Decision No. 1/21 of the Board of the Public Utilities Commission

Adopted 21 September 2011

Methods for Calculation of the Charges for the Use of the Public-use Railway Infrastructure for Carriage

Issued pursuant to
Section 12, Paragraph one of the Railway Law

I. General Provisions

1. The methods for calculation of the charges for the use of the public-use railway infrastructure for carriage (hereinafter - the Methods) prescribe the procedures for calculating charges for the use of the public-use railway infrastructure for carriage (hereinafter - the infrastructure charges), taking into account the cost calculation and allocation principles included in the Methods in order to ensure cost approximated charges for the use of the public-use railway infrastructure (hereinafter - the railway infrastructure) for carriage.

2. The following terms are used in the Methods:

2.1. activity - one of several activities or the only activity that is necessary to ensure the provision of a particular sales service of the railway infrastructure capacity;

2.2. person determining the railway infrastructure charges - a person who determines the infrastructure charges in accordance with the Railway Law;

2.3. immovable property facility of the railway infrastructure - a complex of buildings and structures (station buildings, pavilions, sheds, household buildings and engineering communications that ensure the operation of the station complex, structures - passenger platforms and platforms used as loading areas, yards, ramps, sanitary facilities on the platforms, posts at switches, posts of electric control systems, dispatcher central control system, route relay control systems, repair bays, as well as other buildings and structures that are necessary for ensuring the operation of the manager) with the same address;

2.4. railway stretch - the distance between entrance signal lights of stations;

2.5. cost driver - a factor that links the cost elements to the services on the basis of causation (the number of services provided or resource consumption, etc.);

2.6. primary accounting system- the accounting system of the railway infrastructure manager and the management accounting systems related thereto;

2.7. regulatory asset base - the fixed assets and intangible assets, as well as the stocks attributed to the services of use of the railway infrastructure in the ownership of or leased by the railway infrastructure manager. The value of the regulatory asset base shall not include financial investments, receivables, securities and equity participation, funds, as well as the part of the fixed assets value which is financed with the financial assistance or financial support by the State, local government, foreign state, the European Union, other international organisation and institution;

2.8. category of trains - the division of trains set up by the railway infrastructure manager depending on the object of carriage, the type of traction and the type of train.

3. The Methods are binding to the railway infrastructure manager (hereinafter - the manager), and the person determining the railway infrastructure charges.

4. The infrastructure charges shall be calculated by the person determining the railway infrastructure charges separately for each category of trains per train kilometre.

5. The Methods shall apply only to the calculation of the infrastructure charges, but not to other services provided by the manager. The manager shall ensure that the relevant activity is specified for other services provided thereby or a different principle is laid down, which enables to distinguish between the charges for the provision of the service of the railway infrastructure use for carriage and the costs for provision of other services.

II. Description of the Service of the Railway Infrastructure Use for Carriage

6. In calculating the infrastructure charges the following activities related to the economic activity shall be included in the service of the railway infrastructure use for carriage:

6.1. maintenance the railway infrastructure facilities:

6.1.1. systematic inspection of the technical condition of all the elements of railway superstructure (the main rail tracks and the station rail tracks, access roads of the manager, switches, cross-ties and beams, ballast, level crossings, crossings), earth structures, engineered structures, railway right of way, boundary markings, protective plantings, automatic control systems of train movement, railway telecommunications, electric supply networks and devices, devices of the rolling stock hot-box detection system, performance of control measurements, prevention of damages, control, replacement of materials and parts or extension of the term of their use by preventive methods, performance of routine repairs;

6.1.2. persistent management, technical maintenance, sanitary maintenance, routine repairs of the immovable property facilities of the railway infrastructure;

6.2. development of the railway infrastructure facilities (renovation, reconstruction and new construction);

6.3. organisation of train movement:

6.3.1. efficient use of the railway infrastructure capacity within the boundaries of the railway infrastructure of the manager;

6.3.2. organisation of movement of all category trains according to the train schedule (train reception, transfer and capacity in stations and railway lines) within the boundaries of the railway infrastructure of the manager;

6.4. management of the railway infrastructure - management of the economic and financial activities, technical and economic management of maintaining the railway infrastructure facilities, planning repairs of all types and construction (organisation of the acquisition of the requisite materials, preparation, training and skill development of the staff, drafting of regulatory documents, co-operation with credit institutions), performance of representative functions, drawing up of economic and technical documentation and conclusion of contracts regarding economic activity, and control of the implementation of the contracts concluded, co-ordination of organisational measures in the field of safety at work, railway traffic safety, fire safety and environmental protection, and other activities related to the management of the railway infrastructure.

7. In calculating the infrastructure charges the following activities shall not be included in the service of the railway infrastructure use for carriage: making-up of trains, breaking-up of trains, shunting work, freight acceptance, dispensing, loading, unloading, sorting and storage, preparation and processing of carriage documentation, maintenance and repair of cars, weighing of cars, commercial inspection of trains and cars and rectification of the damages detected, cleaning and washing of the rolling stock, equipping of and provision of supplies for the rolling stock and other activities not referred to in Paragraph 6 of the Methods.

III. Procedures for Calculating the Infrastructure Charges

8. For calculation of the infrastructure charges the manager shall submit the following information to the person determining the railway infrastructure charges:

8.1. regarding actual costs of the railway infrastructure in the preceding calendar year, the expected costs of the railway infrastructure in the current calendar year and the planned costs of the railway infrastructure in the subsequent period, which are specified and attributed in accordance with the Methods;

8.2. regarding performance of the indicators of the actual amount of carriage (train kilometres and gross tonne kilometres) in the preceding calendar year, the estimated performance level of the amounts of carriage in the current calendar year and the planned amount of carriage in the subsequent period, according to train categories;

8.3. the actual revenues from the railway infrastructure use for carriage in the preceding calendar year and the expected revenues in the current calendar year, according to train categories;

8.4. the investment plan as set out in Paragraph 25 of the Methods, and a report on the implementation of the investment plan in the preceding calendar year;

8.5. the regulatory asset base for the subsequent calendar year and the value of the actual regulatory asset base in the beginning of the current calendar year.

9. Concurrently with the information for calculation of the infrastructure charges the manager shall submit a report of a sworn auditor on justification of inclusion of the costs and regulatory asset base value and attribution thereof in accordance with the Methods to the person determining the railway infrastructure charges.

10. The person determining the railway infrastructure charges shall calculate the infrastructure charges for a particular category of trains according to the following formula:

C_k = I_k/V_k, where

C_k - infrastructure charges for a particular category of trains;

I_k - forecasted costs attributed to a particular category of trains, which are necessary to ensure the use of the railway infrastructure for carriage;

V_k - train kilometres estimated for a particular category of trains;

_k - category of trains.

10.¹ Upon calculating the infrastructure charges for a category of trains, which uses the railway infrastructure of historic heritage for conducting carriage, the person determining the railway infrastructure charges shall reduce the forecasted costs of the manager attributed to a particular category of trains and that are necessary in order to ensure the use of the railway infrastructure for carriage, by the resources assigned to the manager in the decision of the State Railway Administration referred to in Section 7.¹, Paragraph six of the Railway Law, which are provided for covering the forecasted costs specified in the Methods and attributed to a particular category of trains and which are necessary in order to ensure the use of the railway infrastructure of historic heritage for carriage.

[26 March 2014]

IV. Cost Structure of the Railway Infrastructure

11. If the total costs of the railway infrastructure have changed by more than 5% or the amount of train kilometres has changed by more than 10% compared to the forecasts used for the calculation of the infrastructure charges, the manager is entitled to submit information for the calculation of a new infrastructure charge to the person determining the railway infrastructure charges.

12. If a railway stretch has not been used for carriage for one year and the manager has not submitted a justification for use of the railway stretch in the subsequent period, the manager shall not include the costs related to this railway stretch in the total costs of the railway infrastructure.

13. The sum of the costs attributed to particular categories of trains shall correspond to the total costs which are required to provide the use of the railway infrastructure for carriage:

 

I = Σ	n	Ik
	1

14. The total costs of the railway infrastructure shall be calculated according to the following formula:

I = (I_uzt - I_valsts ) + I_kap + I_n + I_kor, where

I - the total costs of the railway infrastructure;

I_uzt - maintenance costs of the railway infrastructure facilities and the costs associated with the organisation of train movements and the management of the railway infrastructure;

I_valsts - funds from the State budget intended for the maintenance of the railway infrastructure;

I_kap - costs of the railway infrastructure, which are associated with capital investments and which are covered from the forecasted revenues of the manager from the use of the railway infrastructure for carriage;

I_n - duties and taxes paid by the manager in accordance with the laws and regulations in force in the Republic of Latvia, except value added tax;

I_kor - adjustment of costs relating to the estimate deviations in the preceding periods.

15. The adjustment of costs shall be applied if the forecast difference between the costs or revenues or revenues and expenditures of the railway infrastructure (hereinafter - indicators influencing the infrastructure charges) differ from the actual values of such indicators and it has an impact on the total costs or revenues of the railway infrastructure for more than 3%: 3%:

15.1. for determining the value of the adjustment of costs, the forecast deviation of indicators influencing the infrastructure charges used in calculation of the adjustment of costs is expressed as the impact on the total costs of the railway infrastructure.

The adjustment of costs (I_kor) shall be calculated as the sum of the adjustment of costs for the preceding period and the adjustment of costs for the current period:

;

15.2. the adjustment of costs of the current period () shall be calculated as the indicator influencing the infrastructure charges, except costs related to capital investments in accordance with Paragraph 16 of the Methods, the total impact of the forecast difference on the total costs or revenues of the railway infrastructure, comparing forecasts used for the calculation of the infrastructure charges for the current period with the expected performance of the current period.

, where

Iⁿ_sagaid - the expected performance of a particular item in the current period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

Iⁿ_prog - the forecasted value of a particular item, determining the infrastructure charges for the current period;

N_sagaid - expected revenues in the current period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

N_prog - forecasted revenues, determining the infrastructure charges for the current period;

15.3. adjustment of costs for the preceding period () shall be calculated as the costs included in the calculation of the infrastructure charges, except the costs related to capital investments in accordance with Paragraph 16 of the Methods, the adjustment difference from the actual results of the preceding period in relation to the indicators influencing the infrastructure charges included in the calculation of adjustment.

, where

Iⁿ_fakt - the actual performance of a particular item in the preceding period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

Iⁿ_sagaid - the expected performance of a particular item in the preceding period as used in the previous period, determining the adjustment of costs for the current period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

N_fakt - actual revenues in the preceding period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

N_sagaid - expected revenues in the preceding period as used in the previous period, determining the adjustment of costs for the current period, taking into account the discounts applied on railway infrastructure charges and the collected increased charge of the infrastructure;

15.4. the calculated adjustment of costs shall be attributed to the categories of trains according to the forecasted cost drivers for cost allocation according to the categories of trains;

15.5. the person determining the railway infrastructure charges shall determine the period for application of the adjustment of costs or a part thereof;

15.6. determining the period during which the adjustment or a part thereof is applicable, the person determining the railway infrastructure charges shall assess the economic justification of the cost increase or decrease and impact on the infrastructure charges, optimal workload of the infrastructure and promotion of competition under forecasted conditions of the transport services market.

16. The costs of the railway infrastructure related to the capital investments shall be calculated according to the following formula:

I_kap = I_nol + P, where

I_kap - costs of the railway infrastructure, which are related to capital investments and are covered from the forecasted revenues of the manager from the use of the railway infrastructure for carriage;

I_nol - depreciation of assets included in the regulatory asset base of the manager and the writing-off of the value of intangible investments;

P - profit of the manager.

17. The profit of the manager shall be calculated as return on capital which ensures the manager's income from investments performed and interest payments on loans, according to the following formula:

P = RAB * wacc, where

P - profit of the manager;

RAB - forecasted value of the regulatory asset base at the end of the current calendar year;

wacc - weighted average cost of capital in per cent.

18. The value of the railway infrastructure regulatory asset base of the manager shall be determined by the manager attributing to it only the assets or a part thereof that may be used efficiently for the provision of the service of the railway infrastructure use for carriage, including the forecasted balance sheet value at the end of the current period in the calculation.

19. In order to determine whether the assets included in the regulated asset base are required for an efficient provision of the service of the railway infrastructure use for carriage, the person determining the railway infrastructure charges may perform or assign the manager to perform the assessment of technical condition, lifetime and usage efficiency of the assets included in the regulated asset base. The person determining the railway infrastructure charges shall approve the terms of reference for the assessment, as well as accept the carrying out of the terms of reference for the assessment.

20. The person determining the railway infrastructure charges, if necessary, may re-assess or assign the manager to re-assess the regulatory asset base for identification of return on capital and depreciation. The person determining the railway infrastructure charges shall approve the terms of reference for the re-assessment of the regulatory asset base, as well as accept the carrying out of the terms of reference for the re-assessment.

21. The re-assessment of the regulatory asset base shall be carried out, using one of the following methods:

21.1. the asset purchase value minus depreciation (financial statement value);

21.2. the asset purchase value indexed by inflation, minus depreciation;

21.3. determining the remaining asset substitution value (the substitution value, taking into account the current prices and possible changes in the asset quality, minus the actual depreciation determined by an expert);

21.4. taking into account the market value of assets;

21.5. determining the retrievable value of assets, which is the highest of the net sales value of the asset or of the utilisation value of the asset (discounted cash flow from the asset use).

22. The weighted average return on capital shall be calculated according to the following formula:

wacc = r_e * E/ (E + D) + r_d * D/ (E + D), where

wacc - weighted average cost of capital;

r_e - rate of return on own capital;

E/ (E + D) - share of own capital in the total (own and borrowed) capital at the end of the preceding year or half-year;

r_d - rate of return on borrowed capital;

D/ (E + D) - share of borrowed capital in the total (own and borrowed) capital at the end of the preceding year or half-year.

23. The rate of return on own capital shall be calculated according to the following formula:

r_e = r_f + r_c,

r_e - rate of return on own capital;

r_f - risk-free rate - the average arithmetic long-term government securities interest rate of the group of the highest national rating of the Organisation for Economic Cooperation and Development (OECD), based on the latest report published by the OECD on national long-term government bond rates;

r_c - risk premium that includes the assessment of State risk and sectoral risk. For the purpose of the State risk assessment the latest 10-year bond rate and the risk-free rate difference of the State of Latvia shall be used. The sectoral risk shall be assessed as the difference between the latest 10-year bond rate of the State of Latvia and the actual weighted average long-term credit rate of the manager of the previous half-year. In case the sectoral risk assessment does not exceed 0, its value shall not be included in the calculation.

24. The rate of return on borrowed capital shall be determined by the manager on the basis of one of the following principles:

24.1. as the average long-term interest rate for domestic merchants, lowering it by the possible volume discount;

24.2. as the sum of the long-term interest rate of the government debt securities and sectoral risk premium;

24.3. as the actual weighted average rate of long-term loans of the manager of the previous half-year.

25. Capital investments in the development of the railway infrastructure shall be determined by the manager, drawing up an investment plan for the subsequent calendar year. The investment plan shall provide a clear picture of the investments planned by the manager and financial capacity, and railway undertakings shall have free access thereto. The manager shall plan the budget of the subsequent year on the basis of the investment plan.

26. The infrastructure charges shall include only such technologically and economically justified costs which are necessary for efficient provision of the service of the railway infrastructure use for carriage and are set out in Paragraph 6 of the Methods.

V. Cost Allocation Principles of the Railway Infrastructure

27. The financial and management accounting data of the manager, which have been prepared in accordance with the Annual Account Law and the requirements of the laws and regulations in force, shall be used for determining the costs.

28. The costs shall be divided into the following categories:

28.1. direct costs that can be directly and unambiguously attributed to a particular category of trains;

28.2. indirect costs, which include the total costs of several activities and which may be attributed to a particular category of trains with the help of the cost driver;

28.3. general costs, which may not be attributed to a particular category of trains on the basis of the principles of causation.

29. The items of indirect costs and general costs shall be determined by the manager by agreement with the person determining the railway infrastructure charges.

30. The manager shall attribute the costs according to categories in conformity with the following principles of cost attribution:

30.1. attribution principles for direct costs:

30.1.1. the cost system maintains the feature of geographical distribution;

30.1.2. in the primary accounting system all direct costs are attributed to a particular railway stretch or a particular station. For the direct costs that cannot be attributed to a particular railway stretch or a particular station the corresponding activity shall be indicated;

30.1.3. the direct costs, using the cost drivers, are attributed to the activities, which are included in the service of the railway infrastructure use for carriage, and the activities, which are not included in the service of the railway infrastructure use for carriage;

30.1.4. the direct costs, using the cost drivers, are attributed to a particular category of trains;

30.1.5. the direct costs related to carriage by a particular category of trains only are attributed to this category of trains;

30.2. attribution principles for indirect costs:

30.2.1. in the primary accounting system the group of costs corresponding to indirect costs must be indicated when accounting indirect costs;

30.2.2. indirect costs, using cost drivers, are divided according to categories of trains;

30.3. attribution principles for general costs:

30.3.1. in the primary accounting system the activity or cost group need not be indicated;

30.3.2. general costs, using cost drivers, are divided according to categories of trains.

31. The manager shall reflect the cost drivers for the division of costs according to categories of trains in the annual review of the railway infrastructure (network review).

32. The manager shall divide the total costs of the railway infrastructure into the following groups of costs:

32.1. the costs for the maintenance of the track holding:

32.1.1. direct costs:

No.	Name of activity	Cost driver for division of costs according to the categories of trains
1.	Maintenance and routine repairs of the main rail tracks and the permanent devices	gross tonnes-kilometres
2.	Maintenance and routine repairs of rail tracks of stations and the permanent devices	freight stations - for freight trains; passenger stations - for passenger trains. The cost driver for division of costs according to the categories of trains is train kilometres
3.	Maintenance and routine repairs of access roads and the permanent devices of the railway infrastructure	only for freight trains
4.	Maintenance, routine repairs and guarding of level crossings	gross tonnes-kilometres
5.	Maintenance, routine repairs and guarding of engineered structures	gross tonnes-kilometres
6.	Maintenance and routine repairs of protective plantings (railway right of way)	train kilometres

32.1.2. indirect costs:

No.	Name of the group of costs	Cost driver for the division of costs according to the categories of trains
1.	Costs related to all direct actions for the maintenance and routine repairs of the track holding, as well as for the maintenance and routine repairs of support and fire-fighting trains	gross tonnes-kilometres

32.1.3. general costs:

No.	Name of costs	Cost driver for the division of costs according to the categories of trains
1.	General costs of the track holding	gross tonnes-kilometres

32.2. maintenance costs of electrical holding:

32.2.1. technical service and routine repairs of electric supply equipment:

32.2.1.1. direct costs:

No.	Name of activity	Cost driver for the division of costs according to the categories of trains
1.	Technical service and routine repairs of electric supply lines in powerline serviced areas	train kilometres
2.	Technical service and routine repairs of catenaries and electric supply lines related thereof in catenary serviced areas	trains using electric traction
3.	Technical service and routine repairs of traction substations, parallel connection points and posts for sectionalization	trains using electric traction
4.	Technical service and routine repairs of external lighting equipment	freight and sorting stations - for freight trains; passenger stations and stops - for passenger trains. Cost driver for the division of costs according to categories of trains is train kilometres

32.2.1.2. indirect costs:

No.	Name of the group of costs	Cost driver for the division of costs according to the categories of trains
1.	Costs related to all direct actions for technical service and routine repairs of electric supply devices	train kilometres

32.2.1.3. general costs:

No.	Name of costs	Cost driver for the division of costs according to the categories of trains
1.	General costs related to technical service and routine repairs of electric supply devices	train kilometres

32.2.2. technical service and routine repairs of automatic control system of train movement:

32.2.2.1. direct costs:

No.	Name of activity	Cost driver for the division of costs according to the categories of trains
1.	Technical service and routine repairs of automatic interlocking system devices	train kilometres
2.	Technical service and routine repairs of dispatcher central control	train kilometres
3.	Technical service of electric central control of switches	train kilometres
4.	Technical service of mechanised and automated hump equipment	for freight trains
5.	Maintenance and routine repairs of control meters	train kilometres

32.2.2.2. indirect costs:

No.	Name of the group of costs	Cost driver for the division of costs according to the categories of trains
1.	Costs related to all direct actions for technical service and routine repairs of automatic control system of train movement	train kilometres

32.2.2.3. general costs:

No.	Name of costs	Cost driver for the division of costs according to the categories of trains
1.	General costs related to the technical service and routine repairs of automatic control system of train movement	train kilometres

32.2.3. technical service and routine repairs of telecommunications networks and devices for the railway purposes:

32.2.3.1. direct costs:

No.	Name of activity	Cost driver for the division of costs according to the categories of trains
1.	Technical service and routine repairs of radio stations, radio centres and amplifiers	train kilometres
2.	Technical service and routine repairs of radio relay communications equipment, appliances and structures	train kilometres
3.	Technical service and routine repairs of aerial and cable communication lines	train kilometres
4.	Maintenance of automatic hot-box detectors of passing trains	train kilometres
5.	Technical service and routine repairs of hardware transmission systems and operational communication order stations	train kilometres
6.	Technical service and routine repairs of telegraph stations	train kilometres
7.	Technical service and routine repairs of telephone exchanges	train kilometres
8.	Maintenance of information network equipment	train kilometres

32.2.3.2. indirect costs:

No.	Name of the group of costs	Cost driver for the division of costs according to the categories of trains
1.	Costs related to all direct actions for technical service and routine repairs of telecommunications networks and equipment	train kilometres

32.2.3.3. general costs

No.	Name of costs	Cost driver for the division of costs according to the categories of trains
1.	General costs related to the technical service and routine repairs of railway telecommunications networks and equipment	train kilometres

32.3. costs of the immovable property holding:

32.3.1. all costs:

No.	Name of activity	Cost driver for the division of costs according to the categories of trains
1.	Management, technical maintenance, routine repairs and sanitary-technical service of the territory of immovable property facilities of the railway infrastructure for provision of passenger carriage	for passenger trains the cost division indicator according to the categories of trains is train kilometres
2.	Management, technical maintenance, routine repairs and sanitary-technical service of the territory of immovable property facilities of the railway infrastructure for provision of freight carriage	for freight trains
3.	Management, technical maintenance, routine repairs and sanitary-technical service of the territory of immovable property facilities of the railway infrastructure for provision of operation of the railway infrastructure	train kilometres

32.4. costs of organising train movements:

32.4.1. direct costs:

No.	Name of activity	Cost driver for the division of costs according to the categories of trains
1.	Organisation and provision of co-ordination process for movement of all categories of trains and types of traction	train kilometres

32.4.2. indirect and general costs:

No.	Name of the group of costs	Cost driver for the division of costs according to the categories of trains
1.	Indirect and general costs related to the organisation and provision of co-ordination process for movement of all categories of trains and types of traction	train kilometres

32.5. management costs of the railway infrastructure:

32.5.1. general costs:

No.	Name of costs	Cost driver for the division of costs according to the categories of trains
1.	State fee for the regulation of public utilities	train kilometres
2.	Management, administrative, control costs of the manager, as well as other costs related to the provision of services of the railway infrastructure use for carriage	train kilometres
3.	Costs for the activities of the performer of the essential functions of the public-use railway infrastructure manager and other costs related to sectoral administration under laws and regulations	train kilometres
4.	Costs of the manager related to fulfilment of the decision of the State Railway Administration referred to in Section 7.1, Paragraph eight of the Railway Law	train kilometres

[26 March 2014]

VI. Closing Provisions

33. After entering into effect of the Methods determining of the infrastructure charges for subsequent periods shall include the cost adjustment calculated when setting up the infrastructure charges for 2011, until the time when such cost adjustment is compensated in full.

34. The approved Decision No. 17 of Public Utilities Commission of 18 January 2006, Methodology for Calculating Charges for the Use of Public-use Railway Infrastructure (Latvijas Vēstnesis, 2006, No. 93, 202; 2008, No. 28; 2010, No. 182) is repealed.

35. These Methods shall enter into effect on the day following its publication in the newspaper Latvijas Vēstnesis [the official Gazette of the Government of Latvia].

Board of the Public Utilities Commission,
Acting Chairman, Board Member G. Zeltiņš

 

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Translation © 2015 Valsts valodas centrs (State Language Centre)