I thank members for inviting us to address the committee. Since this is our first opportunity to meet the committee. I will briefly describe the company and outline our plans in general. I will also deal with the key issues relating to freight and the lightly used passenger lines.
Iarnród Éireann is the provider of rail services nationally. We operate intercity services to all major population centres and commuter services, predominantly in Dublin but also a number in Cork. We operate rail and road freight services and we own and operate Rosslare Europort. We carried 34 million passengers in 2001. Usage of our passenger services is at record levels and our passenger carryings have increased by 16% over the past five years. Since 1998, staff numbers have risen by more than 800 to just over 6,000. Costs have continued to outstrip the growth in revenue and the company is facing a serious financial situation. Our customer revenue amounts to €190 million. In the current year we will receive State operating support of €155 million and are projecting an operating deficit of €25 million. I will elaborate in more detail later in my presentation.
Members will be aware of the chronic under-investment in railway infrastructure and equipment over recent decades. Thankfully, this has now changed and in recent years we have been undertaking a major investment programme. While much of this has gone towards addressing shortfalls in areas such as track, signalling and stations, we have also begun to increase capacity, particularly in the Dublin area. An indication of the made progress is as follows: some 325 miles of track have been renewed, with an average of 75 miles per year which is considerably more than in previous years; some 200 bridges have been replaced; some 400 level crossings have been upgraded; there have been DART extensions to Malahide and Greystones; some 38 new DART carriages have been added in the past three years - there were 80 when the DART became operational in 1984 and three years ago there were just the same number; we have upgraded Maynooth line with doubled track between Clonsilla and Maynooth; we have put 47 new Arrow diesel railcars into service; the redevelopment of Heuston Station is well under way and we expect it to be completed next year; Drogheda maintenance depot -at which railcar maintenance is carried out - is under way and will be completed next year; a further 80 diesel railcars will be delivered for service in mid-2003 - in the late 1990s we had 17 railcars in our fleet, we now have 64 and by the end of 2003 we expect to have 144, which will increase our capacity for carrying commuters; and new stations have been constructed at Clontarf Road, Grand Canal Dock, Drumcondra and Monasterevin.
There are a number of things we are about to do and I have highlighted three of them. We will place an order for 67 intercity carriages. No European railway operator uses carriages more than 25 years old, but as stated earlier, half our intercity fleet is more than 30 years old. We will commence a project to increase the capacity on the DART by putting in place the infrastructure to allow us to operate eight car trains, compared to the current maximum of six. We plan to place an order for another 40 DART carriages. This investment has brought about much needed safety improvements, which was the priority in recent years. By the end of 2003 the lines to Cork, Tralee, Limerick, Waterford, Galway, Westport, Sligo and Belfast will be renewed with continuously welded rail. Peak capacity in Dublin has been increased by 40%. This level of investment must be sustained if the railway is to continue to expand to meet the current and future demands.
In parallel with the capital investment programme, there has recently been a major transformation in respect of employees' working conditions and remuneration. Low basic wages and long working hours have been replaced with new contracts, a five-day week and greater flexibility. This was essential because many staff were working seven days a week and for over 60 hours before the new conditions were put in place.
In the future we plan to continue upgrading, modernising and expanding the railway. Our priorities for the coming decade will be to increase the suburban track capacity to enable us to carry more people at peak times. Our objective is to increase our current capacity, which has already been increased in recent years, by another 75% over the next five years. We plan to provide eight new stations and we are in discussions with developers with a view to their funding the construction of those stations. We have a major plan to upgrade Tara Street, which is our busiest station, and we plan to provide a new station at Spencer Dock. Capacity is quite tight in the central area, but we need to find new ways to bring trains into that area. We plan to purchase 67 new intercity carriages to come into service in 2005 and it is our aim to replace all life-expired carriages - those over 30 years old - by 2007. It is an ambitious programme but it must be carried out.
We must continue with our safety programme, complete the re-signalling programme, redevelop Cork, Galway and Limerick stations, provide new booking and reservation systems - we plan to be able to sell tickets on the Internet - and increase frequency of service on main corridors as we get new rolling stock. Overall, investment of €2 billion to €3 billion is required over the next decade if the railway is to meet current demands and more if it is to expand to meet the growing expectations being placed on it. The railway will be competing for scarce national resources and available funding must be prioritised and targeted.
The committed and anticipated investment will permit a major expansion of the passenger business market. We are planning to grow volumes from their level of 34 million per annum to 44 million within five years with significant growth projected in both the Dublin commuter market and the prime Intercity routes. The improved railway product, population growth and congestion problems on urban and interurban corridors will fuel this growth.
larnród Éireann can only fulfil this role if it is on a sound financial footing. While the sustained level of Exchequer capital funding has been welcome, account must also be taken of the current financial implications of the proposed expansion. As mentioned earlier, larnród Éireann is facing a critical financial situation in the current year. Costs have increased significantly, principally due to increases in staff numbers. This has arisen because of expansion of services, revised working arrangements and the enhanced capital programme. In 1998, prior to the investment programme and the new working arrangements, larnród Éireann staff numbers stood at 5,165. This has now increased by 885 to 6,020 and the increases can be attributed to: the investment programme - 340, new services - 90, new working arrangements to allow 5 day week - 375, and safety and training - 60. In 1998, the total man-days training was 10,000 which was totally inadequate. We expect to hit 40,000 annually this year.
The increases in staff numbers, implementation of national wage rounds, general inflation, fuel price increases and limited fares increases have all contributed to the financial situation now facing the company. Our wage bill has increased from €129 million in 1998 to €215 million in 2002. We have projected a financial deficit of €25 million for 2002 and if no action is taken this is projected to increase to €50 million within four years, assuming an increase in State subvention of 5% annually. The present level of operating subvention is €155 million. The board and management have been considering this critical situation and it is imperative that action be taken immediately.
larnród Éireann is a limited company, operating separately from the CIE holding company. CIE is obliged under various Transport Acts and the 1986 re-organisation of CIE Act to operate commercially. larnród Éireann is also bound by the Companies Acts and cannot continue to sustain losses of this nature and risk trading in a reckless manner. A combination of measures is necessary to address the situation. These can be summarised simply as follows: increased productivity and cost efficiency, significant fares increases, freight rationalisation and suspension of poorly used services. None of these measures alone presents a unique solution and it is clear that a combination of all options must be pursued. The company is continuing to improve productivity levels and implement cost efficiencies. A total of €6 million in savings is projected in 2003. The fares increase announced last week is welcome and will generate additional revenue of €5 million in 2003. The application of regular increases is essential to help finance ongoing payroll and other cost increases.
Rail freight is best suited to transporting bulk freight over long distances. In Ireland, the industrial configuration is not one of heavy industry and there is a strong concentration of movement in and around Dublin. Few firms are rail connected and most rail freight movements necessitate costly road transfers at either end. Volumes transported by rail in Ireland have stagnated over the past decade. larnród Éireann management has made every effort to maintain market share and retain businesses in a competitive market. However, losses are being incurred and must be addressed. Overall, larnród Éireann freight revenue for the current year will be €53 million and the net rail figure after allowing for the cost of collection and delivery is estimated at €21 million. Losses in the freight business have increased in the last few years and are forecast to reach €14 million this year. The situation has been exacerbated by the closure of IFI with an annual loss in revenue of approximately €4 million. A plan has been prepared by management to increase the contribution of the profitable businesses and to withdraw from unprofitable businesses. Should the plan be implemented net rail revenue would reduce from this year's forecast of €21 million to €10.1 million in the first full year of operation, growing to €12.5 million by 2007. As a result the profitability of the freight business would improve from a loss of €14 million this year to a positive contribution of €2.25 million by 2007.
Business levels throughout the network are heavily influenced by demographics. Increased urbanisation has dictated that passenger business is heavily concentrated around Dublin and on the primary interurban routes. This is reflected in the current usage of the rail network where volumes in the Dublin area and on prime interurban corridors are growing while volumes are low and static on secondary routes and branch lines. In 2001, larnród Éireann carried 10.8 million passengers on intercity routes and the percentage breakdown of revenue by route is as shown on the graph. The bulk of the revenue is generated by five routes as illustrated. There are approximately 30,000 journeys per annum on the Limerick Junction to Rosslare line yielding annual revenue of €100,000. The Limerick to Ballybrophy line is also lightly used with approximately 35,000 annual journeys yielding revenue of €200,000. The annual loss incurred on the Limerick Junction to Rosslare line is €3.6 million and the loss on the Ballybrophy line is €1.8 million. The track and associated infrastructure is in poor condition, speeds are low and the trains used date from the 1960s. Major capital expenditure is required to upgrade the lines - up to €70 million on the Limerick Junction to Rosslare line and €30 million on the Ballybrophy line.
There are major demands for capital investment throughout the rail network. Priority has to be given to the busier lines where demand is greatest and better returns on investment can be achieved. These lines have a low revenue base and high on-going losses and consequently the proposal to suspend services on these lines was made.
The board of larnród Éireann was presented with the measures necessary to address the financial crisis at its October meeting. The board approved a package of measures and these were submitted to the main CIE board at its November meeting. At the request of the Minister for Transport, the board deferred a decision pending the outcome of the strategic rail review. There may be other issues which the Government may wish to take into consideration based on the review recommendations. However, losses are still being incurred and cannot be sustained by the board and corrective action is necessary.
It must be understood that larnród Éireann has based its proposals on fundamental business principles and in the interests of financial stability. The measures proposed are just one element of a package of measures to improve financial performance and develop the role of the railway in Ireland. Others will include fares increases, increased State subvention, cost efficiency measures, targeted investment and a substantial 30% growth in volume from 34 million passengers in 2001 to 44 million in 2006.
I thank the Chairman for the opportunity to make a presentation and we will be happy to take questions from the committee.