Monday, January 14, 2013

Rail Freight Group Seethes at Nationalist Cargo Monopolies Which Aid Road Haulage Cause

Some Praise for ORR Rethink but Criticism of France and Germany as EU Castigates Them Both
Shipping News Feature

EUROPE – Pronouncements from the EU hierarchy are often criticised for their wordiness yet the public document issued regarding rail integration in 2008 was a model of concise language. Now Lord Tony Berkeley, Chairman of the UK Rail Freight Group and a Board Member of the European Rail Freight Association, has written a New Year letter to the European Commissioners charging that they maintain the avowed intent to build a more integrated and efficient network in the face of what he terms ‘massive lobbying by France and Germany against change to their monopolistic rail sectors’ at a time when road haulage still holds sway over track bound cargo.

Rarely does the RFG boss resort to using his title when speaking publicly on business matters but he responded both swiftly and officially last week to the latest EU moves by issuing a statement saying:

“After several weeks of debate and cliff hanging, fines in France and more infraction proceedings from the Commission on Germany, the Fourth Railway Package was been approved 99% by the European Commissioners. The only opposition was from Commissioner Oettinger from Germany who lobbies for his country on the type of unbundling, preferably none but if not, it must be delayed for as long as possible to give more time for Germany to find a way out. He also wants a new study into the impact of unbundling on the credit rating of the infrastructure managers which are inevitably going to be more expensive.

Network Rail's last accounts (2011) show a credit rating of AAA by Standard and Poor’s (negative outlook), Aaa by Moody’s and AAA by Fitch, better than some member states governments! So Commissioner Oettinger ‘on behalf of’ the German Government is doing his best to sabotage the 4th Railway Package to protect the interests of DB, whilst the package is supported by everybody else in the Commission. It is worth noting that many smaller countries support the unbundling of DB Group to reduce the likelihood of DB taking their system over. What a pity Commissioner Oettinger has forgotten that the Commissioners’ duty is to support Commission policy as a whole, rather than lobby on behalf of his own country - Europe gets enough of that from the European Council members!”

The RFG Chairman’s tone makes his organisation’s position quite clear and he goes on to criticise France and Germany saying both countries have monopolistic rail sectors with two of the countries which pressed hardest for rail integration now attempting to subvert the process and facing legal challenges under the very laws they approved a decade ago. The two have also stalled on the imposition of fines for competition abuse and Lord Berkeley insists that the separation between train operators and infrastructure managers must be enforced to achieve the level playing field upon which lower carbon tallies, efficiency and cost and quality improvements, which were the purposes of the legislation, can be achieved.

In December the European Commission formally notified Germany that it was transgressing EU regulations in that its integrated rail companies were not separating accounts as is mandatory and thus disguising the illegal transfer of funds between businesses. Germany transposed EU law into national legislation, obliging integrated companies to keep separated accounts. For this reason, a few years ago, Deutsche Bahn was separated into separate legal companies, each with its own profit and loss account and balance sheet. Simultaneously a Profit Transfer Agreement had been concluded between Deutsche Bahn AG and each of its subsidiaries, i.e. Holding DB Mobility Logistics AG, DB Netz AG, DB Stations & Service and DB Energie. Under the law all profits made by the subsidiaries must be transferred to the holding company whilst in exchange, the holding company is committed to cover any losses incurred by the subsidiaries.

This effectively means that DB have been receiving state funds into one sector of the business and using them however they saw fit by transferring around the group – a clear breach of the regulations with state funds supplied for infrastructure upgrades bailing out transport services. Without these public monies there would be no ‘profits’ and as a result of DB’s illicit financial dealings those reserved service users paying track access charges are subsidising the integrated group thus raising their own costs whilst effectively lowering those of the integrated group, effectively paying to put themselves out of business!

The Commission charges are very specific, even using the case study of a contract quoted by DB Regio (Elektronetz Nord in Sachsen Anhalt) in which the assumed risk of increased charges over the fifteen year term could not be matched by competitors as the German group knew any losses would be made up by the holding company.

Those who are amused by ‘you couldn’t make it up’ category will doubtless raise a wry smile when they hear the Commission’s stern missive went off to the same nation’s authorities just one day after it found a €152 million German scheme to support the reduction of noise generated by rail freight traffic to be in line with EU state aid rules. The measure will reimburse up to 50% of the cost of equipping existing freight wagons used in Germany with less noisy composite brake blocks to make things a bit quieter for the local populace, one assumes the RFG will be keen to receive assurances the money goes whence it is supposed to.

In the case of the French group SNCF one can almost hear the snort of derision coming from the RFG. Berkeley points out that France is seeking to undo even the country’s existing ‘bad structure’ recalling that SNCF were fined €60 million just last month for abuse of its undeniably dominant position and other anti-competitive actions. In its proposed restructuring, whereas it is good that the Infrastructure Manager (IM) gets full control of all its activities, it is also to become closer in management terms to the incumbent operator SNCF, likely to create a new overall rail company SNCF SA.

The recent publication by the Advocate General of the European Court of Justice stating that in his opinion the current French rail structure does not even comply with the First Railway Package, merely echoes the opinion of many overseas operators who are waiting for effective action against what has been described as ‘farcical’.

Staying with rail freight news, on Friday the RFG expressed disappointment with the conclusions of the Office of Rail Regulation (ORR) regarding the rates of track access charges to be applied to freight traffic in the next regulatory control period. The RFG says the Regulator’s decisions mean that the variable access charge, paid by all freight traffic, could increase by up to 23% on today’s level. Certain commodities (coal to power stations, spent nuclear fuel and iron ore) will also pay a ‘freight specific charge’ phased in between 2014 and 2019 with a decision on charges for biomass traffic deferred pending further consultation.

Whilst the RFG acknowledges that the regulator has, in response to the concerns raised by industry, pulled back from some of the more damaging proposals in its consultation (including geographic charging, and even higher possible tariffs) and the decision to phase in the freight specific charge is ‘particularly welcome’, the fear is that across the sectors the prospect of charges rising even close to the capped level in 2014 is deeply concerning with some coal and steel producers facing up to 15% hikes in transport rates. Maggie Simpson, RFG Executive Director commented:

“The rail freight sector is committed to increasing its efficiency and contributing to a lower cost railway. But significant increases in access charges – such as the potential 23% rise for all traffic – risks destabilising the sector and forcing business back to road. ORR has made some welcome decisions, but the overall package of conclusions does not give the comfort and confidence necessary for rail freight to fulfil its potential in the next five year period. We will be pressing ORR and Network Rail to ensure that a more satisfactory position can be reached by the summer.”