TODAY’S RAILWAYS EUROPE XXX22

by Nick FotisIn the beginning...In the first half of the 20th century most countries tended to nationalise the existing private railways, often because they were bankrupt; cases such as Austro-Hungarian company GySEV/Raaberbahn tended to be the exception that proves the rule. After World War II, European railways had to face the enormous task of rebuilding themselves. In the meantime, this mode of transport had to face new challenges, particularly the plane, the private car and the lorry, which gradually eroded rail’s modal share. Despite system-wide dieselisation and electrification, both private and state railways were losing money and market share at an alarming rate, this problem reaching crisis point in the 1980s.

An international problemThe situation was not limited to European railways. One well-known example was Japan National Railways (JNR), which had to rebuild its network essentially from scratch due to World War II damage, plus shoulder the large cost of its high speed Shinkansen network, plus a large workforce – the latter two were pushed more by political considerations than business criteria. JNR’s accumulated debt reached JPY 37.1 trillion in 1987 – the equivalent of s213 billion at the time, or s372 billion today. The Japanese solution was to break JNR in

1987 into six vertically-integrated passenger companies and a nationwide freight railway. The most profitable of these (JR East, JR Central, JR West) were fully privatised by 2006, and are publicly traded, while the others are still struggling. The JNR Settlement Corporation had to shoulder JPY 22.7 trillion of the debt, and the rest was distributed to the members of the JR Group. The larger JR Group companies have managed to reduce their part of the debt and raise traffic, while the JNR Settlement Corporation was dissolved in 1998 having been unable to pay back the debt, which had risen to more than JPY 30 trillion. Its debts were incorporated into the national government's general debt. Even privately-owned North American railways, while avoiding direct war damage, were starved of investment capital (needed for network maintenance and replacing steam with diesel and electric traction) while burdened with a complex set of regulations regarding pricing and closure of redundant lines. The most startling case was the collapse of Penn Central in 1970, the largest corporate bankruptcy in American history at the time. This triggered more railway bankruptcies, mostly in the northeastern states. In 1971, Congress was forced to create Amtrak as a government-owned passenger operator (while letting private railways to hand to

Amtrak their loss-making passenger trains and remove this burden, for a price) and in 1976 the government had to nationalise Penn Central and other railways, as Conrail, while relaxing railway and labour regulations. Conrail needed 15 years to catch up on deferred maintenance and under-investment before becoming profitable, while shedding large numbers of staff and redundant routes. The remaining private companies and the unions were forced to ask the federal government for more deregulation, which came in the form of the Staggers Act in 1980. This permitted rail carriers to establish any rate for a rail service unless there was no effective competition. Rail shippers and carriers could establish contracts without the need for regulatory approval. The industry-wide rate-making system was dismantled, and each company was free to compete as they wished. This deregulation led to both lower prices for shippers and railway industry profitability, as companies were able to rationalise their systems while improving productivity using more automation and reducing staff numbers. Prices were reduced by 55% per ton-mile from 1980 to 1995, productivity rose by 8% a year, the industry operating ratio (the percentage of costs in relation to revenue) fell from 93% to 86%, while income rose by 19%.

The first step towards privatisation was often the division of activities in order to clarify accounting. Whether this sort of situation makes it easier is not known – in France, BB 22212, the last of the class in service in Fret SNCF livery, but now allocated to the Infrastructure sector works Intercités passenger train 5963 Paris Bercy–Clermont Ferrand at Clémentel on 15 June 2012. Lionel Suty

DIRECTIVE 440:RAIL LIBERALISATION IN THE EU

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First steps in Europe

The Swedish experimentThe first steps towards liberalisation were made in 1988 in Sweden, when the parliament mandated the partial privatisation of the state railways, as the existing system was making clear cost accounting of the system impossible. Swedish State Railways (Statens Järnvägar) lost its network, transferred to the Swedish Rail Administration (Banverket) and only retained train operations and real estate. The Swedish experiment also allowed local authorities to tender local passenger train services. In 2001, SJ was broken up in turn into seven companies: SJ AB (passenger trains), Green Cargo (freight trains), Jernhusen (real estate), EuroMaint (train maintenance), Unigrid (information technology), TraffiCare (terminal services, such as train cleaning and shunting) and TrainTech Engineering. Currently, the f i rst three remain in government ownership, while on 1 April 2010 Banverket was merged with the Swedish Road Administration (Vägverket) in order to form the Swedish Transport Administration (Trafikverket). The separation in 1998 resulted in a surge in infrastructure investment, mostly borne by the taxpayer. The Swedish model, which is no longer an experiment, was very influential in the rest of Europe.

A different route in BritainThe British were the next, but took a very different route. Between 1923 and 1948, the UK’s many small railways were consolidated into the “Big Four” – the Great Western Railway (GWR), London, Midland and Scottish Railway (LMS), London and North Eastern Railway (LNER), and Southern Railway (SR). These were in turn nationalised as British Railways (BR) in 1948, which replaced all steam locos and closed many routes (based on the infamous “Beeching Report”) in the 1950s and 1960s. Gradually, the region-based system, which was still influencing operations after the “Big Four”, was replaced by business sectors including Railfreight and InterCity. Between 1993 and 1997, BR was privatised in an unusual and, according to many, a rather haphazard and unnecessarily complex way. When the Conservatives won the election in 1992, there were conflicting ideas on how to proceed with BR privatisation. Most argued for either a single entity or regional, vertically-integrated companies (as in Japan). The Treasury view (which in the end prevailed) called for the creation of seven, later 25, passenger railway franchises (Train Operating Companies or TOCs) as a way to maximise revenue. The Railways Act of 1993 established a complex structure for the system. BR was to be broken up into over 100 separate companies, with most relationships between them established by contracts, and some through regulatory mechanisms. The contracts often needed to be approved by the Office of Rail Regulation (ORR). In the

case of contracts between the passenger rail operators and the state these were called “franchises”. The TOCs would have virtually no own assets, since the rolling stock would be leased from ROSCOs (Rolling Stock Owning companies) which took over all BR passenger rolling stock. Six rail freight companies were also to be established, but in the end five (with the exception of Freightliner) were sold in 1996 a subsidiary of the American Wisconsin Central Railroad, which named the operation English, Welsh and Scottish Railway (EWS). The network was handed over to the Railtrack, a regulated private monopoly with conflicting targets: to raise shareholder value and to maximise income from the use of the rail network by the operators. This often meant cost-cutting measures, such as deferred maintenance, and outsourcing – rail engineering capabilities were broken into 13 companies and sold to the private sector. Initially, the company managed to improve train punctuality, obtain more investment and had a better train safety record. The fatal accidents in Southall (1997), Ladbroke Grove (1999) and Hatfield (2000) threw Railtrack into a vicious circle from which it never recovered. In 2002 Railtrack became “not for profit” Network Rail (NR), officially a private-sector entity, but with debts underwritten by the government, which also partially funds the company. NR still struggles with the complex UK rail system while it tries to bring back in-house necessary engineering skills and maintenance capacity.

German reunification, then divisionThe German case was more complex, as the country (and the state railway) was split in two after World War II, with West Germany having Deutsche Bahn (DB) and East Germany having Deutsche Reichsbahn (DR). With the German reunification of 1989–90, DB and DR’s existing problems were compounded. DR, and to a lesser extent DB, was suffering from chronic under-investment. For example, highways received DEM 450 billion of public money in the period 1960–92, while railways received DEM 56.25 billion. Politically, DB was in the middle of a power game between the federal states and the federal government, while legislation made contradictory demands. For example, article 87 of the Basic German Railway Law and Paragraph 28 demanded, at the same time, operation as a governmental organisation and full coverage of costs and as much net income as a private company. So, it was not surprising that DB’s passenger modal share fell from 60% in 1950 to 29% in 1990, while freight fell from 36% to 6% at the same time. Meanwhile, the accumulated debt of DEM 13.6 billion of 1970 had reached DEM 47 billion in 1990 and was forecast to reach DEM 80 billion in 1996. There were 16 attempts to remodel DB, but only for the 17th time were the pressures strong enough to force through real reform, as German reunification added more urgency. The railway reform (Bahnreform) law was submitted to the German parliament (Bundestag) on 17 February 1993, and the

final vote was 559 in favour, 12 against and four abstentions. On 1 January 1994, the incorporation of Deutsche Bahn AG (DB AG) was signed in Frankfurt, and four days later DB AG has entered the Berlin company registry, with the federal government of Germany as sole shareholder, with equity of DEM 4.2 billion. The reorganisation of two state railways into a privately-run company was a complex affair, measures taken including:• debt and delayed investment in DR network

to be government responsibility• government-mandated tasks (e.g. military

transport) to be paid for by the government• staff reductions• reorganisation into multiple subsidiaries. The main subsidiaries in the new DB were: DB Reise & Turistik (long-distance passenger trains, later renamed DB Fernverkehr), DB Regio (regional trains), DB Cargo (freight, later renamed Railion), DB Netz (infrastructure, signalling) and DB Station & Service (passenger stations). In addition, DB started to employ CEOs from the private sector and without rail experience... with mixed results. In mid 1999, the DB Group contained 199 companies, while they participated in 375 other companies. Holding company DB AG held a share in 80 of the 375 companies, while the rest were controlled by the five major subsidiaries. In December 2007, DB reorganised again, bringing all passenger services into the DB Bahn arm, logistics under DB Schenker and infrastructure and operations under DB Netze. There have been repeated attempts to privatise DB AG or DB Bahn, but so far these have been unsuccessful. DB Netz cannot be privatised without changing the law. Apart from these case studies, other European states followed (more or less) a more typical route of separating operations from infrastructure, while opening the network to other operators. The degrees of liberalisation vary, and the IBM Rail liberalisation index tracks progress on this front. Another approach is the concession system for 20–30 years, if the infrastructure is in a very bad state and the operator(s) have to invest substantial amounts of money in it. This model was followed in Latin America and Africa, to varying degrees of success. For example, in Argentina, three rail freight operators were unable to invest the agreed 1.2 billion Dollars as traffic fell and during the crisis of 1999 the state stopped paying the agreed subsidies to the commuter operator. In Brazil only 60% of government rail funding went to support the public rail transport system, the rest going to a specialised line serving a steel company. Two non-mining railways comprised more than 90% of Brazil’s rail network. The two non-mining railroads were divided into seven separate concessions, each for 30 years with the possibility of an extension for another 30 years. One company was used to hold old rail debts and to hold title to rail tracks and related facilities.

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by Roland Beier and Nick FotisOne of the subjects mentioned in Today’s Railways issue 1 was the EU and the rules which sometimes caused problems. We reported that Directive 91/440, whose effects would mean strict rules on the type and state of rolling stock allowed access to separated infrastructure and the imposition of modern signalling equipment. At the time, groups preserving locomotives and organising railtours were starting to worry about the effect on their activities. One of the main tasks of the European Union is the creation of a single market. Such a market requires good transport infrastructure in which railways need to play a vital role. In order to improve the use of railways the EU established a policy of liberalisation which was backed by various legislative initiatives. However, this alone was not enough to improve the European railway system. Renewed and additional infrastructure was required and there was need to harmonise the various national transport infrastructure improvement plans by designing a future European transport network.

EU legislation on railwaysIn the 1970s and 1980s most European railway companies were state-owned monopolies within their countries. So-called “private” railways existed as well in some countries but only used their own infrastructure, complementing the state-owned railway. The monopolies continued to lose market share to road transport as their employees were treated as civil servants and the railways lacked the flexibility to compete with road and air transport. As a result increasing sums of money were needed to subsidise the monopolies although rail market shares continued to shrink. This was the transport policy of many countries including the aim of increasing rail’s share of the transport sector. Although some countries spent heavily to improve rail infrastructure, railways continued to lose market share in most cases. In the 1990s the EU (or European Economic Community – EEC, later EC – as it was called at that time) decided to define a common railway policy. The basic idea was to raise the efficiency of the existing rail network by introducing competition from private and/or other national operators cross-border. This would be achieved by creating a single market in rail transport, thus raising competitivity both within rail itself and in respect of other transport modes. Lower costs, better safety and lower environmental impact would favour competitiveness whilst structural limitations and the old age of infrastructure as well as dissimilarity of operating conditions and

safety regulations in the different countries were regarded as obstacles. A major influence was the apparently successful Swedish experiment of 1988 with separation of train operations from infrastructure.

Directive 91/440The f irst step towards a new rai lway policy was Directive 91/440/EEC on the development of Community railways, which would restructure railway companies to the requirements of the single market. The Directive was based on four principles:• independence of railway companies from

the state• separation of infrastructure and train

operating, in order to clar i f y cost accounting. The Directive did not include the complete separation of management between operations and infrastructure, however.

• freeing railways from their burdens of debt• granting access to rail infrastructure to

train operating companies (“Railway Undertakings” or RUs in EU parlance) which would be able to run cross-border services.

The Directive was to be implemented from 1 January 1993 but in practice, liberalisation took place only in a few member states, amongst them Germany. In practice the provisions of Directive 91/440 were too vague and so liberalisation had to be driven forward by additional legislation. In 1995 Directive 95/18 was published, concerning the criteria for the issue, renewal or amendment of Operating Licences by

EU TRANSPORT POLICY

Member States to RUs established in the EC, thus opening the way for non-state-owned operators. These criteria include financial capacity, professional skill and appropriate insurance coverage of civil responsibility. In addition, Directive 95/19/EC covered the allocation of railway infrastructure capacity and the charging of infrastructure usage fees, paving the way for running trains in “open access” mode. Progressively, the EU introduced more Directives and clarified previous ones, with the goal of increasing competition on the rail network. These directives were grouped in the so-called “Railway Packages”.

First Railway PackageOn 15 March 2001 the EC introduced the First Railway Package by publishing Directives 2001/12/EC, 2001/13/EC and 2001/14/EC. The Directives enabled any RU licensed within the EC to have access on an equal basis to the Trans European Rail Freight Network, and subsequently to the national rail networks of Member States. The major points were:• a clear def in it ion of the relevant

responsibilities of industry participants, especially infrastructure managers (IMs) and RUs

• separation of RUs and capacity allocation bodies; there must be a separate allocation body if the IM is organisationally linked to a RU

• a requirement for the IM to publish a “Network Statement” setting out the capabilities of the network, usage fees,

Crossrail is one of the most successful private companies to emerge from the EU’s push to liberalise the railways. The company was founded as DLC in Belgium and later merged by former Regionalverkehr’s freight arm in Switzerland. Here Crossrail 185 591 and another loco of the same type haul a long and well-filled intermodal service towards Italy at Mattstetten in Switzerland on 15 June 2012. Mario Stefani

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conditions of use and capacity allocation rules

• separation of accounting for freight and passenger services

• separation of RUs from the entity issuing operating licences

• rights of access for all operators of international freight services from 2008, but with no provision for “cabotage”;

• provisions to declare infrastructure to be “congested”, resulting in a requirement to carry out capacity analyses and develop capacit y enhancement plans where economically viable

• provision for a common timetable change date on the second Sunday in December (included in a subsequent regulation).

This would lead to the step-by-step liberalisation of freight transport – in part by 2003 and in total by 2008. The First Railway Package had to be implemented by the old Member States from 15 March 2003 and in the new Member States from 1 May 2004. In fact implementation took place only to a certain degree in some Member States – many dragged their feet in order to protect their incumbent monopolies. Following lengthy discussions, the EU Commission finally started infringement procedures against some Member States on this issue which are still pending at the EU Court of Justice. Most of them concern the lack of independence of the path allocation body and/or of the rail regulator, as well as the insufficient separation of infrastructure and train operating companies within a holding structure.

Second Railway PackageIn 2004 the EC added the Second Railway Package (Directives 2004/49/EC, 2004/50/EC and 2004/51/EC). This covers unified safety standards for RUs, interoperability of rolling stock, creation of the European Railway Agency (ERA) in order to provide technical support for the development of cross-border interoperability, and total liberalisation of freight transport, including cabotage, by 2007 instead of 2008. The Package also introduced common procedures for accident investigation; this includes a requirement for the establishment of a Safety Authority in each Member State, conceived as an independent investigator on safety matters. This led to the present situation with Safety Certificates, which are issued by the safety authority. Safety Certificate part A covers the general internal safety management of each RU whilst part B covers safety management in line with operating rules for each IM. A RU wishing to operate in several countries has to apply for Part A in its home country and Part B in each country where it wants to run trains. Another result of the Second Railway Package was the introduction of European Vehicle Numbers (EVNs) and Vehicle Keeper Markings (VKMs) to harmonise numbering of rolling stock and the creation of national vehicle registers in each member

state plus a pan-European register managed by ERA. There is a complementary set of EU documents for:• a common format for safety certificates and application documents – Commission Regulation (EC) No 653/2007• a common safety method on risk evaluation and assessment – Commission Regulation (EC) No 352/2009• a common specification of the national vehicle register – Commission Decision 2007/756/EC of 9 November 2007 Also, Directive 2009/149/EC updated the Appendix I of Directive 2004/49/EC.

Third Railway PackageThe Third Railway Package was introduced in 2007 (Directives 2007/58/EC and 2007/59/EC, Regulations (EC) 1370/2007 and 1371/2007). It opened international passenger services to competition from 2010, introduced a European driving license, brought new rules for Public Service Obligation (PSO) contracts and introduced regulations on passenger’s rights and obligations. Regarding PSO contracts, tendering became obligatory, but with a transition period of 15 years. This has allowed national incumbents to “hold on” until 2024. New regulations on passenger rights require compensation payments in case of major delays as well as information and assistance to passengers affected by delays or cancellations. Regional, suburban and urban services are not covered by the regulation, but these can be included through national legislation of each Member State. The latest regulation (913/2010) deals with rail freight corridors. So far nine such corridors have been defined, each covering at least three member states. Along these

corridors, international freight trains should be offered pre-programmed paths, which have priority over other train services. The main idea is to cut border crossing times for international freight trains, increase the use of existing capacity and remove infrastructure bottlenecks. The co-operation of national rail regulators is also to be intensified. The first corridors will be operational in December 2013 with the rest to follow two years later. There are currently two more initiatives on railway-related legislation in the EU. The first is the recast of the First Railway Package. The various Directives will be merged into one Directive which also contains clarifications and adjustments of existing legislation. Amongst these is better access for RUs to rail-related services (such as fuelling points), independence of the rail regulators as well as more competence, plus separation of accounts between IMs and train RUs, and also between freight and passenger services. The recast is at present under discussion and will probably be approved by all relevant European institutions at the end of 2012. Another initiative is the so-called Fourth Railway Package, a draft of which should be published at the end of 2012. This should cover total liberalisation of rail passenger services (so far only international services are liberalised) as well as stricter rules on separation of IMs and train RUs. The latter issue will no doubt lead to discussions of holding structures and will also be affected by the results of the ongoing procedures at the EU Court of Justice on this issue.

A new passenger operator has come to the Czech Republic in the form of RegioJet. This is RJ loco 162 114 (delivered to Czech Railways, but then sold to FNM in Italy and recently repatriated) plus former ÖBB coaches forming train IC 1010 Havirov– Praha at Horany on 16 June 2012. Quintus Vosman

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Open access, franchises and (lack of) competition

FreightOne major difference between rail freight and passenger operators is the lack of subsidy to the former. The few subsidies going to freight are usually for infrastructure, or launching a new type of service and can be granted to any company. Freight services are provided on behalf of a customer, almost always a private one nowadays, as most formerly state-owned utilities have been privatised. As mentioned above, freight services were the first to be liberalised in Europe and are now completely open to competition, in principle. Some countries have “played the game” and made it easy to enter the market, despite the odd dispute. Germany, in particular, has seen the number of RUs reach about 300, although many are very small and offer limited services. Once the market opened up in Germany, traffic boomed, by about 60% in less than a decade. In contrast, in southern Europe, including France, governments have done everything they can to protect the incumbent, few competitors have started up, and rail’s traffic and market share are still falling. In most countries, long-distance passenger trains are not subsidised, but most regional and commuter passenger trains receive subsidy, usually from local authorities – otherwise ticket prices would be socially unacceptable and severe road congestion would result.

Long distance passenger In most countries, long distance passenger services have been retained as a single network, operated by the incumbent. This can lead to much haggling, many politicians believing that the incumbent should run non-commercial services... but usually not being willing to pay for them. DB caused a major fuss when it dropped its InterRegio services as they were loss-making. Some states (Länder) paid for partial replacements to be launched whilst Veolia and Arriva (now Netinera) launched their own services. But the latter did not bloom; they still operate but are very marginal. Private operators have been very slow to launch services in Germany. On 23 July, HKX should launch a Hamburg–Köln service – just three times a day. In contrast, there have been high-profile launches of private passenger trains in Austria (WESTBahn) and Italy (NTV), both of which are supported by SNCF, incidentally. In France, SNCF has pushed non-core services into the Intercités category and has managed to persuade the government to finance them – and not to open them to competition, despite French company Veolia offering to run some services at lower cost with better services. In the UK, all passenger trains, including long distance, are operated by “franchises” which are subject to competition every 10–20 years. In the case of long-distance services, some contracts see the winner paying the

government “dividends” but most are still subsidised. Most “franchises” contain a form of income protection which makes it harder for new companies to offer services over the same routes. In the UK, Heathrow Express is the only non-franchised “open access” operation. Wrexham & Shropshire (W&S) was a commercial failure, Hull Trains was bought by First Group and Grand Central Railway was bought up by Arriva, now part of DB. All of the latter three started to serve large towns which were ignored by the franchises. The main element in their failure was their inability to stop at intermediate stations towns already served by incumbents, and the launch of competing services by incumbents. Although most franchises run their course, and without major problems, some run into trouble. In the UK, several franchises have failed financially (mostly those which involve the gradual fall in subsidies then the payment of dividends) with the incumbent allowed to continue on a sort of “cost plus” basis. One company with several franchises complained recently that its margins would be squeezed from a comfortable 12% to 8%. The British taxpayer is now paying about five times more compared to the (supposedly inefficient) state railways, and that with much higher standard fares. However, the average age of rolling stock has fallen considerably in this period and the state of infrastructure has improved. In Italy, when Trenitalia was replaced (through lack of interest) by partners DB and ÖBB in the operation of EuroCity services, the bad loser tried every trick in the book to block the ECs – which were almost unchanged in nature. The incumbent booked train paths then did not use them, claimed

revenue abstraction from local services and stopped stations from selling tickets. All of these “dirty tricks” were eventually stopped, but only after two years. In this case, the competitors were well capitalised. But when Arenaways tried to set up services in Italy, severe restrictions imposed by the rail regulator at Trenitalia’s request put the company out of business. These are still no examples of long-term success in long-distance passenger operations. WESTBahn launched services in Austria in December 2011 and is suffering from the incumbent dropping fare levels. NTV started high speed services in Italy in spring this year. We have reported extensively on “dirty tricks” by the incumbent which controls both the competing passenger operator and the infrastructure manager.

Local passengerContracts to operate local or regional passenger services are often tightly-drawn, as services must fit into a network timetable, companies must charge “tariff union” fares and local authorities often also choose rolling stock (often new trains built locally). The major incumbents also do well from these services. The accounts of both DB and SNCF, nowadays broken down by “product group” show that city and regional passenger trains produce the biggest surpluses, whereas long distance passenger has tighter margins and freight is often close to break even or in the red. Details of margins are rarely revealed but an example occasionally arises. The Bayern region of Germany managed what must be a record for the reduction of passenger rail subsidies when a new contract for the München–Passau line (190 km) came up. The subsidy of €8.50 per train-km was cut to €0.75 per train-km. In 2003 there was no

High speed rail competition in Italy. A Trenitalia ETR.600 Frecciaargento tilting train set passes NTV Italo set 07 standing at Roma Tiburtina station on 20 April 2012. Mathias Rellstab

TODAY’S RAILWAYS EUROPE XXX 27

competition and DB Regio received a large contract for several routes. This time, there was a stiff competition for the contract... and DB Regio won again. As Danish State Railways’ adventures in Sweden have shown, it is possible for a company to bid too high a price for a franchise, and find oneself losing money. We reported in TR EU 199 that Keolis is having the same problem in the Netherlands (see News pages). Our investigations of this, however, revealed that Keolis’ margins on bus operations in Belgium are enormous. The other side of this coin is that incumbents, especially state-owned, can use their financial might to undermine new entrants with little capital. WESTBahn has accused ÖBB of price dumping. Another (hidden) case of this is Fret SNCF. The French incumbent has been making massive losses for at least a decade (totalling s2–3 billion) but is still in business. Clearly, the money is coming from somewhere and must rate as a subsidy. And despite another loss in 2011, SNCF’s competitors say they are being beaten to contracts by the incumbent offering “surprisingly low prices”. There is also the matter of access to terminal and service facilities – often refused or priced in a prohibitive way by incumbents. These facilities were often transferred to the incumbents, making impossible for new entrants to serve the market. Then there is the case of infrastructure manager DB Netz having a pricing structure which favoured large operators such as (surprise!) DB AG. Similar complaints were raised over the high energy electricity costs paid by private companies in Germany and the rebates applied for large amounts by operators such as (who else?) DB AG. Instead of reducing bureaucracy, there are multiple actors in each scene now: the incumbent RU, the IM and the new RUs, plus rail regulators and safety authorities, each with its own agenda. Paperwork has reached new heights, as the difficulties for loco approvals in multiple countries show, although EU authorities are trying to push countries into “mutual acceptance”.

Who are the new operators?The answer to this is anyone and everyone. A few examples are start-ups with private capital (DLC in Belgium, which became Crossrail), preservation groups branching out to serve local industry (TPCF Fret in France, now Regiorail), local authority railways going national (Wiener Lokalbahn in Austria), large companies wanting to control their own logistics (CFL cargo is part-owned by ArcelorMittal and rail4chem by BASF, Colas Rail in France), shipping lines (Maersk set up ERS in the Netherlands), and local mining networks going national (RAG in Germany). Private track maintenance companies with spare locos have often started with spot traffic then developed from there. The national incumbents have also taken over local companies and developed them, examples being VFLI in France (SNCF) and MEG in Germany (DB Schenker).

Only one really big multinational has joined the fray – Veolia of France. This company took over local German passenger operators in 1997, developed them and their freight activities, expanded into international freight operations as Veolia Cargo then decided top sell this “non-core activity” to Eurotunnel and SNCF in 2009. TR EU would also remind readers of the efforts by US railroad CSX to set up intermodal services in Europe together with NS Cargo and DB Cargo. The joint venture was announced in 1996 but quickly became ancient history. An unlikely pioneer in European open access freight was IKEA Rail, a subsidiary of the well-known blue-and-yellow furniture company. The company was founded in April 2001, with the aim of distributing the IKEA products in Europe. Its first train ran on 27 June 2002 using Class 66 diesels between Älmhult in Sweden and Duisburg in Germany (1044 km via three countries). The train ran 90% on time and averaged 70 km/h, with five journeys per week equaling 300 trucks. A major problem was the lack of return loads so, since 2004, IKEA has been served by other operators. Since the start of 2007 freight train operators have run in “open access” mode Europe-wide, but they are exposed to intense competition, not only from trucks and ships but other operators, without having the secure income of a franchise. The resulting thin margins mean that very few private RUs make enough income to renew assets, so these become easy prey to state-owned companies with deep pockets – and the silence of antitrust authorities is deafening. Examples include SNCF buying the non-French operations of Veolia Cargo

(which itself had bought rail4chem) and ITL; Trenitalia buying TX Logistik; and of course Deutsche Bahn buying EWS in the UK, DSB Gods (Denmark), NS Cargo (Netherlands), Strade Ferrate del Mediterraneo and Nordcargo (60%) in Italy, BLS Cargo (45%), METRANS (CZ 35%), PCC Rail (Poland), TRANSFESA (Spain, 55%) and so on.

Success, failure, and the law of unintended consequencesBoth the regional vertically-integrated monopolies (like JR Group companies) and the vertically-separated franchise model have shown positive results. A larger number of passengers travel by train, and major investment in the network have been undertaken by regional government – in the European model, regional government is forced to pay for its part, as the train operators externalise as many costs as possible. In addition, many new operators have entered the railway scene – no less than 315 RUs involved in freight existed in Germany in 2000. Not all companies will survive for very long, and market consolidation has started, leaving only the best-capitalised private companies and state railways still standing. A major problem with the franchise model is when passengers want to make transfers from one operator to another, with a complex ticketing regime which is not user-friendly, as the UK case has shown. In addition, the cost to the taxpayer has not been reduced – as promised by the supporters of privatisation. Passengers even have to pay higher fares. As the Just the ticket column in the sister magazine TR UK shows, the situation is becoming a bargain hunt instead of a stress-

Where do new operators come from? Rurtalbahn was formerly known as Dürener Kreisbahn, a small company running local passenger lines from Düren, between Aachen and Köln in Germany. The company started with local freight and is now operating across Europe. Rurtalbahn Cargo 185.684 (leased from Railpool) is seen at Komárom with the first freight train operated by the company from Budapest towards Austria on 17 April 2012. Ferenc Németh

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free trip. It is not certain how the incumbents will respond to the changing market, where the trend according to observers is to “privatise profits, socialise losses”. Italian Railways CEO Mario Moretti recently declared that Trenitalia runs about 400 long-distance trains daily, including the high-speed services at its own risk. Of these, around 100 operate at a loss because they run on routes with low population density. Today these losses are cross-subsidised by profits from the high-speed services. If competitors only operate on the profitable routes, they reduce Trenitalia’s ability to make up these losses. The consequence could be abandonment of loss-making routes. Indeed, in France SNCF is now clearly showing government its responsibility by making it clear which passenger routes lose money. Some have been transferred to regional responsibility while others are to be subsidised from a new tax on profitable routes – including private services. For now SNCF has been handed operation of these services but Veolia is pressing to take some over by showing government how savings can be made. In freight, former state railways are throwing away the least profitable segments (wagonload traffic, short trains) and focused as much as possible to unit trains. Few private freight operators are able to provide low-volume services, as these are staff-intensive or irregular. And bureaucracy (when an operator wishes to serve a customer, it must arrange train paths with the IM) means that short-term traffic is problematic to serve. In some cases, these developments have made the rail system less attractive for customers, which vote with their purses for trucks and their flexibility, despite the cost.

Interoperability – still a problemA major problem for rail operators is interoperability... or rather the lack of it. Despite the train builders’ efforts to create international locos (see below), the various national rail authorities are repeating the authorisation process for each country. This has forced manufacturers to go to the great expense of building multiple prototypes (e.g. the Vectron nine locos fleet) and run the process in parallel in multiple countries. At a UNIFE meeting on 14 June, it was said that it took an average of 600 days to get new vehicles approved. The head of Siemens Rail Systems department Dr Hans-Joerg Grundmann said equipment valued at €1.4 billion was currently awaiting acceptance in Germany alone, incurring capital servicing costs of around €100 million a year. The multiple signalling systems in the EU are another serious problem, and ETCS/ERTMS have added more complexity instead of simplifying things. The European Rail Agency (ERA) is trying to play a major role here, moving all the EU testing and authorisation tasks under one roof – similar to the FRA in the US. The problem is that national governments all seem to want their “own” version of ERTMS, which will be

incompatible with other versions A large number of TSIs (Technical Specifications for Interoperability) have already been published (more than 12 000 on the ERA website) and these are expected to be complete by 2013. However, there are still differences of interpretation between national authorities. Another problem slowly being tackled is of international train paths. If a RU wanted to run a train through multiple countries, it had to contact each national IM and suffer a complex bureaucratic process. RailNetEurope (RNE) was created in order to harmonise this process and operate as a “one stop shop”, plus streamline other parts (standardised Network Statements, real time exchange of train delay information, etc.).

First Package recastOn 31 May, the European Parliament’s Committee on Transport and Tourism (TRAN) held its second reading vote on the Commission proposal to recast the first railway package. Strengthening of the national regulatory bodies has been confirmed. The duration of pluri-annual contracts between governments and IMs has been set at five years and clear principles for the calculation of track access charges have been outlined. Another part deals with the rail financing and ETCS-differentiated charging – levying lower access charges on RUs using ETCS to encourage its use and offset the cost of installation in trains. The complete unbundling of the IM from RUs is expected to become law. Negotiations among EU institutions are taking place and the agreement to be reached during these talks is likely to be put to a vote in a plenary session while you are reading this article.

CASE STUDYby David HaydockIn TR EU 126 (June 2006) we reported how EWS was about to enter the French rail freight market. The company Carrières du Boulonnais (CB), a family firm with the biggest limestone quarry in France (500 hectares) at Ferques between Calais and Boulogne, called a press conference to explain its decision to contract EWS subsidiary Euro Cargo Rail (ECR) instead of Fret SNCF – at the time a controversial decision. CB’s owners explained that they wanted to move more stone by rail, particularly to the Paris region, but that Fret SNCF said that this was not possible. In addition, the Poulain family were somewhat fed up with SNCF’s service – 20% of CB’s requests to run trains were turned down by SNCF and CB told the press that it was never sure whether the four sets of wagons it needed each day would all turn up. So EWS stepped in. After operating a first test train in December 2005 and a second in January 2006, the company started regular trains in March 2006, initially with a pair of Vossloh G1206 diesels – at the time Class 66 had not been approved in France. The initial ECR service was three trains a week and in the first year or two ECR had problems expanding because the company was told by wagon lessors in France (subsidiaries of SNCF) that no bogie hopper wagons were available. In the end EWS ordered 150 wagons, to form seven rakes, from Arbel Fauvet Rail in Douai. All this is now behind the company, which has since been taken over by DB Schenker. ECR now operates all of CB’s trains and the number of trains has risen from around 20 to 30 per week. The growth has all come from the extra trains CB wanted to launch to the Paris region for the building industry. The company still dispatches two trains a day for steel maker ArcelorMittal in Dunkerque (the 13 2600 tonne trains a week has recently fallen to ten due to economic conditions), but the number of trains carrying aggregates has grown from two to five on a typical day. These operate to nearby Picardie (Amiens, Grandvilliers), the Rouen area (Abancourt, Serqueux, Gravenchon, Gaillon-Aubevoye, Pont de l’Arche, Elbeuf Saint Aubin), and the Île-de-France (greater Paris) region (Batignolles, Creil, Limay, Valenton, Mitry, Longueuil Sainte Marie). SNCF subsidiary VFLI’s brief incursion on some services has now ended, but the company still trips rakes of covered hoppers carrying quicklime from another nearby quarry to Caffiers, where they are attached to one of the ECR Dunkerque trains. ECR’s reputation clearly went before it as the company has now won all of Fret SNCF’s traffic from the adjacent Carrière de la Vallée Heureuse, which is served from Marquise-Rinxent station and serves several Lafarge plants in Île-de-France. The upshot of all this is that in just over five years, ECR has elbowed Fret SNCF out of the area – completely. CB is ECR’s second

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Liberalisation and the locomotive market

Class 66: off to the racesDiesel locos have been popular with open access freight operators which need reliable, inexpensive, go-anywhere locos which have to operate over non-electrified stretches of track and do not want to buy two locomotives where one will do. They were also necessary due to the initial lack of electric locos which could run on the various voltages in European countries. The EMD JT42CWR “Class 66” with 2385 kW and 129 tonnes on six axles proved a major hit with continental Europe operators after they proved their excellent reliability and pulling power in the UK with EWS after the giant order for 250 locos. The drivers were unhappy with the noise and lack of comfort in the cab, however, and the locomotive lacks rheostatic braking. More than 650 of the type were sold up to 2009, making it difficult for

biggest customer (GEFCO is the biggest) with 2.1 million tonnes a year. More details of how ECR did this, plus photos and a map were included in TR EU 160 in April 2009. And what does CB think of the service it is now receiving from ECR? Owner Gilles Poulain told Today’s Railways Europe that trains are now reliable, costs are lower, and the company has been able to transfer traffic to rail as it had hoped – the company now generates 15% of the French aggregates carried by rail. Can any more of the 6 million tonnes produced at Ferques be transferred to rail? 4.7 million tonnes still go by road, mostly over short distances. Certainly, traffic will increase in the near future as CB increases the frequency of trains to Limay, west of Paris, where the company has invested in a new terminal. A test run to Béthune, not much more than 100 km from Ferques, was carried out recently and was successful. However, the branch into the canal port, which CB wishes to serve, is in poor condition and the local Chamber of Commerce does not have plans to upgrade it in the near future. Another source of traffic, lost to rail in the past decade, might be seasonal traffic to the numerous sugar refineries in northern France – but the owners will need to be persuaded to return to rail, having been put off by SNCF. CB and ECR are certainly confident of the future. Together with wagon lessor NACCO, the two companies have recently invested in a further 144 new bogie hopper wagons (seven more rakes) for aggregates traffic and a further eight rakes are on order. The new wagons were built by Greenbrier in Poland and have two compartments instead of three in the classic wagons used for aggregates traffic in France. Not only does this design reduce the number of moving parts and therefore maintenance costs, it is also quicker to unload and carries a little more – 69.5 tonnes compared with 67 – in a slightly shorter length. CB is financing 44 of the new wagons as well as renewal of the 4 km branch from Caffiers station to the quarry which was built in 1974. Most of the finance for track renewal will come from infrastructure manager RFF, however. The new order will allow ECR to escape from hire contracts with SNCF subsidiary SGW, all of the new wagons being with NACCO. ECR also intends to become independent in wagon maintenance by adding a new building to its Alizay depot near Rouen. The company stresses that 90% of all wagon maintenance is already carried out by the company, on site by a “man in a van”. DB Schenker commanded 16% of the French rail freight market in 2011, and aims to reach 20% by the end of this year.

Top right: Euro Cargo Rail loco 77024 heads a train of the new hoppers down the branch from the CB quarry at Ferques to Caffiers on 27 June 2012.

Above right: One of the new hopper wagons built by Greenbrier in Poland. David Haydock (2)

other builders to enter the market in the UK and continental Europe. The other US company dominant in diesel locomotives is General Electric, which did not succeed with its “Blue Tiger” built in cooperation with ADtranz. The company is now setting its store on an order from UK-based Freightliner for the 2848 kW Class 70, and intended to follow it with an EU version, but the loco is still suffering severe teething troubles. Unsurprisingly, nobody is yet interested in buying the loco in continental Europe except TCDD, but then a Turkish company is helping built the loco... Many private operators initially opted for the robust Ukrainian-built Class 232 “Ludmilla” 2200 kW Co-Co locos which were available from eastern Europe and had “grandfather rights” for running over German tracks due to their extensive use in East Germany. Strangely, diesels from the major builders of electric locos (Siemens, Alstom, Bombardier) are not very popular with freight open access

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operators. Some reasons cited are high prices, inadequate horsepower and tractive effort, plus unimpressive reliability. A major player in this market is Vossloh, which moved from the diesel-hydraulic G2000BB 2240 kW four-axle to the six-axle diesel-electric Euro 4000 platform, which could provide better tractive effort and an EMD 16-cylinder 3178 kW prime mover. Vossloh went this direction after the acquisition of Macosa in Spain from Alstom and abandoned the development of a heavy diesel-hydraulic six-axle locomotive with Voith Turbo components. The latter decided to develop its own heavy diesel loco, and thus Voith Maxima 40CC was born. The Maxima 40CC has suffered poor sales so far. It is a little surprising to find so many large diesels on the market with emergence of multi-system electric locos, plus the continued bridging of electrification gaps such as Aachen (Germany)–Montzen (Belgium). Both EMD and GE have declared an interest in making continental Europe versions of the Class 66 (Class 66EU) and of the Class 70.

Standardisation comes to EuropeHistorically, loco orders came from state railways, and were custom-built according to their specifications. SNCF, for example, had a bureau which would design trains then contract companies to build them. The holy grail of loco builders from the 1970s was the “universal locomotive” which could haul passenger trains in the day and freight trains at night. The use of AC traction motors and advanced electronics resulted in the creation of true universal locos such as DB Class 120 and culminated in the Siemens Eurosprinter Class 1016 “Taurus” for Austrian Railways (ÖBB). There were drawbacks, though, especially with the cost – even when ordered in the hundreds, as in Austria. And when another customer wanted more locos, the manufacturers had to make yet another customised version. Even Siemens had to create a freight-oriented model, in the form of the ES64F variants. In reality, there was also a practical problem with this, as passenger locos had different origins and destinations from freight, and it was not always feasible to run light between passenger and freight depots. Management reorganisations in some countries, then the liberalisation of EU railways meant a break-up of ex-state railways into separate divisions (in general long distance passenger, commuter and freight), negating the need for a universal locomotive and the economies of scale possible. Freight operators, in particular, wanted a cheaper loco and in France the Alstom Prima was the result. So, the manufacturers moved to the “modular platform” concept, with a focus on keeping the cost down. When DB created its freight division after German reunification (DB Cargo), the company ordered the Class 145 (derived from AEG 12X prototype) with axle-hung motors adequate for the lower speeds of freight trains, and thus cheaper than a universal

Skandinaviska Jernbanor is a private company operating passenger trains in Sweden formed of “classic” coaches. It is reportedly not doing too well. The loco, 185 707, is a standard Bombardier TRAXX AC 15/25 kV AC which, with the right signalling, can operate in all countries from Sweden, Norway and Denmark through Germany to Austria, Switzerland and Hungary. The loco is owned by Railpool and is seen at Virsbo, Sweden on hire to SJ with the “Blue Train” forming SJK Railtour from Stockholm to Falun-C on 26 May 2012. Iain Scotchman

loco. This lower-cost approach gained many buyers, with AEG/ADtranz (later Bombardier) using a logistics-based approach for series production of the TRAXX loco family (descended from Class 145) to reducing costs through standardisation. Siemens has now followed the Bombardier lead with the unification of its disparate lines (Eurosprinter, Eurorunner, etc.) into the Vectron platform, which includes electric and diesel variants, while Alstom followed suit with the PRIMA II platform. One minus for freight haulers is the move to four-axle locos, which cannot provide the tractive effort of a six-axle loco. Supposedly, the advanced traction control can provide equivalent tractive effort, but in practice heavy trains require two electric locomotives – raising sales is a nice side benefit for the manufacturers.

From state- to leasing company-ownedInstead of private investors risking capital in creating new train operating companies, most financial institutions (banks, venture capitalists, etc.) focused on the leasing of locos and rolling stock. This is the same business model as one during the Gold Rush: you sell or rent spades and tools to prospectors, and if they default you resell them to the next customer. The first leasing companies were the ROSCOs in the UK, which took the least risky parts of British Rail. In continental Europe, Siemens Dispolok came into being as train builder Siemens found itself with locomotives such as the ME26 diesels returned by the original buyers; Siemens could avoid a total

loss by fettling, then leasing, the locos. This venture expanded, and Dispolok was eventually bought in 2006 by Mitsui Rail Capital Europe (MRCE), a banking branch of the Mitsui empire. Similarly, companies such as Beacon Rail and Alpha Trains are owned by banking institutions. The leasing companies push for the standardisation of locomotives, as they retain more of their residual value after each lease – with only a repaint or vinyls, they are ready for the next customer. In rare cases these may need a change to signalling equipment, which is available from the manufacturer.