SIGNAL+DRAHT | Issue 06/2009

The strategic value of investment in the replacement of signalling systems

June 2009 | Maarten Werff, Martijn Klinkhamer

Investments in replacing signalling systems for railway infrastructure require a long-term vision. Based on technical performance and on a financial net present value analysis of the investments, it is cost-effective to replace aged systems. Compared to the current systems, the replacement requires extra capital because the new systems are more expensive, mainly due to the more complex conditions for replacement. Consequently the cost structure deteriorates in the short term as the newly procured systems carry higher depreciation costs. It can, however, be argued that – apart from other explanations – the extra capital required also represents a strategic value, because the replacement programme creates an option on new opportunities, for example the introduction of new functionality offered by ERMTS. Exercising this option results in extra benefits for the railways. Compared to the current situation, the investments over the longer term will result in a lower calculated cost price of signalling systems.