Finland prepares (very slowly) to break up rail passenger monopoly – with lots of pitfalls in path

Our unfortunate Minister of Transport, and our new hard-headed Minister of Economic Affairs have announced their basic plan for the next 8 years to break up the monopoly Finland’s  railways passenger business.

At this stage it is very sketchy with few details, other than that the State-owned Finnish Rail (we call them VR for short) will be broken up into 4 separate companies, which will remain 100% state-owned. At least that is what they say now…

The government is ordering preparations for VR to be broken up into the following companies:

  1. A passenger train operator company
  2. A railway maintenance company
  3. A railway real estate company
  4. A railway rolling stock and equipment company

The idea to create competition is, at this moment, to invite bids for “User Service Contracts” for packages of lines that will include profitable commercial lines and non-profitable lines. Bidders will be required to offer minimum numbers of trips and quality standards. Incentives, we are told, will be planned to reward increases in passenger numbers, as well as penalties for failing to reach standards and targets. We are told that they will have to use the last 3 companies for rolling stock, real estate and maintenance.

At present some 5% of all trips are made by train and this should increase over the decades in order to combat climate change.

They also tell us that ticket prices should fall and that customers should flock to this “new and improved” form of transport. However, the Minister did mention that VR has already seen a 10% increase in passenger traffic over the last 2 years, so one cannot help wondering what is wrong with the present system.

The experience in Sweden and in the UK with breaking up the monopoly for rail passengers has been far from beneficial. Delays have increased and prices have not fallen. Congestion on roads and in cities together with road tolls on car traffic in Stockholm and London have forced more people top use the trains. Winter delays are terrible in both countries.

Another interesting fact was that the Centre Party Minister suggested that the new Counties should take on more responsibility for local and long distance rail traffic to assist in employment mobility. Was he suggesting that urban taxpayers subsidise these working folk who must travel long distances to work each day because the new Counties will not have any taxing rights? It must be remembered that people who live in the countryside have much cheaper housing and knowingly take the risk of longer trips to work. Urban dwellers should not be held responsible for financing their daily travel because it is theirs to pay for.

The whole monopoly break-up process will be slow because there will be several national elections during this period. Cargo traffic by rail is already partially privatised and this passenger traffic will need a long transitional period of tricky negotiations between the various parties. Foreign operators are normally state-owned, with very few truly private names. It is difficult to believe that there will be a great deal of difference and there are huge risks that the blue-eyed ministers will follow the advice of Boston Consulting or Accenture and land a bad deal because the foreign operators are smart operators and big clients for these consultants. You can already see what has been happening with the health reform where similar mistakes are being made with huge costs.

It is worth mentioning that the EU directive that seeks to break up the rail monopoly companies, under which the Finnish government “must” act, has been driven hard originally by France. They have a vested interest in selling the services of its own “close-to-government” rail operator. Germany and others also have similar interests so this whole thing is not entirely altruistic.

The Transport Minister will almost certainly not be around to see the results of these proposals as she has promised to leave politics at the next election in 18 months time. One wonders why such a person was chosen to propose these reforms when nothing she has done so far during the past 2 years has resulted in solid progress in terms of public transport or the transport network.

 

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