The economics of a new rail freight line: the case of the Betuweline in the Netherlands

Abstract

With the opening of the Betuweline (Betuweroute) in June 2007, a dedicated freight railway line has become available for hinterland transport from and to the port of Rotterdam (and the rest of the Netherlands) into Europe. An intense debate preceded the actual investment in the Betuweline. The present worth analysis showed that the expected life of the Betuweline and the depreciation period do not influence the present worth (PW) too much. Higher annual operating costs and lower interest rates worsen the PW, but introducing a salvage value improves the PW. The most optimal PW for the Betuweline results from a high salvage value, low interest rates and low operational cost and a short depreciation period. A reduction in interest rates shows the greatest reduction in annual worth. Given the expected negative cash flows from the Betuweline, the calculation of the rate of return is not necessary. As long as the net cash flow is negative, the whole invested amount in the Betuweline is lost. The result of the benefit cost analysis should be a ratio above 1.0. If the benefit cost (B/C) ratio is less, the extra benefits associated with an investment are not justified. In case of the Betuweline, this is true for most of the alternatives analysed. Only expensive alternatives for the Betuweline combined with a long lifetime and a low interest rate result in acceptable B/C ratios. The analysis into depreciation and interest for the Betuweline shows that for the Dutch government it is cheaper to pay interest and depreciation as compared to only interest. Furthermore, it is also better to limit the depreciation period to 30 years, because the total bill for the Dutch government increases considerably if longer lifetime periods are taken into account. In total, taken from an economic point of view, the Betuweline is not a profitable investment. Given the financial conditions, the decision to invest in the Betuweline should not have been made, taken from a financial point of view. However, to invest in rail freight transport could be a good decision because: market parties have strong commitments to the Betuweline; there were no alternatives for increasing the rail freight transport over the existing networks; the Betuweline can relieve the mixed passenger-freight rail network; the transport of dangerous goods can be redirected to the Betuweline; and the Betuweline is important for the international rail freight transport network. The total bill for the Betuweline will be higher than 4668 million Euros, depending on interest levels and depreciation schemes. The whole public discussion about the Betuweline could have been a lot easier if the Dutch government had defined appropriate and serious alternatives for the investment in the Betuweline. Fpr the covering abstract of this conference see ITRD E145999

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