The shock doctrine hits the rails ('reform' in Spain)

Railways have always been victims of austerity programmes. This usually takes the form of branchline closures, delayed construction, and 'saving' on maintenance. Spain's rail network had few branchlines to start with, but it was subject to a grand programme of practical total re-construction, along with the creation of Europe's most comprehensive high-speed network. Thus, in the current crisis, the main effect so far was the stretching of the construction timetable for on-going projects (which means lower annual but higher total costs) and attempts to involve private capital (the construction of the remainder of the line to Galicia was awarded in March as PPP contract).

While austerity is an insane policy in itself (reducing public expenses with the effect of reduced production and thus reduced public income), it is also used to push through 'reforms' which have little to do with the ostensible goal of reducing public deficits and debt. As Naomi Klein argued in The Shock Doctrine, neoliberal 'reformists' see a crisis as an opportunity to push through changes which would never have been approved democratically in normal conditions. You don't need to compose even formally logical arguments to explain how the changes would help solve the crisis: the point is that public opinion is in a shocked state where no serious questions are asked.

This shock doctrine is now being applied to Spain's rail sector, too. The conservative government didn't even wait for open calls from eventual bailout overlords, but, be it a result of a stupid ambition to prove themselves before lenders or the victory of a neolib faction within the Popular Party, they announced a radical deregulation of the railway sector in July. The reform plans include the transformation of Spanish Railways RENFE's operating units into independent companies and the facilitation of competition in every sub-sector. How this shall reduce deficits and debt, wasn't explained. The European record of cost reductions due to deregulation isn't exactly positive, I think serious claims to that extent were only made regarding Sweden.

Worse, Spain is a uniquely bad setting for the creation of competition on rails, largely due to the fact that most of the network is laid in Iberian broad gauge. In other European countries, new competitors on rail are usually small regional or industrial railways that expand beyond their original territory, or foreign companies partnering with the former to gain local experience and expertise. Spain's RENFE however is virtually the only operator of broad-gauge trains, especially in the passenger sectors (the only significant alternative would be Catalonia's FGC, which is to enter the freight market too). Furthermore, in the freight sector (which is already deregulated across the EU anyway), new competitors focus on international traffic, but this market is limited in Spain by the gauge change necessary.

Serious competition could eventually take off on the standard-gauge high-speed network, especially once it will be linked up with the French network (a work in progress for once delayed by factors other than austerity). That would be a reform 'success' in the one field where RENFE's services aren't operated at a loss or subsidized (the very excuse for the reform). And why 'reform' something that works, even under the adverse conditions of the crisis? For example, on the Madrid–Barcelona relation, where airlines gave a heavy competition in the first crisis year, RENFE's AVE high-speed trains now won a majority of the air/rail market for the first time in the first half of the year (hat tip to Migeru for the link in Spanish); possibly related to the improved travel time. (If you read my Puente AVE diary and recall an earlier achievement of a 50% market share, I should note that there was a major upwards correction of airline passenger numbers in the official stats.)

The most significant result of the reform may be privatisation without competition: there could be a sell-off of the companies RENFE is to be broken into, in particular the loss-making freight branch. This has some history across the EU (for example, Bulgaria launched the controversial privatisation process in June), also as shock doctrine application, and also a history of bad deals for the state, which often pours even more money into the loss-making business branch to make it appear attractive to investors.

Open access (complications in the Czech Republic)

In the push for the deregulation of the EU's rail sector, both the Commission and the Parliament prefers a model the EU pioneered: open access, in which rail infrastructure is to function just like highways, which any train operating company can access. The EU (for international services) and several EU members (for domestic services) introduced open access in long-distance rail passenger transport. While I think that the result of the open access reforms in general wasn't exactly what was intended/promised, my main concern regarding this sub-sector is that new competitors will focus on the busiest lines. With the profits of the incumbent slashed, even if total passenger numbers are increased on those few lines, this will negatively impact the viability of the wider service network.

The first such effects can be seen in the Czech Republic. The first new competitor on the busiest lines (RegioJet) appeared last September, a second (Leo Express) is to start services in the near future. I reported that by January this year, the incumbent (CD) expressed concern over its ability to maintain other services, while RegioJet had the gall to suggest that CD should leave the busiest lines to them and Leo Express and the state should subsidize CD's other services.

Things then came to a head on another front: international services. Currently, there are several trains a day along the Hamburg–Berlin–Prague–Vienna resp. Hamburg–Berlin–Prague–Bratislava–Budapest corridors. German Railways DB, however, decided in May to partner with RegioJet in offering Hamburg–Berlin–Prague trains, putting the through services to Vienna and Budapest in limbo. This problem and the investment need of the domestic competition forced CD to bury their plan to purchase new trains for these services.

Now there have been two new twists in the story. On one hand, predictably, DB and RegioJet found that their plans can't be implemented as fast as desired, saving the through services until December 2014 at least. On the other hand, Austrian Federal Railways ÖBB entered the fray, allying with CD to provide Prague–Vienna–Graz services, thus CD partly re-instated its order for new trains. The rest of the trains could be saved if Slovakia's ŽSSK and Hungary's MÁV-START can be won as partners for the Prague–Bratislava–Budapest services, too.

If there won't be further twists, the relatively fortunate, but still not positive end effect of the open access mess will be that long-distance passengers will have to break their journey in Prague, and possibly pay more for the two tickets than for the single one today.

Complete unbundling (isn't coming)

A necessary basis for open access – as well as the second deregulation model applied in the EU, franchising of (typically passenger, most often local passenger) services – is unbundling: the separate management of infrastructure (tracks, overhead lines, stations, terminals) and train operation. The infrastructure manager sets up a virtual timetable, and sells timetable slots (called "train paths") to the train operators, based on pre-defined track access charges.

Unbundling brings a host of problems, many of them stemming from the disruption of coordination between the maintenance and development of infrastructure and trains, others from the creation of new bureaucracies and redundancies. However, the loudest and most visible controversies concern tussles over the level of track access charges and the process of awarding train paths. The part reported most often is new entrants accusing the infrastructure manager of favouring the incumbent train operator due to too close ties. Hence, they call for complete unbundling: they aren't content with the widespread practice of turning former state monopolists into holdings with independently managed infrastructure and train operator branches (as in Germany, Italy, Poland or Hungary), but want wholly independent companies (as exist in France, Britain, Spain or Sweden).

A fact ignored by complete unbundling enthusiasts is that the "new entrants vs. incumbent" view is only a shallow angle on a bigger picture: a bigger conflict over externalities. Since unbundling, the different players can be grouped into three main interest groups with conflicting interests: infrastructure managers, operators of subsidized passenger services, and operators of non-subsidized passenger or freight services. The real subject of track access charge battles is the shuffling of costs between these three sides, and costs shifted to any of the subsidized sides is a cross-subsidy towards the others.

At any rate, the idea of complete unbundling is opposed by several national governments but is favoured by the European Commission and a large part of Parliament (from parts of the EPP via Socialists and Liberals to the Greens). Earlier this year, the Commission brought charges against several states in this mindset. However, on on 6 September, European Court of Justice Advocate Generate Niilo Jääskinen delivered an opinion (usually followed by the judges) in which he agreed only on details in the Commission's criticism of different member states' implementation of the reforms, but disagreed with the notion that complete unbundling is required to ensure non-discriminatory access base on existing EU legislation.

Regarding the opposition of a number of national governments to complete unbundling, an interesting comment came from Germany's federal transport minister Peter Ramsauer (member of the Bavarian CSU):

My emphasis. It's nice to hear from one of the Serious People that this neoliberal reform is ideological. Then again, Ramsauer's stance (and that of the other national government officials rejecting complete unbundling) is most likely less motivated by a principled disagreement with the deregulation drive, and more by a desire for national champions that can compete on the EU level (contrary to the business press stereotype, that's not a French speciality).

Upgrades vs. new lines (conflict in Bamberg)

Transport mega-projects have a tendency to provoke environmentalist and/or NIMBY protests, be late, and go way over budget. What are the alternatives? There is a view popular both among those who support protests and those who'd like to reduce government spending that upgrading existing infrastructure is cheaper. However, at least for the rail sector, I disagree with the idea:

• Existing rail lines run through built-up areas. Dealing with existing infrastructure can be expensive, and there will be much more NIMBY issues due to noise emissions.
• Upgrades aren't immune to delays, which are the main cost-boosting factor for mega-projects: designs have to be reviewed and adapted for new regulations, land acquisition costs may rise, workers and interests have to be paid for longer, and there is inflation.

A case study is the Nuremberg–Erfurt high-speed line, which is a prime example of delays and cost overruns in Germany: the expected 2017 opening of the first section is 17 years behind the original schedule, while the budget grew from €3.68 billion (1991) to €5.28 billion (end of 2011, with €2.2 billion spent). Critics point at the 41 km of tunnels and 12 km of bridges on the high-speed crossing of the Thuringian Forest mountains (a result of setting a low 12.5‰ maximum grade to allow freight trains too). However, this analysis ignores that the new line is only one of two sections of the entire project. The new line costs only c. €2.9 billion for 107 km of 300 km/h tracks, the rest is for the quadruple-tracking of 83 km of conventional line, mostly for 230 km/h, and most of which is yet to be tendered. The cost per kilometre is actually slightly higher for the upgraded section than for the superstructure-loaded new section!

A cost booster for the upgrading project is that stricter noise regulations require more extensive noise barriers. These barriers may limit NIMBY protests due to noise, but pose a new problem with their visual impact: they can cut towns and cities in half like new Berlin Walls. And just that is cause for the newest conflict in connection with the Nuremberg–Erfurt high-speed line: the city of Bamberg is concerned that the high noise barriers will even cause the loss of UNESCO World Heritage status, and there are calls for a bypass instead. Whatever solution is found, I suspect the end result will be more expensive than had they planned for a parallel new line instead of quadruple-tracking (say along the parallel A73 highway) outright.

:: :: :: :: ::

Check the Train Blogging index page for a (hopefully) complete list of ET diaries and stories related to railways and trains.