SUMMARY DOCUMENTATION OF THE FEASIBILITY STUDY to the project titled COG WHEEL RAILWAY OF 760 mm GAUGE RACK BETWEEN

SALGTARJN SALGBNYA

Made in: Salgtarjn, November, 2010. Prepared by: Ngrdi Fejlesztsi gynksg Nonprofit Kft.

CONTENTS
1. 2. Presentation of the geographical, social and economic environment of the project ............................. 3 Establishment of development needs ......................................................................................................... 3 2.1. 2.2. 2.3. 2.4. 3. Situation analysis, demand-supply analysis........................................................................................... 3 Objectives of the project, expected results, impacts .............................................................................. 4 Introduction of target group................................................................................................................... 5 Limiting factors to assess ...................................................................................................................... 5

Outline and analysis of alternative solutions............................................................................................. 5 3.1. 3.2. 3.3. Method for selecting the appropriate option.......................................................................................... 5 Presentation of alternatives................................................................................................................... 6 Selecting the most appropriate version.................................................................................................. 6

4.

Developing of implementation proposal .................................................................................................... 7 4.1. 4.2. 4.3. 4.4. Technical content, description of technical facilities............................................................................. 7 Functional, operational proposal ........................................................................................................... 8 Business plan and marketing plan ........................................................................................................ 8 Environmental impacts of the project................................................................................................... 9

5.

Costs estimates ............................................................................................................................................. 9 5.1. 5.2. Investment and operation costs estimates .............................................................................................. 9 Summary of financial costs and revenues, projects financial sustainability...................................... 11

6. 7.

Risk analysis............................................................................................................................................... 12 Communication plan ................................................................................................................................. 13

The Salg narrow cog-wheel railway was planned to be realised on the former mining railroad tracks, with its proposed extension in about 4,3 km total length. The lower terminal (end station) is the camping near Salgtarjn Tstrand (Lake beach), the upper terminal (end station) is in Salgbnya town parts centre. The trail partly lies in the inner parts, partly in the periphery. Two stops will be constructed: in Fels Ponyi-puszta, near the horse farm, and in the Disi viewpoint. 1. Presentation of the geographical, social and economic environment of the project Salgtarjn, cultural administrative centre of Ngrd county, whihch provides secondary tasks in education, health and other services. Geographically it is situated in the north part of the country near the Slovak-Hungarian border, about 100 kms from Budapest. It is accessible by train from Hatvan-Budapest and from the direction of Slovakia, and by road from all directions. Determinants of the terrain are the mountains and the valleys lying between them, which determines the elongated city's settlement structure. Natural environment is attractive, with high density of forests. The citys population fell below 40 thousands in the last years, the populations age structure is increasing. The process is closely related to the steady problems of employment. Salgtarjn based its economy on the cool mining, that started in the second half of the 19th century. The heavy industrys role was crucial for more than a century. In the last quarter century the structure of industry has changed, the share of services increased. However there was no increase in the rate of tourism and hospitality. With the economy being on a growth path again, the supplying industrial plants expectedly will be in a better position, but it is necessary, that tourism would take bigger part in value creation, taking advantage of the favourable conditions of the area. There is a new opportunity with the opening of the frontiers, that results an increase in demands. 2. Establisment of development needs 2.1. Situation analysis, demand-supply analysis With the depletion of the Salg mine seams the narrow cog railway ceased to function, and have become inoperable by the first half of the 50s. The consistency of the former railway embankment delapidated and in the absence of drainage it became unusable. The integrated strategy for the urban development adopted by the Municipality of Salgtarjn City in 2008 indicates Salgbnya as an action area, the Lake Beach next to Beszterce site as a recreation area, so the cog railway as a tourist attraction is in line with the function of the target area. The City submitted a successful tender for the construction of the railway project in the frame of the Central Europe Resource project for the development of former mining regions. TARJNTERV Ltd. prepared the study plan for the railway construction in April, 2010. IMSYS Ltd. and MaVBT Ltd. prepared the preliminary environment impact assessment in August, 2010, that was needed for the implementation.

The population has a nostalgic feeling for romance of the railway, which is a recurring element in many project ideas, but because of high investment and maintenance costs, substantial progress has not been made. It is a positive trend, that the number of civil organisations and number of events of tradition continously grow in the city, which attract a greater audience year by year. Due to the relatively short distances within the area, residents from other settlements can also take part in the events held in the county seat. 2.2. Objectives of the project, expected results, impacts Main objectives of the project: o To improve the comfort of the citys population, the project is to contribute to the substantive achievement of the lovable city slogan. o To change positively the public opinion of the Hungarian population about Salgtarjn. o To achieve a new tourist attraction The project is expected to improve the tourism product, which also generates other developments. The determining factor in the demand for the rail service, that the destination should meet interesting and renewable tourist attractions and appropriate catering supply. Therefore the project enforcesa comprehensive, complex development programme. The specific goal is the implementation of a 4.300 running meter rail track with the related servicing facilities. The expected results and impacts by the implementation of goals: o The new attraction is to expand the tourism product o To generate further tourism development. By the implementation of the proposed development new services will be available. o Basic service is the passenger transport of the cog-wheel railway between Salgtarjn and Salgbnya. o Additional services for tourist guiding, information-providing, holding of events and sales of souvenirs and refreshments.

The aim of the development, that Salgtarjn, as a former mining town for the reviving of its cultural heritage related to mining and utilizing it in tourism should form the geological values, artefacts and memorials related to mining into a tourist attraction, that can be reached by the narrow gauge railway. The project is linked to the citys development programme, the concept of tourism development in the northern part of the city.

2.3. Introduction of target group Primary target group is the local - or living within a radius of 30 kms inhabitants with corresponding interest and income, especially the 3-18 age group. As a secondary target group the visitors can be indicated which arriving across the zone. The railway is mainly for the childrens interest, therefore the main thrust of marketing work should aim at parents with small children and schools. Civil society organisations should be targeted as specific target group which could assist in the project preparation and during the operation, in the socialization field of the project. Let it be our own! 2.4. Limiting factors to assess The limiting factors are the adverse events and circumstances that may affect and possibly prevent the proposed project feasibility and installation conditions. The restrictive risk factors may be technical, environmental, legal and regulatory in nature. They can represent social, institutional and financial-economic risks. The limiting factors are classified as minimum, medium or large based on the occurrence of their likelihood. 3. Outline and analysis of alternative solutions 3.1. Method for selecting the appropriate option The cog-wheel railway of the 760 mm gauge rack between Salgtarjn Salgbnyaproject will be determined with the detailed justification of the target to be achieved and the solution for development. Since the license plan has been under preparation that is based on the detailed trail exploration, no other reasonable option can be taken into account near the developed technical solution. During the analysis of variants the achievements of the outlined main objectives, the legal context of the proposed solution and the cost-effectiveness should be tested. The cog-wheel railway of the 760 mm gauge rack between Salgtarjn Salgbnya project is not a revenue-generating investment, thus a simplyfied analysis of variants will be prepared with cost-effectiveness analysis. The tested versions will achieve the same goals and results by different organisational solutions.

3.2. Presentation of alternatives For the technical implementation there will be no other variants made, since the preparation of the license plan for the optimal solution is already in process. During the planning the procurement opportunities of the rail fleet were studied as well. The types of locomotives and wagons were proposed primarily by the safety and optimization of acquisiting cost. Variants can be imagined with the implementation or deletion of facilities related to the project and to increase the utilization of it. An independent operating entity can be developed, or the operation can be carried out by the extension of an existing organizations activity. At version A of the project besides the fully implementation of the technical facilities of the plan additional, -supporting the utilization of the project- related auxiliary facilities will also be built. The operation will occur by the expansion of the activity of an existing organisation.

At version B only the technical facilities of the plan materialize. The operation would occure by a self-supporting organisation that was formed to operate the rack railway. At both versions besides the investment costs, the operation and the economic efficiency of the operation were tested. We have analyzed the institutional conditions of the implementation and the operation, as well as the impacts that could achieved by the development. At both versions these can be regarded as the same. The revenues generated during operation and the financial sustainability of each variants were considered. When determining the ticket prices, other railway fares of similar rail length in Hungary were taken into account, other service charges were determined by estimation. 3.3. Selecting the most appropriate version Comparison of variants The tested feasible versions differ from each other only in the implementation or deletion of additional facilities and in the organisational structure of the operation. A and B variant is nearly the same with regard both to the institutional conditions and to achieved impacts. Regarding the operation A variant is better, because in this case there will not set up a separate operating entity, therefore the annual operation costs will be lower. The output of the cost-effectiveness analysis: o
Present value

On the basis of economic cost:

A variant B variant

1. Present value of investment costs (HUF) 2. Present value of operation costs (HUF) 3. Present value of residual value (HUF) 4. Present value of total costs (1+2+3) (HUF) o Present value 1. Present value of investment costs (HUF) 2. Present value of operation costs (HUF) 3. Present value of residual value (HUF) 4. Present value of total costs (1+2+3) (HUF) On the basis of financial costs:

1.063.242.438 722.609.934 0 1.785.852.372

1.025.496.639 923.860.496 0 1.949.351.135

A variant 1.329.053.048 820.363.631 0 2.149.416.679

B variant 1.281.870.799 1.021.624.936 0 2.303.495.735

Result of comparison, the proposed variant:

In the two variants A variant is proposed for implementation, because with all favorable costs slightly more favorable result can be obtained, as with the B variant. 4. Developing of implementation proposal 4.1. Technical content, description of technical facilities The Salg cog railway originally satisfied goodsfreight and passenger transports needs. In the first half of the years 1950, the transportation completely stopped, the track had been picked up. The cog rail between Salgtarjn Lake Beach-Salgbnya will be rebuilt by using the old trail. The area is owned by the Municipality. The 760 mm gauge railway track will start from Salgtarjn, Camping near Beszterce housing estate (lower terminal) to Salgbnya settlement center (upper terminal) and stretches about 4.3 km in length, partly domestic area, partly fringes. The railway track is of adhesion in the small hilly sections and in sections between 30 to 33 climb it is designed to rack and pinion design. The rainage should be provided with ditches and tube leakages. Development of the passenger platforms will be in four places, in the size of 35 x 2,80 m, with ground stone cladding and with lighting at the two terminals. To approach the lower and upper terminal roads and parking lots will be built. The vehicles are a diesel gear train locomotive or DMU and one or two personal wagons. The placement of vehicles will be in the lightweight locomotive and depot to be constructed in the lower terminal. The fuel uploading by mobile-system will be at the same place

Besides the railway facilities additional facilities will be also constructed to the cog railway. In the passenger halls in the lower and upper terminals a gift shop and caf will also be built. Next to the vehicless parking lot a bicycle storage facility will be established. At the intermediate stations there will be resting places, with bacon-frying facilities, playgrounds and covered stations against rain. At the Disi stop a lookout viewpoint will be built. In addition to the rail track a tourist hiking and biking route will be built. Upon completing the project the material, technical and personal conditions of the maintenance. Main output indicators of the project are included in enclosure Nr. 8.1. 4.2. Functional, operational proposal The operation and maintenance will happen by expanding the tasks of an existing organization VG Salgtarjni Vrosgazdlkodsi Kft. (Town Management) Ltd. The organisational and management tasks of operation will realise with the organisation of the company, there is no need for separate management- and the additional activities like accounting, legal advice, administration, general maintenance, stocks etc can be provided with the division of tasks. Among the operation costs we have calculated the maintenance costs of facilities amortization, ongoing maintenance, repair the replacement demand, railway tracks, ongoing operation costs of buildings and works. The running of a cog railway requires appropriate expertise. There are 4-6 persons needed for train staff, operations, maintenance and inspection with a part time employment. The operation of the railway is seasonal: with a demand-driven summer, spring-autumn and winter schedule. 4.3. Business plan and marketing plan The business plan is determined by the boundary conditions to the project so that it suits to the establishment and operation of a facility. The period of the business plan runs from the beginning of the programme till the end of the mandatory 30-year maintenence after the completion. The business strategy of the railway project is to achieve the objectives of the project by selecting the most economical solutions. With the implementation of the business plan of the project: o The tourism potential of the area, the city and its region will increase, o Both the operation and implementation will happen by the optimization of costs,

The direct and indirect target group will be captivated by the continuos information-providing.

The tourism developments and services are not always profitable in themselves, and it is also true for the implementation and operation of the cog railway. Therefore the project should be linked to the existing tourism facilities and the planned further tourism development.

A complex marketing plan should be drawn up as part of the project, which includes the marketing strategy, the marketing plan belonging to the development and operation tasks with the implementation tools. It is expected, that the application of modern marketing tools should be in line with local circumstances and with the target group, and connect to other tourist attractions in the area. The plan must specify the marketing methods to be applied, the long-term image of the project and marketing costs, the pricing strategy to be applied and the system of preferences. The advertisement will realize during the implementation time of the project by the application of information and communication tools. 4.4. Environmental impacts of the project Like all interventions in the construction of facilities, the realization of facilities of the cog railway is expected to impact on the environment, but they can be minimized by limiting the available areas and proper organization of work. A preliminary investigation was made for the degree of the environmental pressure of the planned facilities, during which the railway facilities impacts to the environmental compartments air quality protection, soil and groundwater, surface waters, noise, flora and fauna- were surveyed. It was found, that the construction and operation of facilities does not cause irreversible damage, and does not threaten the habitats and species that live there. The developer of all activities in the project will take all measures related to the activities and promoting equal opportunities during the implementation and operation of the project

5. Cost estimates 5.1. Investment and operation costs estimates Activities needed for the implementation of the project Preparation of project: planning, control of planing, obtaining of permissions, compilation of application programmes and documents, conduction of public procurements, managing of the project.

Main activities if the implementation of the project: managing of the project, technical supervision, implementation, equipment purchases, other professional services, information, audit, legal advice.

The reconstruction of the Salgtarjn Salgbnya 760 mm gauge rack railway is a municipality investment, its activities are covered by state aid. The investment does not generate incomes. Investment costs estimates

The itemized statement of investment costs is included in enclosure 8.2. Main items are as it follows:
Serial nr.
Description of activity Net costs HUF 135.200.000 132.200.000 3.000.000 1.084097.500 1.043.570.000 40.527.500 1.219.297.500 Gross costs HUF 169.000.000 165.250.000 3.750.000 1.355.121.875 1.304.462.500 50.659.375 1.524.121.875

1 Preparatory works 1.1 Costs of preparatory works valid for both versions 1.2 Preparation costs of additional facilities 2 Project implementation 2.1 Implementation costs valid for both versions 2.2 Implementation costs of auxiliary facilities
Total investment costs

Schedule of gross investment costs

Present value (HUF) 0 0 2.149.416.679 1st year 2012. 116.500.0000 0 116.500.000 2nd year 2013. 52.500.000 31.250.000 83.750.000 3rd year 2014. 0 1.323.871.875 1.323.871.875

Type of costs 1. Preparation of project 2. Implementation of project TOTAL COSTS

Operation costs

The itemized statement of operation costs is included in enclosure 8.3. Main items are as it follows:

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Featurin

Unit operating costs

Measure

g data of earlier period

1st year 2012. 0 0 0

2nd year 2013. 0 0 0

3rd year 2014. 0 0 0

+30 year longevity 747.900.000 1.277.055.240 524.939.670

Operation costs Maintenance costs Replacement costs

HUF/year HUF/year HUF/year

0
1.500.000

Residual value:

0 Ft

5.2. Summary of financial costs and revenues, projects financial sustainability The financial economic plan is based on the cost-benefit analysis. The assumption of the cost-benefit analysis assumes, that requires only the absolutely necessary support and financially sustainable during the operation. The cost-benefit analysis method is the Development margin method. During the simplified cost-benefit analysis a financial analysis is made for the selected technical version by taking into account all investment and operation costs and revenues incurred, with 5% financial discount rate. Financial tables: o Summary of financial costs:
Present Description value (HUF) 1. Total investment costs 2. Total operation costs 3. Residual value 4. Total financial costs (1+2+3)
1.329.053.048 820.363.631 0 2.149.416.679 116.500.000

1st year 2012.

116.500.000

2nd year 2013

83.750.000 0 0 83.750.000

3rd year 2014

1.323.871.875 0 0 1.323.871.875

+30 years total

0 2.549.894.910 0 2.549.894.910

Financial revenue estimate

Calculated revenues from Ticket sales, Prices of tourism services, Rental and/or operation of additional facilities in the lower and upper terminals.

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Kltsgnem 1. Ticket sales 2. Tourism services 3. Additional activity Total revenues

Present value 205.099.362 108.582.015 36.194.005 349.875.383

1st year 2012.

2nd year 2013 0 0 0 0

3rd year 2014 0 0 0 0

+30 year longevity 637.500.000 337.500.000 112.500.000 1.087.500.000

Financial sustainability of the project

Ensuring support is necessary for both the implementation and the operation. Revenues cover a part of the operation, maintenance and replacement costs, but the operation needs also the support of the local governemnent.
1st year 2012.
116.500.000 0 116.500.000 0 104.850.000 11.650.000 116.500.000

Description 1. Financial investment costs 2. Financial operation costs 3. Expenditures cash-flow: 1+2 4. Financial evenues 5. Support 6. Own resource 7.Revenues cash-flow: 4+5+6

2nd year 2013

83.750.000 0 83.750.000 0 75.375.000 8.375.000 83.750.000

3rd year 2014

1.323.871.875 0 1.323.871.875 0 0 132.387.188 1.323.871.875

4th year 2015

0 84.996.496 84.996.496 36.250.000 1.191.484.687 48.746.496 84.996.496

+29 years
0 2.464.898.384 2.464.898.384 1.051.250.000 0 1.413.648.384 2.464.898.384

6. Risk analysis The risk managements strategy is to propose solutions for managing the risks listed under point 2.4. It may be, that the occurence of certain risk factors is impeding, or the damage risks that has already occurred will decrease. The risk management strategy includes the reactions for the risk factors. In managing the technical, legal and institutional risks the strategy of risk sharing should be applied. In managing the natural risks the strategy of risk devolution is applicable. Social risks can be minimized or excluded in full compliance of the disclosure requirements. Financial-economic risks can be minimized with proper preparation.

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7. Communication plan When determining the communication strategy the general public should be informed about the project largely, and the direct and indirect target groups of the competition should be reached by the means of communication. Means of achieving communication strategic goals: Presentation of the project in plain language, Regular information, Rapid reaction and clear answer to the arising problems Performing the external appearence of the project is one of the tasks of the detailed maketing plan. As an expectation it is drawn, that it should send a clear message to the general public and to the target groups, as well. The terms of reference and communicaton costs of the project are included in Enclosure n. 8.3.

In summary, it can be stated, that the project is in line with the development plans of Salgtarjn city, it helps to enhance the potential for the recreational tourism zone.

But it is also concluded, that without a financial aid the implementation of the project is unrealistic, and for the operation there is more than 45 million HUF needed as an annual support, calculated at current prices. The operation of the 760 mm gauge rack railway between Salgtarjn Salgbnya is not profitable itself, but treating in a complex manner the total tourism development of the area we can count with efficient operation.

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8. List of enclosures 8.1. Output indicators of the project 8.2. Investment costs estimate 8.3. Operation and maintenance costs estimate 8.4. Communication plan and cost estimate

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