ON December 15 last year the Dutch secretary of state for infrastructure Mrs Wilma Mansveld signed both the concession for the infrastructure management of the Dutch railway network, granted to Prorail, and the concession for public passenger train operations on the so-called core network, which was awarded to Netherlands Railways (NS). Both agreements, covering the period 2015-2025, have been shaped by several years of debate and discussion both at a political level and between the government and the concessionaires.
Since the start of railway reforms in the early 1990s, railways have become an increasingly important issue in Dutch politics. Major steps were taken to reducing the railways' dependence on subsidies to create a financially self-supporting transport system. This included giving NS more independence from the government, creating an independent infrastructure manager Prorail, and opening up the network to new entrants.
There was a brief spell of competition in the passenger market in the late 1990s, the short-lived Lovers Rail operation in the Amsterdam area being the most notable example, but a shortage of suitable rolling stock, qualified staff, and maintenance staff meant barriers to entry were extremely high. While an open market existed on paper, the reality was anything but.
With the disappearance of Lovers Rail the socialist transport minister at the time Mrs Tineke Netelenbos closed the door on open-access passenger operators. Political distrust of private operators, fuelled in part by events across the North Sea in Britain, removed any prospect of competition for NS, which was happy to see the threat subside.
A new public transport law was passed which made passenger rail a regulated market. This meant all public transport operators must be licensed by the competent authority - in the case of the main line rail network the Ministry of Infrastructure - with selected provinces granting concessions for regional services. This also ensures that there is only one operator per line - when two operators unavoidably meet, special arrangements are necessary. NS was awarded the concession to operate the bulk of the network, and with a few exceptions, none of the services in the core network concession are subsidised by the government.
In return for the opportunity to make a reasonable profit on the core network, the ministry specified minimum service levels, the most notable being the requirement for every station to be served by a train at least every 30 minutes.
As part of the reform process, NS identified 33 so-called 'loss making lines,' perhaps better described as regional passenger services, which were considered to be unprofitable. NS was keen to withdraw from the operation of these lines and the new act made it possible to transfer the legal power and budget for regional passenger train services to regional governments. Regional authorities and politicians became involved in passenger rail, with remarkably positive results. The growth in patronage on these services far exceeded the core network, and the quality and reliability of these services is significantly better.
The government has devised a system of regulation based on concessions for the passenger core network and infrastructure management. The first national railway concessions began in 2005 and were awarded directly to Prorail and NS with a term of 10 years.
The concessions define performance criteria for both infrastructure management and passenger operations. Annual plans drawn up by the concessionaires and approved by the minister of transport (subsequently the minister for infrastructure) enabled fine- tuning based on actual developments, including government policy or responses to poor performance. In practice, NS was proposing the key performance indicators (KPIs), which arguably is not an incentive for achieving the best results. Despite this, NS failed to meet its own KPIs on several occasions.
During the first concession period there was frequent government dissatisfaction with both Prorail and NS. Critics argued that both organisations were so preoccupied with optimising their own performance that little consideration was given to the coherent operation of the overall railway system. A merger between NS and Prorail was suggested and rejected but information management was transferred to NS, to the irritation of regional passenger operators.
Major disruption caused by technical failures or bad weather meant the railways were often a challenging issue for the minister and the secretary of state. The Dutch parliament and the public called for stronger leadership, but in a practical sense there was little political intervention could do to improve the situation. The financial incentives and penalties in the concessions were too small to make any real impact on performance, to the extent that paying the maximum penalty might actually be more cost-effective than implementing enhancements to boost performance. This meant that there was little for the ministry to enforce.
In the run-up to the new concession the Ministry of Infrastructure has been working with rail stakeholders to develop a new vision for the country's railways, including high-frequency train operations on key corridors and in the Randstad conurbation. This vision, which covers the period up to 2028, has helped to shape performance criteria for the 2015-2025 core network concession. During this process it became clear that the Dutch government did not want to introduce competition on the core network and that the new concession would also be awarded directly. It must also be noted that in recent years NS has paid a considerable dividend to its only shareholder - the Dutch state.
According to the Ministry of Infrastructure the 2015-2025 core concession is based on three guiding principles.
The first of these is "strong leadership from the concession-granting authority." The Ministry will inform NS annually of its priorities and NS will then incorporate them in the yearly plan, working wherever necessary with other railway organisations to meet the government's objectives.
As in the previous concession, the ministry will approve the annual plan and there will be a mid-term review by the minister in 2019. Progress towards and achieving the goals will be checked, and where necessary modifications will be made, including adjustments of KPIs and performance penalties and incentives. In the previous concession hardly any measures could be taken if NS decided to reject or resist the priorities set by the minister.
The second principle is "stimulation and obligation for cooperation." The minister wants rail to be a competitive and attractive option for passengers, and highlights the need to consider the entire 'door-to-door' journey experience. This requires NS to co-operate, not only with the infrastructure manager, but also with regional operators and other modes. This has not always been the case in the past.
The third principle is "focusing on the management of both NS and Prorail to achieve common goals." Clearly infrastructure management and passenger operations are interdependent, so track and train will need to work together more effectively.
Development and performance are subject to incentives and NS will receive bonuses for good performance. Failure to meet performance targets will be met with fines of up to €6.5m, although against a turnover of around €2bn it is questionable whether this is a serious incentive. Nonetheless, if NS fails to meet its obligations, the ministry has the power to cancel the concession partially or in full.
There are also changes to the infrastructure concession. Experience from the first concession has resulted in tougher demands in the new agreement, with the aim of strengthening performance and reliability. For infrastructure management, cooperation with other stakeholders is essential, not only with NS, but also with regional operators and other modes of public transport. With regards to passenger operation, the Minister wants to give Prorail the same targets as NS to encourage closer working.
A key change in the new core network concession is the inclusion of domestic high-speed services on HSL South. This was previously a separate concession which was held by the High-Speed Alliance (HSA), a joint venture between NS and airline KLM. HSA won the contract pledging a €148m annual premium for the operation of domestic high-speed and cross-border services to Brussels.
However, problems with the fleet of AnsaldoBreda V250 trains led to the collapse of the Fyra service in January 2013 and HSA needed financial support from the government to protect it from bankruptcy. The European Commission is currently investigating whether this support constitutes illegal state aid.
This was a remarkable situation, not least because the concession was awarded following an open tender. It is also remarkable that NS as the parent company did not compensate for HSA's losses.
Integration of the high-speed concession means that domestic Intercity services will run via HSL South from the end of this year. However, as domestic high-speed rolling stock is not available, journey time savings will be limited. New ETCS-equipped locomotives have been delivered, and 30-year-old 160km/h coaching stock is receiving a second refurbishment for operation on HSL South. NS has begun tendering for its IC New Generation project, but these will not be delivered until 2020 at the earliest and will only be capable of 200km/h - hardly the most appropriate equipment for a 300km/h railway.
The size of the core network is not expected to change during the concession period, although the Zwolle - Kampen and Zwolle - Wierden - Enschede lines will become the responsibility of regional public transport authorities and subject to an open tender, which was decided before the core concession even began.
A more notable change is the decision to transfer operation of stopping services on two core network lines to regional control. Following an open tender, the province of Limburg has awarded Abellio (a subsidiary of NS) a contract to operate Roermond - Maastricht Randwijck and Sittard - Heerlen stopping services for 15 years from December 2016 as part of a larger regional concession, even though other services on these routes remain under NS control. This will be the first experiment with full-scale competition (albeit regulated) on the core network.
This is an indication that in the long-term fundamental changes might occur, competition could become more important and that NS might lose the monopoly status it currently enjoys. The design of the next core network concession will start with the mid-term review in 2019 and NS will need to maintain good performance before then if it is to retain its position in the longer-term.
A well-functioning concession needs both a good concessionaire and a granting authority with the knowledge and organisational capacity to ensure services meet the required standard. Control and an effective system of incentives and sanctions are essential for keeping the concessionaire sharp. In turn, the concessionaire can provide a basis for further development, innovation and improvements. The second concession period will demonstrate the importance of these qualities.