Brief description of the sector

The railway sector is one of the most significant service sectors for the economy of Latvia, and in recent years it has demonstrated signs of development. In 2002 both passenger traffic and cargo traffic have developed successfully – the number of transported passengers and passenger turnover have grown, and also the transported cargo volume has increased.

          The total length of railway lines in operation at the end of 2002 was 2270 km. Compared to the previous year it has decreased by 35 km, but compared to the year 2000 – by 61 km.

          In 2002 cargo turnover in railway transport grew by 5.9%. Transported cargo volume in railway transport reached 40.1 million tons which is 5.8% more than in 2001. Transported cargo volume increased for domestic and international transport: accordingly 15.1% and 5.3% more than in the previous year.

Cargo volumes for transit increased by 7.5% compared to 2001, and the share of transit cargo traffic was 83.9% of the total cargo transported by rail in 2002. The volume of imported cargo traffic grew by 3.5% in 2002, but the volume of export cargo traffic decreased by 45.8%.

The number of passengers transported by rail reached 22 million in 2002 – by 9.1% more compared to 2001. The number of passengers transported in domestic routes increased by 9.8%, but the number of passengers transported internationally decreased by 18.6%. In 2002 passenger turnover grew by 5.3% compared to 2001. The number of railway transport passengers in 2002 was eight times less than that of bus transport, while passenger turnover was 3.2 times less than that of bus transport.

The share of passengers transported by rail internationally is very small compared to the total number of passengers – 2.61% in 2001 and 1.95% in 2002. Most passengers use railway for domestic travel.

          The growth of the number of passengers in domestic routes in 2002 can be explained by more effective ticket control, the introduction of train conductors, more efficient discount system, as well as changes in the accounting of railway service usage by railway employees.

Railway sector policy guidelines

          Railway sector policy guidelines are defined in the National program for transport development for years 2000-2006.

          Considering the important role of transit for the national economy, the strengthening of infrastructure on the main transit railway corridors in the east-west direction is one of the priorities in the railway sector. For a successful development of the sector, transition to the market economy principles will be ensured which would allow to properly maintain the infrastructure, renovate the rolling stock, and perform safe and environmentally friendly transportation.

          To achieve this goal and observe requirements of the European Commission Directive in the railway transportation sector, radical reforms are being implemented – state JSC “Latvijas dzelzcels” (see Box 10) is being restructured. Until 2002 preparations were made and documents prepared to form a corporation within the next two years. Corporation’s scheme envisages that the mother company – state-owned JSC “Latvijas dzelzcels” – will be the operator of state railway infrastructure. Several daughter companies operating each in its own market segment will later be considered for privatization. By that the sector restructuring will be accomplished and the established companies will be able to operate according to market economy principles.

Operation of the Commission in the railway sector

After adoption of the law On Regulators of Public Services some functions of the Ministry of Transport, namely those of Railway administration, were taken over by the Commission.

          The regulated types of public services in the railway sector are passenger transportation by rail and public railway infrastructure services to the carriers (see Box 9).

          The law On Regulators of Public Services provides that the Commission performs the following functions:

• Licensing the provision of public services

In accordance with the legislation in Latvia, carriers have free access to the railway market, and several carrier licenses were issued both by Railway administration and the Commission and new carriers have entered the railway sector.

Cargo transportation licenses were received by several newly established joint stock companies:

• In Ventspils – JSC “Baltijas Ekspresis” (1999);
• In Liepaja – JSC “Liepajas tranzita ekspresis” (2000);
• In Riga – JSC “Baltijas tranzita serviss” (2001);

as well as the license for cargo and passenger transportation is held by

• State JSC “Latvijas dzelzcels”.

Railway administration has issued a license for passenger transportation and in 2002 operation was started by:

• narrow-gauge railway non-profit LLC “Gulbenes-Aluksnes banitis” (2001).

State JSC “Latvijas dzelzcels” was transformed into a corporation from January 1, 2002 when JSC “Pasazieru vilciens” was established as a daughter company of the corporation to take over the functions of state JSC “Latvijas dzelzcels” related to the domestic passenger transportation by rail.

At the end of 2001 the Commission received the application for a license from JSC “Pasazieru vilciens” and issued a license for passenger transportation by rail in all territory of Latvia for five years.

          By board decision of June 5, 2002 the Commission modified the special conditions in the license of JSC “Pasazieru vilciens” in accordance with the application of JSC “Pasazieru vilciens”.

          In 2002 tests on compliance with the license conditions have been performed in railway companies JSC “Pasazieru vilciens” and non-profit LLC “Gulbenes – Aluksnes banitis”, as well as in “Latvijas Dzelzcels” regarding the control of railway infrastructure use.

• Setting tariff calculation methodologies

The Commission approved the Temporary methodology for calculation of railway passenger carriage fee in the board meeting on May 15, 2002. The temporary methodology specifies the calculation procedure of domestic passenger transportation fee for the period until the passenger transportation supporting financing system by government is completely established.

Work is continuing on the preparation of the public railway infrastructure usage fee calculation methodology. Difficulties in the preparation of the methodology have arisen due to the existing cross-subsidies (state JSC “Latvijas dzelzcels” is forced to subsidize passenger transportation from revenue of cargo transportation) which should not be allowed. Such situation is in conflict with the requirements of the European Union directives.

• Setting tariffs if special sector laws do not envisage other way of tariff setting

The Commission does not set tariffs for companies of the railway sector because Railway Law provides that a carrier is administratively and economically independent to determine his railway transportation services and transportation fees.

The Commission has the right to express its opinion on tariff proposals and indicate the risks which may appear if the proposal is implemented by the carrier.

On August 14, 2002 the Commission received for evaluation the proposal of JSC “Pasazieru vilciens” for fee changes in electric and diesel trains. The proposal was prepared according to the Commission’s Temporary methodology for calculation of railway passenger carriage fee.

In the submitted tariff proposal JSC “Pasazieru vilciens” intended to reduce the fare motivating it with competition between railway passenger carriers and road transport.

The Commission supported the submitted tariff proposal of JSC “Pasazieru vilciens”. At the same time it pointed out risks which may arise when new fees are applied.

The Commission’s major plans in the railway sector in 2003 are the following:

• Issuing license to the new joint stock company “Starptautiskie pasazieru parvadajumi” – a daughter company of state JSC “Latvijas dzelzcels” for international passenger carriage;
• Preparation of public railway infrastructure usage fee calculation methodology;
• Testing compliance with license conditions in railway companies, as well as control of railway infrastructure use in “Latvijas dzelzcels”;
• Defining quality standards for railway passenger transportation and services provided to the carriers by public railway infrastructure operator;
• Collection, accumulation and analysis of information on the operation of regulated enterprises.
  
  
  

Box 9

Attitude of the government towards contraction of railway sector regulation

Paragraph 7 of Article 34 of the Railway Law states that the license of a railway carrier is issued by the Public Utilities Commission. To adjust the related legal acts in accordance with the requirements of this sector law, the following amendments of regulations were submitted to the Cabinet of Ministers:

• Amendments to the Cabinet of Ministers regulations No.297 (Regulations on types of regulated public services of July 3, 2001) to include a norm that railway cargo transportation is a regulated public service;
• Amendments to the Cabinet of Ministers regulations No.348 (Regulations on licensing of certain types of entrepreneurial activities of October 7, 1997) to include a norm that Public Utilities Commission licenses railway cargo transportation and public railway infrastructure.

Unfortunately the negative attitude of the Ministry of Transport on this issue precluded a decision of the Cabinet of Ministers on the necessary amendments in these legal acts. As a result the submitted amendments were not adopted and the Commission’s functions in the sphere of railway regulation were reduced. The Cabinet of Ministers accepted and submitted to the parliament the amendments to the Railway Law as suggested by the Ministry of Transport. These amendments specify that railway cargo transportation license is issued by State railway administration which is under supervision of the Ministry of Transport.

Box 10

State JSC “Latvijas dzelzcels”

          In 2002 the total revenue of state JSC “Latvijas dzelzcels” was 61.9 million lats. Revenue from the fee for public railway infrastructure usage was 36.9 million lats. Major portion of the revenue was spent on the provision of railway infrastructure services (31.3 million lats) and investment in railway infrastructure (21.2 million lats).

          Transit cargo traffic is the most significant element of the railway sector. The number of passengers transported by rail has decreased since the beginning of 1990s. It began increasing only in 2001. In 2002 the passenger transportation continued to grow. 

(Based on unaudited information provided by the company)

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