Most locos travelling on Polish tracks are still ‘oldies’, kept in service for at least 25-30 years. Those operators that have adequate funds and resources are planning to purchase new units or modernise the battle-weary veterans. However, a long-standing problem is the condition of the railway infrastructure – modern locos cannot realise their potential on worn tracks. No wonder some operators are putting their purchase plans on the back burner.
In technical terms the locos used in Poland are obsolete. The technical concepts implemented in vast majority of their designs date back to the 1950s and 1960s. Future locos rendering passenger services will be electric units, capable of pulling inter-conurbation trains with weight of up 500 tonnes, at 200 km/h, or inter-regional trains with weight of up to 700 tonnes, at 160 km/h. As for diesel locos to be used in the years to come, they will haul inter-conurbation and inter-regional trains of weight up to 350 tonnes, at 120 km/h. According to the Polish Railway Institute, all the old locos in use in Poland will be replaced within 20 years.
PKP Cargo, the biggest operator in Poland, operates approx. 3,000 locos. Fewer than 20% of these are below 15 years of age. As for private operators, most of their locos are old-type units, on average older than 40 years. Private operators use more than 400 units.
Infrastructure comes first
The largest freight operator in Poland is going to acquire new locos for it’s activities in foreign markets. PKP Cargo’s presence in Czech, Slovakia or Germany is getting stronger. The operator is forced to either lease or purchase new locos, certified for operation on foreign rail networks. For the time being they are leasing locos, but in 2015 PKP Cargo is going to buy 15-20 new multisystem units. Also the state passenger operator PKP Intercity is in need of modern locos – 10 new diesel Gama locomotives will be delivered by Polish manufacturer, Pesa Bydgoszcz (the PLN 131,2 mln contract was signed in February 2014). The operator has also recently upgraded some of its locos to the EU07A standard (Vmax 160 kmph, asynchronous motors), but in fact, PKP Intercity intends to sell one by one all of its EU07 units by inviting tenders.
It is the Lotos Kolej Company that boasts the most modern loco fleet of all the Polish freight operators. Majority of all Traxx locos on Polish tracks wear its colours. As for shunters, private and state freight operators mostly use the SM42 units. Generally speaking, their operation is fairly feasible, but on the other hand, a crankshaft replacement will cost you PLN 250,000 these days. For this reason there is no choice but to modernise them. There are options to consider: to have them modernised by Newag and Pesa, or buy, or maybe lease, new units, e.g. Voith Gravita locos or something by Vossloh. In recent years, Lotos Kolej have been successfully operating modern locomotives, Gravita for example. They are interesting machines with a hydrodynamic rather than electric transmission gear box. But – as it turned out – too expensive for Polish operators.
The operators are eager to buy, but the numbers fail to impress
What do the operators plan to do with their locos? A half of them are going to modernise their diesel locos, a little less – electric locos. The purchase plans of entities active in Polish market are much more modest – less than 20 units. More than half of railway companies intend to purchase locos directly, the rest wish to acquire them using financing tools, mostly lease.
Some of the operators are considering the purchase of Polish locos. The E6ACT Dragon manufactured by Newag has already been sold to STK Wrocław (4 units, contract signed in 2011) and Lotos Kolej (5 locos, contract signed in 2012). The company representatives underline the fact that the operators are pleased with the parameters of the loco and speak highly of it. In 2012 Newag also launched a new project, attempting to create the platform for the E4MSU Griffin locos, a vehicle dedicated for, among others, the European market. There are plans to design a few versions adapted to 140 and 190 km/h, or as single/multi-system units. In May 2014 Newag signed an agreement with Croatian Đuro Đaković Specijalna Vozila, regarding the co-production of E4ACU version of Griffin. The Polish company would also like to modernize locomotives in Ukraine – a Memorandum of Understanding between Ukrainian Railways, Newag and TOR Transport Consultants Group (ZDG TOR) was signed in last week. The possible outcome of that document could be a 2-3 years long program for the modernization of up to 200 diesel locomotives.
PESA Bydgoszcz is also working on its own vehicle named Gama. The first electric vehicle (111Ed), manufactured in 2012 has been tested by Lotos Kolej, PKP Intercity, Pol-Miedź Trans and Orlen KolTrans. The first diesel locomotive of Gama platform (111Db) is also ready, but not yet in operation. In 2014 Koleje Mazowieckie (Mazovian Railways) have bought 2 111Ed Gama locos (together with 22 double-deck push-pull coaches, PLN 278 mln). PKP Intercity is still waiting for the first Gama. All 10 are going to be delivered to the end of October 2015.
Foreign producers have been observing the Polish market as well. Despite the growing number of Traxx units by Bombardier that run on Polish tracks, the producer has been developing new technical solutions, such as hybrid or multi-engine vehicles. Siemens has been developing its Vectron platform, while the Czech Skoda, working on its general-purpose loco 109E, also hopes for the piece of the Central European cake. Those that cannot afford new locos may resort to modernisation projects. It offers good effects, especially in the case of shunting locos, which seems to the speciality of, e.g., Newag from Nowy Sącz.
Lease – still not popular enough
How can one collect funds for acquiring locos? The principle of ‘operating lease’ assumes hand over for use of investment goods, such as e.g. rolling stock. The period of use is shorter that the technical life of the subject of lease. The lessees may use their right resulting from a specific contractual provision with the lessor to purchase that thing before the aforementioned term lapses. Before it does, however, one needs to pay lease instalments, which – from the perspective of the lessee – are deductible expenses. And the thing to remember is the value of the subject of lease is never depreciated while it is used by the lessee. Other expenses that can be deducted by the lessees may include all charges required by the financing entity, such as the entry fee or lease instalments, while VAT is being added to each payment amount.
Things look a little bit different in the case of financial lease. When this tool is used, deductible expenses include only depreciation, subject to special regulations. Another major difference between operational lease and financial lease is that in the latter case the lessee must pay the whole VAT in advance upon collection of the goods. And so the operating lease is treated as a service and the financial lease – as delivery of goods.
If one wished to acquire resources for rolling stock investments, a leaseback is also a valid option. If a given operator owns considerable tangible assets – e.g. rolling stock units – that it cannot sell because it needs them to complete its ongoing business operations, it may transfer such units to a lease company in exchange for cash. Then it leases them back. Such an undertaking is a major cash injection for a company. Using this solution, it is possible to release the resources “frozen” in the rolling stock and invest them elsewhere in the company. “Defrosting” financial means is definitely a major benefit. It is an easy and simple way to improve company’s financial liquidity based on the assets it already owns. Unlike in the case of a loan, there’s no need to determine the investment objective that would be realised using secured resources. They may be spend to purchase new rolling stock.
However, the representatives of leasing companies point to the fact that players in the Polish railway market are still not particularly knowledgeable about methods of raising capital. The distrust shown by the railway sector results most likely from its insufficient knowledge of forms of lease. But this market is still being seen as a very promising one.
Unfortunately, very few entities in the Polish market can afford to buy modern locos – even despite the range of financial tools on offer. However those that decide to do so must take into account the limitations resulting from the poor condition of the Polish infrastructure. For example – the axle load on Polish tracks. Multi-system locos tend to have axle load of 21 tonnes/axle. Unfortunately, more than 60% of the Polish railway infrastructure permits only 20 tonnes/axle. When this is the case, even the best, most cutting-edge product will need to deal with the usual set of problems that could not be foreseen by its designers.
The European Rolling Stock Forum 2015, which will be held in Warsaw from 10 to 11 March 2015 in media partnership with the Think Railways, will be devoted, among others, to the issues of CEE locomotive market. The event is a 2-day conference that will provide the opportunity to expand or strengthen contact base in the center of Europe and to learn about new business opportunities in the region.