Costs Related to Stations

Costs Related to Stations

• 
  Major stations are the largest stations: Gyumri, Massis and Yerevan. Hwtsl estimates that the value of the assets, excluding track (which is on the books of the Infrastructure CJSC) is approximately 85% in passenger facilities and 15% in freight facilities.
  

• 
  Intermediate stations have passenger activity, freight activity (or both). Where an intermediate station serves both passenger and freight, hwtsl estimates that the value of the assets excluding track is approximately 60% in passenger facilities and 40% in freight facilities. Only 16 of the 32 intermediate stations have passenger service, however, so the overall share of value comes to 31% passenger and 69% freight.
  

• 
  Small stations have only train control activity. The value of those stations is allocated on the basis of train-km.
  

• 
  Closed stations have no activity and no value.
  

We gave the stations relative value weightings as shown in the table (e.g., a major station has five times the value of a small station). Multiplying the weighting by the count, by the shares of value, gives an overall split of station value of 43% in passenger stations and 57% in freight stations.

This weighting is used for allocating the cost of materials, fuel, electric power, depreciation and other expense. It was selected at the allocation factor for:

• 
  Materials, fuel and electric power because these expenses relate to the cost of maintaining heating and lighting station facilities, and large facilities would be expected to have more of these costs that small.
  
• 
  Deprecation because it is a function of asset value.
  
• 
  Other because most of this expense category relates to utilities, taxes, and maintenance. Large facilities would be expected to have more of such costs than small.
  

Directly Attributable Costs

The Transportation CJSC incurs costs for wagon hire, which is directly attributable to freight. It also incurs costs for bad debt. Since passenger fare are collected in cash, all bade debt should be attributed to freight.

Results

The table below shows the results of the allocation of Transportation CJSC operating expenses on the basis of direct attribution, employees and station value.
Transportation CJSC Operating Expenses Separated

Between Passenger & Freight Lines of Business

(Based on 2000, Base Case)

Expense	Basis of Allocation	Activity Measure - Passenger	Activity Measure - Freight	Expense - Passenger (AMD millions)	Expense - Freight (AMD millions)
Labor	Employees	562	729	98.1	127.2
Social Insurance	Employees	562	729	27.5	35.6
Materials	Station value	43	57	4.0	5.2
Fuel	Station value	43	57	11.4	14.9
Electric power	Station value	43	57	26.8	35.1
Depreciation	Station value	43	57	19.7	25.7
Other	Station value	43	57	149.8	196.2
Total Direct				337.1	440.0
Wagon hire	100% Freight				376.4
Bad debt	100% Freight				177.4
Total				337.1	993.8

Recommendations for Improvement

To improve the measurement of profitability by line of business, hwtsl recommends that the Transportation CJSC make the following changes in its accounting and operating data. These requirements should be taken into consideration in the design of MIS, about to be undertaken.

• 
  Improve collection of operating statistics, including:
  

• 
  Electric locomotives: locomotive-km and -hours
  
• 
  Diesel locomotives: locomotive-km and -hours
  
• 
  Electric trains: train-km and -hours
  
• 
  Wagons: own wagon-km and -hours, on and off line, foreign wagon-km and hours on-line
  
• 
  Coaches: coach-km and –hours
  
• 
  Train-km by type of service (passenger or freight)
  
• 
  Gross tonne-km by type of service (passenger or freight)
  

• 
  Create passenger and freight business units and keep accounts by these business units. Until this is implemented, improve existing allocation mechanisms by
  

• 
  Identify employees by type of service (passenger or freight)
  
• 
  Identify station asset values (historical value and accumulated depreciation) by type of service (passenger or freight)
  

1 The AR network consists of 842 km of main track, 194 km of second track, and 442 km of station and yard track. Of the 842 km of main track, 93 km are closed.

2 Several Eastern European and former Soviet rail systems have formed such companies. The Romanian government formed an excess railway asset management company to maximize the value of excess assets, including terminals, facilities and rolling stock. This company has aggressively sought leasing opportunities for its rolling stock and has succeeded in entering into a number of leasing contracts with European railways including those in Spain and Italy.

3 . This is equivalent to about 12.7 drams per kilometer as of September 2000. Previously, the uniform rate was set in dram. The conversion to US$ allows AR rates to adjust with inflation.

4 Article 442 of the new (1998) Civil Code provides "1. A public contract is a contract concluded by a commercial organization and establishing its obligations for the sale of goods, performance of work, or rendering of services that this organization by the nature of its activity must exercise with respect to everyone who applies to it (retail trade, carriage by transport for common use, communications services, energy supply, medicine, hotel service, etc.). A commercial organization does not have the right to provide a preference to one person before another with respect to conclusion of a public contract. 2. The price of goods, work, and services, and also other terms of a public contract shall be established equally for all consumers." This is cited as the basis for Armenia Railway's uniform rate structure.

5 Unlike some other former Soviet countries with high rail shares, the road share of Armenian surface transport tonnage was 69% in 1999, versus 31% for rail. Government of Armenia, Ministry of Finance and Economy, Armenia Economic Trends, 1st Quarter 2000. Table 2.11.

6 Government of Armenia, Ministry of Finance and Economy, Armenia Economic Trends, 2^nd Quarter 2000.

7 PlanEcon, Review and Outlook for the Former Soviet Republics (October 2000).

8 Most emu trains observed were not in good condition (many had broken windows and inoperative doors) and were not particularly clean, primarily due to the age and condition of the equipment.

9 AR uses two types of electric locomotives: the two-unit, 8-axle VL10 set with a power output of 4980-kW and tractive effort of 307-kN is used from Gyumri north; the two-unit 8-axleVL8 set with 3,980-kW and tractive effort of 298-kN is used from Gyumri south.

10 In this case, the extra locomotive couples on the front and pulls rather than pushes trains on this hill.

11 For example, during the week of October 24^th, 2000 43,000 tonnes of wheat destined to Armenia were to be unloaded from a ship in the Georgian port of Poti. This was expected to generate nearly 1,200 wagons moving southbound, or nearly 100 trains.

12 When rail is transposed, the high rail on a curve is moved to the low rail side and the low rail shifted to the high rail. This puts new rail surfaces on the gauge side and provides somewhat longer rail life.

13 For example, ARs experience is that it takes about 4,000 kWt to move a 1,000 tonne train between Yerevan and Gyumri. The same train can be moved with 800 liters of diesel fuel. Energy costs are 25 drams-per-kWt and 200 drams-per liter. At local values, the energy cost for the electric train is then 100,000 drams and 160,000 for the diesel train. The diesel cost contains a significant tax component, at us diesel fuel prices, the diesel cost would be about 96,000 drams. However, the use of diesel fuel would significantly affect Armenia’s balance of payments as a significant portion of Armenia’s electricity is generated in nuclear power plants.

14 The aspect of the intermediate signals was determined by the signal aspect at the station—a kind of two aspect automatic block system.

15 The Infrastructure CJSC and Rollingstock CJSC have revenues from non-core activities that come from outside customers. For example the Infrastructure CJSC uses its electrical network to transport electricity for non-rail customers.

16 Victor Alalouf, Cost Modeling and Access and Equipment Charges (October 2000).

17 Victor Alalouf Cost Modeling and Access and Equipment Charges (October 2000). This charging mechanism is based on the long term costs of providing services and includes provision for renewal of capital.

18 This is generally consistent with the TEWET TRACECA study, which projected some 170, 000 tons transiting Armenia between Turkey and eastern points following a border reopening. Transport East West Expert Team (TEWET) GMBH, Joint Ventures for the Caucasus Railways: Executive Summary, (TRACECA TNREG939401) p. 12.

19 This also is felt consistent with the TEWET study projection for TRACECA made in 1997, which estimated that 515,000 tons (both directions combined) between Iran and Georgia and points north were possible within the initial five years of border reopening. TEWET GMBH, Joint Ventures for the Caucasus Railways: Executive Summary, p. 12. HWTSL projects renewal of traffic flows to start more slowly in this corridor than from Turkey due to rehabilitation requirements. Given the intervening years of line deterioration and trade pattern adjustment since the TEWET study, achieving 20% of the earlier estimate within the first two years of reopening would be a significant achievement.

20 The charging mechanism has been developed by Victor Alalouf in a separate contract It is explained in greater detail in Cost Modeling and Access and Equipment Charges (October 2000).

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