THE steady liberalisation of Europe’s passenger operating market is altering the fabric of the continent’s regional railways, including how new rolling stock is financed.

Two dominant financing models have emerged. Under the first, new rolling stock-owning companies established and owned by regional governments lease fleets to operators for use for the duration of the contract. These state-owned entities are able to access favourable financial rates for procuring rolling stock, offering the same leasing charges to prospective operators, providing a level playing field between state-owned operators and new entrants.

This model has been adopted in Sweden and several parts of Germany, while France also looks likely to go this way.

However, critics question whether government entities should be involved in the business of owning and leasing rolling stock, which adds significantly more complexity to the activities of a public transport authority (PTA). There are also fears over the state’s exposure to the falling value of diesel-powered assets, which are being superseded by battery and hydrogen-powered fleets in many areas.

Under the second model an operator is responsible for procuring and maintaining the trains, which are subsequently sold to a special purpose vehicle owned by a lessor, which leases the train back to the operator for the duration of their contract, typically seven to 15 years. This is significantly less than the 30-year plus lifespan of the asset, with the leasing company free to supply the trains to other operators. In some cases, the state guarantees the financing, reducing rates.

Britain with its Rosco model and some other areas of Germany have adopted some version of this structure. While it is relatively straightforward for the PTA, which simply tenders the operations contract, the numerous contracts between the different parties mean that the structure is complex.

“As an industry we should be growing in the next three-and-a-half years, it’s the right place to be.”

Christoph Pasternak, Eurofima CEO

State guarantees for the financing of new equipment under both models is encouraging private financial institutions to finance rolling stock. Among them is Eurofima.

Based in Basle, Switzerland, Eurofima was founded in 1956 under a treaty signed by 14 European states. As a non-profit entity, it supports state-owned railways to finance the renewal and modernisation of railway equipment used for Public Service Obligation (PSO) contracts, passing on to its customers the favourable interest rates it is able to receive due to its strong AA rating.

These railways are shareholders in Eurofima, with the current 26 shareholders from 25 states holding varying interests, ranging from German Rail (DB) and French National Railways (SNCF) with a 22.6% stake each to Norwegian operator Vy and Danish State Railways (DSB) with 0.02%. The Eurofima board comprises 12 shareholders, each holding 2% and above.

Eurofima works from an approved list of rolling stock suppliers and has financed assets worth €90bn. Yet with new operators entering the market, it recognises the need to move with the times. “We were forced to amend our business model,” explains its CEO, Mr Christoph Pasternak.

“What is restraining us is this membership model. Unlike the European Investment Bank (EIB), commercial banks, or other financial institutions, which simply give a loan, we need this shareholder model. That’s something we cannot change. However, once you’re in, securing additional funding is an easy task.”

Target markets

Pasternak reveals that Eurofima is now actively courting regional and national public transport authorities to become members, especially in Germany, France and Britain.

He says discussions have been held with a PTA in Germany along with Transport Scotland and Britain’s Department for Transport (DfT) as it considers the new concession model for passenger operating contracts. Pasternak says Great British Railways or Transport Scotland could join Eurofima as shareholders. However, this requires Britain to sign the Eurofima convention - the founding treaty - which he says the government is considering.

Elsewhere, he reports that Eurofima has made a proposal to Czech private operator RegioJet, which has secured several PSO contracts in the Czech Republic. “If the Ministry of Finance is guaranteeing RegioJet, we are ready to finance them,” Pasternak says. Offers have also been made to other players in Central Europe and in the Baltic States.

Pasternak is especially encouraged by the situation in France where he believes Eurofima could play a central role in the future. He is also looking at how Eurofima might extend its remit to finance LRVs and metro trains for city and regional PTAs.

Eurofima’s primary competitor is EIB, which with an AAA rating can offer cheaper finance. Unlike Eurofima, it also does not require applicants to pay equity. Yet whereas EIB can only meet 50% of a specific obligation, Eurofima is able to finance up to 100% of a project. It can also provide loans within a few days of application. Ultimately, the level of support is dependent on the equity paid.

“If you have a lower rating, then there is a higher risk, so the rate is a little higher but for most markets like France, Germany or Britain, around 4% of the financing amount has to be paid in equity,” Pasternak says. “You usually get a return on this equity of 1-2%.”

Eurofima’s position may also be strengthened by current financial market conditions. Pasternak reports that some players are leaving the rolling stock finance market due to low returns compared with the higher interest rates now available in the general market.

However, he does not expect a reduction of financing options to hold back liberalisation in the future, stating that he sees real momentum across Europe.

“As an industry we should be growing in the next three-and-a-half years,” Pasternak says. “It’s the right place to be.”