographic and economic constraints on the financial and economic profitability of the railways in Ireland;

•the economic basis for the allocation of investment between rail and road;

•the scope for additional interaction between the public and private sectors in the provision of railway services;

•the funding of capital investment after the current (largely EU-funded) Operational Programme for Transport expires in 1999;

•the need to develop an integrated transport policy;

•the practicality of making a single Department responsible for roads and railways. (paragraphs 1.8 and 7.12)

(4)that the review be completed by the beginning of 1997 with the publication of a White Paper containing a definitive policy framework. This would then form the basis for decisions on funding levels - both capital and current - over the next decade. (paragraphs 1.5 to 1.8 and 7.11)

Finance

(5)that decisions on the allocation of capital funding for railway investment should take account of the comparison of the full economic and social costs of meeting the transport need concerned by either road or rail, among other factors, and that an acceptable common framework for this comparison be agreed by all organisations involved in the decision-making process, pending the completion of the policy review. (paragraph 1.10 and paragraph 7.17 to 7.21)

(6)that the company concentrates on improving its profitability, by minimising costs and developing new marketing initiatives in the short term and, over the medium-term, examining the potential of a wide range of options for increasing its surplus, including outsourcing for services and increasing the level of franchising of its operations. (paragraphs 1.9, 1.19 and paragraph 7.37 to 7.42)

Operations

(7)that the company adopts a more commercial and marketing-oriented perspective towards all its operations, which would assist it in matching services to meet actual and potential demand, and encourage its staff in this regard by facilitating them appropriately, for example in relation to training courses and further education. (paragraphs 1.9, 1.24, 6.15, and 7.37 to 7.42)

(8)that Iarnród Éireann publicly indicates how it proposes to increase traffic on mainline rail on a regular basis. (paragraphs 1.11 and 3.3)

Stations and property

(9)that the company continue the process of developing alternative utilisation/uses and/or disposal of its spare property capacity where appropriate and, in carrying out that process, that it considers more imaginative approaches to the possible uses of such property, for example the development of hotels or shopping malls. (paragraphs 1.22, 5.19 to 5.26)

(10)that the company improves the appearance of its railway stations, in some cases by the expenditure of relatively modest sums, while at the same time having regard to respecting their architectural heritage. (paragraphs 1.21, 5.20 and 5.27)

(11)that Iarnród Éireann provides wheelchair access at all main railway stations. (paragraphs 1.16 and 4.31 to 4.33)

(12)that the level of cooperation between the company and country councils, in relation to both planning matters and the safety of the transport of hazardous substances, be improved, particularly in regard to the introduction and upgrading of level crossing facilities. (paragraphs 1.17 and 4.34 to 4.38)

Information and accounting issues

(13)that the company prepares meaningful indicators of the quality of its services, including information on performance by sector and on a route-by-route basis. Gross data such as national averages should not be used for this purpose. These indicators should be made available as widely as possible, for example displayed in mainline stations and advertised in newspapers, as well as published in the Annual Report. (paragraphs 1.25, 4.3 and 4.40)

(14)that Iarnród Éireann give priority to the preparation of a charter of customers’ rights in relation to the railway service, preferably in conjunction with the preparation of the quality indicators referred to above. (paragraphs 1.25, 4.3 and 4.40)

(15)that the company prepares and publishes separate accounts for the individual activities currently amalgamated under the global heading of the mainline rail sector, especially for rail freight and Dublin’s suburban rail services, with a view towards analysing and, where necessary, improving the overall performance of the entire sector. (paragraphs 1.27 and 3.1)

(16)that Iarnród Éireann provides more detail in its accounts on the composition of operating costs, particularly in respect of the categories “operating and other costs” and “renewal of lines and works”, which together accounted for 22% of total operating costs in 1993. (paragraphs 1.29 and 3.8)

(17)that Iarnród Éireann explains and highlights the implications of the depreciation policy it follows at an appropriate point in its Annual Report and Accounts. (paragraphs 2.7, 2.13 to 2.15 and 2.21)

(18)that the company reviews its depreciation policy in consultation with its auditors, Group management and the relevant Department(s). (paragraphs 2.7, 2.13 to 2.15 and 2.21)

1. Introduction and background

Establishment of Iarnród Éireann

1.1Iarnród Éireann was incorporated on 20 January 1987 under the provisions of the Companies Acts 1963 to 1986, and in accordance with Section 6 of the Transport (Re-Organisation of Córas Iompair Éireann) Act, 1986. Iarnród Éireann is a wholly-owned subsidiary of Córas Iompair Éireann (CIE), a statutory body formed under the provisions of the Transport Act, 1950. It took over the assets and operations of the Irish Railway network, hitherto an integral part of CIE. It commenced trading on 2 February 1987, the day net assets were transferred from CIE.

Corporate objective

1.2The company’s mission statement as outlined in its submission to the Joint Committee is “to provide a quality national rail passenger service and a quality rail and road freight service which will be customer oriented, safe, reliable, efficient and cost effective within the financial support constraints set by the group”.

Corporate structure

1.3Under the Transport (Re-Organisation of Coras Iompair Éireann) Act, 1986 Iarnród Éireann was re-organised in order to develop a more customer to supplier orientated relationship between individual divisions of Iarnród Éireann and to flatten the management structure. Iarnród Éireann’s corporate structure is reflected by its organisation chart (Figure 1.1).

1.4The company has nine divisions all of which report to the Managing Director. The top tier consisting of seven divisions, is run by Chief Officers while the two remaining divisions are headed by managers. The largest division in terms of employees is Operations, which resources, schedules, and controls passenger and freight train movements. It is a supplier to the Business Development-Passenger and Business Development-Freight divisions. The two business development divisions control and shape the rail services, carry out market research, assess demand and prioritise services. The Business Development-Freight division is responsible for rail and road freight markets. The Business Development-Passenger division is responsible for the passenger markets and also covers the Rosslare Harbour and Catering services.

Figure 1.1: Iarnród Éireann - organisation chart

Source: Iarnród Éireann

1.5Iarnród Éireann has two engineering divisions, Civil Engineering, responsible for rail infrastructure (i.e. track, signalling etc.) and Mechanical Engineering, responsible for maintenance and supply of rolling stock. There are two corporate service functions - Finance and Accounting and Human Resources. The Safety division is responsible for the implementation of International Safety Rating Standards (ISRS). The Strategic Planning division deals with long term policy issues and on-going capital projects such as the Dublin to Belfast line, and also liaises with the Department of Transport, Energy and Communications.

Board of Directors

1.6The Chairman and Directors of the company are appointed by the Chairman of CIE with the consent of the Minister for Transport, Energy and Communications. Under the Transport Re-Organisation Act, 1986 the following stipulations concerning the directors were made:

-the number of directors including the Chairman cannot exceed six;

-a majority of the directors of Iarnród Éireann and the Irish Bus company (Bus Éireann) shall be common to both companies;

-the directors appointed to Iarnród Éireann shall include two persons selected from the members of the Board (CIE) appointed under the Worker Participation (State Enterprises) Act, 1977, provided that such persons are willing to accept office.

Relationship with CIE

1.7Iarnród Éireann is one of three operating subsidiaries of the Coras Iompair Éireann Group (CIE). It operates separately from the rest of the Group in all its activities with the exception of overall financial control (capital borrowing etc.) and competition issues, both of which remain with CIE group management.

1.8As the holding company, CIE is responsible for four separate ancillary activities within four divisions, namely, property management and development, consulting, Commuter Advertising Network (CAN) and CIE Tours. In addition common services, for example, computing, payment of pensions, third party claims, are provided by CIE to Iarnród Éireann and its other subsidiary companies Bus Éireann and Dublin Bus.

1.9In 1993 Iarnród Éireann was CIE’s largest subsidiary in terms of turnover, generating 37% of CIE’s revenue, and in terms of staff employing 51% of the group’s staff. Iarnród Éireann carried 9% of CIE’s total passengers in 1993.

Acknowledgements

1.10The Joint Committee appointed Fitzpatrick Associates, economic consultants, as its consultant for the purposes of this examination. The Joint Committee wishes to express its appreciation of the invaluable assistance given by Mr. Jim Fitzpatrick and Mr. Nicholas Mottram in the preparation of this report. The Joint Committee would also like to thank the representatives of Iarnród Éireann for the assistance they gave during the conduct of this examination, including the supply of documentary and statistical material and attendance at public meetings of the Joint Committee to give evidence to members.

2. Financial performance

Introduction

From the perspective of the Joint Committee, Iarnród Éireann’s financial performance, and the resulting necessity for large on-going State subvention, is the core issue for the future of the company. This chapter provides a brief review of Iarnród Éireann’s overall financial performance over the last seven years from a factual position covering turnover, expenditure, Exchequer support and assets as reflected in the balance sheet. The issue of State support is further discussed in chapter 7 from an overall transport policy perspective. The performance of individual components of Iarnród Éireann’s mainline rail business during the period from 1987 to 1993 is examined in greater detail in chapter 3, and the performance of its ancillary activities in chapter 5.

General financial performance

2.1In the seven financial years of its operation to the end of 1993, Iarnród Éireann incurred a total operating deficit of £486.5m on turnover (excluding State grants) of £732m. After interest payments are deducted the size of the deficit increased to £621m. In this period, the State provided a total of £631m in grants to the company. Iarnród Éireann’s is annual financial performance to the end of 1993 is summarised in Table 2.1 (supplementary information is provided in Table A2.1 in Appendix II).

Source: Iarnród Éireann and Annual Accounts 1993

Turnover

2.2Annual turnover grew at an increasing rate until 1992 when the rate of growth slowed before dropping in 1993. Between 1988 and 1993 turnover increased by 17% in current prices, but by 1% in real terms. Mainline rail contributed 63%, road freight 16.1% and the DART 10.5% to the £112m total revenue generated by the five business sectors in 1993. (Table 2.2, supplementary information is provided in Table A2.2 in Appendix II)

Source: Iarnród Éireann Annual Report and Accounts 1988 to 1993

Operating costs

2.3Iarnród Éireann’s operating costs for 1993 amounted to 1.6 times its revenue before State contributions and the company’s expenditure has consistently exceeded revenue excluding State grants by 60%. The principal operating costs during the period 1987 to 1993 are shown in Table 2.3 (additional information is provided in Table A2.3 in Appendix II).

Source: Iarnród Éireann Annual Reports 1988 to 1993

2.4Net staff costs, which accounted for 52% of total operating costs in 1993, are Iarnród Éireann’s largest single expense (see chapter 4 for international comparisons). This cost is equivalent to 85% of the company’s total revenue excluding State grants in 1993 and 117% of total rail (mainline and DART) revenue.

2.5Over the period 1988 to 1993, staff numbers fell by 14% while staff costs increased by 9% in current prices and fell by 6% in real prices. Over the same period staff costs per employee rose steadily, increasing by 27% in current prices and by almost 10% in real prices. (Table A2.4 Appendix II). In addition to increasing costs per employee, exceptional charges for voluntary severance of £20.9m have been incurred over the seven-year period. (see also chapter 6 for further discussion of staff costs)

2.6The second largest operating cost is “operating and other costs” which accounted for £30m or 16.5% of total operating costs in 1993. This consists of non-wage items including payments to hired road haulage contractors, CIE Group charges, catering supplies, advertising and upkeep of buildings and offices. Maintenance of rolling stock and lines/works accounted for almost 11% of operating costs, renewal of lines and works for 6% and fuel and electric traction for 4.2% in 1993.

2.7The depreciation charge (4.6% of tangible assets in 1993) appears low, which is attributable to Iarnród’s policy of not depreciating railway lines and works and depreciating rolling stocks over a 20 to 50 year useful life. However, the cost of railway line renewals is charged to the profit and loss account in the year in which it is incurred. (see paragraphs 2.12 to 2.15 below for further discussion on this topic)

Contributions from the Exchequer

2.8Due to the large discrepancy between revenue and expenditure Iarnród Éireann has required substantial Exchequer support. A total of £631m has been provided by the State to Iarnród Éireann between 1987 and 1993, averaging £90m a year or £250,000 a day. Over this period State contributions fell by 2% in current prices and 17% in real prices (Table 2.4 and Table A2.5 Appendix II). In 1993, State contributions were equivalent to 84% of the company’s total revenue, and to 50% of its total expenditure. Given the level of past funding - from the Exchequer and the EU (paragraph 2.17 below) - and the extent of the company’s losses (paragraph 2.1), it seems likely that such losses will continue and that State funding will be required in future.

2.9Mainline rail was the main beneficiary of State grants and received £511.4m or 81% of the total between 1987 and 1993. Grants to the mainline rail sector fell in 1989 and 1991 before peaking at £78.6m in 1993. A reduction in State grants for the DART, with the grant for interest payments dropping by 24% in real terms, resulted in total State grants falling by 10% in real terms between 1988 and 1993.

Source: Iarnród Éireann

2.10State grants payable to Iarnród Éireann, via Coras Iompair Éireann (CIE), are in accordance with EU regulations. Over half of the State grants were provided to cover losses incurred on services operated under public service obligations which are deemed essential to ensure the provision of adequate transport services. Details of the three EU regulations governing State aid to transport undertakings and particulars of State grants received in 1993 are provided in Tables A1.1 and A1.2 in Appendix I.

2.11The Department of Social Welfare indicated to the Joint Committee that Iarnród Éireann receives from it a total of about £3m, mostly for mainline services. Most of these payments relate to the Free Travel Scheme, introduced in 1967, which applies to persons of 66 years and over. The scheme has been extended over the years to include certain categories of handicapped persons.

Balance sheet

2.12Iarnród Éireann’s tangible fixed assets at the end of 1993 totalled £202m, up from £190m in 1987. Railway rolling stock of £ 112.5m is the primary asset; other fixed assets include plant and machinery (£54.5m), docks, harbours and wharves (£22.3m), railway lines and works (£9.1m), road freight vehicles (£3.9m) and catering equipment (£0.1m).

2.13Railway lines and works are not depreciated and this policy means that the cost of renewals necessary to maintain the running lines is charged to the profit and loss account in the year in which it is incurred. In 1993 renewals amounted to £10.9m up from £9.5m in 1987. Between 1987 and 1993 the cost of these averaged £10.5m a year or nearly 6% of the company’s operating costs. The company is now at a stage where much of its track is life expired and the poor quality of the infrastructure is reducing the reliability, quality and speed of its services. The Joint Committee notes that this low investment resulted from explicit Government policy where by the railway had to reduce expenditure on mainline rail maintenance and renewals in the 1980s.

2.14Railway rolling stock is depreciated over a relatively long expected life i.e. 20 to 50 years. Because of the shortfall between the annual depreciation charge for locomotives and railcars compared with their actual replacement cost, and additional provision in terms of an asset replacement reserve is also made for the excess cost of replacing these assets over the historical cost depreciation in the accounts.

2.15The Joint Committee believes that since the rate of depreciation applied by the company may not be sufficient, or its reserves adequate, to cover its physical replacement requirements in the future, the company should highlight his policy and explain its implications at an appropriate point in its accounts. Iarnród Éireann should consider, in consultation with its auditors and the relevant Departments, a review of its depreciation policy to make it more appropriate to its needs. Rather than being conservative and ensuring adequate reserves to cover future investment needs, it has adopted a relatively liberal policy. Historical depreciation and the replacement reserve provide reserves to cover the future cost of rolling stock. However, as stated above. this depreciation policy is based on rolling stocks having a useful life of 20 to 50 years. It is not clear that the rate of depreciation is sufficient, or the reserves adequate, to cover the physical replacement requirements in the future. Capital expenditure as stated in the company accounts fell between 1987 and 1991, but rose dramatically in 1992 and 1993, as ERDF funds came on stream. The positive impact of EU capital grants compensated to some extend for the inadequacies of the company’s depreciation policy and postponed its negative implications. The Joint Committee accepts that fully depreciating assets could disimprove the apparent financial or accounting position of Iarnród Éireann - it would have a negative impact on the net fixed assets amounts appearing in the balance sheet - but notes that the real economic cost would remain the same. Ireland’s railways would still be operating at a substantial deficit. All that would change will be the accounting presentation of this underlying financial reality.

2.16With the exception of 1990, annual capital expenditure fell between 1987 and 1991, from £13.9m to £3.6m and fixed asset disposals increased from £2.3m in 1987 to £5.3m in 1991 (Table A2.8 Appendix II). In contrast both of these trends were reversed in 1992 when capital expenditure rose to £24.5m and fixed assets disposals dropped to £0.6m. In 1993 capital expenditure remained high at £17.8m and fixed asset disposals low at £1.3m. The declining level of capital investment in Iarnród Éireann over the five-year period 1987 to 1991 was reversed in 1992 and 1993. The main additions in 1992 and 1993 were down payments on rolling stock (£15.9m), docks, harbours and wharves related to Rosslare Harbour (£11.1m), plant and machinery (£10.7m) and road freight vehicles (£4.5m).

2.17The receipt of EU capital grants amounting to £14.1m during 1992 and 1993, consisting of £5.7m for plant and machinery, £5.4m for docks, harbours and wharves, and £3.1m for rolling stock facilitated the increase in capital expenditure. EU revenue grants of £14.3m were also received in those years for the renewal of lines and works which contributed to the increased expenditure on renewals of £24.8m over this period.

2.18At the end of 1993, the company had net current assets of £25.3m and net assets of £55.9m up from £0.7m and £25.9m respectively in 1987. The asset replacement reserve for rolling stock at the end of 1993 amounted to £23.2m. Loans advanced by the holding company of £159.1m at the end of December 1993 were approximately the same as in 1987 at £160m. However the amounts payable to Iarnród Éireann by the holding company (CIE) and other subsidiaries increased from £1.6m to £29.2m between 1987 and 1993. This has resulted in a reduction of approximately £28m in the net amount due to CIE and other subsidiaries. This reduction may be attributable to the increase in the asset replacement reserve and the surpluses, after the State grants, generated during this period. Given that Iarnród Éireann will be unable to generate surpluses without State grants its ability to reduce the holding company debt will be dependent on the level of State grants.

Summary

2.19The Joint Committee notes that between 1987 and 1993 Exchequer support to the company totalled £631m, averaging £90m a year or £250,000 a day, but fell 17% in real terms (paragraph 2.8). The company’s expenditure has exceeded revenue excluding State grants by 60% and losses over the period totalled £621m (paragraph 2.1). It seems likely therefore that losses will continue and that it will be necessary for the State to provide large on-going subvention for Iarnród Éireann. (paragraph 2.8)

2.20The Joint Committee notes that net staff costs account for over half of the company’s operating costs and, despite a significant reduction in staff numbers, there has not been a corresponding decrease in staff costs (paragraph 2.4 and 2.5).

2.21Since the rate of depreciation applied by the company may not be sufficient, or its reserves adequate, to cover its physical replacement requirements in the future, the Joint Committee feels that the implications of the policy should be explained and highlighted by the company at an appropriate point in the Annual Report and also reviewed generally by Iarnód Éireann in consultation with its auditors, Group management and the relevant Departments. (paragraphs 2.7 and 2.13 to 2.15).

3. Rail operations

Introduction and division of rail operations

This chapter considers the financial and operational performance of the mainline rail sector. Iarnród Éireann provided information on two rail sub-sectors:

-Mainline Rail, consisting of the mainline passenger rail services, rail freight and the Dublin suburban routes excluding the Bray to Howth services;

-the Bray to Howth Suburban Rail Service, Dublin Area Rapid Transit, known as the DART.

3.1The subdivision of the rail sector in this way - between mainline rail and DART - enables these two separate sub-sectors to be analysed, but it does not allow detailed assessment of the rail freight sector or the Dublin suburban service as a whole (i.e. DART and that part of suburban accounted for by Dublin services). Revenue generated within the mainline rail sector is attributed to either goods train traffic or passenger traffic, but there is no breakdown of costs between these sectors. The main reason given for the current sectoral split is the difficulty of attributing costs, especially those associated with the maintenance of rolling stock and trackwork, between the passenger and freight activities, due to the large element of shared resources and equipment. The Joint Committee does not find this position satisfactory and accordingly would like to see a separation of the accounts of the rail freight sector and the entire Dublin suburban rail service so that the performance of the individual of the sub-sectors within total rail operations could be examined.

Rail operations - passenger numbers

3.2In terms of passenger journeys, mainline rail, excluding other suburban services, is carrying approximately 22,000 people a day. The DART, which operates through densely-populated corridors, is carrying over 44,000 people a day. The other suburban services, which operate Monday to Saturday only, are carrying approximately 7,000 people a day.

3.3Over the period from 1987 to 1993, growth in the number of mainline passengers was low, from 7.5m in 1987 to 7.9m in 1993 (Table 3.1). Over the same period, passenger journeys on the Dublin suburban services, excluding DART, remained more or less static at around 2.1m. From 1988 to 1991 passenger movements on DART services rose by nearly 6% before dropping by 5% in 1992, remaining more or less static in 1993, resulting in an overall 0.5% increase between 1988 and 1993¹. The Joint Committee is concerned about the trend in DART passenger numbers in recent years, attributed to the recession, increased accommodation on University College Dublin’s Belfield campus and increases in crime in the general vicinity of the DART. The Joint Committee wishes to see the company address ways of increasing mainline rail and DART passenger numbers, to maximise utilisation of these assets, where feasible.

Source: Iarnród Éireann and CIE Accounts 1992 and 1993

Mainline rail

3.4In 1993, the mainline rail sector, including other suburban services, carried 38% of the company’s passengers (30% excluding other suburban), generated 63% of it’s revenue, accounted for 77% of expenditure and received 84% of State grant assistance. Despite annual revenue increasing from £59.2m in 1987 to £70.2m in 1993, the operating deficit before State grants (excluding interest payments) increased from £65.8m to £74.7m over the same period.

3.5Between 1987 and 1993, State grants to the mainline rail sector increased by 7.5% in current prices, but fell by 9% in real terms. The accumulated deficit over the same period (after the receipt of the State grants of £511.4m) was £11.5m (Table 3.2). The most successful year for mainline rail in operating performance terms was 1989.

Source: Iarnród Éireann

3.6The cost of maintaining the mainline rail sector’s rolling stock rose by 12% in real terms between 1988 and 1993, while the cost of maintaining lines and works increased by 8% in real terms. In total, maintenance accounted for 36% of total expenditure in 1993 (Table A3.1 Appendix III).

3.7In 1993 the company’s total railway infrastructure costs amounted to £53.5m. Maintenance and renewal of railway lines and works accounted for 62% of total infrastructure costs. Infrastructure costs apportioned to mainline rail amounted to £45.1m or 30.4% of this sector’s total expenditure.

3.8The largest expenditure category “operating and other expenses” fell by 13% in real terms between 1988 and 1993. In 1992 “operating and other expenses” accounted for 47% of total expenditure. An analysis of “operating and other expenses” for 1992 shows that the main expenses are employment-related with payroll, pensions and voluntary severance accounting for 70% of this category (Table A3.3 Appendix III). The other substantial expenditure was direct and indirect expenses. The Joint Committee recommends that more detailed information be given in the company’s accounts regarding the composition of this cost category.

3.9The breakdown of mainline rail revenue indicates that passenger traffic generated 70% of this sector’s revenue in 1993 (Table A3.1 Appendix III). Since 1987, mainline passenger revenue has increased by 26% in current prices and 6.5% in real terms. Between 1987 and 1993 passenger receipts on suburban services rose the fastest, increasing by 48%, while receipts on mainline services increased by 33% (Table A3.2 Appendix III).

Mainline operations by route

3.10The mainline network comprises of nine main radial (i.e. routes emanating from a common central point) lines serving Rosslare, Waterford, Cork, Tralee, Limerick, Galway, Westport, Sligo and Belfast (Figure 3.1). The Dublin to Belfast service is the only cross-border service and is a joint service with Northern Irish Rail. These main services accounted for nearly 95% of the passenger journeys on the mainline rail network (Table 3.3).

Source: Iarnród Éireann

3.11The nine main services are supplemented by a number of secondary lines where a lower level of passenger service is provided. The main secondary services are the Cork to Cóbh commuter service, the Ballina to Manulla spur off the Athlone to Westport line with 3 daily passenger services, the Limerick Ballybrophy line with 2 passenger services a day, and the Limerick Junction to Rosslare line with a daily service (2 passenger services during the summer). In 1993 these services accounted for 5.2% of mainline passenger journeys.

Figure 3.1 Iarnród Éireann’s rail network

Source: Iarnród Éireann

3.12Iarnród Éireann suggested a number of reasons to the Joint Committee why the Dublin to Cork service carried nearly 28% of all mainline passenger journeys. This route connects the two largest population centres within the Republic. It has a high frequency of service, comprises mainly continuously-welded track, which enables faster services, and also offers a higher quality of service resulting from the use of modern Mark 3 and Mark 2 rolling stock. This route, which covers approximately 165 miles, is also very competitive with alternative road transport in terms of journey time and quality. A new quality City Gold service was recently introduced on this route running from Dublin to Cork at 7.30 a.m. and returning at 5.50 p.m. While the main competitive threat to this service is likely to come from commuter air services, rail transport maintains a significant price and frequency advantage on the route.

3.13These factors - population, frequency of service, journey time, competitiveness with road-based transport and quality of service - help to explain the relatively small number of journeys on some of the other mainline services. The 1991 Census, including rural and urban populations, shows that Westport, Tralee and Sligo have relatively small populations with 19,000, 42,000, 54,000 inhabitants respectively. This would restrict their trip generating and attracting capability.

3.14Rosslare, Westport and Sligo have a particularly low service frequency with three services a day. Nearly all the track on the Sligo route and the majority of the track on the Westport route consists of old jointed rails which reduce speed and comfort. In the case of the Rosslare and Sligo services the track conditions have led to enforced speed restrictions as low as 30 mph leading to average journey speeds, on the quickest weekday journeys, of 37 and 42 mph respectively. Thus these services have a small customer base, a low frequency of service and a slow journey time.

3.15The mainline services also face severe competition from public and private coach operators as rail loses its competitiveness in terms of speed and comfort. At present the provision of road passenger services in Ireland is controlled by the Transport Act, 1932, under which private operators require a licence to operate scheduled bus services. While there are a small number of licensed operators, some of the private services to and from Dublin are not licensed in accordance with the 1932 Act at all times.

3.16Use of private cars has further reduced the attractiveness of rail since this mode is much more convenient and flexible as well as being quicker in some instances than travelling by train. Road transport has also benefitted on a number of routes from major investment under EU Structural Funds. This has removed bottlenecks and reduced rural journey times.

3.17According to the company, the low growth in mainline passenger journeys during the period 1988 to 1991 was spread fairly evenly across all of the mainline routes. Over the period 1991 to 1993 however, there was particularly strong growth in passenger numbers on the Dublin to Sligo route and significant growth on the Dublin to Waterford route.

3.18The strong growth on the Dublin to Sligo route reflected improved reliability of service on this route, resulting from a new fibre optic signalling and the use of more reliable locomotives, combined with more competitive fares. To a large extent this growth represented a restoration of traffic that was lost due to the previous deterioration in the quality of service on this line. Growth on the Dublin to Waterford route resulted from improved quality of service, as this strategic freight line was upgraded with continuously-welded rails, and from midday off-peak pricing aimed at increasing utilisation. The decline in traffic on the Rosslare and Tralee routes reflects the continuing deterioration in the quality and reliability of service on these routes. The Joint Committee welcomes the company’s efforts to increase patronage on these routes by improving reliability through the deployment of newer locomotives and the launching of a number of local marketing initiatives.

Source: Iarnród Éireann

3.19Iarnród Éireann confirmed to the Joint Committee that none of its lines were profitable and that losses on specific mainline services could not be directly related to load factors.

3.20In response to a request for a breakdown of mainline rail losses by route, the company provided an analysis of railway operating results for 1991 on an “avoidable cost and revenue” basis. Table 3.5 shows the expenditure saved, the revenue lost and hence the subvention reduction of closing these routes in an ascending order. Approximately £16m of the company’s expenditure is unallocated as Iarnród Éireann states that this could not be saved even if the railway were closed totally.

3.21Iarnród Éireann stated to the Joint Committee that great care should be taken in interpreting these results, since route profitability is an extremely complex matter for a railway where there is very considerable shared routes and resources.

Source: Iarnród Éireann

3.22While this table provides a starting point, a more realistic base for choosing options would be service-based. The range of options is also limited, in that the underlying assumption is that the choice is between maintaining the route or closure. However, there is no assessment of the impact of changing service levels or the resulting impact on revenue and avoidable costs. Without knowing the assumptions underlying these figures it is difficult to assess how the route costs relate to the mainline services. A number of the services share the same track for substantial parts of their journey. For example, most of the Dublin to Tralee service shares track and train with the Dublin to Cork line; similarly much of the Dublin to Westport and Ballina service shares the Dublin to Galway line.

3.23These route expenditure figures relate to the marginal cost of these links but do not appear to attribute the costs between services and are therefore of limited use on their own. The figures indicate that the Dublin to Cork and Dublin to Galway routes account for 44% of the total avoidable costs (the costs that would be saved if the route was closed) and generates 48% of the revenue. They also indicates that the proportion of avoidable costs is greater than the proportion of revenue for the routes numbered 5 to 8 in Table 3.5.

3.24In 1993 the mainline sector carried 7.9m passengers, averaging less than 11,000 return journeys a day. Iarnród Éireann currently has 261 vehicles in its mainline passenger carrying fleet. The average fleet utilisation is 76% on weekdays and 88% at weekends. At peak holiday weekends the utilisation increases to over 90%. In order to provide their mainline weekday services Iarnród Éireann operate an average of 77 Mark III carriages, 63 Mark II carriages, 21 push/pulls and 16 railcars a day with most coaches making three return trips a day.

3.25The company does not monitor load factors per se because they are based on train size and these vary between routes depending upon demand and also on passenger train loadings of previous years. The company did provide the maximum and average number of passengers using each mainline rail service during the week. This information was taken from the passenger train loadings (PTLs) which are compiled from conductors’ reports and show the number of passengers on a train at predetermined points along the journey. This information is used by Iarnród Éireann as an indication of the capacity required, subject to the limitation of the fleet size, for the corresponding date for the following year.

3.26Table 3.6 shows average passenger train loadings by route and direction as well as the loadings on the services with the highest and lowest average loadings in July 1993. On most routes the average train loading varies from 200 to 300 passengers. The average loadings were particularly high on the Cork, Limerick and Tralee routes. The Belfast service and services from Rosslare to Dublin had lower than average loadings. Excluding the Cork, Galway and Belfast services the average passenger train loadings on services leaving Dublin are higher than those on services to Dublin.

Source: Iarnród Éireann

3.27Passenger train loadings for July 1993 show that there are marked variations in passenger train loadings depending on the time of day and direction. On the busiest services the loadings are generally 35% to 60% higher than the averages passenger loadings. Conversely the loadings on the least used services were generally 45% to 80% of the average passenger loadings.

3.28While these figures provide an indication of the average passenger loadings, the maximum passenger loadings on the busiest services for all routes vary from 437 to 794 passenger. Excluding the Galway to Dublin service, the maximum loadings are two to three times higher than the average passenger loadings on all services.

Rail freight

3.29Revenue from goods train traffic increased by 6% between 1987 and 1992 before dropping in 1993, leading to overall decline of 1.6% between 1987 and 1993. In 1993 revenue from goods train traffic accounted for 26.3% of mainline rail’s total revenue. Approximately 50% of the rail freight revenue can be attributed to five main customers: Guinness, Tara Mines, Bell Lines, Irish Fertilizer Industries and Irish Cement. This has advantages in that long-term relationships can be developed and that many of these companies have shown a level of commitment by investing in rail facilities. However, it also means that a decision by any one of these customers to cease carrying by rail would have serious financial repercussions as it would be difficult to reduce expenditure levels to match the loss in revenue. This makes the company vulnerable to unpredictable losses, and places it in a week bargaining position regarding freight rates. As noted in the introduction to this chapter, the cost of freight operations and thus their profitability cannot be separated from the overall performance of mainline services.

3.30The main changes in the freight sector have been the elimination of loose-coupled goods trains and their replacement by modern power-braked stock capable of higher operational speeds. Many of these wagons are purpose-built to cater for particular traffic. The other significant change was the concentration of freight activities at a smaller number of key locations, equipped with mechanised handling facilities (see the road freight section in chapter 5).

3.31Rail freight tends to be dominated by bulk loads: in 1990 cement, lead and zinc freight accounted for approximately one third of rail freight’s tonnage (Table A3.4 Appendix III). Services range from the bulk movement of mineral ores in train loads to individual parcels. In between is a wide range of bulk traffics, palletised traffics such as fertilizer and cement, company trains, unit load movements and groupage services.

3.32Mineral ore and chemical traffics are for the most part scheduled movements. Fertiliser and cement movements are arranged as required. Sugar beet movements are concentrated into a three month harvesting period from October to December. Liner trains are scheduled daily movements of flat wagons, between fixed locations, transporting containes and/or customised pallets. These can be divided into two categories - company trains for individual customers and normal scheduled services between Dublin and the major centres of population. A total of 16 round trip liner trains are operated each day. These include five Bell trains and eleven liner trains from Dublin to each major terminal.

3.33Up to 1993 three special mail trains provided a letter mail service for an Post but this was reduced to two in 1993. While some mail traffic is still conveyed on passenger trains, along with Fastrack traffic, an Post has ceased using mail trains for sorting mail and special mail services were withdrawn at the end of 1993. The bulk of mail is now transported by an Post’s SDS services. The full impact of this decline in mail freight is not apparent in the 1993 freight figures.

3.34According to Iarnród Éireann, the losses resulting from the withdrawal by an Post have been partially balanced by an increase in grain, molasses and barite freight moved through Foynes. Potential new marks include the development of services carrying timber for Coillte.

3.35Trends for the period 1987 to 1993 in the amount of freight carried (tonnes) and the measure of the distance it was carried (tonne kilometres) show a slight decline in 1988 followed by slow growth from 1989 to 1992 and a decline in 1993 (Table A3.5 Appendix III). A more detailed traffic breakdown shows that the volume of pallet cement traffic has deteriorated while the volume of bulk cement handled has increased. The amount of gypsum and fertiliser carried by rail also fell significantly over the period from 1987 to 1993 (Table A3.6 Appendix III). The main factor leading to the decline in rail freight traffic in 1993 was the transfer of a major block of unit load traffic from Belfast Port to Dublin Port with the transfer of Rail Freight Distribution (RFD) as well as a decline in company train traffic, gypsum and fertiliser traffic. This overall decline also reflects increased competitive pressure from road freight operators.

3.36It is difficult to get an estimate of the total freight market in Ireland as the road freight transport survey only covers Irish-registered goods vehicles; since it excludes activity carried out by foreign operators, it therefore underestimates the total market. Estimates from the road freight transport survey indicate that 80.1m tonnes were carried by road in compared to 3.3m tonnes by rail in 1991. Rail freight therefore accounts for approximately 4% of the total freight carried by Irish carriers in tonnes.

3.37Rail accounted for over 10% of freight traffic carried by Irish carriers in terms of tonne-kilometres. This reflects the fact that freight carried by rail is generally carried further than freight carried by road. Only five per cent of rail tonnes move less than 50km, 55 per cent are transported over 150 km and the average distance carried is 181 km.

3.38Given the limited rail network, freight railway only competes on the main interregional transport corridors. Rail freight accounts for 20% or more of the total freight carried on a number of individual corridors (Table A3.7 Appendix III).

Bray to Howth suburban rail services (DART)

3.39The DART runs on 37 km of electrified section between Howth and Bray. According to the company, the DART has been extremely successful in terms of attracting patronage and affecting the balance of modal split in favour of public transport on the corridor in which it operates.

3.40Excluding 1987, which Iarnród Éireann stated was an exceptional year due to the aforementioned bus dispute in Dublin, passenger journeys increased by nearly 6% between 1988 to 1991 before falling to below their 1989 level in 1992 and 1993 (Table 3.1 and paragraph 3.3). The Joint Committee is concerned at the trend in 1992 and 1993. It welcomes the setting up of a close liaison between stationmasters and the Gardaí and the reduction in incidents at DART stations but, as stated previously in paragraph 3.3, wishes to see the question of overall rail passenger numbers, including DART, addressed by the company.

3.41Revenue from the DART services increased by 60% to £11.8m in the period 1987 to 1993 (Table 3.7 and Table A3.8 Appendix III). However, despite the fact that this modern transport system operates through a densely-populated corridor, it is still unable to cover its costs and its operating deficit before State grants (excluding interest payments) exceeded £5.1m in 1993.

Source: Iarnród Éireann submission

3.42Between 1987 and 1993 expenditure increased at a slower rate than revenue, increasing by 24%. This resulted in a fall in the operating deficit from £6.3m in 1987 to £5.1m in 1993. However, substantial annual interest payments falling from £16.8m to £10.3m resulted in deficits before State subvention dropping by a third from £23m in 1987 down to £15.4m in 1993. In each of the years since 1987 the State grant has been equal to the total deficit.

3.43Iarnród Éireann attributed the poor financial performance of the DART to the high capital charges resulting from the increased cost of the system. However, before these interest charges the DART lost £5.1m in 1993, and even if depreciation is ignored, losses amounted to nearly £1.4m.

3.44In 1993 infrastructure costs apportioned to the DART amounted to £8.4m or nearly 40% of this sector’s total expenditure. The cost of maintaining the DART’s rolling stock rose by 27% between 1987 and 1993 and accounted for 9.2% of total expenditure in 1993 (Table A3.8 in Appendix III).

Summary

3.45The Joint Committee would like to see a greater level of increase in future in Iarnród Éireann’s passenger numbers, in both mainline rail and DART, so as to maximise the utilisation of these assets, where feasible. The Joint Committee welcomes the company’s efforts-improving reliability by deploying newer locomotives and the launching of a number of local marketing initiatives-to increase patronage on routes where passenger numbers have obviously declined due to detiriorating service. (paragraph 3.3)

3.46The Joint Committee notes that in 1993 mainline rail accounted for 30% of Iarnród Éireann’s passengers, 63% of its revenue, 77% of expenditure and received 84% of State assistance (paragraph 3.3 and 3.8). Between 1987 and 1993, State grants to the sector increased by 7.5% in current prices and fell by 9% in real prices (paragraph 3.5)

3.47The Joint Committee notes that none of the mainline rail lines are profitable. (paragraph 3.19)

3.48The Joint Committee notes that rail freight’s revenue base appears vulnerable due to its being concentrated among a small number of large clients. (paragraph 3.30) Rail freight tends to be dominated by bulk loads, carries a small proportion to total freight but has a significant market share on inter-regional routes. (paragraph 3.37)

3.49The Joint Committee notes that the modern DART system while operating on dense corridors, is unable to cover its operating costs (paragraph 3.42 to 3.44).

3.50The Joint Committee notes that the two-way sub-sectoral split within total rail operations does not allow detailed assessment of the separate sub-sectors grouped under this heading, especially of the rail freight sector and the entire Dublin suburban service. The Joint Committee recommends that such detailed information and analysis be made available. (paragraph 3.1)

3.51The Joint Committee wishes the company to address the static number of DART passengers in the last two years (1993 and 1992) within the context of examining mainline rail passenger numbers. It welcomes the setting up of a close liaison between stationmasters and the GardaÍ and the reduction in incidents at DART stations which may reduce the influence, if any, of crime on DART passenger numbers. (paragraph 3.41)

3.52The Joint Committee does not regard the information presented on other expenses in the category “operating costs”as adequate and recommends that more detailed information be given in the company’s accounts regarding the composition of this category (paragraph 3.18).

4. Common issues

Introduction

This chapter covers general issues relating to market research, pricing policy, international comparisons, rail infrastructure, accessibility and safety. These issues are common to both the mainline sector and DART.

Market research

4.1Iarnród Éireann’s market research is based on interviews with 21,000 respondents nationwide. Respondents were asked if they had made any journeys over 30 miles in the last six months and if so by what mode (Table A4.1 Appendix IV). The results indicate that while rail is the second most popular mode, the car has a much higher market share (79%). An independent survey on 7 inter-urban corridors in 1991 also indicated that after the private car, the train was the most frequent method of transport with nearly a quarter of the respondents (Table A4.1 Appendix IV).

4.2The market share of rail on specific corridors varies by direction. A higher proportion of people travelling to Dublin used the train than those travelling from Dublin. Analysis of people travelling Dublin to Wexford and Dublin to Waterford by train indicated that train usage was as low as 7% to 8%; rail’s share on services from Dublin to Sligo, Waterford and Tralee was between 19% and 24% of total journeys. Rail had the largest share on journeys from Dublin to Cork with 36% of respondents stating that they travelled by train. Car was by far the most popular mode with a market share of 56% on Dublin to Cork journeys and 84% on Dublin to Wexford trips. The use of public and private bus and coach transport was highest on the Dublin to Galway and Dublin to Sligo routes but still only accounted for 8% of respondents.

4.3The breakdown of train passengers by journey purpose indicates that the majority of train users travel for leisure reasons; 26% were travelling to see friends, 20% on holiday, 17% on a shopping trip, 9% on a sporting trip. Only 9% of travellers travel for business. The train was rated higher than the car in terms of reliability by 46% of the respondents (Table 4.1). However, the car was considered to be more convenient (61%), quicker (34%) and best all-round value for money (44%) when compared with the train. The convenience of the car results from the low frequency of train services and the slow journey times. No quality indicators were provided by the market research in terms of comfort, cleanliness, availability of food, punctuality. However, the train rated highest in terms of “getting there feeling fresh”. In order to improve public knowledge and perception of Iarnród Éireann’s quality of service, the Joint Committee recommends that the company disseminate information as widely as possible - in its Annual Report, in stations etc. - on the quality of its services and gives consideration to the preparation of a customers’ charter.

Source: Iarnród Éireann

4.4Iarnród Éireann’s market research indicates that 61% of mainline travellers are not frequent travellers and use rail less than once a month (Table A4.2 Appendix IV).

4.5Iarnród Éireann’s annual marketing budget, excluding staff, is approximately £1.3m and covers advertising, printing, market research, sponsorship and professional services.

Pricing policy

4.6The company stated that overall pricing policy is to set fares at a level that will maximise revenue while optimising passenger carryings. While Iarnród Éireann employs a differential pricing policy which has helped to fill spare capacity on mainline trains, it is constrained by a number of factors. The company must obtain authority from the Minister of Transport, Energy and Communications prior to implementing a general fare increase. According to the company, government concern at the effect fares increases might have on the annual inflation rate has resulted in a marked reluctance to grant such approval.

4.7A comparison of Iarnród Éireann’s rail fares with those on Bus Éireann and private bus services indicates that coach travel is significantly cheaper (Table 4.2). On services from Dublin to Cork, Limerick, Galway and Ballina the extended return train fare is at least double Bus Éireann’s fare. Excluding the Rosslare, Sligo and Waterford routes extended return rail fares are at least two-thirds more expensive than Bus Éireann’s fares.

4.8The comparatively low rail fares on the Sligo and Rosslare services reflect the significant fare reductions made on these routes due to the poor quality of service. Conversely the relatively high fares on the Dublin to Cork service reflect the quality service premium because of the high level of service on this route. Generally day return rail fares are more competitive against Bus Éireann fares.

Source: Iarnród Éireann

4.9The cost per mile travelling by train, using an extended return ticket, varies by route from around 7 to 11 pence per mile. In comparison to the private care the cost per mile by train is less than the running costs of the car and significantly cheaper if car tax, insurance and depreciation are included. However, it is difficult to compare these modes since rail only provides a journey to and from fixed station locations while the car covers an entire journey from and to a specific point. In comparison to the car the cost of travelling by train excludes the time and financial costs in reaching and travelling from the railway stations and therefore underestimates the overall cost of the journey. The cost per person of travelling by car also depends upon the level of car occupancy. With two or more people travelling by car the cost per person may be cheaper than rail.

International comparisons

4.10Care must be taken when comparing international figures since the mix of passenger journeys, in terms of long distance versus short commuter trips, varies considerably between different countries. It is also worth noting that national pricing strategies, subsidies and network financial objectives differ from country to country.

4.11Iarnród Éireann’s passenger loadings (passenger kilometres divided by passenger train kilometres) are high by international standards (Table A4.3 Appendix IV). Out of the EU member states only France, Greece and Spain perform better. However, this may reflect the lower frequency of mainline services here, which would also produce higher loadings but from a lower level of service.

4.12Iarnród Éireann’s freight train loadings (freight tonne kilometres divided by freight train kilometres) were the lowest out of the 16 railways covered in the submission (Table A4.4 Appendix IV).

4.13Even though Ireland has a smaller network than the other EU countries, with the exception of Luxembourg, it nevertheless achieved a longer average haul length (tonne kilometres/tonnes carried and passenger kilometres/passengers carried) for passengers and freight than the UK, the Netherlands and Belgium. Even with this longer than average haul, Iarnród Éireann’s productivity in terms of traffic kilometre (passenger and freight) per employee was lower than most of the EU countries (Table A4.5 Appendix IV). This was attributed to relatively low freight volume levels rather than to staffing levels or to travel distances.

4.14In 1989 Iarnród Éireann had the lowest staffing level per kilometre of the EU railways in Table 4.3 with a staff of 3.1 per line km.

4.15While the company has maintained relatively high passenger load factors by European standards, Irish people have a lower propensity to travel by train than most of their European counterparts, excluding Spain and Italy. On average each person in Ireland travels by train 7 times a year. Excluding travel on the DART and other suburban services the average usage of the mainline rail services in Ireland is equivalent to approximately one return journey per head of population each year. In terms of the distance travelled by train per head of population Irish people travel less than their European counterparts, as shown by Table 4.3, with each person travelling 347 km or the equivalent of one return trip Dublin to Limerick per person annually.

Source: Eurepean Marketing Pocket Book, Jane’s Information Group, Jane’s Workd Railways 1990/1991

4.16Iarnród Éireann’s financial performance is broadly comparable with other European railways. In 1992 the company’s total operating receipts as a percentage of total operating costs were close to the average (equal ninth highest, with Germany and Norway) of the 15 countries included (Table A4.6 Appendix IV). The proportion of operating receipts to total operating costs were lower for railways in Italy, Portugal, Greece and Luxembourg.

4.17Iarnród Éireann indicated that the level of frequencies are determined by demand factors and a minimum of 3 trains a day is normal on Intercity services throughout Europe. They also indicated that cost comparisons are not readily available or comparable due to the wide range of ticket types and the different levels of subsidisation.

4.18While there are difficulties in finding comparable services for drawing international comparisons, due to differences in the rail network, the analysis in the following paragraphs compares rail services in Scotland with those in Ireland. While every effort has been made to concentrate on radial routes (ie routes emanating from a common central point) in Scotland which are comparable to the Irish network, some of the services do travel beyond the stated destination. As far as possible, comparable population centres and journey distances have been chosen. The Irish journey times are the best mid-week times, while the Scottish ones are as timetabled.

Source: Iarnród Éireann submission, British Rail, CSO

4.19Given the slight differences in distance, the journey times are comparable, with the exception of the comparison of Dublin to Rosslare service with the Glasgow to Stranraer service where the Scottish service is substantially faster.

4.20Excluding the comparison between Dublin to Sligo and Inverness to Wick the Scottish services offer a higher frequency, generally double the Irish level.

4.21Comparison of the fares has been restricted to single journeys due to the differing fare regulations. In the UK day return tickets are not generally available for journeys over 50 miles and period returns are covered by different restrictions on the periods when the ticket may be used and the duration of the ticket’s validity. With the exception of the Dublin to Cork and Glasgow to Aberdeen comparison the Irish single fares, for similar journey lengths with a lower frequency, are double the Scottish ones. These findings would indicate that the Irish services are more expensive and less frequent than comparable Scottish ones. However, it is important to note that this is a relatively simple comparison which does not take account of the load factors or operating costs of providing the services.

Rail infrastructure

4.22According to the company, the rationalisation programme, introduced to meet reduced subvention levels, has resulted in under-investment in track renewal since 1984. There is now a serious backlog of renewal work, with 900 miles of Iarnród Éireann’s rails being 50 years old and over 290 miles of track with sleepers over 25 years old. This causes problems for some services e.g. track conditions have led to enforced speed restrictions on Rosslare and Sligo routes.

4.23The level of capital investment in rail infrastructure has been low relative to the other modes. Under the EU-assisted Operational Programme on Peripherality 1989 to 1993 (OPP) £1.6m was to be provided for rail freight transport, in order to improve the rail link into the Sealink terminal in Dublin Port. Because this terminal was closed, a rail link was substituted to the new Bellview terminal in Waterford at a cost of £3.2m. Under the original regional public transport measure of the OPP, £37.5m was to be spent on rail passenger services in Dublin and rail freight infrastructure in other regional locations. However, a more modest proposal covering the provision of a commuter service on the South Western line was adopted at an estimated cost of £20.4m.

4.24In 1992, a new mainline rail measure was introduced to fund an upgrading of the Dublin to Belfast line as well as renewal work on the Waterford and Cork lines. Between 1992 and 1993, an estimated £22m was spent on these measures. Including this new measure rail received £46m or 5% of the £870m spent under the OPP, while roads received approximately £660m or 76% of the total.

4.25Between 1987 and 1993 there has been significant expenditure in order to maintain the running lines (£73.7m) and the rolling stock (£74.6m). However, the capital expenditure on additional railway lines and works totalled just £1.2m over the seven-year period. The bulk of capital expenditure over the last seven years was on rolling stock (£31.1m) plant and machinery (£23.2m) and docks, harbours and wharves (£18.6m).

4.26Excluding 1992 and 1993, expenditure on rolling stock is skewed towards the earlier years i.e. £9.7m in 1987 as opposed to £0.5m in 1991. (Table 4.5). The declining level of capital investment in Iarnród Éireann over the five-year period from 1987 to 1991 was reversed in 1992 and 1993 as the company increased investment in Rosslare Harbour and new locomotives and railcars.

Source: Iarnród Éireann Annual Reports 1987 to 1993

4.27The age profile of the existing fleet shows that most of the company’s existing locomotives are at least 30 years old (Table A4.7 Appendix IV). Iarnród Éireann states that the 001 class of locomotives, with a life expectancy of 40 years, should be replaced by 1995. The high age profile of the company’s locomotives means that they are becoming more unattractive, unreliable, costly and difficult to maintain.

4.28A locomotive replacement programme commenced in 1993 with a £20.8m order for 10 new diesel locomotives from General Motors. Three of the new diesel locomotives had been delivered and were in service by August 1994. A further 22 locomotives are on order for delivery in 1995 at a cost of £2.2m each. In the long term Iarnród Éireann plans to acquire a further 45 locomotives by 2005 and 18 more by 2017.

4.29In 1993 the company placed a £19.5m order for 17 new railcars from Mitsui. These were delivered in 1994 and 16 of new railcars are used daily with ten operating on the new Arrow commuter service from Kildare to Heuston station, four on the Dublin to Dundalk suburban service and a further two-car set on the Maynooth line. The company plans to acquire a further 33 railcars over the next ten years with 10 more to be ordered shortly.

4.30The aforementioned imbalance between road and rail investment has been redressed to some extent in the second Operational Programme for Transport covering the period from 1994 to 1999 which is discussed further in Chapter 7. However, under that Operational Programme, total structural investment in the road network (primary, secondary and non-national roads) will be six times more than that in mainline rail.

Accessibility

4.31In recent years Iarnród Éireann has pursued a policy of making its services more accessible to the mobility impaired. Existing facilities and future plans which will assist the mobility impaired include:

*50 portable ramps have been provided at the mainline stations along the network and a further 20 are on order in 1994;

*wheelchair accessible toilets are available at most main railway stations with Killarney, Tralee, and Sligo being the most recently installed;

*the 17 new railcars now in service on Dublin suburban routes are wheelchair-accessible and have wheelchair-accessible toilets;

*all new trains will have wheelchair accessible toilets and dedicated spaces for mobility-impaired travellers.

4.32Iarnród Éireann stated to the Joint Committee that it will continue to upgrade its facilities to provide access to mobility impaired in the future but the rate of progression very much depends on the amount of resources that are made available to the company.

4.33While it is commendable that new rolling stock will assist the mobility impaired as it is introduced into service it is the Joint Committee’s view that wheelchair access should be provided at all of the main railway stations.

Safety

4.34In addition to operating within an enclosed system, the railway operating environment is governed by stringent rules and regulations. While the railway does not carry hazardous waste, it has an excellent record for carrying hazardous chemicals and stringent safety precautions are taken. In the Joint Committee’s view, this does not lessen the need for all involved to allay public concerns on the issue (see 4.38 below).

4.35On average one passenger died as a result of rail accidents in each of the years 1987 to 1991. Over the same period, excluding pedestrians, over 320 people died each year as a result of road accidents. In terms of travel related accidents (excluding cyclists, pedestrians and motor cyclists) travelling by train is roughly ten times safer than travelling by car. On average one motorist died for every 10¹⁰ vehicle km while there was one rail passenger fatality for every 10¹¹ passenger km.

Level crossings

4.36On the Irish rail network there are currently 232 manual level crossings operated by gatekeepers on train crews and 32 automated level crossings. Since 1987 eight level crossings have been upgraded and one new crossing has been put in place.

4.37While the company indicated that good relationships were enjoyed with all County Councils, both in planning and bridge work, it was acknowledged that the company is in dispute with local authorities over a number of level crossings. These disputes generally relate to funding.

4.38It is the Joint Committee’s view that the level of cooperation at the planning level between the company and County Councils, and specifically about the introduction and upgrading of level-crossing facilities and the safety of transport of hazardous substances, does not appear to be satisfactory. While the Joint Committee welcomes the company’s statement that on-going discussions are taking place with the local authorities and the differences hopefully will be resolved soon, it notes that these continuing disagreements concerning the upgrading of level crossing result in level crossings not being completed and in some cases are holding up major road work schemes.

Summary

4.39The Joint Committee is aware that many people prefer alternative modes of transport to rail, namely car and bus. Iarnród Éireann’s own market research on the main interurban corridors indicated that most respondents considered the car to be more convenient, quicker and better value for money than the train. (paragraphs 4.1 to 4.3) Coach travel is significantly cheaper than rail with Iarnród Éireann’s extended return fares on most mainline services from Dublin costing 70% to 100% more than those on Bus Éireann (paragraphs 4.7 and 4.8).

4.40In order to improve public knowledge and perception of Iarnród Éireann’s quality of service, the Joint Committee recommends that the company prepares meaningful indicators, including information on performance by sector and on a route-by-route basis. Gross data such as national averages should not be used for this purpose. Furthermore, the company should disseminate the information as widely as possible - in its Annual Report, in stations, in newspapers etc. - and give consideration to the preparation of a customers’ charter. (paragraph 4.3)

4.41Most mainline travellers use rail less than once a month (paragraph 4.4). International comparisons show that Irish people have a lower propensity to travel by train than most of their European counterparts, and when they do travel by train they travel shorter distances on average. (paragraph 4.15)

4.42While Iarnród Éireann’s financial performance is broadly comparable with other European Railways it has a lower staff level per kilometre of railway, very low freight train loadings and a lower staff productivity in terms of traffic kilometre than most EU countries. (paragraphs 4.10 to 4.17)

4.43Following a low level of investment in rail infrastructure and rolling stock much of the track requires up-grading and a large proportion of the company’s locomotives need replacing. The use of 30 to 40 year old locomotives has resulted in an unreliable and poor quality service on some routes and that this has led to a decline in usage. (paragraphs 4.22 to 4.30)

4.44While it is commendable that new rolling stock will assist the mobility impaired as it is introduced into service it is the Joint Committee’s view that wheelchair access should be provided at all of the main railway stations (paragraphs 4.31 to 4.33).

4.45It is the Joint Committee’s view that the level of cooperation at the planning level between the company and County Councils, and specifically about the introduction and upgrading of level-crossing facilities and and the safety of transport of hazardous substances, does not appear to be satisfactory. While the Joint Committee welcomes the company’s discussions with the local authorities, it notes that these continuing disagreements concerning the upgrading of level crossings are resulting in level crossings not being completed and in some cases are holding up major road schemes. (paragraphs 4.36 to 4.38).

5. Ancillary activities

Introduction

This chapter covers Iarnród Éireann’s three ancillary activities, namely road freight, Rosslare Harbour and catering services. Road freight and catering services are complementary to the the company’s core railway business, linking into freight and passenger operations respectively. Operations at Rosslare Harbour are more self-contained. This chapter also reviews the condition and use of railway land and buildings, which are owned by Iarnród Éireann’s holding company CIE.

General performance

5.1While all of Iarnród Éireann’s ancillary sectors were profitable over the period from 1987 to 1993, the ratio of profit to revenue varied considerably between them. Overall, they generated 27% of Iarnród Éireann’s revenue, accounted for 14% of its expenditure and contributed a surplus of £3.1m in 1993.

Road freight

5.2Iarnród Éireann is the largest player in the road freight business in Ireland with a 3% share of a highly-fragmented market. The sector was profitable from 1987 to 1993. However, the rate of profitability declined in 1991 due to an increase in operating and other expenses before peaking in 1993 (Table 5.1 and Table A5.1 Appendix V).

Source: Iarnród Éireann and 1993 Accounts

5.3While Iarnród Éireann provides operational information on its own fleet, it is difficult to assess changes in this sector as there is limited information on the increasingly improvement private contractor services. The Joint Committee would like to see an improvement in the information provided on this sector. According to the company, private contractors carry a wide range of products from cement to computer tape so that measuring the level of business in tonnes or kilometers may not reflect the level of business. In 1992 47% of road freight revenue was earned from that carried by private contractors and this dropped to 45% in 1993 following the diversion of rail freight distribution business from Belfast to Dublin Port. The hiring of private hauliers/vehicles is the road freight sector’s largest expenditure and accounted for 45% of total expenditure in 1992, up from 37% in 1991 (Table A5.2 Appendix V).

5.4The company reduced its road freight activities somewhat between 1987 and 1990. The number of company vehicles and staff in the road freight sector was reduced. However, the volume of freight carried remained more or less static at 1.2m tonnes while vehicle kilometres fell by 13% to 8.7m (Table A5.3 Appendix V). Despite a decrease in tonnage carried, revenue grew by 3% over the years 1987 to 1991. Over the same period total expenditure increased by 6% resulting in a decline in the sector’s operating surplus to £167,000 in 1991. The Joint Committee would like to see the contribution provided by this sector to the company’s surplus increase.

5.5In 1991 Iarnród Éireann’s road fleet was concentrated at a smaller number of locations. The number of depot locations was reduced from 30 to 10 centres - Dublin, Cork, Limerick, Waterford, Galway, Tralee, Ballina, Sligo, Longford and Dundalk. Partnerships were entered into with hauliers for local distribution. In all of the depots except Dublin, private contractors handle all collection and delivery. At the hub of the system at North Wall, Dublin, Iarnród Éireann staff handle the bulk of the traffic and private contractors have only been used to cope with backlogs if goods cannot be cleared within the same day by the Iarnród Éireann crews.

5.6The rationalisation (see above) reduced the sector’s fleet in 1992 but despite the reduction, the number of tonnes carried by company vehicles in 1992 has only down by 8% and vehicle kilometers by 11%, compared to 1990. This can be attributed to the fact that a number of the vehicles while still being depreciated were not in operation. In 1993 the road freight sector carried slightly less tonnage than in 1992 but the average receipt per tonne increased.

5.7As part of a programme to upgrade and renew the road freight fleet £4.5m was spent on road freight vehicles in 1992 and 1993. In 1993 the company took delivery of 129 power units and 100 trailers. This was a replacement programme to equip the fleet servicing the existing customer base. For the foreseeable future private contractors will be used to develop new traffic with the short term aim of increasing the use of private contractors to 50% involvement. In 1994 the road freight section was renamed Road Liner and the sector was upgraded and given its own Director.

5.8The Irish Road Hauliers Association stated to the Joint Committee that it had grave doubts as to the viability of Iarnród Éireann’s road freight division, and that it had reason to believe that there is a large measure of cross subsidisation between the rail section and the road operation. Iarnród Éireann indicated that its road freight division is managed as a separate and viable unit within Iarnród Éireann. The company also stated that the road freight section received no internal or external assistance towards renewing its fleet and that the investment in new vehicles was funded entirely from retained earnings.

Rosslare Harbour

5.9Rosslare Harbour is a very profitable business for Iarnród Éireann, producing a net surplus of £2.2m on revenue of £4.9m in 1993. Between 1987 and 1993 revenue increased by 29%, expenditure by 27% and net profits by 32% (Table 5.2 and Table A5.4 Appendix V).

Source: Iarnród Éireann and Annual Report 1993

5.10Bord Fáilte port of entry figures indicate that nearly 15% of overseas passengers entering the Republic came through Rosslare in 1991. Passenger throughout at the harbour increased from 0.9m to 1.4m between 1987 and 1991. In value terms Rosslare handled 46% more freight in 1992 than in 1987. However, its share of the Republic’s external trade by value fell marginally to 10%. The port handled 30% of the roll-on/roll-off freight vehicle traffic through Irish ports in 1992.

5.11Development of operations and facilities at Rosslare Harbour accelerated significantly with phase 1 of an £18.8m development programme supported by European Union Structural Funds (ERDF). This scheme, due to be completed in 1994, involves dredging to facilitate larger ships, reclamation of approximately 30 acres, and extension of pier facilities. Between 1992 and 1993 £11.1m was spent on capital infrastructure at the port.

5.12The original harbour assets are owned by the Fishguard and Rosslare Railways and Harbours Company (FRRH) which is owned by Iarnród Éireann and Stena Sealink. Any additions in recent years are the property of Iarnród Éireann.

Catering services

5.13Although catering services increased their annual turnover from £3.9m in 1987 to £7.1m in 1993, an increase of 84%, profitability only increased from £105,000 to £308,000 (Table 5.3 and Table A5.5 Appendix V). In terms of profitability, 1990 was its best year when this sector generated profits equivalent to 5.5% of turnover. In 1992 provisions and wines etc. accounted for 46% of expenditure, while all of the other direct expenses were made up of payroll and pension costs.

Source: Iarnród Éireann and 1993 Accounts

5.14The company’s catering services are provided on trains and include the operation of Restaurant na Mara in Dún Laoghaire and the “Footplate” restaurant at Heuston station which opened in 1992. The catering division was successful in tendering for the provision of catering services to Northern Ireland railways and a separate company, Dubel Ltd, was set up and registered in Northern Ireland and commenced trading in March 1992.

5.15The company has stated that its catering services are unique within European railways as they are the only rail catering services which make a profit. However, to the external observer it is not clear why rail catering need be such a low margin business. When the possibility of improving profitability by franchising or contracting was raised, Iarnród Éireann stated that many of the station buffet facilities are already franchised and that a pilot on-train franchising experiment has been undertaken. The Joint Committee would like to see an increase in the contribution of catering to the company’s surplus. The Joint Committee believes that the franchising initiative issustrates an opportunity for the more general application of franchising and outsourcing and it wishes to see the company examine this question in greater detail.

5.16The Joint Committee’s overall assessment of Iarnród Éireann’s catering is a case of a divergence in quality with it being either extremely high or low and rarely in between. Restaurant na Mara and the Dublin-Cork Citygold service are clearly pinnacles of excellence. However, they set a standard not met on most other services. Absence of any facilities, or only very basic trolley facilities, on many mainline services appears to be an all too frequent occurrence.

Property

5.17At present all railway land and buildings are owned by the holding company CIE, in accordance with overall CIE practice. CIE property is currently categorised as either operational (essential to the group’s needs) or non-operational. The overall management of property within the CIE Group is centralised and organised by a property management division answerable to a property management committee. Between 1987 and 1992, the group disposed of a large proportion of the non-operational property, selling land and buildings worth approximately £11m. In 1993, the company acquired land and buildings worth £1.8m. Land and buildings on CIE’s balance sheet had a historic value of £38.4m at the end of 1993.

5.18Most of the CIE land is rail-related. In total CIE has 550 property locations, 1,620 hectares of property and 2,800 km of railway track. Over 100 of the CIE properties are non-operational. However, due to their location, near busy railway lines, they cannot be sold or developed. Due to the linear path of the network much of the non-operational land consists of small sites of land in rural areas, which are often inaccessible due to the railway tracks, and cannot be realised as an asset. It is the aim of the company where possible to enter joint developments, using their property as their share of the investment, thus gaining a share in a development which will generate income in the future. Approximately 800 km of the network is non-operational at present. However, the railway is not allowed to lift tracks from closed lines for ten years and so the company tends not to sell closed lines. This is partly because the line may be required in the future, but also because the cost of selling many parcels of land 14m wide to a large number of buyers is unprofitable. In the past, development opportunities have been hampered by government directives to sell specific sites rather than develop them.

5.19The Joint Committee generally welcomes the disposal of surplus property and wishes to see the development of alternative uses of such property and/or disposal continue, where appropriate. However, the company might also wish to consider, in some instances, more imaginative approaches to spare capacity e.g. development of hotels or shopping malls. The company cited development plans for Pearse Street station, and negotiations to develop Heuston station and Connolly station, as well as ongoing negotiations with a French hotel group. These stations offer the opportunity of providing a focus for urban renewal beyond the confines of the railway. Despite these plans the contrast between major railway stations and airports is still striking. The former are mostly unattractive places in which people spend the minimum possible time. The latter have been consciously developed as places to which people would wish to go.

5.20More generally the Joint Committee thinks that much railway property, whether in use or abandoned, is in an unsatisfactory condition. This is particularly troubling at a time of increased environmental awareness. Railway stations deserve preservation as part of the architectural heritage rather than dereliction through neglect. The company has stated that the lack of capital resources has meant that it has not been possible in the past to maintain and upgrade railway stations as often as it would have liked but it is is currently assessing a number of mainline stations, from both operational and property management points of view, as a prerequisite to the preparation of detailed development plans. The Joint Committee welcomes the preparation of these plans but feels that there is an urgent need to upgrade the quality of the stations and thus the attractiveness of this mode of transport. In many instances relatively modest expenditure, e.g. on paint, would do much to improve the image of the network.

Summary

5.21The Joint Committee concludes that of the company’s ancillary activities, Rosslare Harbour has performed particularly well, while the road freight and catering services sectors have achieved a lower rate of return. (paragraph 5.9)

5.22Since the company has increased its use of private contractors in road freight, the limited operational information provided on the private contractor services is not adequate and the situation should be improved. (paragraph 5.3)

5.23The Joint Committee notes that the road freight and catering services sectors are complementary to Iarnród Éireann’s core business and wishes and to see their contributions to the company’s surplus profits raise increased. (paragraphs 5.4 and 5.15)

5.24Given the sucessful franchising of many station buffet facilities, the Joint Committee’s view is that the company should consider how the more general application of franchising and outsourcing for services could increase its surplus. (paragraph 5.15)

5.25The Joint Committee believes that Iarnród Éireann’s catering is divergent in quality, being either extremely high or low and rarely in between, with Restaurant na Mara and the Dublin to Cork Citygold examples of the former. The Joint Committee believes that this standard is not met on most other services. (paragraph 5.16)

5.26The Joint Committee generally welcomes the alternative utilisation and/or disposal of surplus property and wishes to see the process continue, where appropriate, but the company might also wish to consider, in some instances, more imaginative approaches to spare capacity e.g. development of hotels or shopping malls. (paragraph 5.19)

5.27The Joint Committee believes that much railway property is in an unsatisfactory condition and would urge the company to undertake improvement works urgently, in the context of respecting the architectural heritage of stations. (Paragraph 5.20)

6. Personnel

Introduction

This chapter considers a number of issues in the personnel area: trends in staff costs, the impact of the company’s voluntary severance programme, staff numbers, industrial relations, management qualifications, the age profile of Iarnród Éireann’s staff and the breakdown of employees by position.

Employment

6.1The average number of staff employed by the company fell by 20.5% between 1987 and 1993. There were particularly sharp declines in 1988 and 1989. Much of the reduction to date has been attributed to natural wastage and the voluntary severance programme. Voluntary severance payments, totalling almost £21m for the period 1987 to 1993, have fluctuated widely since peaking at £9m in 1988. Since large severance payments in 1988 and 1991 coincided with significant staff reductions (Table 6.1), the large totals for severance payments in 1992 and 1992 and 1993 could be expected to result in lower staff numbers in 1994, with additional further reductions expected from new work practices, improvements in productivity and capital investment.

Source: Iarnród Éireann

6.2Net staff costs as a percentage of total operating costs fell from 59% to 52% between 1987 and 1993. This high proportion of operating costs reflects the labour intensive nature of the business and is the norm for other European railways.

6.3From 1987 to 1993, Iarnród Éireann’s net staff costs rose by 2% in current prices and fell by 14% in real terms. Most of the reduction in staff costs occurred in 1988 and 1989. Net staff costs were more or less static in real terms between 1990 and 1993.

6.4Between 1987 and 1993 the average cost of each employee rose by 28% in monetary terms and by 8% in real terms. Iarnród Éireann attributes much of this increase to the wage increases agreed under the PNR and PESP.

6.5In 1990, nearly 90% of the company’s staff were engaged in the railway sector with approximately 50% in railway operations and nearly 40% in maintenance (Table A6.1 Appendix VI). Most of the staff reductions referred to above were achieved in the railway sector with the numbers employed falling from 6,231 to 4,911 between 1987 and 1993. Over the same period the numbers employed in the road freight section fell by 171 to 286 while catering service numbers rose by 65 to 268. Employment at Rosslare Harbour fell from 83 to 74.

6.6In 1993 more than 90% of the company’s staff costs were attributed to the railway sector with mainline operations accounting for nearly 42% of staff costs. The civil engineering sector, which maintains the rail infrastructure, represented approximately 26% of staff costs while the mechanical engineering sector, which maintains and supplies the rolling stock, accounted for 18% of staff costs (Table A6.2 Appendix VI).

Industrial relations

6.7Iarnród Éireann’s employees are represented by 18 trade unions. Given the size of the labour force, this is a large number of individual unions. All of the unions except the National Bus and Rail Union (NBRU) are affiliated to the Irish Congress of Trade Unions (ICTU). According to Iarnród Éireann, industrial relations have been adversely affected by inter-union rivalry between the NBRU and ICTU.

6.8While there is a Top Joint Participation Group, consisting of senior managers and trade union officials, and 13 local joint participation councils, consisting of local managers and elected local staff, these groups meet only three or four times a year. Iarnród Éireann plans to devolve responsibility for industrial relations to line management who will be guided and supported by regional and departmental personnel executives and a specialised central unit in the company’s head office.

6.9The first national rail stoppage since 1951 occurred in August 1991 when there was a one day national work stoppage over a claim on behalf of Rail Operative grade staff for pay adjustments. Following this the Labour Relations Commission contacted Iarnród Éireann to carry out a review of industrial relations within the company.

6.10Following the special Labour Relations Commission Working Party on Industrial Relations in Iarnród Éireann, which operated over the period from 1992 to 1994, new procedures have been laid down in the areas of negotiating and dispute resolution frameworks, grievance/disciplinary procedures and a revised joint participation scheme for a three tiered structure. A code of ethics was also agreed, providing for reciprocal consultation between the NBRU and ICTU Group unions on membership transfers.

6.11Following protracted negotiations between the company and trade unions (NBRU and SIPTU/ICTU) agreement was also reached on significant changes in work practices in respect of approximately 1,600 rail operatives grade staff in the Operations Department. The agreement provides for payroll savings primarily through job suppressions (voluntary severance/natural wastage and redeployment) and the sharing of these savings between the company and staff by way of rates of pay and allowance adjustments.

6.12The changes in work practices agreed included the following:

*one person operation of freight trains, i.e. withdrawal of train guards;

*elimination of the dated mileage agreement in respect of locomotive drivers, under which drivers were entitled to claim an hour’s extra pay for every 15 miles travelled after the first 140 miles;

*out and back working by locomotive drivers, i.e. return trips which were previously cost prohibitive under the mileage agreement;

*operation of new railcars;

*use of new portable ticket issuing machines;

*interchange of staff in the performance of duties such as fueling, watering, shore supply, shunting and pre-trip checks.

6.13These changes, which required a departure from long established working practices, were successfully negotiated over three years without any major disruption to services. The final negotiations, chaired by the Labour Relations Commission, intensified in February 1994. Comprehensive proposals were then put to ballot but rejected by SIPTU and the NBRU. Following threatened industrial action and labour court intervention in April 1994, agreement was reached on a package of proposals covering changes in work practices, pay adjustments and monitoring arrangements. The Joint Committee welcomes the successful conclusion of these negotiations.

6.14According to Iarnród Éireann, the development of agreement on below board structures and on grievance/disciplinary procedures together with progress in relation to a revised framework for negotiation and dispute resolution will contribute significantly to a change from a conflict culture to a more cooperative approach. Similarly the changes in work practices will enable more efficient and cost-effective railway operation.

Management qualifications

6.15Excluding Chartered Institute of Transport qualifications, 85 of Iarnród Éireann’s 207 executives have professional qualifications (41%). The breakdown of management staff by professional qualification highlights a strong engineering bias within the company. Nearly 7 out of every 10 qualified managers have engineering qualifications (Table 6.2). In 1991, the company’s management had 59 engineers but only 16 people with business or commerce qualifications. Given the need to make the company more commercial and market-driven, the Joint Committee believes that the relatively small numbers of managers with professional business or marketing qualifications is inadequate and would like to see the company adopt a marketing and commercial perspective towards its operations, by all possible means, including facilitating its staff in appropriate further education and training.

Source: Iarnród Éireann

6.16An analysis of the age of Iarnród Éireann staff illustrates a high age profile, with 43% of staff over 45 years old, compared to 29% for the employed national labour force (Table A6.3 Appendix VI). The average age of staff is 41, which is an improvement on previous years, with staff reductions taking place in the higher age brackets. According to the company some maturity in the staff is an advantage and there is no evidence that the higher than average age profile has an adverse affect on performance.

6.17The range of internal training courses and participation on these training courses has increased progressively since 1987. The company runs 60 training programmes consisting of 375 courses which are operational and discipline specific. Course attendance increased by 55% to 4,250 courses between 1987 and 1991. In addition over 1,000 staff have attended committment workshops and seminars under the Total Quality Management programme. The Joint Committee anticipates that increased levels of staff training will lead to improved services.

6.18The breakdown of staff numbers by position in 1992 illustrates the high proportion of maintenance and engineering staff (Table A6.4 Appendix VI). Platelayers, engineering craftworkers and depotpersons accounted for 1,667 positions or 30% of the staff. The proportion of clerical staff within the Iarnród Éireann also seems high at 568. The number of clerical staff was approximately the same as ticket collectors, guards and locomotive drivers combined.

Summary

6.19The Joint Committee notes that the company has made a substantial reduction (20.5%) in total staff numbers between 1987 and 1993. Much of this reduction can be attributed to the impact of company’s voluntary severance scheme on which £20.9m was spent over the period. Total staff costs fell by 14% in real terms between 1987 and 1990, while the average cost per employee rose by 8% in real terms and 28% in monetary value. (paragraphs 6.2, 6.3 and 6.4)

6.20The Joint Committee welcomes the successful negotiation of new working practices and expects that they will increase labour efficiency and reduce costs. The introduction of new procedures should assist in a change in industrial relations from a conflict culture to a more cooperative approach. (paragraphs 6.13 and 6.14)

6.21The Joint Committee believes that the breakdown of management staff by professional qualification highlights a strong engineering bias within the company, with relatively few managers having professional business or marketing qualifications. The Joint Committee wishes to see the company adopt a more commercial and marketing-oriented perspective - which would equip it to meet future challenges in the areas of cost control, marketing and developing a commercial drive. (paragraph 6.15 and see also paragraphs 7.36 and 7.37)

7. Future developments

Overall strategy - the company’s business plan

7.1Iarnród Éireann’s five year Business Plan is updated annually and presented to the Department of Transport, Energy and Communications and provides the framework for it’s overall strategy. The company stated to the Joint Committee that in the mainline passenger context, the scope for providing new routes is limited and the main thrust of the Business Plan is towards the development of existing businesses and improvement in the quality of product being offered. With regard to the railway freight, the company stated that the policy for this section is to retain the level of business and to continue to improve and develop the quality of service. The company also stated that the Business Plan assumes that the existing network and the existing level of service would be maintained within reasonable commercial practicability. Iarnród Éireann has also stated to the Joint Committee that it has no plans to reduce the size of its network or to reduce the level of service currently on offer and that the present network is probably its minimum efficient size. The current rail network is compared with the 1924 network in Fig 7.1. Whether such a level of cost for the service provided is good use of public money is a matter that the Joint Committee would wish to see subjected to a much greater level of debate and analysis than has been the case heretofore.

Future funding needs

7.2The Joint Committee believes that funding issues present the key challenge for the company and the Government, because substantial financing is clearly required for the future, both for capital and current purposes.

7.3The Business Plan highlights the need to renew and upgrade the track (see also paragraphs 4.22 to 4.30). Without such expenditure, further gradual deterioration of the permanent way will lead to a decline in the service level, which in turn will lead to a fall-off in use. The inevitable result is a self-fulfilling decline. The Joint Committee accepts the argument that substantial capital investment is required, if passenger numbers are to be maintained or increased and ultimately to prevent a situation arising where the railway will effectively be forced to close. The company’s assessment is largely correct: that assuming it is not possible to continue with a minimum network, the choice is then either to retain all (or most) of the existing network and invest significantly or to close the entire network. This is because the

Figure 7.1 The Irish Rail Network: 1924 and 1993

continuing poor service on many lines that would result if the necessary investment in infrastructure was not undertaken would effectively lead to a gradual closing of the network. Therefore failure to address properly funding and investment issues could eventually be a de facto closure decision. The capital needs are likely to be substantial, especially when the current Operational Programme on Transport expires in 1999.

7.4Further growth in revenue is forecast by the company for all sectors of the business. Despite reductions in expenditure resulting from rationalisation and the capital programme, expenditure is forecast to increase as a result of increased track renewal. In view of the large amounts of Exchequer resources given to Iarnród Éireann in the past - £90m on average per annum or 50% of the cost of every mainline trip made in Ireland each year - the Joint Committee believes that the company will also continue to require ongoing current subvention to enable it to continue its current operations. Iarnród Éireann’s operating deficit is expected to remain more or less static at £80m annually. Including DART interest payments, annual State grants will be approximately £90m a year. In addition, the company’s revenue will include capital monies of up to £275m under EU Structural Funds of which approximately £140m will be funded by the EU. Payments received from the Department of Social Welfare are also anticipated. Over the years to 1994 to 1999, Iarnród Éireann is expected to cost the Exchequer a total of £680m. To put this in context it is equivalent to:

-nearly £200 for every citizen;

-9% of the total £7.2bn in structural funds over this period;

-nearly 4 times the equity investment of £175m in Aer Lingus;

-over 78% of the total cost of the OPP 1989 to 1993;

-nearly double the combined cost of the following projects: the Western Parkway, the Northern Cross, the Southern Cross, the downstream crossing of the river Lee, and the Athlone, Dundalk, Mullingar and Balbriggan by-passes.

7.5Given the inevitability of the railways’ need for a high level of State support into the future, the Joint Committee believes that the key issue is whether that support from taxpayers is justified in value for money terms. The determination of the appropriate level of that funding and of the form it should take are related issues. The comparison with other alternative ways of achieving the same objectives must be made and so also must alternative uses of that financial support be considered. The Joint Committee is of the view that while this includes the financial performance of Iarnród Éireann, there are undoubtedly wider economic and social costs and benefits involved.

7.6On this key question the Joint Committee finds the material and evidence supplied by the company disappointing and the issue not adequately addressed by the company. It is the view of the Joint Committee that a company in receipt of £90m annual subvention would have formulated a good socio-economic justification of why it should receive this support and it appears to the Joint Committee that Iarnród Éireann has not done so. The Joint Committee believes that responsibility for the absence of a comprehensive justification rests not only with the company management, but also with CIE group management, with the Departments of Finance, and Transport, Energy and Communications, and with successive Ministers and Governments. None of these appear to have demanded or received better explanations from Iarnród Éireann as to why the taxpayer must fund 50% of the costs of every mainline rail trip made in Ireland each year.

7.7In justifying the annual operating subsidy to the railway and plans for increased public investment, Iarnród Éireann stated to the Joint Committee that the railway is of major strategic importance but that this aspect was very difficult to quantify. Given the size of the losses incurred by Iarnród Éireann to date and the proposed investment in rail. the Joint Committee recommends that any related benefits in terms of rail’s impact on economic development, employment, tourism and other externalities such as accident savings and environmental benefits should be quantified. The Department of Transport, Energy and Communications and the Department of Finance, if it has not already done so, should request stronger justification as to the exact nature of its socio-economic benefits and value to society. While the company should justify past, and forecast future, losses as well as capital investment, it is the Joint Committee’s view that it is the responsibility of the Government Departments to insist upon an accurate assessment of the additional socio-economic benefits generated from the railway. While these benefits may well outweigh the financial costs, it would be easier to assess the value of past and future State aid to the railway with additional information.

7.8Iarnród Éireann did provide an overall economic cost/benefit analysis of the comparison between the development option for the mainline railway and the do-minimum option. The do-minimum option assumes that the present network will be retained throughout the plan and that the network and facilities will be upgraded. The development option differs from the do-minimum option in that the upgrading of the network and facilities is accelerated. Over the period 1992 to 2021 the total investment under both options is similar, with £904.8m invested under the do-minimum option and £903.3m invested under the development option. The analysis therefore considers the benefits of accelerating investment rather than the case for or against investment.

7.9The analysis finds that the accelerated upgrading of the rail network provides a net present value of £29.6m and has an internal rate of return of 7.5%. However, this is based on the assumption that there will be no residual values after a 30 year time stream. It is arguable that the residual value of the investment under the development option will be less than that under the do-minimum option since the investment will have been made earlier.

7.10While this analysis indicates that given a set amount of investment, it is better (if not probably self-evident) to make that investment sooner rather than later, it does not evaluate the overall social and economic benefits of the railway or consider the value of the continuing State subvention.

7.11The Joint Committee believes that the inadequacy of the justification of railway expenditure provides an ideal opportunity for the Minister for Transport, Energy and Communications to initiate a comprehensive and wide-ranging public debate and review of policy, informed by relevant analysis and information to be supplied by the company and the Department. This would then lead to clear and justifiable decisions in this area. The accepted method of carrying out this process of polcy review is by means of the publication of a Green Paper initially, followed by public debate. culminating in the framing of policy in a White Paper and any necessary legislation. The Joint Committee believes that the review should not be open-ended and should be completed in 18 months.

7.12The Joint Committee believes that many of the wider issues and questions it raises in this report are so fundamental, problematic and, most importantly, interrelated that the most useful approach would be to deal with them together in the review. Obviously, such suggestions made here by the Joint Committee are not intended to prejudice the comprehensiveness of the review. They are as follows:

•the need for Iarnród Éireann to provide of a detailed justification for Exchequer outlay on its current subvention and capital investment; (paragraph 7.6)

•the identification and measurement of the wider social and economic costs and benefits - such as environmental, regional, tourism and strategic impacts - and the necessity to include them as factors influencing decision-making; (paragraphs 7.7, 7.21 and 7.30)

•the consideration of a wider range of technological options in the rail sector than heretofore; (paragraphs 7.33 to 7.36)

•Iarnród Éireann’s financial costs and profitability; (paragraph 7.5)

•the company’s dependency culture; (paragraph 7.37 and 7.38)

•its depreciation policy; (paragraph 2.15)

•the geographic and economic constraints on the financial and economic profitability of the railways in Ireland; (paragraphs 1.3, 1.13, 7.34, 7.37, 7.39 and 7.42)

•the economic basis for the allocation of investment between rail and road; (paragraph 7.17 to 7.30)

•the scope for additional interaction between the public and private sectors in the provision of railway services; (paragraph 7.16 and chapter 5)

•the funding of capital investment after the current (largely EU funded) Operational Programme for Transport expires in 1999; (paragraph 7.31)

•the need to develop an integrated transport policy. (paragraph 7.21 and 7.32)

•the practicality of making a single Department responsible for roads and railways. (paragraph 7.21)

Ownership and operational structure

7.13Under the EU Directive on State Railway Relationships (EEC91/440), the financial structure of European railways is to be reformed. This involves the separation of the management of railway infrastructure from the operation of rail transport services, with compulsory separation of accounts. The physical or institutional separation of the infrastructure provider and service provider will be optional.

7.14Under this new structure the railway undertakings providing the rail services would be charged a fee by the manager of the infrastructure in order to cover the cost of the railway infrastructure. The Directive also provides the right of access to each member State’s railway infrastructure for any authorised operator, whether other national railways or private operators, wishing to run services.

7.15The separation of rail infrastructure and operations could also enable private operators to enter the rail transport business. While the more profitable and denser routes in central Europe may attract private operators, the small size of the Irish network and the country’s dispersed population would suggest that new entrants would be deterred and that there would therefore be little competition. The critical factor will be the infrastructure charge to the service provider. Iarnród Éireann envisages that it will be relieved of the full burden of infrastructure costs, since the State would assume financial responsibility for the rail infrastructure. It is the view of the Joint Committee that while this would clearly improve the financial position of Iarnród Éireann as the service provider, the real cost to the Exchequer will remain the same. Ireland’s railways, although split into operations and infrastructure divisions, will still be operating at a substantial financial deficit. All that will change will be the accounting presentation of this underlying financial reality.

7.16While the Joint Committee does not see private operation as a realistic option for core mainline rail services, there could be a case for ancillary services and for local suburban or feeder services to operate privately on an experimental basis. This could provide a level of local innovation, service and support, that is difficult for a national company to achieve. Possible examples include Cork to Cobh, other Dublin suburban services and Limerick to Limerick Junction services. The Joint Committee believes that the opportunities for possible scope for interaction should be investigated as part of the process of overall policy review.

Rail vs. road must be considered

7.17Between 1989 and 1993 there has been significant investment in the national road network with the bulk of the funding provided by the EU through the ERDF. The road network carries some 90% of the internal freight traffic and roughly 96% of passenger traffic. Rail has a significantly greater share on some mainline rail corridors and within Dublin. However, the dispersed population, the small number of major centres. the small size of the country and its island status all prevent rail from benefiting from economies of scale and becoming competitive. It is generally accepted that rail has a competitive advantage over road on journeys of between 250 km to 500 km for passengers and in excess of 250 km for freight.

7.18In most instances carrying goods by rail is at a disadvantage compared to carrying by road. This is because it is often not possible to carry goods to their final destination without transferring the goods back onto the road.

7.19Part of Iarnród Éireann’s justification for continued subvention is based on the premiss that it is operating in an “unfair market” because unlike road transport it must charge higher prices in order to cover its infrastructure costs. However, this is a complex issue and it is not clear how much road users contribute to the cost of the road infrastructure through road tax and taxes on petrol and fuel. Also, while it is a policy issue whether the cost of rail infrastructure is borne by Iarnród Éireann or the Government, the overall economic cost of the rail network and services to the Exchequer will be the same whichever organisation is directly funding the expenditure.

7.20It is the Joint Committee’s view that the future choice between road and rail investment should be made using a comparison of the marginal benefits and costs of each scheme using similar evaluations and that this procedure should be applied prior to the outcome of the review of railway policy. The low level of use of the mainline rail network would indicate that these types of project are unlikely to generate the same rate of return as road projects. However the evaluations should quantify the social, environmental and economic benefits which this made offers.

7.21Pending completion of the policy review, decisions on capital investment priorities by route will have to be taken under the Operational Programme. The Joint Committee is concerned about the possible effect of the lack of cooperation and consultation, if any, between organisations involved in the allocation of resources for land transport and while this matter is best dealt with under the review process, in the meantime the Joint Committee sees a need for a common evaluation framework for all future road and rail investment proposals, and in particular those relating to the mainline rail sector. The focus has to be put on the full economic impact of such proposals - including social, environmental, strategic and tourism impacts among others - as well as the financial outcome and this question hás also to be the subject of greater examination in the policy review. (paragraph 7.12)

Operational Programme for Transport 1994 to 1999

7.22According to Iarnród Éireann, there has been a major change in its operating environment. It stated that Government policy had changed from one of ambivalence to one of commitment to public transport and in particular to the railways, evident by the inclusion of a substantial investment programme for the railways in the National Development Programme 1994 to 1999.

7.23Under the Operational Programme for Transport (OPT) it is proposed that £275m will be invested in the mainline railway network. This consists of an EU-assisted investment programme of £183m and approximately £92m of non-EU co-financed investment subject to the resources available to CIE. The investment programme covers all the major lines on the inter-urban network and includes expenditure on track renewal (£123m); new rolling stock (£124m); signalling equipment (£18m) and other investment (£10m) which covers station enhancement, fencing and other equipment.

7.24It is not possible to split the proposed investment between the mainline routes as no final decision has been made on the route allocation and this will depend upon detailed consultations with the EU. However, on the Dublin to Belfast line £29.1m will be spent on track and signalling and £20.4m on rolling stock. The rolling stock will not be route-specific and will be in common usage over a number of mainline routes.

7.25As a result of the proposed £275m investment significant reductions in journey times are forecast with the best journey times on most routes falling by 10 to 20 minutes (Table A 7.1 in Appendix VI). The frequency on the Dublin to Belfast line will be increased from six to nine when the upgrading is complete in 1996. According to Iarnród Éireann increased frequencies on other services will be determined by demand and market research.

7.26The proposed capital investment will lead to additional job reductions and it is envisaged that staff numbers will be reduced to 4,750 by 1999 (the 1993 figure was 5,539). Iarnród Éireann projects a reduction ranging from £10 to £12m, from the current level of £94m, in the annual Exchequer subvention in real terms post-1999 due to the upgrading and modernisation of the rail network.

7.27The Department of Transport, Energy and Communications indicated to the Joint Committee that as a result of the adjustments to EU aid negotiated in the Community Support Framework, and depending upon the level of CIE’s own resources over the period of the National Plan, some relatively minor changes will arise in the overall expenditure on railway projects over the period 1994 to 1999.

7.28As well as benefiting from the proposed investment in the mainline railway Iarnród Éireann is also likely to benefit from increased investment in the DART and suburban services. The OPT includes the upgrading of suburban rail services and stations on the DART network and the possible extension of the DART to Greystones and Malahide. However, as the overall cost of the proposed projects exceeds the level of funding indicated in the plan the available expenditure will be allocated to the most effective projects in overall public transport terms. The decision as to which projects will be undertaken during the period of the plan has not yet been reached.

7.29The OPT also includes proposals for an EU-assisted light rail (or LRT) investment programme of £200m which will enable the public transport elements of the Dublin Transportation Initiative Recommended Strategy to be implemented by 1999. The LRT network recommended by the DTI consists of a core network of three lines to the city centre from Tallaght, Cabinteely (via the old Harcourt St. line) and Ballymun at a cost of approximately £300m. A longer time frame than that of the OPT will be needed to complete physically the core LRT network. Within the period of the OPT the focus will be on completing the lines to Tallaght and Cabinteely. While no decision has been made on the organisation to be given responsibility for the design, construction and implementation of the new light rail network, Iarnród Éireann suggested that CIE, and more specifically Iarnród Éireann and Dublin Bus, would have a role in the operation of this new system. Thus Iarnród Éireann may benefit from investment in the proposed Light Rail network as well as from direct investment in the upgrading of the mainline network and the DART system under the OPT.

7.30As noted in paragraph 7.5 above, the low traffic volumes on the mainline rail mean that future investment cannot be justified using the single criterion of profitability. In evidence Iarnród Éireann cited, but failed to quantity, other external benefits including the impact on economic development, employment, tourism and other externalities such as accident savings and environmental benefits.

7.31Given Iarnród Éireann’s ongoing need for capital investment, the Joint Committee would like to see the question of capital funding post-1999 addressed by the review. (see above paragraph 7.12)

Transport policy

7.32As stated earlier, the Operational Programme on Peripherality 1989 to 1993 concentrated upon road improvements and particularly on removing capacity deficiencies within the road network. The Programme also funded an upgrading of a number of regional airports. Under the OPT it is proposed that a total of £1,213m be invested in the National primary and secondary roads. There is therefore a need to develop an integrated transport policy which ensures that the most effective transport investment strategy is pursued. Given the limited funds it may not be possible to improve all road, rail and air routes that link the island with its markets.

Use of new technology

7.33An alternative to increased investment in track renewal and maintenance is to consider the trade-off between the type of rolling stock and the amount of infrastructure and maintenance costs associated with providing the rail network. Replacing the heavier locomotives and rolling stocks with lightweight railcars and/or the removal of heavy freight traffic may significantly reduce maintenance costs and might reduce the need for track replacement. The company’s long term aim is to use diesel railcars with onboard conductors on the secondary lines with relatively low carryings.

7.34The company does not appear to have considered the possibility of expanding the use of railcars onto the mainline services which are relatively thinly populated and have low carryings. Iarnród Éireann stated that there will always be a requirement for locomotive hauled services on Intercity routes and that these trains are more economical from a capital cost and running cost viewpoint on the busier lines and are the only way of providing the level of service demanded in terms of speed and comfort.

7.35However, the new generation of diesel railcars is cheaper to buy, as the company’s recent orders indicate. On average the 17 rail cars cost £1.1m while the new locomotives cost £2.1m each. Railcars are considerably lighter and where existing loco-hauled services are replaced by railcar services, track maintenance costs will be reduced significantly. Experience in the UK indicates that track maintenance costs can be reduced by 15% to 20% by switching from loco-hauled services to railcar services. The use of these vehicles will also reduce the need for costly track renewal since the tracks’ useful life will be extended.

7.36It is also likely that the faster acceleration of these types of vehicle and their ability to offer improved ride quality at higher speeds than the Mark 2 rolling stock will enable Iarnród Éireann to reduce journey times without substantial track renewal. Similarly the company should consider the additional maintenance and renewal costs imposed by freight services. This is an area where the dominance of heavy engineering thinking may be jeopardising lateral thinking and the Joint Committee believes that the question of considering a wider range of technological options in the rail sector should be addressed by the review.

Corporate culture

7.37Two areas of particular concern to the Joint Committee are dependency and engineering dominance. Iarnród Éireann indicated that future rationalisation measures will be geared towards productivity improvements and the these measures will continue at a slower rate since minimum staffing levels have now been achieved. However, there are no clear plans as to how the company’s, and particularly the mainline rail sector’s costs will be substantially reduced. Neither is there evidence of a coherent policy to reshape the organisation so that losses are minimised. In the absence of plans to cut costs it would appear that the company has developed a culture of dependency and has to some extent grown accustomed to the government supporting its operations without having to provide a detailed justification of the reasons for these losses or quantify the benefits derived from its services by society. These are vital issues because if subvention is to continue then it must be at a minimum level.

7.38The breakdown of management staff by professional qualification highlights a strong engineering bias within the company. Given the attempts to make the company more commercial and market driven, relatively few managers have business or marketing qualifications. It is the Joint Committee’s view that there is still a need for the company to adopt a marketing-oriented and commercial ethos, which would assist it in matching services to meet demand and in concentrating on cost and economic issues, and the Joint Committee has recommended accordingly in the previous chapter.

Markets and marketing

7.39Ireland’s small population constrains the total number of journey and thus the usage of the railways that can realistically be achieved. Some parts of Iarnród Éireann’s core services, notably services between and through relatively sparsely populated rural areas, are likely to be inherently financially unprofitable although the position in terms of wider costs and benefits may not be so bleak. The Joint Committee would like to see the attractiveness of rail be improved by increasing the frequency and quality of service and this possibility should be considered as part of the new emphasis on marketing referred to above. The constraint on demand resulting from the underlying population limiting the potential number of passengers should be examined in the policy review.

7.40The company has taken a number of market led initiatives including expanding the number of early morning commuter trains, development of the FairCard which entitles the non-student youth market to reductions, the “Kid+” scheme to attract families, and the Citygold executive service on the Dublin-Cork line.

7.41Iarnród Éireann is facing severe competition from road transport where road infrastructure is improving as the rail infrastructure declines. Apart from coach operations much cited by the company, railways are also competing with the private car. On shorter journeys the Joint Committee has already noted convenience, speed and perceived lower cost of the car make it very attractive (see chapter 3).

7.42In the Joint Committee’s view Iarnród Éireann’s operations, both freight and passenger, are unlikely to be financially profitable under present conditions since the island status and size of the country, and thus the network, prevent the use of rail for long-haul journeys in excess of 250 kms where rail becomes much more competitive with road. Thus for the short term the company should concentrate on minimising its costs and improving its profitability through new marketing initiatives, pending the policy review. This is where the Joint Committee sees a mismatch between skills needed and availability, and it recommends accordingly above.

¹ It is important to note that due to a prolonged bus dispute in Dublin in 1987, which temporarily boosted suburban traffic and changes in the way in which prepaid ticket journeys were estimated on suburban services, 1987 figures are not comparable with the figures from 1988 to 1993.