Discussion Papers

Gernot Müller

Deriving an input price index for the German rail infrastructure sector

No. 327 / November 2009

Summary

For a period of time, the Federal Network Agency and rail companies have been arguing about the change of real costs of the provision of rail infrastructure, as well as about possible variants of a proper input price index, mainly induced by data preparation within the framework of market monitoring. As well, in the scope of cost-based regulation, such an index provides criteria for determining the change of actual costs. Beyond, this index can be applied as part of the intended incentive regulation of rail infrastructure charges.

In order to assist the Federal Network Agency in deciding on an appropriate input price index for the German rail infrastructure market, this discussion paper covers the theoretical and methodological principles of price indices, analyses the suitability of available price indices and the construction of price indices by the Federal Statistical Office, and examines input price indices applied within the regulatory framework of other infrastructure sectors, and countries respectively. Approaches and experiences of the Federal Statistical Office regarding the labour and construction cost indices give important evidence on how to proceed. Consequently, secondary statistics is to be preferred. Consumer and retail price indices play a major role in regulatory practice, but synthetic input price indices are also used for regulating access charges in the British rail infrastructure sector, as well as in the German and Austrian energy sector.

However, the main focus of this study is on the derivation of a synthetic input price index for the rail infrastructure. For this purpose, expenses are classified, reference companies are selected, comparison price indices are identified, and weighing factors are determined. Appropriate kinds of expenses are materials, external services, maintenance, personnel, depreciation and amortisation, other operating expenses, and financial expenses. The relevant sample consists of federally-owned and non-federally-owned rail infrastructure providers disclosing separate profit and loss accounts. In the face of the limited strength of expense structures calculated, currently, a single input price index has to be specified, without categorising it in different groups of companies or rail infrastructure market segments.

As convenient comparison price indices, the consumer price index, several indices of producer prices, a sector-specific labour cost index, and an index on yields on debt securities are considered. Weighing factors follow from the companies’ expense structures, weighted according to the shares in total rail infrastructure expenses: index of producer prices for industrial goods: 0.10; index of producer prices for investment goods: 0.15; index of producer prices for services: 0.40 (temporarily auxiliary price index, consisting of consumer price index and labour cost index for services); surface transport labour cost index: 0.30; and index on yields on debt securities: 0.05.

(Full version only available in German language)

Discussion Paper is available for download.

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