INTRO: Unprecedented levels of investment are transforming Spain’s national railway with new high speed lines and a huge rolling stock acquisition programme. Robert Preston put the questions to Renfe Operadora President José Salgueiro

Preston: What were Renfe’s results for 2005 and what are its financial targets for 2006?

Salgueiro: One key fact must be borne in mind when discussing results and financial targets. 2005 was the first year of existence for Renfe Operadora after Renfe was split up to form two separate, publicly-owned companies. So we are talking about different companies of differing sizes, which means that last year’s results cannot be compared with 2004.

But we can draw some conclusions, for example, from the commercial income recorded by passenger and freight services. This has grown in both cases, and the reasons include the fact that Renfe has managed to make improvements across all its business units. This applies particularly to High Speed services, where we expect to end 2005 with an increase in revenue of more than 10%.

Results for 2005 are still incomplete and subject to audit, but we can say that the figures will be above budget. This trend was already apparent in the first half of the year, when the budget was beaten by more than 12%. On the other side of the balance sheet costs were kept well under control, both operating costs as well as amortisation and interest.

Our goals for 2006 are even higher. The investment spend that Renfe will undertake in acquiring new rolling stock will be of historic proportions, while the progressive opening of new lines and infrastructure will be a challenge for us.

The Spanish government’s railway investment plan is a solid vote of confidence in rail, and we must respond to this in a determined manner with a clear commercial strategy, but always following the rhythm of this programme for rational railway growth. It is precisely this growth that requires us to undertake a major rolling stock refurbishment programme and to acquire new trains to operate on new infrastructure.

We are talking about spending over €1bn in 2006 on new equipment, rolling stock refurbishment and new trains. This will be shared between long-distance and high speed passenger trains, rolling stock for our Suburban business, versatile medium-distance trains and rolling stock for our freight business as well.

This unprecedented investment commitment will be accompanied by a major increase in commercial revenue. We want to see the upward trend of annual increases in excess of 10% continuing, as well as costs kept under control.

Preston: Renfe’s 2005-09 Strategic Plan foresees an increase in passenger traffic of 19·3%. How do you expect to meet this target and in which market segments do you expect to see the largest increases?

Salgueiro: Our intention is to move from the 484million passengers carried in 2004 to 578million in 2009, and from operating 172million train-km in 2004 to 215million in 2009. The 100million new passenger-journeys will be generated by the gradual opening of new lines and the upgrading of existing routes, as well as new trains as they are brought into service. Passengers will see a major improvement in service quality, both in terms of customer perception and meeting punctuality targets.

In the years ahead we will further develop our management strategy, rationalise our product offering and will try to be the preferred choice for travellers in terms of quality, service and safety. For example, our Suburban business will grow in areas where urban development is forging ahead, and we will increase capacity on routes that are already close to saturation point. The Regional business will become our efficient and attractive public transport option for medium-distance journeys.

Our high speed and long-distance conventional products will tap new markets and new market segments, as new infrastructure planned by the Ministry of Development is brought into use. This is where we are hoping to grow in the most spectacular fashion, and where customers will discover a fast, efficient transport alternative to road or air.

Preston: In what way will the opening of new lines contribute to achieving this increase?

Salgueiro: In a direct and very important way. New lines will enable us to serve a large number of potential new customers, making rail a more attractive option against other modes for customers who are already served by train and who will see a genuine transformation. We will be offering products more closely matched to real market demand, with higher speeds enabling us to cut journey times to become highly competitive against any other alternative in Spain. Renfe intends to provide a high-quality service to these potential customers as soon as new lines are opened, demonstrating the appeal of a quality product that is also efficient, safe and very comfortable.

Preston: The Strategic Plan contains a €4·05bn new train investment programme. For what market sectors will new trains be purchased and what gauge will they be? How will the acquisition programme be financed?

Salgueiro: We are planning a major investment programme covering the acquisition of new rolling stock as well as the refurbishment and modification of existing trains. But there can be no doubt that this investment is absolutely essential to place Renfe where it is guaranteed to succeed when faced with the challenge of on-rail competition.

As I have already said, the opening of new lines requires Renfe to have rolling stock suitable for use on these routes, very flexible and versatile trains capable of operating on both track gauges that exist in Spain. So some trains will be equipped with gauge-changing wheelsets, while others will be designed for conversion from one gauge to the other during their working life as our requirements change.

Our investment programme has been drawn up very carefully, based on actual rolling stock requirements over the next few years, and it will follow the rhythm of new line openings and the demand they create, including demand for medium-distance services and the strengthening of Suburban train fleets.

For example, Renfe’s Suburban business is planning to acquire 280 new trains to update its fleet and the Regional business will have 180 new, extremely versatile trains for medium-distance services. In both cases, major investment is being made in new rolling stock to provide high-quality public transport. For its part, the High Speed business will be spending over €1·4bn on new trains for new routes as well as refurbishment of the existing fleet, which will focus on improving passenger comfort.

This major investment will be undertaken without increasing Renfe’s debt or worsening its financial position, and the 2005-09 Strategic Plan sets out how this will be done. The government’s 2006 budget has established how the purchase of new rolling stock will be financed, allocating €404m to an increase in Renfe’s working capital. This is a demonstration of the government’s faith in rail as a means of transport. To provide the remainder of the €1bn plus of investment planned for 2006 we will be issuing €272m in bonds and the remainder (k359m) as debt. And all this will be done while sticking very closely to our financial targets for 2009.

Preston: In the contracts being awarded to supply new rolling stock, Renfe is stipulating that some production is undertaken by its own workshops. What is the aim of this initiative?

Salgueiro: Including these clauses in rolling stock supply contracts forms part of a strategy to modernise our workshops and develop their business activity. This will enable us to provide them with a sizeable workload and above all will help us to introduce new technology and skills to the workshops. They will move from being simple maintenance facilities to become a fundamental element of rolling stock construction and a reference for the railway industry worldwide.

In addition, agreements are to be negotiated with rolling stock builders that will enable us to increase Renfe’s involvement in this activity, as for example we have already done for our workshops in M