On the fast track to passenger rail competition?

The Czech passenger rail market is one that appears on the verge of great upheaval even though competition is still very much the exception rather than the rule. Better known as a coach company on its home market in Britain, National Express, has just set up a Czech subsidiary and sees itself as one of several rail operators that could eventually be competing for big city and small town passenger services.

Photo: Tomáš Adamec, Czech Radio

The Czech Republic has one of the densest rail networks in Europe but passengers are not at the moment spoilt for choice when it comes to train operators offering services. Three operators, including the state rail company and privately owned rivals Regiojet and LEO Express, are currently plying the Prague-Ostrava. But many travellers, and possibly the companies themselves, are scratching their heads at how any of them can be making money on such cheap tickets.

Apart from that route and a small number of subsidized regional services, state owned rail passenger operator České Dráhy appears to rule supreme. But the writing could well be on the wall for the state owned giant in the form of orders from Brussels that competition be rushed into the rail passenger sector. Regiojet’s parent company said this month that it would like to transfer many of the Czech bus routes it operates to the rail tracks and it has ordered dozens of trains from Austria.

But don’t hold your breath. Europe wide rail passenger competition is fraught with difficulties. The timetable may, well, appear more like that of a local stopping service, rather than a high speed express.

Problems include that almost every European country has different specifications for trains and track, bigger and smaller tunnels, and higher and lower platforms. So companies wanting to compete in other countries cannot simply drive their trains and carriages across the border but must order them years in advance.

Even so, it might come as a surprise that the Czech Republic is being eyed as an attractive proposition to start passenger services by some foreign transport companies and, while not in the European vanguard, in not in the guard’s van either when it comes to launching competitive tenders. One fact in the country’s favour is much cheaper payments to the national rail track company that operators face for running trains. While these represent around 40% of total costs in neighbouring Germany, they are estimated to account for only around 20% of the overall burden in the Czech Republic.

Photo: European Commission

National Express is Europe’s second biggest passenger company. Best known for its coach operations in Britain, it has already launched itself on the liberalizing continental rail market in Germany by winning a major tender in the Munster, Cologne, Bonn region and is competing to provide rail services in and around suburban Berlin.

One of the managers who has helped the assault on the German passenger market is Tobias Richter. He has also been drafted as one of the two directors of a newly created Czech operation. National Express CZ. It has ambitions to be a major player on major intercity and smaller regional passenger train services as these start to be opened up to competition. I asked Mr. Richter how quickly the new Czech company might take to the tracks.

“The Czech Ministry of Transport published the first tender pipeline already more than two years ago. Now it seems to be delayed, but nevertheless it is very interesting for us to see that competition is developing in the Czech Republic. And I believe that this is really necessary because today’s level of passenger services and passenger transport in the Czech Republic is still pretty low. Most of the trains still in service are aged between 30 and 40 years, air conditioning is fairly unknown, transport of disabled people is unknown, and our idea is that if the state gives us the opportunity to enter the tender process, to be part of this competitive process, then we would like to deliver much higher quality on passenger rail in the Czech Republic.”

And how quickly could you be up and running and offering services and on what kind of routes in the Czech Republic?

“The intention of the ministry was to publish the first tenders already early last year, but the process is already pretty much delayed at the moment due to the fact that we have seen several changes of government and we have seen several ministers of transport coming and going. Hopefully, this process is heading towards a good conclusion. That means that we are hopeful that we might see the first tenders published in January this year. We are now preparing to set up our own railway business according to Czech law and then we are hopeful that we can take part in tenders. We hope this process will not take too long.

Tobias Richter, photo: archive of National Express

We have lots of experience from the United Kingdom and also from Germany. From our German experience we discovered that some processes take just half a year and others take two years. According to today’s tender pipeline published by the ministry, we expect the first rail services should be taken over [by operators] in December 2016 and December 2017. I believe that the big winner is the customer who will be offered much faster trains, better quality trains, even more trains on some services, than today. The other winner, or course, is the government itself and the regions because at the moment they pay quite a high subsidy to state owned Český Drahy, the state owned railway business. But on its side it just delivers bad quality. So, for the future it means that the subsidy paid by the state and regions to railway operators can be decreased, so it is a saving for the state. On the other hand, the operator is delivering higher quality.”

And what are the economics of this? Can you really make money on this, not just on the main lines such as between Prague, Brno, Ostrava, Pilzeň, and Cheb, but on the small local and regional routes which don’t have so many passengers?

“It always depends on the kind of contracts. There exist net cost contracts. That means that the rail operator is receiving all the ticket income, that is all the cash paid by the customers. On the other hand there are gross cost contacts where we are simply the operator of on the route. Here, the ticket income is passed straight onto the authorities, be this the state or the regions.

As far as we know so far, mid range and long distance train services will be tendered by the ministry because these often cover more than one region. The branch lines and small routes in the country served by very small vehicles today are paid for by the regions and here we might see gross cost contracts introduced due to the fact that the ticket income is so low.

On the long distance lines we expect to see net cost contracts which means we are responsible for the quality of trains and will get the ticket income. This is very motivating for us because it should show that the higher quality we are offering, the more customers will use our trains. The tender contracts should last at least 10 years. This means it makes sense to deliver brand new complete train sets and not just deliver refurbished old trains.”

Why is the Czech government launching these tenders, is it because of European Commission pressure? Aand is the Czech Republic ahead or behind most other European countries in doing this?

Photo: Jiří Němec

“In fact it is due to European law. European law says very clearly that everything that has to be subsidized by public money by the state has to be subject to tenders. We have seen quite clearly that some states are ahead in doing this, for example, Denmark and the Netherlands. In fact Great Britain as well. Although you might not believe it because they are quite critical of the European Union, the first big tenders were published in Britain and the whole network is now completely private. On the other hand, we have to face the fact that some big countries in the European Union simply refuse to abide by European law. One to mention is France, others are Spain and Italy. These are really big countries and they are refusing to run tenders. We don’t know why. Perhaps it is because of the influence of the trades unions. On the other hand, the state has to recognize that it and, indirectly, the taxpayer, must pay the bill for this and I cannot imagine that France, Italy, and Spain can continue in this way for the next years.”

And in the Czech Republic do you really think that with a centre-left government coming in and with the main party, the Social Democrats, linked to the trade unions, and in particular the rail unions which are quite powerful here, it will push ahead with these tenders enthusiastically?

“A centre-left government does not mean automatically that they do what trade unions want. In Germany, for example, the whole tender process developed pretty well at the time when we had a Social Democrat and Green government in coalition. And the first results were very encouraging because they saw that they saved a lot of money and they got higher quality. In Germany over the last 15 years have been that now we have 35% more passenger trains on German tracks, we have 45% more passengers, but the subsidy has been reduced by 10%. So I think that those are the sort of facts that no government, be it right or left wing, can simply deny.”