July 24, 2015

Germany and France cling to their railway monopolies

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WHILE still opposing the European Union's (EU) Fourth Railway Package in the EU council and parliament, Germany and France are already making sure it will have no effect in bringing competition to public service obligation (PSO) passenger contracts in their two countries.


In France, many regions have been persuaded by French National Railways (SNCF) to enter into PSO contracts for 10 years without any competition so that, even if the PSO text in the Fourth Railway Package does happen, there is a 10-year window before SNCF will have to face any threat of competition for regional passenger services.

In Germany, the state of North Rhine Westphalia has sensibly invited tenders separately for supply of new rolling stock and the operation of trains for its regional PSO rail services. National Express and Abellio won the operating contracts, with the region procuring the new trains separately, partly funded by the European Investment Bank. This means that the region owns the trains and can allocate them to any new operator it chooses in the future.

However, in Berlin, the old method of concessioning has prevailed, with the Berlin Senate and the state of Brandenburg insisting that bidders to operate the S-Bahn network supply new rolling stock to the value of €1bn as well, and under very strict detailed conditions. Not surprisingly, only German Rail (DB) tendered, and DB will receive €250m a year from the federal government.

So the key to keeping PSO contracts within the monopoly sphere is to let all contracts for as long as possible to the incumbents whilst this is still allowed, and make the conditions of tenders unacceptable to any competing private-sector operator, even if that costs the taxpayer millions more.

For smaller German cities, DB has found another way of attracting PSO money. According to press reports, CDU political heavyweight Mr Ronald Pofalla, who is now head of lobbying at DB, is seeking to get DB Inter-City and ICE trains to every city with more than 100,000 inhabitants provided that they subsidise DB to do so. There cannot of course be any competition for this, since there is no competition for such long-distance services, apart from open-access operator Hamburg- Cologne-Express (HKX).

Meanwhile, the German Monopolies Commission, in its fifth report issued on July 22, recommends the total separation of infrastructure manager and train operators.

The Monopolies Commission states that the "only way to establish undistorted competition is to completely separate the infrastructure and transport units" of DB. It reveals how DB, as an integrated railway, is able to discriminate against competitors and why current legislation is not suited to prevent discriminating behaviour. It recommends "the organisational and financial unbundling" of DB.

Interestingly, Britain's Competitions and Market Authority (CMA) also published a report in July into options for competition in passenger services in Britain, where the railways are already unbundled. The CMA suggests four options for further discussion:

  • existing market structure but with significantly-increased open-access operations
  • two franchisees for each franchise area
  • more overlapping franchises, and
  • licenced multiple operators, subject to conditions including PSO obligations.

The CMA points out that these options are designed to achieve real improvements for passengers, taxpayers and the industry.

So the two competition authorities agree. What a pity that the German government does not listen to its Monopolies Commission and instead, along with France and some other EU member states, oppose with all their power any move towards unbundling or more above-rail competition.

Tony Berkeley

Lord Tony Berkeley is chairman of the Rail Freight Group, the representative body of Britain's railfreight industry which includes 150 companies covering logistics, train operations, terminals, and infrastructure managers. He is also a board member of the European Rail Freight Association, the grouping of private operators and other companies promoting European railfreight. Berkeley sits in Britain's House of Lords, where he was an opposition transport spokesperson in 1996-97, and is secretary of the All Party Parliamentary Rail Group. Berkeley was public affairs manager of Eurotunnel from 1981 until the end of construction of the Channel Tunnel in 1994, and is a member of the Institution of Civil Engineers, fellow of the Chartered Institute of Transport and Logistics, and an honorary fellow of the Institution of Mechanical Engineers.

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