Sweden, 30 years of railway liberalisation

In 1988, rail infrastructure was vertically and institutionally separated from train operations in Sweden. It was the first country in Europe to begin a separation process between the infrastructure and the national railway incumbent. This major reform became the starting point for a step-by-step liberalisation of the sector, with far-reaching implications for organisation and ownership.

30 years have passed since 1988, and some lessons can be drawn from this transformation, keeping in mind that this liberalization was done with the political culture of Sweden, which was not necessarily that of Europe nor other European countries.

Sweden has 11,900 km of electrified lines at 80% but only 30% of which are double-track, which impacts the capacity of rail traffic. Sweden has long been ahead of the curve in the liberalisation of its railways : in 1963, the Transport Policy Act separated Swedish State Railways (SJ) activities into commercial and subsidised segments.

The Transport Policy Act 1988 separated the infrastructure from the operations. Banverket, a new state authority, became fully responsible of infrastructure investments and maintenance, while the incumbent Statens Järnvägar (SJ) was transformed into a train operating company, paying track access charges based upon marginal costs for maintenance. Rail traffic is supervised today by the Swedish Transport Administration Trafikverket, a government agency.

As everywhere in Europe, it was necessary to distinguish between three types of rail operators: long-distance traffic, regional traffic and goods traffic. These sectors, formerly grouped in a single public company (mainly to unify the social conditions), do not have today the same rhythms nor the same conditions of exploitation, nor the same needs of financing. Each sector must therefore have its own management method to provide the best service to citizens.

Sweden is divided into 21 counties. It is not a federal country as in Germany or confederal as in Switzerland. Each county has their own taxation power and has a regional central government authority, the county administrative board. Some other government agencies also operate at regional and local level. For regional trains (within a county or up to about 100 km distance), CPTAs (County Public Transport Authorities) extended his responsibilities to unprofitable regional railway services. The counties will buy traffic, signing a contract with an operator. Most regional passenger services (and some long distance) depend on subsidies and are procured by means of competitive tendering. The operator is often SJ, but sometimes another operator, either Swedish or from one of the other EU countries, provides the service. For these regional trains the county transport authority sells tickets. Example with this screeshot of a County :

Freight services and commercial passenger services are subject to open access competition. For these services, train operating companies have their own rolling stock. Sweden is one of the few countries where the railway incumbent SJ faces full competition in all three business segments: regional, long distance and freight. By 2023, all European countries should be in the same situation…

Institutionals developments

The Transport Policy Act 2000 modified SJ’s organizational structure from a single-business administration to several state-owned companies concentrating on specified parts of the railways business: SJ (passenger division), Green Cargo (freight division), Jernhusen (Real State division), EuroMaint and SweMaint (maintenance division), TraffiCare (cleaning services) and Unigrid (computer information system division). In 2001, ownership of many stations, terminals and most of the buildings used for rolling stock maintenance were placed with Jernhusen. Working as a commercial corporation, this is the government’s caretaker of railway real estate. It provides leasing contracts in passenger terminals also for office purposes, restaurants, shops, and so on. In this, the State competes with providers of real estate in major cities.

The reforms in the following years focused on modernizing laws and regulations to achieve a regulatory framework in accordance with European Union directives. In 2010, domestic passenger railway services were fully liberalised and SJ rights were removed. Banverket was merged with his corresponding road administration Vägverket to form Trafikverket, in order to improve infrastructure management.

There is a lot to do to maintain the small lines. As everywhere in Europe, railways abandon the infrastructure but they run the best modern trains… Example with the Krosatagen railway and his pretty station – a little neglected – Oskarshamn (28 March 2014, photo Olof Lagerkvist via wikipedia)

In 2012 a new Public Transport Act came into force. New regional public transport authorities (RPTAs) were formed to be responsible for developing the public transport system in each region and coordinate it with other forms of social planning.

The current framework

Sweden today has a system with relatively small ministries which have a number of agencies with expert knowledge. The agencies help the government to exercise its political decisions.

  • The national authority Trafikverket owns and maintains the state’s railway infrastructure (80% of railway line km). Regional authorities own two lines in Stockholm and several fringe lines are owned by factories and municipalities.
  • Many railway stations are owned and maintained by Trafikverket. Many local and regional are owned and maintained by regional authorities. Jerhunsen (state-owned Real state company) owns station buildings.
  • EuroMaint and SweMaint provide maintenance services.
  • Train Traffic Control unit within Trafikverket monitors all train movement on the Swedish railway network.
  • The Swedish Transport Agency is the regulatory body responsible for regulations, permits, safety issues and related supervision of the other market actors.
  • The state-owned Green Cargo is the largest freight operator, with a market share of roughly 70%.
Extract from ASTOC / Björn Westerberg – The liberalized railway

The Swedish institutional landscape shows that, except the freight sector, the public authorities are heavily involved in the railway sector, even if the hiring conditions are no longer those of an integrated state enterprise, which does not mean privatization, as it try to make us believe too often. Some long distance links are still public service. The allocation of rail skills to counties may be reminiscent of what is done in the Dutch provinces, the German Länder or in other parts of Europe. This differs greatly from what is done in Britain.

The effects of liberalization

In the 1980s, despite their prerogatives in the public transport sector, the counties did not pay much attention to rail transport, and many lines were closed. But a real renaissance emerged in the 1990s, when some closed lines were reopened and new framework conditions were established to acquire new rolling stock.

The former Banverket company had doubled and even tripled its investments in infrastructure, while SJ benefited from a significant reduction in its financial burden. The separation of the infrastructure also showed to the public and the politicians the real cost of the railway: their responsibility was now exposed, which was not possible at the time when the subsidies were diluted in one public group.

The table below shows a decrease of subsidies on some examples of regional lines:

A study in 2016 shows that in Sweden, like Germany, growth has been strongest in the regional sector where public service contracts (PSO) are concentrated. However, soms authors explain that this fast growth should not all be attributed to the regionalisation of railways; probably much of it comes from external factors such as the growth of cities and city centre jobs. Therefore, it whilst PSO contracts has not been the major determinant of growth in rail traffic, it has been a contributory factor.

Despite lack of data on railways subsidies in Sweden, support per passenger/km remained roughly constant over the period 1997-2007. The suggestion is therefore that franchising has been relatively effective in controlling costs in Sweden and Germany but less so in Britain. Comparatively in France, where there has been no competition, the growth of TER rail traffic from regionalisation between 2000 to 2011 was correlated with a big increase of public subsidies of around 60% per train-km.

New operators

SJ AB lost its monopoly on passenger night trains and on charter trains in 2007, marking the beginning of new phase of additional reforms aimed at market opening. The last direct award to SJ finished in 2011. Franchising decisions are made on a country or regional authority basis by Public Transport Agencies (PTAs). These contracts last for between four and 11 years and most are gross cost contracts and have extension clauses.

New services offered by the operators established have been limited and can be seen as complements to SJ’s service. That is, these new services have not resulted in extensive competition with SJ. Just under 50% of Sweden’s passenger km are part of a franchise or public service contract (PSC). In early 2011, height companies operate passenger railway services in Sweden. Five operators other than SJ AB (or its subsidiaries) have won contracts for subsidized services. SJ runs 60% of the country’s passenger km which are under a PSC and only 11% of its ‘commercial’ services.

As we see elsewhere in Europe, a large proportion of the regional PSO is exploited by subsidiaries from the national railway companies of other countries. In Sweden, companies owned or part-owned by the governments of Germany, Denmark, Norway, France and Hong Kong account for all the franchises not held by the Swedish national operator, SJ, although there were genuine private companies involved in the swedish PSO.

Long distance traffic

Night trains to the north are still subsidied by central government (this used to be the responsibility of a specific office but is now undertaken by the infrastructure manager, Trafikverket) and central government contributes to the costs of some inter-regional franchises which are managed on adjacent regions.

Open access operators currently compete on the three main long-distance routes (Stockholm-Gothenburg-Malmo). Only 2% of the long-distance market is served by PSCs (supporting subsidised operations), with open access operators able to increase their market shares. The strategy of open access operators has tended towards a slower and cheaper offer than the incumbent SJ, also providing more stops.

As Rail Delivery Group explains, Intercity open access operations in Sweden have been a success. Significant efficiency gains have been unlocked due to liberalisation and passengers have seen a reduction in fares. Note that further investigation would be required to determine to what extent fare reductions were possible due to efficiency gains as opposed to competing away any monopoly rents of the incumbent.

The french Transdev was among the first to launch commercial traffic, in 2007, with night trains between Gothenburg/Stockholm and Storlien, and later in 2009 with another service from Stockholm bound for Malmö. The summer night train extension to Berlin was launched in 2012 with the network rebranding as Snälltåget in 2013.

So far, small operators such as Blå Tåget and Snälltåget provided limited competition for SJ,which still dominated without fears. But everything changed in March 2015, when the launch of MTR Express, with its brand new red Stadler trains, shook up the Stockholm – Gothenburg market – SJ’s flagship route with their X2000 tilting trains.

MTR Express is a double exception. First, the company operates a number of trains a day, a little bit like Westbahn in Austria. But above all, the company is a subsidiary of the public transport company of Hong Kong. Sweden, the first country to liberalize its railways, is again the first country in Europe to bring a Chinese operator into its territory. MTR has entered the key Stockholm-Goteborg market, with a frequent service taking slightly longer than the tilting trains of the incumbent SJ, but with lower prices. Following this success, MTR contracted and won a PSO of a part of the SL network in december 2016, that making the chinese company to enter on the regional and local railway market.

Which impact for the incumbent SJ ?

Since SJ AB’s inception in 2001, it has been transformed from a government agency into a modern, profitable and competitive company. Now the main Swedish rail operator, the company is divided into three divisions and five strategic corporate functions. The three divisions, one for Railway Traffic, another for Fleet Management, and a third for Sales and Distribution, work mainly with production and have operational responsibility. In 2011, the national company supplied 56.6% of all passengers / train kilometers in Sweden. The competition therefore provides a significant percentage of the railway traffic, which is summarized by these two tabels:

Recently, in the 2019 edition of the Svensk Kvalitets Index (SKI) survey, which studies all transportation, including airplanes and buses, the MTR company pulled off an honorable fourth place. Clearly, rail liberalization in Sweden has not been a disaster for the historic SJ company. The same phenomenon is observed elsewhere in Italy, Germany, Techéquie and Austria. Sweden’s incumbent operator SJ carried a record 31.8 million passengers in 2018, an increase of 1.5 million compared with 2017. While net sales increase from SKr 7.78bn ($US 832m) in 2017 to SKr 7.87bn last year, but operating profit dropped by 37%.

Competition has once again shown that it can inspire public service, as seen in Italy, between NTV-Italo and Trenitalia. For example, in May 2018, the SJs aligned themselves with MTR Express on a more flexible ticket for business travellers. SJ also had to lower its prices to respond to Counties’ tenders.

>>> See : NTV-Italo, seven years and now success

The SJ also refurbish their X2000 trains. In April, 2016 SJ awarded Knorr-Bremse subsidiary Swedtrac an SKr 1bn contract for the interior refurbishment of 227 X2000 vehicles. All seating, carpets, interior panelling, and luggage racks are being replaced and the bistro area is being redesigned. Concerning the concurrence in Sweden, Ms Caroline Åstrand, SJ executive vice-president and head of the product division, says at International Railway Journal : « The supply has increased, so the customer has more choice, which is good, and there has been a positive overall effect on fares. In those markets where there is competition, rail has gained market share from the airlines. We have made improvements to face the competition and that has been good for SJ, and it’s good for the environment if we can challenge the airlines. So far, so good. »

SJ’s X2000 trainset ready to go at Stockholm Central (photo Christo Peri)

But the competition can also take another direction, beneficial for the business of the public company: to take markets abroad. SJ is looking to extend its Nordic rail activities by participating in competitive tenders for public service obligation (PSO) contracts in neighbouring countries, building on its success in this sector in Sweden. Norway’s Railway Directorate plans to award the country’s first competitively-tendered concession for passenger rail services. Finland is preparing for market opening and competitive tendering will start with PSO concessions for Helsinki suburban services and regional services in the south of the country. Åstrand explains at IRJ : « If you take a broader perspective on where growth might come from, you can look at a larger geographic area. Markets in Norway, Denmark and Finland are opening up for competition in different ways. As we already have services to Oslo and Narvik in Norway and to Copenhagen, expansion into the other Nordic markets makes a lot of sense for us, and we are actively looking at those opportunities. »

The ticketing problems

It is not for nothing that Sweden is one of the leading countries in the digital industry. The datas are the oil of tomorrow. In fact, already today. The SJ understood this well. In the past decade, the SJ has developed its own online travel planning and distribution system, Petra,  which is now popular across the country.

The current principle is that other operators, including also in other modes than rail, adhere into this system. However, as long as the system is controlled by the incumbent, it will provide a strong bargaining position against competitors. This is a problem that Sweden has not yet been able to solve. And this is a black spot of liberalization.

In 2014, MTR has already complained to the SCA stating that SJ had abused its dominant position as a result of SJ refusing to give MTR access to “SJ-online”. The SCA concluded in its decision that in order to assess SJ’s refusal as an abuse of dominance, SJ-online would need to be considered a so-called “essential facility” in the meaning that has been developed by the European Court of Justice. When MTR started its traffic in 2015, the company launched its own web-based ticket sales function. Furthermore, in January 2015 Samtrafiken (an association of 38 transport operators and RPTAs in Sweden), launched an updated version of the travel planner Resrobot, which makes it possible to plan journeys and buy tickets through one single function, even for trips with different transport modes and operators. The travel planner can be accessed via the internet and applications for mobile phones. This solution did not seem optimal for new operators.

Recently, new complaints were filed with the Competition Authority by MTR, as well as Saga Rail (which had to stop its operations), because of the refusal of the SJ to post schedules and tariffs on the site SJ.se. SJ has no legal obligation to sell the tickets of other operators on its site.

There are no national portal like into UK rail travel which provides train company information and promotions, train times and fares enquiries. 2019 will be a make-or-break year for competition in the cradle of railway liberalisation.

One might expect that fares increase in high-income Western European countries, but Sweden is a notable exception to this. Fares in Sweden are roughly half those in its neighbouring countries, Denmark and Finland, however this is in part due to higher levels of subsidy. The Swedish compromise with high levels of subsidies that strongly cover the use of rail in place of users is the subject of a question in a recent report. However, liberalization has a concrete impact on the rolling stock, which has made it possible to forget the old trains of the company SJ. Without the control of the Counties, one could bet that there would not have been so many investments coming from a unified company, plagued with its indebtedness. As explains Rail Delivery Group, There is an interesting policy discussion to have around the balance of taxpayer and fare payer contribution and for whom this delivers value. Fares have been significantly reduced as a result of open access competition. That’s the essential key to promote a modal shift…

Sweden has built a model that also requires a lot of subsidies for rail infrastructure. The low density of parts of the central and northern parts of the country makes the kilometer of track much more expensive for operation and maintenance. The choice to maintain single track throught a forest desert is a politic choice. Swedish are currently study a regional ERTMS level 3, with single track without signals nor any cables along de track. Technology would be helping to maintain rail service for the next decade, because ecology becomes the priority of the citizens. But ecology can’t be a luxury product, with any price. Liberalization can help to find the best technical compromise at the best price.

References :

2008 – Railway-strategies.com – SJ company profil

2011 – Living Rail / Alexandersson, Hultén – Liberalisation of the rail sector in Sweden

2013 – Journal of Transport Economics and Policy / Jan-Eric Nilsson, Roger Pyddoke, Staffan Hulte´ n, Gunnar Alexandersson – The Liberalisation of Railway Passenger Transport in Sweden

2013 – Stockholm School of Economics / Gunnar Alexandersson – Swedish rail liberalisation and sector development – past, present and future

2014 – Sweden: The Competition Authority closes Investigation of former legal Railway Monopolist’s Refusal to give Access to Online Ticket Sales Distribution Channel

2016 – Centre For Transport Studies Stockholm / Andreas Vigren – Competition in Swedish Passenger Railway

2016 – OCDE – Working Party No. 2 on Competition and Regulation – Note by Sweden

2017 – ASTOC / Björn Westerberg – The liberalized railway

2017 – Independent Regulators’ Group IRG – Fifth Annual Market Monitoring Report

2018 – Research in Transportation Economics / Gunnar Alexandersson, Anders Bondemark, Lars Henriksson, Staffan Hultén – Coopetition between commercial and subsidized railway services – The case of the greater Stockholm region

2018 – International Railway Journal / Keith Barrow – SJ builds on domestic growth with international ambitions

2018 – Liste des opérateurs ferroviaires en Suède

2018 – Rail Delivery Group (UK) / The Williams Rail Review – Country Profiles – Sweden

2019 – The Local.se – More than 7,000 Swedish trains were late last month BUT here’s how many arrived on time

2019 – International Railway Journal / Keith Barrow – Online distribution dispute raises questions over Swedish passenger market opening


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