The Rail Working Group is a not-for-profit association focused on the adoption and implementation of the Luxembourg Rail Protocol. The Protocol sets out detailed common international legal rights for funders financing railway equipment, including easing repossession of collateral on debtor default or insolvency, and introducing a public registry where the interests of lenders and lessors will be registered. It will also introduce the first-ever global system to uniquely identify rolling stock, thereby aiming to improve and standardise legal and operational frameworks for the cross-border operation of freight and passenger trains.

The Rail Working Group asked Oxera to estimate the direct microeconomic benefits of the Protocol for African countries, in terms of the savings to operators financing rolling stock under the agreement.

Our analysis focused on the savings in financing costs through a reduction in the weighted average cost of capital (WACC) for operators of railway equipment in Africa. Although there is variation across countries, our analysis found that the differential in financing costs from the Protocol ranges from 1.6% to 13.5% of the present value of rolling stock. This means that if there is a rolling stock value of US$100, the savings would be between US$1.6 and US$13.5. As an example, the two principal operators in South Africa own rolling stock fleets valued at over US$5bn. With the Protocol in place, the present value of the financial savings on refinancing are estimated to be about US$400m.

The study does not measure the wider benefits of the Luxembourg Protocol, but notes that it could have a positive effect on the environment, as well as social and economic benefits for the community as a whole.

Contact: Andrew Meaney

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