Separate company, administration or integrated subsidiary: what is the right formula for the railway infrastructure?

15/08/2021 – By Frédéric de Kemmeter – Railway signalling and freelance copywriter – Suscribe my blog
(Version en français)
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After 30 years of European legislation, the railways still do not seem to have found the magic governance formula. One thing is certain: the old hyper-integrated system has amply demonstrated that it is not capable of stemming the hemorrhaging of traffic nor to reduce the burden on public finances. So what should we choose? This is what we explain here.

The technical nature of the railway requires specific skills and an understanding of the railway world that is lacking in the civil service. This is due to the closed-circuit culture that has shaped the railway for decades, where an experienced railway body was shaped that no one else ‘from outside’ was capable of contradicting or challenging. A situation of rent that suited some: knowledge is power…

However, this created problems in the 2000s within the state apparatus of all the Member States, when a national regulator and a safety body were needed. There was no alternative but to turn to internally experimented railway staff, which may have created tensions.

However, the clever ones have been able to find the silver lining. We all know former railway workers who have suddenly become consultants or have created their own railway company (workshop, rolling stock rental, etc.). Expertise has thus been able to move outside the perimeter of the state companies and spread to a more open world.

Nowadays, administrations have relatively experienced railway units. This is an absolute necessity, especially when it comes to examining tenders from candidates for the public rail service within the regions. It is clear that the power given to the regulator determines how well railway policy is implemented. The regulator must therefore be staffed with highly competent personnel to analyse the sector and settle disputes.

The importance of expertise within the state also becomes crucial with regard to railway governance. The political Europe is a multiple Europe and the following examples show us that we need to pay close attention to what is done with our railways.

Diversified governance formulas
The current debates in Germany on the idea of taking the infrastructure out of the Deutsche Bahn group have brought back the question of whether to make it a company or an administration. Similar questions are stirring up politics in the Netherlands and Britain. The choice of one or the other formula is conditioned by the robustness of the legislative corpus of each Member State, a corpus which determines – on the basis of experience – the relevance or not of the chosen formula. But we have the opportunity to compare, because three models exist in Europe.

The choice of an infrastructure manager as a 100% State-owned company was made by small countries such as Belgium, the Netherlands and Denmark, but also by larger countries such as the Czech Republic and Spain. An obvious advantage is that the State knows exactly what the infrastructure needs are. A disadvantage is that a second structure is created which could be tempted to defend its own interests.

The large networks, such as SNCF, DB and Trenitalia, have an architecture similar to a holding company that integrates the management of the infrastructure. Experience, especially in Germany, has shown that this formula has not accelerated the modernisation of the rail network. Although this formula responds to the complexity of rail operations, integration has never played a role in punctuality results or in the quality of traffic and stations. Integration, even in the case of subsidiary formation, shows very little sign of transversality. Each sector lives its own life within the holding company, as all have their own objectives.

The integrated structure also gives railway workers the feeling that the infrastructure is ‘their thing’ and that an alternative operator is an ‘enemy’. It causes problems in the use of essential facilities. You don’t find that kind of mentality in an airport or on the roads…

Sweden made a different choice in 2010: integration of Banverket into a large transport administration, which mixes roads, rail and airports. Jens Holm, member of Left Party in Sweden explains that ‘when Trafikverket was formed, the Road Administration effectively took over responsibility for the Swedish railways, the experts from Banverket were overtaken or ostracised and the managers at Vägverket took control of the whole administration. For several years, Trafikverket lacked knowledge of how to build and maintain railways.

The Swedish example shows us that the lobbying in favour of road or air transport is intense within this kind of administration, and rail – as well as waterways – are at best considered as « transport annexes ». Throughout Europe there is a persistent belief that a minister alone can change this: this is not the case. Politics is all about compromises between parties and ‘balances’ between parliamentary groups. And so far, we have not found any politician who is prepared to let the roads rot in favour of rail…

The transformation of the Dutch Pro Rail into an administration close to the ministry is different. Planned in principle for July 2022, this administration would be exclusively for rail. This conversion will cost the Dutch government, which initiated the project, several million euros per year. The old system of funds by allocated pots (roads, rail, waterways) will disappear in favour of a common « Mobility » fund. There is a great fear that the road will be served first, which brings us back to the Swedish problem. What elected official can give a guarantee of funding when he knows that at the end of his term he will no longer be there?

In the UK, the new Public Body, Great British Railways, will run and plan the rail network, own the infrastructure and receive the revenue. The plan is to bring the railway sector under single leadership with a new brand and identity with a remit to focus on value for passengers, setting clear accountabilities and strategic direction for the next 30 years. The train service continues to be operated by private operators, under contracts. There is no guarantee that this formula will be accompanied by sufficient financial funds. There is a great fear that fewer trains and less work will be contracted to comply with public finances. Who wins in such a context?

Finally, the question to be asked is what one or the other formula can bring. A railway administration that is too close to the government will be very dependent on the functioning of the state and his particracy. There is a risk of having to constantly juggle through political jousting and of forgetting the essential: managing a railway infrastructure. The risk that some politicians support one region over another, one candidacy over another. The risk is that nothing will change in the distribution of public money. Rail concerns 6 to 15% of a country’s voters, while roads and cycle paths concern 100% of citizens, including those who take the train. The political choice is therefore quickly made…

A separate company, even if it is 100% state-owned, is not guaranteed to obtain all its financial needs. She spends a lot of energy demonstrating the proper use of public money. A company integrated into a historical railway holding company does not offer the guarantee of providing train paths or the same punctuality to all operators. The government does not have the power to decide which trains have priority over others. It is the independent regulator who can decide this.

The solution can therefore be found in a clear body of law. Starting with the development of a long-term civil works an maintenance programme. This presupposes the arrival of sufficient financial funds, without having to stop work in October because the coffers are already empty. This means that infrastructure manager must be kept away from any form of interventionism. The politician sets the framework and distributes the needs so that no one is forgotten. The infrastructure manager takes care of the implementation details as he sees fit and looks for a thousand and one solutions to make things cheaper.

The central idea is that the rail network and traffic management should be operated for all operators without discrimination. It does not matter what governance formula is chosen.